Joseph Stiglitz: Merkel needs a change in attitude to save euro
Germany's prescription of austerity for Europe is making problems worse, says eminent economist
THE EURO will dissolve within the German Chancellor's lifetime if she doesn't change her attitude towards the Eurozone, American economist Joseph Stiglitz has warned.
Stiglitz, the former senior vice president and chief economist of the World Bank, spoke on Radio 4's The World at One following the EU summit breakthrough early this morning.
Stiglitz said the Eurozone leaders' decision to bail out Italian and Spanish banks through direct funding, rather than further government loans, was a step in the right direction but was not enough.
"The pace of reform is too slow. Markets are very volatile. They can move very quickly and the risk of the entire financial system coming undone – particularly in the periphery countries, the countries in crisis – is I think not insignificant," he explained.
He added that at a time when Germany is trying to help, they are actually making things worse. "The austerity that Germany has been pushing around Europe is simply making the problems greater," he said.
The Nobel Peace Prize-winning economist said that the German diagnosis of the problem was wrong. "The German diagnosis is 'If only countries didn't spend too much.' Spain, Ireland had a surplus before the crisis. The crisis caused the deficit, not the other way around. If you continue to have the wrong diagnosis, you are going to have the wrong prescription and the wrong prescription is making things worse.
"Austerity is making things worse. Europe is a large economy. The prospects of Europe recovering through austerity are nil."
Instead of austerity measures, Stiglitz said Europe needed a comprehensive set of reforms for growth, which would necessitate more spending, a European-wide banking system and euro bonds.
Interviewer Edward Stourton pointed out that euro bonds would mean rich countries, such as Germany, taking on the responsibility of other countries' debt and that Merkel had said this would never happen in her lifetime.
To which Stiglitz said: "With that attitude the Euro won't last her lifetime. I'm afraid that unless there is more Europe, there will be less Europe. The current halfway house is almost surely not viable."