The Euro

2017

During 2016, "Akademska knjiga" from Novi Sad (edited by NUMMUS) published in the Serbian language this important work of the world-renowned economist J. Stiglitz. The scope of this monograph is over 380 pages, excellently structured in four special parts of equal volume, largely interdependent regarding treated issues (with a foreword, afterword and an index of terms and guidelines, as well as many bibliography items expressed in more than 200 footnotes, citations and explanations. The first part entitled "European crisis" (29-108) is very comprehensive because it introduces the reader into the issue of the crisis caused by earthquakes in the eurozone. It consists of three related, turbulent chapters: 1) The European crisis, 2) Euro expectations and reality, and 3) The sad effect of Europe. The author states that the global financial crisis of 2008 seamlessly turned into a European crisis. It is caused by events that present symptoms, not causes, of deeper problems in the eurozone structure: interest rates rose on government bonds of Greece and some other eurozone countries and some other countries could not get access to finance in any possible way. Although many factors contributed to the troubles of Europe, the basic error is only one: the creation of a common currency, the euro or more specifically, the creation of a common currency without creating a set of institutions that would enable authorities to the area as diverse as Europe to function effectively with one single currency. The second part entitled "The upside from the beginning" (109-202), also consists of three chapters: 1) Can a common currency succeed at all? 2) Euro: split system, 3) Monetary Policy and the European Central Bank; The second part of the book (from 4 to 6 chapter) reviews the necessary conditions for a successful monetary union, what Europe has actually done and how the discrepancy between what should have been done and what has been done has led to the failure of the euro, to the crisis that followed soon after its creation, and to a fork, where the rich get richer and the poor get poorer-which further complicates the success of a single currency system. The third part entitled "The wrong Policies" (203-266) consists of two chapters: 1) Crisis measures: how Troika politics deteriorated imperfect structure of the eurozone and guaranteed a depression, and 2) Structural reforms that deepened the failure; This part of the book (chapters 7 and 8), describe in detail how the eurozone reacted to the crisis and how those countries "came for help" with programs that actually deepened and prolonged the consequences. The fourth part entitled "What next?" (267-352), consists of four chapters: 1) Creation of a functional eurozone, 2) Is the amicable divorce possible?, 3) To flexible euro, 4) What next ... This part (9 to 12 chapter) explains what can be done to restore prosperity to Europe. A key hypothesis of this author is that the eurozone cannot survive because it was wrongly placed in the very beginning. Thus, he argues that the single currency in the region with enormous economic and political differences cannot easily succeed. In fact he argues that the single currency requires a fixed exchange rate between the member states and a uniform interest rate. Besides, the rules must be sufficiently

L'Europe en Formation, 2009

Contributions to Political Economy, 2013

Highlighting that France and Germany held largely contradicting hopes and aspirations for Europe's common currency, this paper analyzes how the resulting euro contradiction conditioned the ongoing euro crisis as well as current strategies to resolve it. While Germany generally prevailed in hammering out the design of the euro policy regime, the German authorities have failed to see the inconsistency in their policy endeavors: the creation of a model whose workability presupposes that others behave differently cannot be made to work by forcing everyone to behave like Germany. This fundamental misunderstanding has made Germany the main culprit in the euro crisis, but it has yet to face the full consequences of its actions. Germany had sought every protection against the much-dreaded euro "transfer union," but its own conduct has made that very outcome inevitable. Conversely, having been disappointed in its own hopes for the euro, France is now facing the prospect of a lost generation-a prospect, shared with other debtor nations in the union, that has undermined the Franco-German alliance and may soon turn it into the ultimate euro battleground.

SSRN Electronic Journal, 2000

When currencies and monetary arrangements have broken down it has always been because the currency issuer can no longer fight the lure of the seigniorage to be gained by over issue of the currency. In the twentieth century this age old impulse was allied to new theories that held that economic downturns were caused or exacerbated by a shortage of money. It followed that they could be combated by the production of money.

