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Stiglitz on Common Currency Threatening Europe Future (Audio) · Bloomberg Intelligence

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  Speaker 1: You're listening to Taking Style with pin Box at Kathleen
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  Speaker 1: Hayes on Bluemberg Radio. Our next guest has come a
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  Speaker 1: long way from Gary, Indiana. He is a professor of
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  Speaker 1: economics at Columbia University. He is a Nobel Prize winning economist,
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  Speaker 1: and he has a new book entitled The Euro Common
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  Speaker 1: Currency Threatens the Future of Europe. We welcome Joseph Stieglitz.
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  Speaker 1: Professor Stiglitz, thank you for for being with us. I
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  Speaker 1: wonder if you could just start off by asking you
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  Speaker 1: why did you decide to write this book? Well, UH,
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  Speaker 1: Like a lot of books, it comes out of a
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  Speaker 1: series of uh uh lectures and ideas that I've discussed
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  Speaker 1: for years. UH. I get invited off into Europe. UH
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  Speaker 1: and uh the failings of the European economy are on
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  Speaker 1: the minds of everybody there. And the question was why
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  Speaker 1: is Europe doing so much more poorly than the United States,
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  Speaker 1: Especially since two thousand and eight the crisis started into
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  Speaker 1: the United States. You would have thought we would have
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  Speaker 1: had the hardest time Europe. Uh has been basically stagnating
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  Speaker 1: for almost a decade now. And the answer came out.
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  Speaker 1: It was the euro and UH as I talked to people,
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  Speaker 1: it became clear that there was not as clear an
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  Speaker 1: understanding of why the Euro was was giving rise to
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  Speaker 1: all these problems. Well, Joe, you know, uh you did.
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  Speaker 1: You were one of the few two who questioned the
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  Speaker 1: the European project, who questioned the initiation of the Euro Area,
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  Speaker 1: the single currency, financial and monetary union, etcetera. There were
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  Speaker 1: many at the time though, or I maybe I shouldn't
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  Speaker 1: say many, but there was a big debate when the
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  Speaker 1: Euro Area was set up. Because from a theoretical side
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  Speaker 1: of economics, you think of Ronald McKinnon, for sample, a
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  Speaker 1: prominent economist at Stanford University for so many years. Many
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  Speaker 1: of the morning Look, if you have if you have
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  Speaker 1: economies with low inflation versus very high inflation, you can't
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  Speaker 1: put them in a common currency. And yet over and
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  Speaker 1: over and over that's what the officials in these countries
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  Speaker 1: seem to have done. They seems that they they've planted
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  Speaker 1: the seeds for their own issues, their own problems. I
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  Speaker 1: agree with you in a way, it was uh they
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  Speaker 1: thought of themselves as visionaries, uh uh, pushing aside these
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  Speaker 1: people who are raising h nippicking points and creating a
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  Speaker 1: single currency that would create the momentum that would lead
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  Speaker 1: to more and more political and economic integration. But even
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  Speaker 1: no matter how good your intentions and how strong your ambitions,
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  Speaker 1: you can't ignore the roles of that comics and the acts.
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  Speaker 1: I think was the fundamental thing. It was a political
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  Speaker 1: project in which the politics was not strong enough to
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  Speaker 1: create institutions that would make Hero work Professor Stiglett's Does
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  Speaker 1: this mean that Europe will break apart into the kind
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  Speaker 1: of factionalism that has led to two World Wars? No? No,
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  Speaker 1: not not by any means. I mean, I think in fact, uh,
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  Speaker 1: what I worry about is the continuation of the Euro
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  Speaker 1: is likely to be more very is being very divisive.
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  Speaker 1: You know, I've been traveling to Europe regularly for roma's
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  Speaker 1: half century, and I've never seen the level of divisiveness
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  Speaker 1: that I've seen in recent years because of the Euro,
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  Speaker 1: because of what it is doing to uh make the
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  Speaker 1: rich richer the poor poor, both within and between countries
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  Speaker 1: and with basically economic policy, and so many of the
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  Speaker 1: countries like Italy, Spain and and Greece being dictated from
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  Speaker 1: Germany and next inevitably going to increase resentment where you
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  Speaker 1: get the buyings between creditors and debtors. That's going to
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  Speaker 1: cause resentment. And so the Europe was supposed to promote convergings.
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  Speaker 1: You know, you talked about large differences. It was supposed
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  Speaker 1: to make them more similar. In fact, E exacerbated the differences. Well,
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  Speaker 1: you know, Joe, I really like the E r M
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  Speaker 1: back of the nineties exchange rate mechanism where it wasn't
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  Speaker 1: a single currency, but there were bands that each country
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  Speaker 1: had to keep their currency within and they could use
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  Speaker 1: their monetary policy, they could use the exchange rate policy
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  Speaker 1: to achieve that. Again, you in your book, your brand
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  Speaker 1: new book The Euro How Common Currency Threatens the Future
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  Speaker 1: of Europe, you do offer a couple of ideas for
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  Speaker 1: what could be done. What's the number one idea? Isn't
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  Speaker 1: is there any chance that will happen? Well, in a way,
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  Speaker 1: one of the ideas that I put forward to which
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  Speaker 1: I call the flexible Europe, is very reminiscent of the
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  Speaker 1: R A M. With one difference. What I'm calling for
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  Speaker 1: is the creation of some institutions that would help stabilize
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  Speaker 1: the currencies within the narrow band, and over time, if
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  Speaker 1: those institutions work, if there's enough Uh, coordination and collaboration. Uh.
