European solution to euro crisis is 'wrong'

GOVERNMENTS HAVE misdiagnosed what went wrong in the euro zone and are also advocating the wrong solution to the crisis, Nobel economics laureate Prof Joseph Stiglitz told the opening of the International Bar Association conference in Dublin last night.

The answer being proposed to the crisis was austerity which “has almost never worked,” he said.

“It was tried in 1929, the IMF tried it in Asia and Latin America. Each time it succeeded in turning downturns into recessions, recessions into depressions.”

He pointed out that “Europe’s debt-to-GDP ratio is less than that of the US,” and noted the US can borrow at almost negative interest rates. The fundamental problem in Europe was that the euro was a flawed currency arrangement that did not meet the conditions needed to establish a common currency. A structural change of the euro arrangement was needed. It was happening now, but too late for the economics of the situation.

Reform of banking systems was also necessary. At the moment they were as strong as the governments of the countries that guaranteed them. This meant that where a government was weak, confidence ebbed and money flowed out of the banks, reducing their capacity to lend to business, which in turn led to the further weakening of the economy.

A common European banking system was needed, with a common guarantee, he said. The mutualisation of debt across Europe was also needed.

“There has to be more Europe or less Europe. The present half- way position is not viable,” he said.

The easiest way to have less Europe was for Germany to leave, but that probably would not happen. A different form of break-up would create a great deal of work for lawyers, he joked.

Either way, Europe was likely to face turmoil for some time to come. He said another issue of concern was the growth of inequality in the major economies. This had been exacerbated by the crisis. “In 2010 [in the US] 93 per cent of the growth went to the top 1 per cent of the population – a few of them in this room.”

Economic inequality led to political inequality, including inequality in access to justice. He said in the US, legal aid had been cut back, and he urged the delegates to ensure that justice was accessible to everyone.

The conference brings 5,200 lawyers from around the world to Dublin this week. Speakers will include former president and UN commissioner for human rights Mary Robinson; the UN’s special rapporteur on torture, Juan Mendez; Nobel economics laureate Dr Mohammed Yunus; and the UN legal counsel, Irish lawyer Patricia O’Brien.