The euro : how a common currency threatens the future of Europe

In 2010, the 2008 global financial crisis morphed into the "eurocrisis." It has not abated. The 19 countries of Europe that share the euro currency--the eurozone--have been rocked by economic stagnation and debt crises. Some countries have been in depression for years while the governing powers of the eurozone have careened from emergency to emergency, most notably in Greece.

In The Euro , Nobel Prize-winning economist and best-selling author Joseph E. Stiglitz dismantles the prevailing consensus around what ails Europe, demolishing the champions of austerity while offering a series of plans that can rescue the continent--and the world--from further devastation.

Hailed by its architects as a lever that would bring Europe together and promote prosperity, the euro has done the opposite. As Stiglitz persuasively argues, the crises revealed the shortcomings of the euro. Europe's stagnation and bleak outlook are a direct result of the fundamental challenges in having a diverse group of countries share a common currency--the euro was flawed at birth, with economic integration outpacing political integration. Stiglitz shows how the current structure promotes divergence rather than convergence. The question then is: Can the euro be saved?

After laying bare the European Central Bank's misguided inflation-only mandate and explaining how eurozone policies, especially toward the crisis countries, have further exposed the zone's flawed design, Stiglitz outlines three possible ways forward: fundamental reforms in the structure of the eurozone and the policies imposed on the member countries; a well-managed end to the single-currency euro experiment; or a bold, new system dubbed the "flexible euro."

With its lessons for globalization in a world economy ever more deeply connected, The Euro is urgent and essential reading.

Author Notes

Joseph Stiglitz is professor of economics at Columbia University.

Reviews (3)

Publisher's Weekly Review

Nobel Prize-winning economist Stiglitz (The Great Divide) notes early on that the failings of the current European economy are "important for the entire world," but the emphasis in this dense book is on Europe nevertheless. Most of it is spent amassing evidence (sometimes in graph form) to buttress his contention that there is a simple answer to why, despite "advances in economic science," the European economy has failed: the 1992 decision to adopt the euro, a single currency for 19 separate countries. Stiglitz believes that the euro has failed to meet its economic and political objectives, and he methodically lays out in detail why that has happened. His concluding section offers advice for a productive way forward that would save the euro and achieve the "shared prosperity and solidarity" that it originally had promised. Despite Stiglitz's best efforts, this is not an easy book for casual readers; the subject matter, which requires analysis of sophisticated economic phenomena such as quantitative easing, is just too complex to be made accessible, though Stiglitz tries to leaven the complexity with grimly amusing and digestible anecdotes. (Aug.) © Copyright PWxyz, LLC. All rights reserved.

