Joseph Stiglitz On Why The EUro & The EU Are Doomed
Greg Lance – Watkins
‘Eurozone nations are selling family jewellery, but eventually you run out of jewellery’: Nobel economist on why the EU and the euro are doomed projects
Critics of Brexit could do worse than head down to their local bookshop and buy a copy of the latest economic treatise by Nobel prize winner Joseph Stiglitz.
The softly-spoken, rolly-polly, bearded analyst argues that the economics of the euro were disastrously conceived, that the reaction of European President Jean-Claude Juncker to Brexit was plain wrong and that big trade agreements – such as the EU – work for corporations not ordinary people.
Unlike many of his economic peers, including the great minds at the IMF, the OECD and the World Trade Organisation, all of which favoured Remain in the referendum campaign, Stiglitz has no problem understanding why Leave was victorious.
‘You saw a club across the Channel and you looked at that club and you would say, “Would I want to be a member?”,’ the 73-year-old says.
‘It was worse than that. The way the club was politically organised gave all the power to Germany and the way that Germany was exercising that power was economically wrong and politically insensitive.’
My conversation with Stiglitz takes place over a breakfast of take-out muesli and croissant from the patisserie Paul at his publisher Penguin’s offices on the Strand.
Stiglitz, who looks every inch the academic in his blue V-neck sweater over a white button-down shirt and a blazer, has arrived hotfoot from the Today show where he had been uncomfortably questioned about his role as an ‘advisor’ to Jeremy Corbyn’s Labour Party.
He is quick to say that although he has met Corbyn and his Shadow Chancellor John McDonnell, he has never attended a meeting of the so-called economic council. If he had, his objective would be to work with Labour on moving it from a centre-right Blairite position – where Labour had pushed for financial sector deregulation – to a more progressive agenda.
Dismissive: Stiglitz admits that while he has met Labour leader Jeremy Corbyn and John McDonnell, he has never attended a meeting of the so-called economic council
As a former member of President Bill Clinton’s economic team, and now an adviser to Hillary, he is seeking to do much the same for the Democratic Party.
A former chief economist of the World Bank, he is a professor at Columbia Business School. Based on academic citations, Stiglitz is the third most influential economist in the world today and has previously been named by Time magazine as one of the 100 most influential people in the world.
In 2001, he won the Nobel prize for his work on how information can provide better understanding of market phenomena such as unemployment and credit rationing. He is also the author of a number of highly successful books, many of which look at the effects of globalisation and income inequality.
Wary: Stiglitz highly sceptical about big trade deals being pushed by the Obama White House
Stiglitz is highly sceptical of trading blocs and the benefits they bring. He argues that the North American Free Trade Agreement, which aimed to bind together the US, Canada and Mexico, has largely served big company interests.
And he is also highly sceptical about big trade deals being pushed by the Obama White House as it looks for a political and economic legacy.
‘How important are these deals? The answer to me is very clear.
‘The estimates of the benefit of, for example, the Transatlantic Trade & Investment Partnership being negotiated between Brussels and Washington and hailed as the largest ever trade deal covering 40 per cent of world trade, is that after, like, 15 years it will add 0.15 per cent to GDP – and that’s being optimistic. The other side is that it is negative.’
In the money: Stiglitz’s main reason for visiting London is to promote his book, The Euro And Its Threat To The Future Of Europe
In his view, if you get into the ‘gizzards’ of these deals they are ‘not really about free trade at all, they are about intellectual property, they’re anti-regulation’. His view is Brexit ministers should be seeking a ‘framework which agrees on regulatory harmonisation for citizens, not corporations’.
The main reason for Stiglitz’s visit to London is to promote his book, The Euro And Its Threat To The Future Of Europe. His thesis is that the EU has built a flawed system designed for economic divergence rather than convergence, built for Germany’s benefit, which is impoverishing much of the rest of Europe. It is not simply an academic view.
As a consultant at times to both Greece and Spain, he has witnessed the incredible damage done to Southern Europe at first hand.
‘Anyone who understood a little economics, not textbook economics, would realise that if you have free mobility of capital, you have a crisis. Money moves from weak countries to strong countries. You make it easier for money to move out of Greece, out of Spain and out of Italy.
