Edition 8 March 2019, by Jeroen Spangenberg
Joseph Stiglitz wrote a book which was published in 2017 called “The Euro’’. The Euro describes the measures that were taken after the 2008 crisis and it consequences for the respective countries. He argues that a Keynesian approach would have worked better, contradicting the policies of the Troika of austerity. While some of his policy ideas might turn out differently than expected, he is clear at pointing out the suffering and political consequences that take place in Europe. The (youth) unemployment in southern EU countries remains high, causing many to flock to the north for work, causing the most able to leave, increasing the hardship. Moreover, leftwing and rightwing parties gained traction after strong opposition to austerity measures. 45 percent of retirees in Greece live of around 600 euro per month, many had to accept pension cuts. Foreign companies don’t pay wealth transfer taxes, while Greek companies are required to pay a tax on estimated future profits in advance. The value added tax was increased and salaries were lowered under pressure of the Troika. While, one can argue that the EU is getting more competitive by doing that, Joseph Stiglitz focuses on the human suffering and negative consequences of these policies. Policies that are based on wrong assumptions according to Stiglitz. He argues for a debt restructuring instead of austerity in the face of an already economic downturn.
If however the German and French parties would pick up the tap, that would move the problem not solve it. Stiglitz explains that debtors needed to be repaid and the Troika enforced its austerity measures to accomplish that. He argues that a devaluation of the currency could have benefited exports and resolve part of the crisis in Greece, since it is part of the Euro this wasn’t possible. Instead of the government picking up the tap for the Irish banks, he was in favor of shareholders instead of tax payers picking up the tap. While leaving the euro could have solved some issues for certain countries, it could also have led to great uncertainty in financial markets, as we see now with political parties on the far left or right of the political spectrum, one can wonder if this could have been prevented if these countries would have left the euro. Also, bail-ins in different forms can lead to financial unrest, thus the solution he puts forward for Ireland might not necessarily be better. Overall, his policy recommendations are interesting reading material, to look at what has happened and what could or should have been done