On course to fail

The Euro: How a Common Currency Threatens the Future of Europe.By Joseph Stiglitz.Norton; 416 pages; $28.95. Allen Lane; £20.

THOSE in search of an antidote to the anxieties that arise from Britain’s vote to leave the European Union should avoid the latest book from Joseph Stiglitz. Its subject is the euro, which has hitherto been the main font of fears for Europe and (his analysis suggests) will soon be once again. It is a meaty subject, suited to a big-name economist. Mr Stiglitz has won a Nobel prize, served as a feather-ruffling chief economist for the World Bank and written several books with a fair claim to prescience, notably, “Globalisation and Its Discontents”, published in 2002.

The main argument of his new book is that, on its current course, the euro is certain to fail—and indeed, that it was fatally flawed from birth. It entails a fixed exchange rate and a single interest rate for its members, which means countries must forgo the option to devalue in times of economic weakness. To make up for that loss, the euro’s architects should have created institutions, such as jointly issued bonds, mutual backing of bank deposits and a common fund for unemployment insurance, so the costs of righting each economy are shared. Instead the burden falls on individual countries through austerity policies, such as tax rises and wage cuts. The results have been ugliest in Greece, where national income has shrunk by a quarter since 2007 and where the unemployment rate is 24%. There is still time to put in place better policies, thinks Mr Stiglitz. But an amicable divorce would be preferable to the current situation, which puts the considerable achievement of European integration at risk.

A good chunk of the book is taken up with a critique of policymakers’ efforts to address the euro crisis. Mr Stiglitz rightly takes issue with the blame-the-victim analysis of the euro’s failings that is commonly heard in Germany. The persistent trade surpluses of Germany and the vast deficits of boomtime Spain, Portugal and Greece are two sides of the same coin. Indeed, in a world short of aggregate demand, German thrift is the bigger failing, argues Mr Stiglitz. He favours the remedy, first proposed by John Maynard Keynes, of forcing creditor countries to adjust by taxing their trade surpluses. But in redressing the balance, Mr Stiglitz gives too little weight to the mistakes of crisis countries. The book has other shortcomings. The strident tone and frequent self-references will put off many readers. If sentences that contained the word “I” or “my” were expunged, the book would be rather slimmer. In places it reads as if the miseries of the euro zone stem from sinister corporate forces and not misplaced idealism. Similar arguments crop up in several chapters, a further irritation and a symptom of careless structure.

Mr Stiglitz is not the first economist to make dark predictions about the euro, though it is clear that he favours its success. A fuller reckoning of the blame for the mess the euro zone is in would not undermine Mr Stiglitz’s main arguments; it would strengthen them. It is only right at the end of the book that he presents the euro story as mostly tragedy: “It was created with the best of intentions by visionary leaders whose visions were clouded by an imperfect understanding of what a monetary union entailed.” It is a shame that such a dispassionate tone does not permeate the earlier chapters. Mr Stiglitz is at his best when coolly analytical and at his most trying when settling scores. Yet on the essentials, he is surely right. Without a radical overhaul of its workings, the euro seems all but certain to fail.