WEBVTT - Stiglitz on Common Currency Threatening Europe Future (Audio)

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<v Speaker 1>You're listening to Taking Style with pin Box at Kathleen

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<v Speaker 1>Hayes on Bluemberg Radio. Our next guest has come a

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<v Speaker 1>long way from Gary, Indiana. He is a professor of

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<v Speaker 1>economics at Columbia University. He is a Nobel Prize winning economist,

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<v Speaker 1>and he has a new book entitled The Euro Common

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<v Speaker 1>Currency Threatens the Future of Europe. We welcome Joseph Stieglitz.

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<v Speaker 1>Professor Stiglitz, thank you for for being with us. I

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<v Speaker 1>wonder if you could just start off by asking you

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<v Speaker 1>why did you decide to write this book? Well, UH,

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<v Speaker 1>Like a lot of books, it comes out of a

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<v Speaker 1>series of uh uh lectures and ideas that I've discussed

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<v Speaker 1>for years. UH. I get invited off into Europe. UH

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<v Speaker 1>and uh the failings of the European economy are on

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<v Speaker 1>the minds of everybody there. And the question was why

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<v Speaker 1>is Europe doing so much more poorly than the United States,

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<v Speaker 1>Especially since two thousand and eight the crisis started into

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<v Speaker 1>the United States. You would have thought we would have

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<v Speaker 1>had the hardest time Europe. Uh has been basically stagnating

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<v Speaker 1>for almost a decade now. And the answer came out.

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<v Speaker 1>It was the euro and UH as I talked to people,

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<v Speaker 1>it became clear that there was not as clear an

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<v Speaker 1>understanding of why the Euro was was giving rise to

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<v Speaker 1>all these problems. Well, Joe, you know, uh you did.

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<v Speaker 1>You were one of the few two who questioned the

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<v Speaker 1>the European project, who questioned the initiation of the Euro Area,

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<v Speaker 1>the single currency, financial and monetary union, etcetera. There were

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<v Speaker 1>many at the time though, or I maybe I shouldn't

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<v Speaker 1>say many, but there was a big debate when the

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<v Speaker 1>Euro Area was set up. Because from a theoretical side

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<v Speaker 1>of economics, you think of Ronald McKinnon, for sample, a

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<v Speaker 1>prominent economist at Stanford University for so many years. Many

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<v Speaker 1>of the morning Look, if you have if you have

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<v Speaker 1>economies with low inflation versus very high inflation, you can't

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<v Speaker 1>put them in a common currency. And yet over and

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<v Speaker 1>over and over that's what the officials in these countries

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<v Speaker 1>seem to have done. They seems that they they've planted

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<v Speaker 1>the seeds for their own issues, their own problems. I

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<v Speaker 1>agree with you in a way, it was uh they

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<v Speaker 1>thought of themselves as visionaries, uh uh, pushing aside these

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<v Speaker 1>people who are raising h nippicking points and creating a

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<v Speaker 1>single currency that would create the momentum that would lead

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<v Speaker 1>to more and more political and economic integration. But even

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<v Speaker 1>no matter how good your intentions and how strong your ambitions,

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<v Speaker 1>you can't ignore the roles of that comics and the acts.

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<v Speaker 1>I think was the fundamental thing. It was a political

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<v Speaker 1>project in which the politics was not strong enough to

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<v Speaker 1>create institutions that would make Hero work Professor Stiglett's Does

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<v Speaker 1>this mean that Europe will break apart into the kind

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<v Speaker 1>of factionalism that has led to two World Wars? No? No,

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<v Speaker 1>not not by any means. I mean, I think in fact, uh,

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<v Speaker 1>what I worry about is the continuation of the Euro

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<v Speaker 1>is likely to be more very is being very divisive.

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<v Speaker 1>You know, I've been traveling to Europe regularly for roma's

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<v Speaker 1>half century, and I've never seen the level of divisiveness

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<v Speaker 1>that I've seen in recent years because of the Euro,

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<v Speaker 1>because of what it is doing to uh make the

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<v Speaker 1>rich richer the poor poor, both within and between countries

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<v Speaker 1>and with basically economic policy, and so many of the

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<v Speaker 1>countries like Italy, Spain and and Greece being dictated from

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<v Speaker 1>Germany and next inevitably going to increase resentment where you

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<v Speaker 1>get the buyings between creditors and debtors. That's going to

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<v Speaker 1>cause resentment. And so the Europe was supposed to promote convergings.

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<v Speaker 1>You know, you talked about large differences. It was supposed

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<v Speaker 1>to make them more similar. In fact, E exacerbated the differences. Well,

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<v Speaker 1>you know, Joe, I really like the E r M

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<v Speaker 1>back of the nineties exchange rate mechanism where it wasn't

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<v Speaker 1>a single currency, but there were bands that each country

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<v Speaker 1>had to keep their currency within and they could use

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<v Speaker 1>their monetary policy, they could use the exchange rate policy

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<v Speaker 1>to achieve that. Again, you in your book, your brand

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<v Speaker 1>new book The Euro How Common Currency Threatens the Future

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<v Speaker 1>of Europe, you do offer a couple of ideas for

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<v Speaker 1>what could be done. What's the number one idea? Isn't

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<v Speaker 1>is there any chance that will happen? Well, in a way,

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<v Speaker 1>one of the ideas that I put forward to which

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<v Speaker 1>I call the flexible Europe, is very reminiscent of the

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<v Speaker 1>R A M. With one difference. What I'm calling for

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<v Speaker 1>is the creation of some institutions that would help stabilize

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<v Speaker 1>the currencies within the narrow band, and over time, if

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<v Speaker 1>those institutions work, if there's enough Uh, coordination and collaboration. Uh.

