Stiglitz on Europe's New Malaise

The US economist Joseph Stiglitz gives an interview about his new book 'Freefall. Freemarkets and the sinking of the global economy.' Stiglitz is always an interesting writer and theorist but it is what he says about Europe which is particularly interesting. He argues that by entering the Euro, Spain and Greece (and also Ireland) are locked into a 'death spiral' from which they cannot emerge. The austerity measures being implemented by European governments are aggravating the situation and are repeating the classic mistakes of many governments in the 1930s which created the spiral of the Great Depression. Stiglitz writes of Spain:

Europe has no way of helping countries facing severe problems. Spain has an unemployment rate of 20pc, with 40 to 50pc of young people unemployed. It had a fiscal surplus before the crisis; after the crisis, its deficit exceeded 11pc of GDP.



But under the rules of the game, Spain must now cut its spending, which will almost surely increase its unemployment rate still further. As its economy slows, the improvement in its fiscal position may be minimal.
Spain may be entering the kind of death spiral that afflicted Argentina just a decade ago. It was only when Argentina broke its currency peg with the dollar that it started to grow and its deficit came down. At present, Spain has not been attacked by speculators, but it may be only a matter of time.

Stiglitz goes on to issue dire warnings that European governments are entering an economic cul de sac and I believe that he is right - recent developments in Ireland prove that but the Right continue to argue that Ireland will eventually recover. It is the modern equivalent of 18th century doctors who applied leeches to their patients believing that an excess of blood or fluid was the cause of the illness, and not bacteria or a virus. The fluid being removed from the patient in this case is the army of poor and unwaged who are going to be flushed down the toilet to try and prove an impossible economic experiment. Stiglitz goes on to issue this grim warning to Europe:

If Europe cannot find a way to make these institutional reforms, then it is perhaps better to admit failure and move on than to extract a high price in unemployment and human suffering, all in the name of flawed institutional arrangements that did not live up to the ideals of their creators.



The first decade of the 21st century is already being written down as a lost decade. For most Americans, income at the end of the decade was lower than at the beginning. Europe began the decade with a bold new experiment, the euro - an experiment that may now be faltering.


On both sides of the Atlantic, the optimism of the beginning of the decade has been replaced with a new gloom. As the weeks of the downturn - the New Malaise - stretch into months, and the months become years, a new grey pallor casts its shadow.

On the evidence of yesterday's announcements at the Tory conference and the Spending Review due to be announced later this month, the UK government has its fingers firmly in its ears while it repeats the empty mantra "there is no alternative." Other European governments continue down the same track promising that at some point soon the promised land will be reached. Tell that to the millions who will be sacrificed on the altar of the new economic dogmatism. Stiglitz points the way to a better solution for Europe - a European Green New Deal. This is what the European Green Party will be debating at Tallinn in a few weeks time, with Elinor Ostrom, the Nobel Prize winning radical economist and others. The Green parties of Europe must argue that another future is possible. The alternative is grim and could open up Europe to the other maladies of the 30s, which we have seen rise again - social unrest, populism and the Far Right.