New York Review of Books Review

THE NASTY HEADLINES from across the Atlantic - Brexit, terrorism, debt crises - almost make us forget that these were supposed to be Europe's salad days. With a common currency and increasing integration, Europe was, finally, bidding adieu to cross-border conflict and economic crisis. Turm oil and strife were so very 20 th century; the future was to be only digital apps and polyglot cafes. Well, they still have Chartres, and they still have Goethe. They also have millions of migrants, rising nationalism, recurrent recessions and plummeting birthrates. What went wrong? Joseph E. Stiglitz, the former chief economist of the World Bank and winner of the Nobel in economic science, proposes a simple answer. In "The Euro: How a Common Currency Threatens the Future of Europe," he argues that the chief source of Europe's malaise is its 17-year-old currency experiment. "While there are many factors contributing to Europe's travails," he writes, "there is one underlying mistake: the creation of the single currency, the euro." Stiglitz is not speaking about the obvious fact that 19 independent states use a common currency, but about their failure so far to create the quilt of institutions and shared regulations to make it work. This sounds wonky, and though Stiglitz spews plenty of populist rhetoric, "The Euro" is thick with dense paragraphs (imagine an economics text written by Michael Moore). Still, the underlying idea is simple. American states like Alabama and Vermont certainly differ from one another, but they benefit from a shared political fabric far more than, say, Belgium and Greece. Stiglitz's main point is that for the euro to work - and for "Europe" to work - its nation-states will have to function more like American states. If Americans think of the euro at all, it's typically to marvel at its convenience for tourists, though those of a certain age may harbor nostalgia for the francs, lire and pesetas with which we trekked from hostel to chateau. But all those quaint notes were a planner's nightmare. Depending on the rate of exchange, a German could afford to buy wine from Burgundy or olive oil from Tuscany one month but not the next. The euro fixed all that. The problem is that currency fluctuations were a useful escape valve. What if France entered into a severe recession while the German economy remained robust? Thanks to the laws of Adam Smith, the franc would drop relative to the mark, and voilà, Germans would buy more Perrier and Peugeots, and the imbalance would start to correct. Now, France has no currency to depreciate. Ah, the careful reader will say, then why do the individual American states (which are similarly locked into a single currency) function better? What's the safety valve for Rhode Island or Mississippi? Actually, there are several. If the price of oil is slumping, Texas oilmen will contribute less to the federal budget; some of the tab will be picked up by citizens in states that are doing better. And since more people in Texas will be eligible for federal welfare programs, like unemployment insurance, federal outlays will increase. These programs act as automatic stabilizers. Europe lacks such stabilizers. The common budget is only 1 percent of Europe's economy, a stark contrast to America, where the federal budget is roughly 20 percent. Thus, countries like Greece that are suffering hard times have nowhere to turn. Stiglitz argues for "more Europe," meaning an expanded budget and common welfare programs, and a mutualized system of deposit insurance (so that failing Greek banks are not dependent merely on other failing Greek banks, but on healthy German ones as well). This part of Stiglitz's argument is conventional. So is his diagnosis - that the European leaders who implemented the euro in the 1990s did so largely for political reasons (getting rid of the mark was France's price for accepting a reunified Germany). And Stiglitz's moral - "Be careful not to let economic integration outpace political integration"-is well stated. However, that textbook argument against the euro is only part of Stiglitz's brief. He also takes aim at the "troika" of policy institutions (the European Central Bank, the International Monetary Fund and the European Commission) for obsessing over inflation rather than job creation. He is right to indict the drones in Brussels and the bankers in Berlin for imposing budget austerity and unrealistic debt repayment schedules (he likens them to "medieval bloodletters"). Herbert Hoover didn't lick the Depression, and austerity hasn't worked in Greece. Stiglitz is also right to fault the European project, in general, for its nondemocratic character. But his attacks on the troika devolve into a sort of rant against neoliberal capitalism. Markets ain't perfect; they need to be regulated, and the losers in a market system need to be protected. Yet the market remains the best social construct for pricing goods and rationing demand. Stiglitz accuses the troika of being motivated by its supposed enmity for government. He, on the other hand, shows his mistrust for the market on practically every page. He wants bank credit decisions screened according to his own political criteria He berates industry for investing in "capital-intensive techniques of production, contributing, over the long run, to unemployment." (That was also said about the tractor.) He faults the troika for following a political agenda instead of a neutral policy, yet repeatedly urges European leaders to tilt the scales in favor of small and medium-size businesses as opposed to "big corporations." If these are not political criteria, what are? Many of his charges have a vague, rhetorical air. He throws around words like "monopolist" without specifics. He writes that unnamed "Greek oligarchs" had "a controlling interest in banks and the media and were exploiting the linkages between the two." Which banks? And when he says, repeatedly, that the troika was wrong about government spending being a major cause of the crisis, because Spain and Ireland saw their economies implode over free-market errors, he runs into a problem. The problem is that Greece, which suffered the worst crisis, and is the example on which Stiglitz spills the most ink, was largely caused by its bloated public sector. Stiglitz admits this. Far from the measured analysis that one might expect from a renowned economist, "The Euro" has the strident tone of a political pamphlet. Italics are everywhere, as if the reader were being screamed at. There is a numbing incantation of faults attributed to the troika (did they do anything right?). And Stiglitz uses the unfortunate tactic of impugning his adversaries' motives; the troika is not merely wrong, it is guilty of "hypocrisy," of "dishonesty" and of "sheer hypocrisy" - and that's all within two pages. Stiglitz even descends to slurs evoking the Nazi era. Taking issue with Wolfgang Schäuble, Germany's finance minister, for emphasizing economic rules, Stiglitz says, "Of course, many of the most heinous crimes have been committed by those who simply said they were just obeying rules." His bias against wealthy European states, Germany in particular, subtly infects the book. Stiglitz generally presents Greece as Germany's victim, rather than as an actor in its own depression; he says Germany's trade surplus forces Greece, and others, to run deficits (if one country is a net seller, someone else must be a net buyer). It would be equally true to say that Greece's deficit imposes on Germany the burden of running a surplus. The fact is, German industry is more productive. None of this undermines Stiglitz's argument that Europe needs a redivision of currencies to rebalance trade. Although Stiglitz would like to see "more Europe" - that is, common rules and institutions and even a common tax framework so the euro can work - he doubts that the political will exists. In its absence, he would splinter the euro into, say, two or three currencies, perhaps trading freely, perhaps (a less draconian break) trading only within limited bounds, until the day when the continent is ready to attempt a single currency again. Either way, Europe is having its Articles of Confederation moment. Its leaders should grasp that superimposing one financial system on 19 political fiefs cannot work. ROGER LOWENSTEIN is the author, most recently, of "America's Bank: The Epic Struggle to Create the Federal Reserve."

Library Journal Review

According to Nobel Prize-winning economist Stiglitz (economics, Columbia Univ.; The Great Divide), the creation of a single currency, the euro, for the European Union (EU) was a mistake. This book details both the problems as well as potential solutions. The 2008 financial crisis tested global economies, and in Europe, economics and politics remained out of sync, without sufficient structures in place to accommodate the economic diversity of the EU member countries. The first three parts of the text look at the issues, in both policy and structure, of a single currency for such diverse member nations, while the final section offers viable options for moving forward, including reforms, a more flexible single currency, or eliminating the euro altogether. VERDICT Stiglitz does not provide a history of the euro or the EU, but rather focuses on the economic implications and alternatives to the euro as it is today and could be in the future. This title will appeal to those with an interest in economics and politics.-Elizabeth Nelson, McHenry Cty. Coll. Lib., Crystal Lake, IL © Copyright 2016. Library Journals LLC, a wholly owned subsidiary of Media Source, Inc. No redistribution permitted.

Preface	p. xi
Acknowledgments	p. xxiii
Part I Europe in Crisis
1 The Euro Crisis	p. 3
2 The Euro: The Hope and the Reality	p. 34
3 Europe's Dismal Performance	p. 63
Part II Flawed from the Start
4 When Can a Single Currency Ever Work?	p. 85
5 The Euro: A Divergent System	p. 124
6 Monetary Policy and the European Central Bank	p. 145
Part III Misconceived Policies
7 Crises Policies: How Troika Policies Compounded the Flawed Eurozone Structure, Ensuring Depression	p. 177
8 Structural Reforms that Further Compounded Failure	p. 214
Part IV A Way Forward?
9 Creating a Eurozone that Works	p. 239
10 Can There be an Amicable Divorce?	p. 272
11 Toward a Flexible Euro	p. 296
12 The Way Forward	p. 306
Notes	p. 327
Index	p. 395

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