2016

In his lecture on the occasion of being awarded the Nobel Prize for Economics for year 2001, Stiglitz spoke out vigorously against the classical economics based on a limited impact of government and markets functioning without government interventions. We do not see the invisible hand of the market, he remarked, because either it 'simply doesn't exist' or 'at least [...] it is palsied' (Stiglitz 2001). In the basic dichotomy between free market and state interventions, Stiglitz stands as a strong critic of neoliberalism and is entirely on the side of state interventions. This view also forms the essential character of his (so far) latest book Euro-How a Common Currency Threatens the Future of Europe. The monograph thus does not discuss the origin and development of euro, establishing the monetary union or monetary integration during the Great Recession but is primarily 'about economics and economic ideologies and their interactions with politics' (p. 42). For Stiglitz, the ideology against which he speaks out is the 'unwavering faith in markets' (p. 47), that is, neoliberalism or market fundamentalism (both terms are virtually used as synonyms). For Stiglitz, as an American economist, the common European currency is only an academic opportunity to speak out against the individual aspects of neoliberalism, based on a specific and rather dramatic European case. The book is divided into four parts. The first part (Europe in Crisis) describes the theoretical expectations for the common currency and essential arguments in favour of its adoption; in the third chapter, he provides a concise overview of the development of the eurozone's basic economic markers in comparison to the development of (predominantly) the American economy. In the second part (Flawed from the Start), he explains the conditions under which euro could work. He emphasises that despite the expectations, or rather wishes, of the founders of the monetary union, euro did not lead to higher and more profound integration, but, on the contrary, it contributed to numerous divergences. The last chapter of the second part is devoted to the criticism of European Central Bank's currency policy. The third part (Misconceived Policies) criticises the crisis programmes proposed by the 'Troika' (European Central Bank, European Commission, International Monetary Fund) during the Greek economic crisis. In the final fourth section (A Way Forward?), he outlines three possible ways of solving the problems of the eurozone. The first (and, in Stiglitz's opinion, the most suitable) way is implementing his proposal of the seven structural reforms of the eurozone. The second option is an 'amicable divorce', illustrated by Greece or Germany leaving the monetary union. Finally, the third option is his concept of the so-called 'flexible euro'. Throughout the monograph Stiglitz keeps emphasising that euro is not an economical project. He reminds that euro 'was a political project, and in the case of any political project, politics matters'. (p.41) and, consequently, it 'was not an end in itself but a means to broader ends' (p. 576). Allegedly, euro is like a bad marriage where it is not clear whether it should be saved (p. 88). Therefore, the European politicians must choose whether they want 'more Europe' or 'less' (p.50). Stiglitz gradually uproots the three fundamental arguments that are in favour of euro despite its flaws. In his view, the 'influence of the united Europe on the world stage' is not to be accomplished by a deeper monetary integration but through consensus of the member states of the European Union. Contrary to the persisting beliefs, Stiglitz is convinced that there is not any proof that the use of common currency would reduce probability of conflicts. Therefore, he does not see any link between a deeper monetary integration and achieving peace. Eventually, he also disclaims the argument that euro will help to create European integrity. He does not find the economical argumentation in favour of the single currency compelling, because the savings in transaction costs are not significant enough to prevail over the costs of the crises (p. 131-132).

2022

International Affairs, 2017

This paper discusses the political economy relevance of the European common currency. Politics are just as important as economics – if not more important – to guarantee the longevity of a shared currency. The euro is clearly a political construct and its first significant crisis demonstrated that its survival is not only a political issue but also that it needs further political coordination among the Eurozone member states.

On-line Journal Modelling the New Europe, 2018

Soon before the euro started to circulate among European citizens, Rudiger Dornbusch (2001) wrote, about the new currency: "It can't happen, it's a bad idea, it won't last". Although not unanimously shared, this strongly pessimistic vision was behind most of the contributions that economists from the US gave to the debate on the euro since it was first publicly announced, with the publication of the Delors report in 1989. Krugman, Feldstein, Dornbusch, Bayoumi, Kenen, Eichengreen, McKinnon, Tobin and many others provided a vast literature on the (many) risks and (scarce) opportunities of the European single currency. The untimely defence of the euro by Jonung and Drea (2009) and Issing (2012) provided new material for critique to a structure of economic governance in the Eurozone manifestly unsuccessful. The aim of the paper is to illustrate the (critical) contributions that US economists gave to the debate on the EMU and the euro, attempting a new assessment of their role. Some of them may be seen as merely instrumental to hinder a project that might jeopardize the dollar hegemony in the international monetary system, and many of them rely too much on a static concept of Optimum Currency Area's criteria (as Jonung and Drea suggested). But most, further critiques should have been (and should now be) considered more seriously, in an attempt to build a framework for the long-term sustainability and success of the euro.