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<v Speaker 1>They might be able to actually to make a single

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<v Speaker 1>currency work, but they're not there yet. So they in

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<v Speaker 1>a way, they put the cart before their horse. So. UM.

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<v Speaker 1>The question, the last question you ask is is really

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<v Speaker 1>the hardest, Uh. Where And it's it's one about more

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<v Speaker 1>about politics, and or as much about politics as it

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<v Speaker 1>is about economics. Um, where will they go? It's been

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<v Speaker 1>very frustrating to watch the stagnation in Europe and the

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<v Speaker 1>leaders not being willing to revisit some of the key

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<v Speaker 1>issues to key policy is the structural reform of the

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<v Speaker 1>Euro and trying to blame the problems on the individual countries. UH.

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<v Speaker 1>So that makes me a little bit pessimistic. What I

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<v Speaker 1>think is the most likely thing to happen beyond muddling through,

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<v Speaker 1>is that at one point or another, the voters will

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<v Speaker 1>get fed up. UH. And already we're seeing in many

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<v Speaker 1>of the countries a move from the centrist parties to

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<v Speaker 1>the extreme right and extreme left. Uh. And on both

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<v Speaker 1>of those two uh, there is very strong support for

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<v Speaker 1>leaving the Euro. So what what I think uh is

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<v Speaker 1>a realistic scenario unless the leaders change course, and that's

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<v Speaker 1>mainly germanying some of the other Northern European countries. Unless

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<v Speaker 1>they change course, there will be a demo cratic movement

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<v Speaker 1>that will upset the strategy, if you can call it

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<v Speaker 1>that of muddling through. You said a democratic movement. What

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<v Speaker 1>happens if there's not a democratic movement instead of voters

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<v Speaker 1>making their voice heard, what if demonstrations and violent protests

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<v Speaker 1>makes their voice heard, just as it was in Greece. Uh,

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<v Speaker 1>back's another example of what I call democratic, I mean

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<v Speaker 1>either grassroot or electoral. You noticed in in Greece it

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<v Speaker 1>was the people voted against the austerity policies, but in

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<v Speaker 1>the end, the structure of the euro and the Eurozone

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<v Speaker 1>meant that the voices of the majority of the citizens

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<v Speaker 1>couldn't be heard. And that is a real problem. That

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<v Speaker 1>is to say that what has been happening is that

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<v Speaker 1>the voters constantly vote for a change in economic policy,

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<v Speaker 1>and what happens is they said, oh, no, you can't

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<v Speaker 1>change economic policies. Uh, We've delegated those economic policies uh

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<v Speaker 1>to Germany, to Brussels. And that that I think is

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<v Speaker 1>deeply disturbing to democratic processes. I just want to switch

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<v Speaker 1>heres here, Joe. We have about a minute or so left,

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<v Speaker 1>because I want to ask you about the Bank of Japan.

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<v Speaker 1>Governor Corota did an interview published over the weekend saying

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<v Speaker 1>that as they reassess their policy of negative rates and

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<v Speaker 1>someone call it unprecedented quantitative easing, that the Bank of

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<v Speaker 1>Japan can go further more easing deeper negative rates when

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<v Speaker 1>they meet next month. What do you make of that?

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<v Speaker 1>Is that a good move or a mistake? Well, I

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<v Speaker 1>think it illustrates that that the monetary policy is reaching ulmics.

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<v Speaker 1>Uh as you notice, uh, you know, it hasn't succeeded

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<v Speaker 1>in really resuscitating the growth of Japan. Although uh, in

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<v Speaker 1>many ways, Japan is not the basket case that sometimes describe.

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<v Speaker 1>Once you take into account and the fact that they're

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<v Speaker 1>working population, working age population has been growing much more slowly.

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<v Speaker 1>In fact, its declining while that and say United States

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<v Speaker 1>has been increasing. Once you take account of that, javan

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<v Speaker 1>is not really doing that uh poorly. But what is

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<v Speaker 1>clear is that monetary policy is not enough to restuscitate

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<v Speaker 1>the economy. And I think it was a good move

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<v Speaker 1>of Bobby to postpone the increase in the consumption tax.

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<v Speaker 1>What they really need is a more comprehensive strategy which

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<v Speaker 1>includes I think uh A a carbon tax that would

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<v Speaker 1>stimulate investment in green technology. Joe Stiglets, thank you so

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<v Speaker 1>very much for joining us. Joseph Stiglas, Professor of economics

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<v Speaker 1>at clumb University, when are the two thousand one Nobel

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<v Speaker 1>Prize in Economics, Talking to a about his new book

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<v Speaker 1>The Euro How a common currency threatens the future of Europe.

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<v Speaker 1>He said, the Europeans need to find ways to create

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<v Speaker 1>more economic divergence than convergence. Rather than divergence, This is

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<v Speaker 1>Bloomberg