The Euro by Joseph E. Stiglitz
This book was much better than I expected. I mean, hundreds of pages about the Euro—snore! But this is a great book of popular political economics, well written and topical. I learned tons of stuff, and gained insight into a lot of stuff I didn’t really grok before. The Euro joins Picketty, Graeber, Krugman, and Gordon on my “serious stuff” book shelf.
I must say that after the first few pages, I became totally converted to Brexit, Grexit, and basically breaking up the EU. Stiglitz makes a damning case that the Euro is destroying the European project, but it looks to me like the EU is basically dead, dead from Euro poisoning, and from the disease that led to the Euro. In any case, the anti-democratic and immoral disregard for the people of Europe has brought the EU itself to the brink of breakup, and deservedly so.
But Stiglitz himself is far more optimistic, and, as he says, the European Project is vital to the whole planet. His book is not just about what is broken, he offers some ways to really fix things.
“These messages emerge clearly from my analysis. A common currency is threatening the future of Europe. Muddling through will not work. And the European project is too important to be sacrificed on the cross of the euro. Europe-the world—deserves better. I have shown that there are alternatives to the current system. Moving from where the Eurozone is today to one of these alternatives will not be easy, but it can be done. For the sake of Europe, for the sake of the world, let us hope that Europe sets out to do so.” (p. 526)
The basic thesis is that the Euro was intended to be a means to an end, but it has become an end. Preserving the Euro has led to horrific economic, social, and political damage, far greater than any benefit. It didn’t have to happen, and it doesn’t have to be this way.
The Euro was flawed from the beginning, based on the fallacious “neoliberal” economics pushed by conservatives, foolishly creating currency union without the concomitant political union. Instead of promoting unity and prosperity, the Euro is constructed to divide Europe and impoverish all but a few. Stiglitz contends that sensible people knew this would happen, only ideological blindness could explain this massive blunder.
Put the bankers in charge of Europe and you are sure to fail. Bankers can’t run banks, let alone entire continental scale political economies.
The faulty design of the Euro has been compounded by policy decisions. When the inevitable crisis came—caused by the Euro, if triggered by American foolishness—the response has been insane.
Stemming from a combination of neoliberal pseudoeconomics and just plain politics, the response was to punish debtors, bail out rich creditors (at the expense of the poorest) and impose conditions that ensure that the debts cannot ever be paid. These “austerity” policies are cruel and counterproductive (why would you do things to reduce the debtor’s ability to repay?), they could never work, did not in fact work, and are pushing Europe into disaster.
Stiglitz offers ways forward, which could be summarized as “less Europe” and “more Europe”.
One option is to break up the single currency. There might be two or more ‘Euros’, and this would untether the economies and enable the countries of Europe to get back in balance and growing again.
Another option would be to fill in the missing pieces of the political union that is needed for a successful currency union. This would require Europe wide deposit insurance, “Euro bonds” for government borrowing, EU wide minimum wage, and other regulations on banking and trade.
Stiglitz also discusses some innovative ideas (at least in the sense that they aren’t in use today) for managing trade deficits. I don’t fully understand them, but the idea is to help keep trade and debt in balance among the members of the currency union—for everyone’s benefit.
Turning to another subject I’ve been thinking about for a while, this book is interesting to read alongside the fevered ramblings of the Bitcoin enthusiasts. Nakamotoists are confident that they can “disrupt” money, and fix the problems described by Stiglitz, if only we replace fiat currency and central banks with Bitcoin.
In a sense, the Euro was a 21st century version of the gold standard, much as Bitcoin is designed to be a virtual gold standard. In addition, to aggravated gold buggery, Bitcoinistas seem to be enthralled with a digital version of the neoliberal ideology. If only we can eliminate central banks, politicians, and, indeed, all humans; if we can base our currency and contracts on “objective” rules, automatically enforced, then markets will thrive, and prosperity will be secured for everyone.
Reading Stiglitz should give you pause about the genius of markets, and the effectiveness of “objective” rules, and the results of removing the powers of central banks to “manipulate” fiat currency.
For that matter, a chief “benefit” of the Euro is the free flow of capital across borders. Bitcoin is designed to make this “benefit” universal and unavoidable and out of the hands of hated central banks. Stiglitz documents the disastrous consequences of this aspect of the Euro, and rest assured, Bitcoin would be much worse. The last thing the world needs is yet more capital flowing in the direction of cyclical trends, destabilizing markets and impoverishing debtors and creditors alike.
This Is not to say that digital money is entirely a bad thing. Stiglitz suggests that the “divorce” from the Euro would be relatively painless if implemented digitally. This would allow rapid conversion from the current Euro to one or more new currencies, simply by flipping the units digitally. He also suggests other digital accounting systems to help regulate and stabilize markets.
If these mechanisms screw banks and Wall Street out of their huge rents, that is a definite plus in Stiglitz’s eye.
Of course, these mechanisms would be implemented by politically managed banks and other institutions, implementing policies intended to discourage destructive behavior and distribute the benefits to all citizens.
So, “Digital money, si! Bitcoin, no!”
Overall, this is one of the better books I’ve read this year, surprisingly clear for a layman, and extremely compelling.
- Joseph E. Stiglitz, The Euro: How A Common Currency Threatens the Future of Europe, New York, W. W. Norton& Company, 2016.
Sunday Book Reviews