SocialismToday           Socialist Party magazine

Issue 208 May 2017

Euro crisis zone

The Euro: and its threat to the future of Europe

By Joseph Stiglitz

Published by Allen Lane, 2016, £9.99

Reviewed by Iain Dalton

The eurozone and European Union have been mired in crisis ever since the great recession following the 2007-08 financial fallout. For Joseph Stiglitz, a prominent Keynesian economist, the euro was flawed from birth: a straitjacket forcing differing economies together without sufficient measures to ensure that all benefitted. Stripped of the ability to adjust interest and exchange rates to make economies more competitive, governments are forced to adopt internal devaluation or austerity. Under such conditions the euro has actually increased the divergences between member states.

Stiglitz discusses how these failings were demonstrated in Greece: "The troika sold the reforms on the grounds that they would help the economy grow. Greece showed dramatically that they had the opposite effect". One of the best-known examples is the unrepayable debt, a consequence of the bailouts presided over by the troika – the EU, European Central Bank and International Monetary Fund. Most Greeks have seen none of the money. Around 90% "went to pay back creditors, including German and French banks".

Stiglitz also refers to the troika’s demands for ‘more flexible labour markets’, which weakened workers’ bargaining power, lowered wages still further and increased profits. This was on top of the unemployment and recession which had already reduced the ‘cost of labour’ in Greece by 20%. He lists some of the troika’s demands that make even less sense from the point of view of stabilising the Greek economy, such as redefining ‘fresh’ milk to allow shelf-life to be extended. This meant that multinational companies based outside of Greece flooded the market!

What is absent from Stiglitz’s account is one of the fundamental contradictions of capitalism: between capitalism’s development within nation states, each with its own capitalist class with its own interests, and the development of a world market. The creation of the EU and the eurozone was an attempt to overcome these contradictions. He actually argues that the weaknesses of the euro are solely due to the neoliberal outlook of its creators and guardians.

He proposes a banking union to allow states to adopt industrial policies, and a common fund for unemployment benefits. Yet this type of proposal has been rejected due to a lack of agreement between the EU states’ capitalist classes. Stiglitz points out that "Germany has benefitted by being wedded to the ‘weaker’ countries of the eurozone, for the net effect is that the euro… is weaker than the German Mark would have been". This gives Germany an export surplus at the expense of the trade deficits of the ‘peripheral’ countries in the zone.

In a section on the possibility of an amicable divorce, Stiglitz raises some interesting technical points on the options open to Greece had it left or been kicked out of the eurozone – including on the nature of electronic money. But his unrealistic premise is that creditor nations would accept deep debt write-offs.

In a short afterword on Brexit, Stiglitz points to the deep political discontent with the establishment as the driving factor: "The politicians who told them that these trade agreements would make them better off are now telling them that to ‘do well’ under these trade agreements, they must accept a substantial lowering of their standards of living. No wonder they no longer trust these politicians or the political system".

Ultimately, however, Stiglitz’s aim is to save the euro and the EU – and capitalism itself: "My hope is that the [Brexit] shock will set off waves on both sides of the Channel that will lead to this new, reformed European Union".

That Joseph Stiglitz can remain hopeful of such an outcome is not due to the strength of capitalism in Europe. It is because of the weakness of the forces opposing it, in the lack of mass parties committed to replacing this failing system with a socialist society that looks after the needs of all. For those fighting for such a society, The Euro is well worth reading. Despite Stiglitz’s somewhat repetitive style, his book is stuffed with information reinforcing the Marxist critique of the EU and its single currency.

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