Joseph Stiglitz, winner of the Nobel Prize for economics and professor of economics at Columbia University, said that the current pursuit of austerity by European nations is a move toward “suicide” and that such a policy has never worked in any large country.
Bloomberg reported late Thursday that Stiglitz, speaking in Vienna, said that a mass concentration on resolving the fiscal woes of Europe by a focus on austerity was the wrong approach. “There has never been any successful austerity program in any large country,” he was quoted saying. “The European approach definitely is the least promising. I think Europe is headed to a suicide.”
Austerity measures across Europe currently total about 450 billion euros ($600 billion) as the 27 members of the European Union devote their time and energy to combating the sovereign debt crisis. However, as austerity shuts down growth it has been exacerbating the situation, leading to rising job losses and decreased consumption by consumers tightening their belts; that in turn takes its own toll on businesses forced to cut back.
Authorities, said Stiglitz, could ignore austerity if it were only Greece imposing such policies on its people. He added, “but if you have U.K., France, you know, all the countries having austerity, it’s like a joint austerity and the economic consequences of that are going to be dire.”
Despite the fact that euro zone leaders “realized that austerity itself won’t work and that we need growth,” Stiglitz said, they have taken no action to change the situation, and “what they agreed to do last December is a recipe to ensure that [the euro] dies.” He went on to say, “The problem is that with the euro, you’ve separated out the government from the central bank and the printing presses and you’ve created a big problem,” adding, “austerity combined with the constraints of the euro are a lethal combination.”
Conjuring up a “likely scenario if Europe maintains the austerity approach,” Stiglitz said that he foresees a core euro area of “one or two countries” that would consist of only Germany and perhaps the Netherlands or Finland. “The austerity approach will lead to high levels of unemployment that will be politically unacceptable and will make deficits get worse.”
He also pointed to the unemployment situation in Spain, particularly for youth—the unemployment rate for the young has hovered at 50% since the onset of fiscal woes in 2008, with “no hope of things getting better anytime soon.” Said Stiglitz, “What you are doing is destroying the human capital; you are creating alienated young people.”