Stiglitz, Brunnermeier, and Zingales: Is the Euro Project Doomed?

Is the euro project doomed? Ever since the euro crisis began in 2009, numerous economists and observers have weighed in on this question, with some attributing the eurozone’s problems to the public debt issues of countries like Greece and Spain and others blaming the structural flaws in the design of the European single currency.

While the eurozone did register modest growth in the third quarter of 2016, the upcoming year looks to be rife with risks, as a number of European countries—France, Germany, and the Netherlands—will head to elections that polls predict will show a strengthening of anti-Euro extremist parties. As Europe continues to struggle with an immigration crisis, a potential banking crisis, a looming threat of deflation, and a possible populist revolt, many have begun to wonder if European leaders are capable of implementing the drastic reforms crucial for the euro’s survival.

With the euro’s future shrouded in doubt, two recent books have attempted to sketch a new way forward. In their book The Euro and the Battle of Ideas (Princeton University Press, 2016), Markus K. Brunnermeier, Harold James, and Jean-Pierre Landau depict the euro crisis as being driven primarily by an ideological clash between the opposing economic philosophies of France and Germany, and subsequently by the inherent tension between Germany’s rigidity and France’s more flexible approach. The authors criticize the architects of the European currency for failing to reconcile these differences in time, instead opting for a system of incessant compromising. Arguing that the survival of the Euro is dependent upon rapprochement and further integration, they assert that these philosophical differences can be ironed out, partly through a European insurance mechanism.

In his new book The Euro: How a Common Currency Threatens the Future of Europe (W. W. Norton, 2016), Nobel laureate Joseph Stiglitz presents a far less optimistic take, arguing that the euro has indeed failed Europe and that the European currency’s faults outweigh its benefits. The decision to create the euro without the underlying institutions necessary to make it work, argues Stiglitz, has turned the single currency into a disaster that exacerbated the existing economic gaps among European countries. Stiglitz, too, calls for fiscal integration, and argues that without integrating rapidly, European nations will have no choice but to abandon the euro entirely.

The question of whether the leadership of Europe can overcome its political differences and implement reforms on time, however, remains open. Is the euro doomed, or is the euro crisis only a necessary hurdle on the way to closer political union? On November 30, Stiglitz and Brunnermeier will discuss their opposing views on the euro in a Stigler Center panel. The panel will be moderated by Luigi Zingales, author of the recent book Europa o No (Rizzoli, 2014 – in Italian) and a professor at the University of Chicago Booth School of Business (also, one of the editors of the ProMarket blog). 

The event will take place on Wednesday, November 30, at 12pm at the University of Chicago Booth School of Business. Register here. 

ProMarket Writers are guest contributors to the Oxford Business Law Blog. This post has also been published on the Promarket blog of the Stigler Center at the University of Chicago Booth School of Business.