The Brutal Battle over the Euro

Joseph Stiglitz and then French Finance Minister Christine Lagarde, Paris, January 2011
Hamilton/REA/Redux
Joseph Stiglitz and then French Finance Minister Christine Lagarde, Paris, January 2011

The Harvard economist Kenneth Rogoff once told me, “Europe is like a couple that wasn’t sure they wanted to get married, so instead they decided to just open a joint checking account and see how things went.” Things went badly, as evidenced by the eurozone’s continuing struggle to move beyond its debt woes and toward any kind of sustained growth in the wake of the 2008 financial crisis. If Rogoff, author of The Curse of Cash,1 had his way, the euro might not exist—at least in paper or coin form. He argues for getting rid of hard currency of all kinds, not only to combat money laundering and tax evasion, but to allow governments around the world more latitude to run the sort of negative interest rates that will likely be needed to create any growth in the future. But that wouldn’t solve the core issue—a dysfunctional cross-cultural relationship at the heart of the EU. Europe is stuck in a conflict between, depending on how you think about it, France and Germany, or Germany and everyone else.

The central problem is that Germany wants everyone to be more German, meaning thrifty, stable, and willing to observe rules. France, Italy, and many other European states feel that, hey, everyone needs to be cut a bit of budgetary slack now and again. (The main reason Germany is flush, after all, is that the rest of Europe buys its exports, which would be much less likely to happen without a common currency.) The union should share and share alike.

As in every relationship, the truth is somewhere in between. But as the latest round of the eurozone crisis—including trouble at Europe’s largest and most systemically important financial institution, Deutsche Bank, as well as mounting worries over Italian banks and sovereign debt—has made clear, the eurozone continues to suffer from la douleur exquise, struggling to craft a happy union that would benefit all partners, economically and politically.

That’s bad news for us all, since Europe represents about a third of the global economy, which still hasn’t regained its pre-2008 momentum. (Global growth is lethargic and many European countries are struggling to stay out of recession.) The eurozone crisis is a huge blow to the post–World War II order, since the EU is the most benign version of globalization ever attempted. It’s what historian Arthur Schlesinger might have deemed a “crisis of the old order,” which is in this case the neoliberal economic idea that goods, people, and (especially) capital should be able to flow as they will, regardless of national borders. That’s an idea that is now under threat nearly everywhere. Even the International Monetary Fund (IMF) itself, once the standard-bearer of pro-market wisdom, recently released…



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