‘And where are they going to move? They move to Germany.
‘So you create a system where when you get shock, the weak grow weaker and the strong get stronger.’
He understands the vision of the European project, but thinks the execution disastrous. It has driven divisions between nations rather than joined them together, and gave all the power to Germany, which has exercised it in a way that was wrong.
Rewriting history: Stiglitz has argued that Germany’s commitment to the monetary orthodoxy is based on mythology about the Weimar Republic
Stiglitz argues Germany’s commitment to the monetary orthodoxy, which caused the eurozone to back away from burden sharing measures such as the issue of eurobonds, is based on mythology about the Weimar Republic.
‘They have rewritten their history. It wasn’t hyperinflation that led to Hitler, it was unemployment. The real story of Hitler was unemployment.
‘And if they had listened to their own story they would not have allowed what they forced in Greece, which is 25 per cent unemployment and 50 per cent youth joblessness.’
As the eurozone reports 10.1 per cent unemployment and youth unemployment in Italy zips up from 37 per cent to 39.2 per cent, his comments look especially pertinent.
‘Shocking’: He called Juncker’s response after the Brexit vote a ‘very hostile one’
The great fault line that has made the eurozone such as disaster is, in the Stiglitz view, a lack of convergence.
There is no point, he says, in telling a country: ‘I want oranges even though the economies of scale are in producing apples. They are going to be unhappy.’
That in his view is why the system is not working for southern Europe. He adds a telling point that the eurozone hasn’t been good for Germany either.
‘If you were grading its performance it would get a D. Just 6 per cent growth over seven years. That’s not a well-performing economy.’
The political instincts of the EU leaders are simply wrong.
‘Juncker’s response after the Brexit vote was this very hostile one, we’re going to punish anyone who leaves. And to me that was a shocking statement.
Problems to continue: Stiglitz says Britain’s departure is not the end of the matter as far as future crises for the eurozone are concerned
‘It was saying the reason people are going to stay in the EU is not because they believe in the benefits, but because of fear of leaving. That’s a strange statement from the President.’
Stiglitz says Britain’s departure is not the end of the matter as far as future crises for the eurozone are concerned, adding: ‘There is going to be a sequence of crises and the likelihood is that the EU is going to be mired in stagnation. In many countries people are only doing as well as they are because they are selling family jewellery … but eventually you run out of jewellery.’
He paints a depressing scenario, but one which makes the UK’s decision to free itself from the dysfunctional trading bloc of 500million people seem eminently more sensible. Brexit may have its economic ups and downs, but at least the British people have extracted themselves from the baneful influence of the Berlin-Paris-Brussels axis.
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To view the article in another form as written by:
JOSEPH STIGLITZ, 73
CURRENT JOB: Professor of economics, Columbia Business School.
FAMILY: Wife Anya Schiffrin, a reporter, journalism academic and editor of Stiglitz’s books. Four children from a previous marriage, one of whom is an academic doing pioneering work in mathematical political science.
EDUCATION: A degree from Amherst College in Massachusetts; MA from Fitzwilliam College, Cambridge, and PhD from the Massachusetts Institute of Technology (MIT).
CAREER HIGHLIGHTS: Professor of economics at Yale, chairman of President Clinton’s council of economic advisers 1995-97, chief economist at the World Bank 1997-2000. Won the Nobel prize for economics in 2001 and author of countless books on economics, including a standard undergraduate textbook, Economics, published in 1993.
BIGGEST INFLUENCES: ‘I was lucky enough to have at least four Nobel prize winners among my teachers at MIT, including Paul Samuelson, the first American to win the prize for economics. At Cambridge, I had a another group of very good teachers including Nicky Kaldor, an adviser to Harold Wilson, and Joan Robinson, the leading British economist.’
DAILY ROUTINE: Rises at 6.30am and spends an hour and a half writing in his pyjamas. Stops to have coffee and high-fibre cereal topped with fruit with Anya. Together they read the print versions of the New York Times, the Wall Street Journal and the Financial Times. During term, he teaches full time at Columbia.
FAVOURITE VIEWING: ‘The Scandinavian political drama Borgen. I think it gives a positive view of government, a woman leader making hard decisions and trade-offs. Very different from House Of Cards.’
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