Stiglitz wants ‘amicable divorce’ if euro area unable to reform

Nobel laureate Joseph Stiglitz said rather than continuing on its present "dismal" path the euro area should split up if it cannot undertake reforms. "If they can't get it together, then an amicable divorce, probably dividing into two or three different currency areas" would be preferable, Prof Stiglitz, an economist and professor at Columbia University, said.

Until European Central Bank president Mario Draghi's 2012 pledge to do "whatever it takes" to save the euro, anxiety among investors about potentially unsustainable government indebtedness in a number of euro-area countries – notably at the periphery of the bloc – fuelled speculation the 19-country currency union might break apart.

Those concerns resurfaced last year when Greece was thrown into turmoil following the election of a new government. Mr Draghi faces the risk of a renewed economic slowdown in the aftermath of the UK's decision to leave the European Union, as well as fresh downward pressure on headline inflation from falling oil prices. Inflation in the euro area rose to a mere 0.2 per cent in July.

More stimulus, in the shape of extended asset purchases, could be in the cards for the September 8th policy meeting.

Policymakers also have been intensifying rhetoric that euro-area governments need to boost fiscal support and structural reforms. Mr Draghi now uses his press conferences to call for “other actors” to play their part.

Of course a divorce is not going to be easy – it could be done in a way that is better than the current system,” Prof Stiglitz said. “It would still be better if they put in place institutions that would make it work. The question is will they do that?”

– (Bloomberg)