How To Save The EU, According To Stiglitz

Can this marriage be saved … and should it be?

The eurozone has been rocked by the surprise result of the Brexit vote. Amid the drawn-out process of Britain leaving the European Union, some observers have wondered whether the club itself, a rocky marriage of 28 countries, may be doomed to permanent fracture or dissolution.

A Monday column by influential economist Joseph Stiglitz posited that seven changes must be embraced for the European Union and the euro itself to survive, if not thrive.

The eurozone is not performing well, as measured in economic terms, and a few laggards, most notably Greece, have suffered what can be called economic collapse, despite the fact that the consortium promised, in theory at least, economic growth and cooperation and free trade.

Stiglitz said in his essay that several nations are in the midst of economic suffering rivaled only by the economic malaise seen during the Great Depression.

The economist said that pointing toward deficits and debt avoids the real issues bedeviling the EU, which include inefficient policymaking, a regulatory environment that stifles innovation and the euro itself, which Stiglitz termed “flawed at birth.” The introduction of that single currency, he continued, brought about rigidity akin to that of the gold standard, with an “important mechanism for adjustment” taken away with the absence of exchange rates.

With stagnant prices in Germany, deflation appeared elsewhere, which led to unemployment in those nations that experienced deflation, he said.

The solution, according to Stiglitz? Changing the rules and the institutions tied to the euro itself.

That would mean, for example, abandoning the requirement that deficits stand at less than 3 percent of GDP, implementing industrial policies to promote growth and stability and changing the mandate of the central bank to take into account growth and stability in addition to inflation.