“Europe, the source of the Enlightenment, the birthplace of modern science, is in crisis.” So says Joseph Stiglitz, Nobel Prize-winning economist and sometime chairman of President Bill Clinton’s Council of Economic Advisors.
“Large parts of Europe” have endured “a lost decade”; incomes per head are “lower than before the  global financial crisis”. While Germany is doing “relatively well”, there’s “soaring youth unemployment” in France, Italy and Spain. “In a well-functioning economy, there’s rapid growth, the benefits of which are shared widely,” Stiglitz writes, but “in Europe we see the opposite”.
So what, he asks, is the “big policy problem”, Europe’s “one underlying mistake”? To some, his conclusion may be surprising. For Stiglitz points his finger squarely at “the fatal decision to adopt a single currency, without first providing the institutions to make it work”.
In his highly readable The Euro: How a Common Currency Threatens the Future of Europe, Stiglitz judges this 17-year-old monetary experiment “an economic and political disaster”. “Flawed at birth,” he argues, the “structure of the euro is to blame for the poor performance of Europe, its successive crises and increased inequality.” Far from promoting European prosperity, peace or influence, it has “tied together” countries with vastly different economic and social backgrounds, denying them the vital ability to manipulate their exchange and interest rates.
Stiglitz explains how the dollar operates smoothly across America’s 50 economically diverse states, noting “important adjustment mechanisms” such as large interstate tax and benefit transfers, and the common language, which helps workers find employment in different states. The euro, on the other hand, “was created in a way that sowed the seeds of its own destruction”.
Taking the side of smaller countries like Portugal and Greece, Stiglitz says it’s “impossible” for such nations to thrive under the euro, given “neoliberal, market-driven policies” emanating from Berlin and Brussels. “Germany and others have sought to blame the victims,” he says, “countries that have suffered due to the flawed structure of the eurozone.” Of the ongoing battle between Greece and its eurozone creditors, Stiglitz describes the decision to force Athens to rein in its deficit by increasing taxes and cutting spending as “wrong, destructive and almost unbelievably narrow-minded”.
Saving the single currency requires “completing the incomplete euro project” – in other words, “more Europe”. That implies a “banking union” (countries guaranteeing each other’s bank deposits) and large intra-eurozone transfers. The alternative is a “flexible euro” – a north-south split, with the Germanic and Mediterranean nations using different exchange rates – or scrapping the currency altogether, an “amicable divorce”. But since the “more Europe” option would probably create more conflict than it resolves, Stiglitz concludes, paradoxically, that “Europe may have to abandon the euro to save the European project”.
Passionately written, this important book will rock the smug, often detached eurozone policymaking elite. As a Left-wing firebrand, though, Stiglitz is too quick to blame “market fundamentalism” for the eurozone’s woes, especially when one remembers that a single, rigidly fixed, Europe-wide exchange rate was originally the vision of French socialist Jacques Delors. Stiglitz deserves credit for breaking a taboo among respectable mainstream economists and finally admitting that the single currency is doomed. But if the euro’s structural failings are so “obvious”, why didn’t he point them out 20 years ago, before it was launched?
The most interesting part of this book is its hastily written “Afterword on Brexit”. Stiglitz acknowledges that “free migration across the European Union” has “been an economic and political disaster”. He also says, significantly, that “Britain isn’t likely to be much worse off and potentially could even be better off” after leaving the European Union.
This is a book, then, that will unnerve millions of British centre-Left progressives – those who backed British EU membership unquestioningly and now complain bitterly about Brexit. Many such voters, after all, view Stiglitz as their favourite economist.