Columbia Business School recently published an article that details the fraught history of the Euro since its inception at the 1992 Maastricht Treaty as both a symbol of continental unity and a common currency to “allow investment capital to flow seamlessly over borders.”
In his recently published book The Euro, CBS professor, Nobel laureate and former World Bank chief economist Joseph Stiglitz offers that the “chief tool of economic integration is driving the European Union apart.” At a lecture he gave as part of a symposium held at Columbia’s School for International and Public Affairs, Stiglitz put it plainly: “The hope was that the countries of the Eurozone would converge. In fact, they’ve diverged.”
“The idea that keeping deficits, debts and inflation low would lead to convergence if you had a common currency would now be viewed as nonsense. The hope was that the countries of the Eurozone would converge. In fact, they’ve diverged.”
Stiglitz explains that one of the fundamental problems with the Euro has to do with the moment in history it was introduced, post-Cold War: “The 1992 Maastricht Treaty represented a moment of elite economic consensus, marked by unbounded optimism in the potential of market-driven growth. The market system that gave birth to the Euro now seems to be under existential threat around the globe.”
Stiglitz believes that the Euro has pitted economically powerful countries like France and Germany against weaker counterparts like Greece due to an assumption that “continent-wide economic unity was possible without increased political integration.”
Stiglitz cites the Spanish economic collapse as microcosm for a larger system that “ensured that any economic hiccup would become a full-scale political crisis.” He elaborates: “There was no built-in mechanism to provide stimulus or a bailout, no requirement that other Euro members to come to its aid, and no continent-wide social safety net, like unemployment insurance, to cushion the blow.”
This continent-wide cleavage between rich and poor—amplified by “the removal of trade and investment barriers”—saw “richer countries weather the economic chaos while poorer ones suffered.” Stiglitz says the response to the Euro Zone crisis only supported this chasm: “The so-called Greek bailout was really a bailout of German and French banks.”
Stiglitz says there are plenty of lessons to glean from the Euro crisis: “Widely shared assumptions about how societies and economies function can turn out to be disastrously wrong. Hopefully, greater humility will be accompanied by greater tolerance of a broader diversity of perspectives.”