
'Single currency experiment has been a disaster' admits economist Stiglitz - rottyguy
http://www.telegraph.co.uk/books/what-to-read/single-currency-experiment-has-been-a-disaster-admits-nobel-priz/
======
sevenless
> Stiglitz points his finger squarely at “the fatal decision to adopt a single
> currency, _without first providing the institutions to make it work”._

The second part of this quote means something quite different from what the
headline implies. He isn't advocating an end to the single currency, he wants
stronger institutions, which the Eurosceptics have undermined at every
opportunity.

~~~
bane
Something I don't understand, as somebody who's not a European, is that
stronger institutions, more centralization of power in some European-wide
political body, more executive control in crisis situations, etc. all points
very clearly to a European-wide Federal System a la the U.S., or maybe
Australia or Canada, with a centralized Federal government, and some executive
position -- all able to overrule local state autonomy.

But even many of my European friends who favor these things seem to not agree
that that's the inevitable vector that these institutions point to. I'm
certainly not saying that the system will mirror the U.S. system, but it
certainly will end being a system _like_ this if Europe continues on the
present unification course.

Is there some nuance of the direction that I don't understand? It seems like
as every crisis comes to Europe, advocates of pro-Europe seem to continue to
point to centralization and empowerment of a single over-arching European
government.

~~~
tim333
Voters are often not keen on being governed by another nationality or culture.
The US only managed to keep their federal system by fighting a war to prevent
the south doing their own thing and the Brexit vote is another sign the voters
are not keen. Much of the European project has been pushed through without
voter consent but there are limits.

~~~
cynusx
Voters are not keen on being governed by a government they didn't elect, if
you look at it that way then you can see the civil war as the final step in
the consolidation of the democratic authority that was vested in the US
president as the only directly elected official in the federal government.

The south didn't vote for Lincoln and attempted to secede with the US
president initiating the war to overturn the local state's right to do so.

I think a lot of europe's problems would be fixed by making the office of the
EU presidency a directly elected office in a similar fashion to the US
presidency. The EU would still require further centralization to maintain the
eurozone and to further deepen the EU single market. They are just required to
maintain our current levels of wealth and to fix the banking crisis that has
never really been solved in the EU.

A single individual with a policy platform that has gained legitimacy through
campaigning in all EU member states would settle questions related to the
future of the union and will be best placed to implement and direct policies
that benefit the majority of the EU population.

~~~
sevenless
That kind of comparison to American history could as easily imply a civil war
is the next step to consolidate the EU. It sounds ridiculous, but it's also
hard to imagine a peaceful federal unification of Europe.

~~~
cynusx
The US declared independence in 1776 and had the unification civil war in
1861. The political process is very gradual and even if a divisive issue such
as slavery would pop-up in the EU then I doubt it would escalate into civil
war. The EU has a lot of scar tissue related to wars.

If you consider that the US took 4 generations to unify and you consider that
present-day it is hard to imagine a peaceful unification then you should also
consider that the way you think about things is dramatically different then
the way your grandchildrens' children will perceive things.

For example, currently a large part of the EU population speaks english as
second language but it's hard to imagine that majority of voting-age EU
population to not speak english as second language in 80 years from now.

Speaking a single language will probably clear the biggest hurdle for
effective political union.

------
MatthiasP
Anyone who did an economics 101 class could predict that forcing such diverse
economies with populations reluctant to move to richer parts of the union into
a single currency would result in net wealth reduction. [1]

Even the bureaucrats in Brussels knew about this. It was still pushed through
because they wanted to accelerate the political union via the currency union,
ignoring the financial costs. What they did not expect was the US subprime
crisis to hit europe that hard and that early.

[1]
[https://en.wikipedia.org/wiki/Optimum_currency_area](https://en.wikipedia.org/wiki/Optimum_currency_area)