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  Speaker 1: They might be able to actually to make a single
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  Speaker 1: currency work, but they're not there yet. So they in
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  Speaker 1: a way, they put the cart before their horse. So. UM.
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  Speaker 1: The question, the last question you ask is is really
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  Speaker 1: the hardest, Uh. Where And it's it's one about more
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  Speaker 1: about politics, and or as much about politics as it
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  Speaker 1: is about economics. Um, where will they go? It's been
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  Speaker 1: very frustrating to watch the stagnation in Europe and the
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  Speaker 1: leaders not being willing to revisit some of the key
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  Speaker 1: issues to key policy is the structural reform of the
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  Speaker 1: Euro and trying to blame the problems on the individual countries. UH.
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  Speaker 1: So that makes me a little bit pessimistic. What I
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  Speaker 1: think is the most likely thing to happen beyond muddling through,
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  Speaker 1: is that at one point or another, the voters will
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  Speaker 1: get fed up. UH. And already we're seeing in many
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  Speaker 1: of the countries a move from the centrist parties to
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  Speaker 1: the extreme right and extreme left. Uh. And on both
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  Speaker 1: of those two uh, there is very strong support for
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  Speaker 1: leaving the Euro. So what what I think uh is
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  Speaker 1: a realistic scenario unless the leaders change course, and that's
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  Speaker 1: mainly germanying some of the other Northern European countries. Unless
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  Speaker 1: they change course, there will be a demo cratic movement
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  Speaker 1: that will upset the strategy, if you can call it
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  Speaker 1: that of muddling through. You said a democratic movement. What
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  Speaker 1: happens if there's not a democratic movement instead of voters
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  Speaker 1: making their voice heard, what if demonstrations and violent protests
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  Speaker 1: makes their voice heard, just as it was in Greece. Uh,
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  Speaker 1: back's another example of what I call democratic, I mean
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  Speaker 1: either grassroot or electoral. You noticed in in Greece it
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  Speaker 1: was the people voted against the austerity policies, but in
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  Speaker 1: the end, the structure of the euro and the Eurozone
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  Speaker 1: meant that the voices of the majority of the citizens
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  Speaker 1: couldn't be heard. And that is a real problem. That
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  Speaker 1: is to say that what has been happening is that
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  Speaker 1: the voters constantly vote for a change in economic policy,
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  Speaker 1: and what happens is they said, oh, no, you can't
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  Speaker 1: change economic policies. Uh, We've delegated those economic policies uh
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  Speaker 1: to Germany, to Brussels. And that that I think is
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  Speaker 1: deeply disturbing to democratic processes. I just want to switch
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  Speaker 1: heres here, Joe. We have about a minute or so left,
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  Speaker 1: because I want to ask you about the Bank of Japan.
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  Speaker 1: Governor Corota did an interview published over the weekend saying
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  Speaker 1: that as they reassess their policy of negative rates and
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  Speaker 1: someone call it unprecedented quantitative easing, that the Bank of
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  Speaker 1: Japan can go further more easing deeper negative rates when
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  Speaker 1: they meet next month. What do you make of that?
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  Speaker 1: Is that a good move or a mistake? Well, I
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  Speaker 1: think it illustrates that that the monetary policy is reaching ulmics.
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  Speaker 1: Uh as you notice, uh, you know, it hasn't succeeded
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  Speaker 1: in really resuscitating the growth of Japan. Although uh, in
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  Speaker 1: many ways, Japan is not the basket case that sometimes describe.
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  Speaker 1: Once you take into account and the fact that they're
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  Speaker 1: working population, working age population has been growing much more slowly.
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  Speaker 1: In fact, its declining while that and say United States
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  Speaker 1: has been increasing. Once you take account of that, javan
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  Speaker 1: is not really doing that uh poorly. But what is
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  Speaker 1: clear is that monetary policy is not enough to restuscitate
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  Speaker 1: the economy. And I think it was a good move
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  Speaker 1: of Bobby to postpone the increase in the consumption tax.
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  Speaker 1: What they really need is a more comprehensive strategy which
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  Speaker 1: includes I think uh A a carbon tax that would
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  Speaker 1: stimulate investment in green technology. Joe Stiglets, thank you so
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  Speaker 1: very much for joining us. Joseph Stiglas, Professor of economics
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  Speaker 1: at clumb University, when are the two thousand one Nobel
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  Speaker 1: Prize in Economics, Talking to a about his new book
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  Speaker 1: The Euro How a common currency threatens the future of Europe.
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  Speaker 1: He said, the Europeans need to find ways to create
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  Speaker 1: more economic divergence than convergence. Rather than divergence, This is
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  Speaker 1: Bloomberg