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Nobel Prize-Winning Economist Says Fate Of Euro Is In The Balance

Economist Joseph Stiglitz speaking at the Forum 2000 Conference in Prague

Economist Joseph Stiglitz speaking at the Forum 2000 Conference in Prague

Joseph Stiglitz, who won the Nobel Prize for Economics in 2001, has served as chairman of former U.S. President Bill Clinton's Council of Economic Advisers and as chief economist at the World Bank.

A professor at Columbia University, he is a critic of austerity, unfettered globalization, and "free-market fundamentalism."

Dragan Stavljanin of RFE/RL's Balkan Service caught up with Stiglitz at the Forum 2000 Conference in Prague this week to discuss the crisis in Europe and the risk of a new global recession.

RFE/RL: What do you think of claims that the world is entering a recession that could be even deeper than in 2008?

Joseph Stiglitz: You can view our current problems as an extension of the 2008 crisis. GDP in many countries is still below the peak of what it was before. So we haven't really had a recovery. Wages are still below what they were before. So we haven't really had a recovery. And we haven't really fixed the system. We've improved it in some dimensions but in other dimensions it got worse.

RFE/RL: So are we entering another recession or are we in a recovery?

Stiglitz: The answer is we don't know. Nobody's crystal ball is clear. But there is a high likelihood that we will have growth that is much too slow to restore the economy to full employment [and normality] and some probability that we will have a serious downturn.

RFE/RL: The world is mostly dealing with this by cutting budget deficits as in the case in the United States and in Europe. There seems to be no attempt to reform the system that led to this crisis in the first place. Is that correct?

Reagan-Thatcher deregulation was at the core of the amplification of the crisis through the financial system.
Stiglitz: I think that's right. There was a slight attempt after 2008 but it was beaten back by the banks. A little bit happened. But for the most part it was beaten back. Austerity is going to make things worse in terms of economic growth which you can see in Greece, Latvia, Ireland, and Portugal.

So we're getting more and more data supporting the view that it is actually going to have a counterproductive effect in terms of growth.

And we haven't dealt with the underlying problems. And in fact, some of those underlying problems have gotten worse -- too-big-to-fail banks, inequality, all those things have been exacerbated by the crisis.

RFE/RL: More broadly speaking, some critics say neoliberalism as well as the policies of former U.S. President Ronald Reagan and former British Prime Minister Margaret Thatcher were the cause of this crisis and that a return to Keynesian economics and a stronger welfare state is needed to get out of it. Do you agree with this assessment?

Stiglitz: I think that Reagan-Thatcher deregulation was at the core of the amplification of the crisis through the financial system. And that has to be corrected.

I also think part of the underlying problem is the high growth of inequality in our society, which is not being addressed. And just going back to Keynesian policies and regulation is not enough to address the problems of inequality. Going back to regulation is necessary but not sufficient to solve the problems.

RFE/RL: And on the crisis in Europe, given the problems in Greece and elsewhere do you expect the euro to survive as a currency?

Stiglitz: A lot of this depends on how Europe responds to the crisis in the peripheral countries. In their July agreement, they said Greece needs growth if it is going to deal with its debt, and they couldn't get growth under austerity.

So there was an agreement to provide a growth package, but they didn't provide that. So I think it is an open question [whether the Euro survives] and it really depends what the political leaders do.