~~~
simongray
I don't disagree with your point, but just wanted to point out that "Anyone
who did an economics 101 class" is usually not the best people to get advice
from. Economics is field where the agreed mainstream consists of some
simplistic views of how an model economy could work in a sort of "perfect
vacuum" where certain unrealistic parameters apply: perfect information and
perfect competition, for example. The real value to economics as a discipline
does not lie with the introductory concepts, but rather on everything learnt
after Economics 101, i.e. the mess that is the real-world economy which
features transaction costs, political institutions, and all of the aggregated
effects of 7 billion agents with different psychology.

~~~
ivan_ah
Is there anything in ECON that's good then? I'm thinking 70% of first-year
ECON would be bullshit, but surely some ideas about demand and supply are
useful. Are you an economist? Or did you study economics? I'd like to publish
a book in the spirit of "Economics, only the good parts," and would be
interested to hear your opinion what to include.

For example, I really liked this class:
[https://www.edx.org/course/principles-economics-calculus-
cal...](https://www.edx.org/course/principles-economics-calculus-caltechx-
ec1101x-0)

------
bane
One of the surprising things in history is how well the Dollar has worked out,
and I think it's probably very instructive to study it.

The U.S. Dollar has a long and surprisingly complicated history as it worked
its way up to becoming the official currency of the U.S., and at each stage,
there was some _reason_ for it to move forward to unification.

For example, the U.S. civil war was one of those reasons. Before the war, the
U.S. had standardized coinage, but not paper money. After the war the U.S.
ran, effectively, two different currencies that exchanged between each other
(coins and bills). After dropping the gold standard, the exchange between the
instruments was pegged at 1:1.

But before this, paper money was issued by local banks, exchangeable for some
weight in silver (or other precious metal) coinage. Notes taken from one
region to another devalued simply because of distance from the issuing bank.
At one point there was thousands of different kinds of paper bills in
circulation, and several kinds of coinage (Spanish, Mexican, U.S., etc.)

I think as Europe slowly gravitates towards some kind of unified system, it
would have been far better for blocks of nearby or economically similar
countries to each adopt locally unified currencies and controlled, as a block,
exchange, duties, interest rates, etc. Thus we should have had a West Euro,
Greater Pound, Romancis, New Rubles, Drachmas, New Thalers, etc. and then
another couple steps of intermediate currencies and economic blocs.

Furthermore, the overlapping optional unification layers: EU, Eurozone,
Shengen, NATO, etc. was also a mistake. Economic, political and other ties
really need to be accepted all at once. Partial acceptance hasn't worked as
well as might be expected, and has only introduced complexity and confusion
over who gets say in what (these things are all deeply interconnected).

The unification experiments in Europe are noble, and are supposed to prevent
future crises, but when met with real crises (both internal and external) has
shown that the system put in place is overly fragile and not as normative as
had been hoped.

------
todd8
Here's what Milton Friedman said about it in _1997_ :
[http://www.greekcrisis.net/2012/08/the-euro-monetary-
unity-t...](http://www.greekcrisis.net/2012/08/the-euro-monetary-unity-to-
political.html)

~~~
jkn
Thanks, impressive foresight in the last paragraph (as of today; the picture
might yet get bigger of course):

 _The drive for the Euro has been motivated by politics not economics. The aim
has been to link Germany and France so closely as to make a future European
war impossible, and to set the stage for a federal United States of Europe. I
believe that adoption of the Euro would have the opposite effect. It would
exacerbate political tensions by converting divergent shocks that could have
been readily accommodated by exchange rate changes into divisive political
issues. Political unity can pave the way for monetary unity. Monetary unity
imposed under unfavorable conditions will prove a barrier to the achievement
of political unity._

~~~
toyg
I think it's not all black and white, and there's actually a bit of both at
play. Eurozone Countries now have no choice but to achieve increased levels of
fiscal and political coordination. That process will inevitably produce
friction, but this would have happened even without the currency. If anything,
a heightened level of friction creates an urgency that would not otherwise be
there.

If you are looking at it from a Brexit perspective, consider that shedding
skeptic countries that never joined the Euro is a _good thing_ in a federalist
sense, since it makes it easier to achieve consensus in a smaller and more
committed group.

In a way, losing Greece or Italy would have proven Friedman right, but the
opposite happened: the Euro survived, Greece and Italy now are forced to drive
their economy from a European perspective. De-facto political unity is
happening, country by country.

