The summer of 2016 was a turning point for the so-called “European Project” – Europe’s long-run attempt to build a United States of Europe that began with the 1957 Treaty of Rome setting up the European Economic Community (EEC) with six founding members (Germany, France, Italy, Belgium, the Netherlands and Luxemburg), and continued in 1993, with the Maastricht Treaty, the European Union (EU) with (up to now) 28 member countries.
Problems have piled up this summer, relentlessly.
The opening salvo came in June with the UK referendum that unexpectedly led to “Brexit”, the decision to leave the European Union with 17.4 million Brits voting in favor. For the first time since its foundation, the EU is expected not to expand but to contract, down to 27 members – probably by 2019, when UK exit negotiations will be completed.
The most recent problem came in October with another referendum, this time in Hungary, calling on the population to disregard EU policies on refugees and reject quota obligation to accommodate asylum seekers. The referendum did not break the 50% threshold and the result was therefore declared illegal, but it did demonstrate that once again, a hefty minority, 3.6 million Hungarians (43% of voters), supported their government’s continuing opposition to Brussels.
Against this background, Joseph Stiglitz’s book has special resonance.
As he convincingly argues, the Euro was supposed to bring the European project forward but it has done nothing of the kind – if anything, the European Project has suffered setbacks just as much outside as within the countries of the Eurozone, the 19 EU members who use the Euro as a common currency. Incidentally, this is not a minor currency: The 19 European countries together account for roughly 14 percent of world GNP, making it the third largest economy in the world, after the United States (20 percent) and China (18 percent).
Do not delude yourself into thinking this is not important for the rest of the world: should the Euro collapse, the shock would shake the whole world.
It could even start another Great Depression.
A SLOW DEATH
Stiglitz minces no words in roundly chastising European leaders for “muddling through” a succession of Euro crises, ever since the first Greek debt scandal broke out in 2010. The book is a convincing diagnosis of what went wrong and why successive “bailouts” of Greece (three so far) have failed miserably, leaving the country six years later with an inexorably rising debt and a Gross Domestic Product diminished by a quarter, while the exceptionally high unemployment (a mind-boggling 50% for the young) won’t budge – really as bad as a war. Stiglitz’ detailed description of the Greek case is harrowing. A must read for anyone who hasn’t followed the drama closely.
And he is equally convincing in arguing that Ireland, often promoted (mostly by Germans) as the “poster child” of the success of Europe’s monetary and austerity policies is no such thing. EU-imposed austerity measures “helped ensure that Ireland’s unemployment rate remained in double digits for five years, until the beginning of 2015, causing untold suffering for the Irish people and a world of lost opportunities that can never be regained.” Tough words that apply equally well to the other “crisis countries” of the Eurozone. For example, Portugal, also promoted by the IMF as a “success”, is far from that: The facts are that “the government might be borrowing with more ease, but the Portuguese people never experienced a real recovery.” Indeed, across Europe, excessive reliance on austerity and monetary policy “has resulted in even greater inequality: the big winners are the wealthy, who own stocks and other assets […]; the big losers are the elderly who put their money in government bonds, only to see the interest rates generated virtually disappear.”
The reason for such a deplorable state of affairs? First, a misplaced belief in what another famous economist, Paul Krugman, calls the “confidence fairy”: the idea that with austerity and a balanced budget, business confidence will be restored, which overlooks the simple fact that when consumer demand is depressed, business has no incentive to invest. In a recession, the confidence fairy, as Krugman says, becomes a zombie.
To read the rest, click here. NOTE TO MY READERS: Stiglitz's advice on how to fix the Euro is truly excellent, and I sincerely hope our political leaders will read this book and act on it. I've tried to focus on the policy measures that are really doable among the many ideas Stiglitz presents. Eminently practical, they would take VERY LITTLE EFFORT... if only Germany would stop focusing on stupid austerity policies that are destroying Europe! Go over to Impakter to read about those policy measures and tell me what you think!