Joe Stiglitz on the future of the euro

During our interview with Nobel economist Joe Stiglitz in Paris on August, 28, 2011, Chris Ryan asked Stiglitz about the recent troubles with the euro. Here is the video, and a partial transcript:

CHRIS RYAN: Quick Question, since we're here in Europe, the euro, a lot of people are stressed - the French are stressed, the Italians, the Spaniards, people are really worried about the future of the euro. What's your take on where things are going?

JOE STIGLITZ: I think they should be worried about the future of the euro. When the euro was created there was a general recognition that it was not, what we call, an optimal currency area. It was going to be difficult. If one part of Europe faced, you might say, a greater shock than other parts, it wouldn't be any problem if everything is going well. But it was in a period of economic downturn -- we are now facing that, and the problems that were anticipated have now come to the fore.

JOHN ARAVOSIS: A three-front war instead of a one-front war.

STIGLITZ: Exactly. And the hope was, I think on the part of some, that when the further actions that were needed to make the euro work, that they would be taken, and that would require the creation of a European solidarity fund for stabilization. Those actions, the framework has now been taken, but the concern is the magnitude of what is required may not be up to what they are willing to do, and the political process in Europe is very slow. It has to be ratified by each of the parliaments. So, the question is, given the speed with which the economic events are unfolding, whether Europe will be able to respond fast enough. And, I think there is a resolve among the political leaders of most of the countries to make it work. But that may not be enough, given the turbulence in financial markets....

I think that it is really too soon to say about whether, what will happen to the euro.

ARAVOSIS: And why should we care as Americans what happens, so the euro doesn't do so well?

STIGLITZ: The breakup in the euro, or even turbulence in the euro, is going to mean that the European economies, one of our major trading partners, will be doing badly.

ARAVOSIS: "Badly" meaning what? Growth drops, banks go bankrupt?

STIGLITZ: Those are all possibilities. Growth will clearly drop, and some banks may face real severe problems. Many American banks are exposed to the risks of European banks. We don't know how much because of the lack of transparency in American banking. And that was one of the failures of the banking regulation, to make greater transparency. There is concern that the banks are under-capitalized, and concern about bad accounting in American banks, a lot of the bad real estate mortgages are still on the books and have not been written down. So financial crises in Europe could translate into financial problems in the United States, just like the financial problems in the United States, an economic downturn in the United States, was exported to Europe a few years ago. They may respond in kind.

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[oldickeastman]

I call on Joe Stiglitz to give any argument against repudiation of debt, against national treasury money, against helicopter distribution of all new money to households on a regular basis, against ending fractional reserve banking but allowing laissez-faire time-deposit savings lending for housing, while at the same time require that government always and only be financed by tax revenues from taxing households for public goods. There is a populist social credit candidate who offers this course

[cazal607]

I love him.