~~~
tonyedgecombe
It's interesting that despite it's economic difficulties Greece doesn't seem
want to leave the Euro.

~~~
tim333
Greece leaving would be problematic as Greece owes a lot of euros. If they
leave, Greeks earning devalued drachmas would probably default, causing the
German banks they owe money to to fail and generally causing a lot of issues.
I think they'd quite like to if it wasn't for such problems.

~~~
tonyedgecombe
I can't imagine the Greeks are too worried about what happens with the German
banks, it seems far more likely they just don't trust their own government to
run a fiscally sound monetary policy.

~~~
toyg
For southern countries, there is also an aspirational element. Knowing you are
guaranteed the same rights and privileges as people living in Paris, Berlin or
Stockholm is a powerful motivator -- if anything because you know that, should
things become completely unsalvageable back home, you can always up sticks and
leave to better-run countries.

------
redstripe
This claims the differences in language and culture provide enough friction to
keep people from migrating efficiently throughout the union. This seems at
odds to me with what has happened in the EU (especially Britian) - many who
voted for Brexit seem to have done it because they felt overwhelmed by the
foreign hordes.

~~~
teamonkey
Ironically the areas of the UK that most strongly voted for Brexit are also
generally the areas which see the lowest levels of immigration.

~~~
zigzigzag
The areas that voted most strongly for Brexit are the areas that have seen the
highest rate of change in immigration levels. It's the derivative not the
absolute value that causes pushback.

~~~
teamonkey
Since when though? Free movement within the EU has been in effect for 30
years.

~~~
zigzigzag
Since the EU expanded in 2004.

------
sfifs
The Euro project has basically demonstrated that a common currency ia not
possible sustainably without an fiscal union - ie. Willingness to underwrite
each others debt and transfer wealth from richer to poorer areas.

A fiscal union requires a true political union and it is very doable given the
right political stimulus - the most successful recent major example being
India which unified dozens of princely states (a couple of them merged
forcefully) and provinces speaking dozens of languages and having wildly
different cultures into a federal political union - the unifying political
stimulus being throwing out the British :-)

~~~
sfifs
Carrying the analogy further, what would have made Euro work I guess is
pushing hard for political.a nd fiacal union during the 60s/70s given the
threat of Soviet Union and the recent experiences of wars.

There's no real driving factor today for political union today so it is likely
Euro as it stands may not last our lifetime.

------
tom_morrow
"The Telegraph finally admits left-wing economist had it right all along."

~~~
tim333
Funny seeing The Economist as left wing. Wikipedia has it as "It takes an
editorial stance of classical and economic liberalism which is supportive of
free trade, globalisation, free immigration and cultural liberalism." Guess it
shows how right the right has gotten.

------
return0
So his idea is that, if the common currency did not exist, eurozone would be
better. Yet, the most affected people (the Greeks) are staunch supporters of
the Euro, and willing to suffer for it.

~~~
tomp
Are they? from my (non-local) point of view, it only looks like they prefer
the Euro _now_ (i.e. they're unwilling to be the only ones leaving it), not
that they think it was a good idea in general.

~~~
tonyedgecombe
If I was Greek and had savings I would want to stay in the Euro, the idea of
switching back to the drachma with it's likely inflation would be worrying. On
the other hand I wouldn't leave my savings in a Greek bank.

------
tonyedgecombe
The problem with economists is you get a different answer to the same question
depending on their political leanings. No wonder it's called the dismal
science.

