THE WAY FORWARD - A WAY FORWARD - Summary and Analysis of The Euro: How a Common Currency Threatens the Future of Europe - Joseph E. Stiglitz

Summary and Analysis of The Euro: How a Common Currency Threatens the Future of Europe - Joseph E. Stiglitz (2016)



This book has provided a bleak assessment of the state of the eurozone and the prospects going forward. I have described the underlying flaws in its construction, how they were the result in part of flaws in economic understanding but also in part of a lack of political will and solidarity. We have seen how that same lack of economic understanding and solidarity has led to the flawed response to the crisis.

It is not just Europe’s present that is being sacrificed but also its future. The euro was supposed to “serve” the European people; now they are asked to accept lower wages, higher taxes, and lower social benefits, in order to save the euro. And it is not just Europe’s economy that is being sacrificed but, in many ways, confidence in its democracy.

The Germans and other leaders in the eurozone have put forward the idea that “there is no alternative” (TINA) to their draconian policies. I have explained how there are—alternatives that would even make the creditors better off.

In this concluding chapter, I want to address three questions: Where is the eurozone likely to go? Why is it taking the course that it is—is there something else beneath the surface that is playing out? And why is the European project so important?


I have outlined three alternatives to the current strategy of muddling through. I know which I would prefer if I were a European—the reforms described in chapter 9 that would make the eurozone work.

Economists have a poor record in forecasting—the Troika may have set new records in serially bad forecasting when it came to their programs around the eurozone—but political forecasting is even more difficult. I worry, though, that even the amicable divorce or the flexible euro will be put aside, as the current strategy of muddling through continues. The afflicted countries will be given just enough hope for the future to stay inside the eurozone. Germany and others in the eurozone will play on the strong support in Greece and elsewhere for the eurozone: the citizens in these countries irrationally see not being in the eurozone as being not in Europe or the EU, forgetting about Denmark, Sweden, and the UK, which are in the EU but not in the eurozone; or forgetting about Switzerland, Iceland, and Norway, which are not even in the EU but are very much part of Europe.

The political scenario going forward then is not pretty: with the centrist parties committed to the euro losing ground to parties more to the extreme; in the case of Spain, the continued growth of parties asking for regional independence. Throughout Europe, as the fears of unemployment spread, we are likely to see the growth of parties rejecting Europe’s openness, wanting especially to close its borders to migrants. No one can be sure when the political will to stay in the euro will break in one country or another. But it is clear that there is a risk, even a significant probability that that will happen. One can already see it in the votes.

And when that break does happen, there is a risk of the floodgates crashing down: if any country exits smoothly, then almost surely others will join, unless before then the Troika has relented and/or these countries have recovered—and at present, both of these seem remote possibilities. That these dramatic events would have profound economic and political consequences not just for Europe but for the world is an understatement.

Europe’s leaders viewed themselves as visionaries when they created the euro. They thought they were looking beyond the short-term demands that usually preoccupy political leaders. The future of Europe and the euro now depends on whether the current political leaders of the eurozone can combine a modicum of economic understanding with a visionary sense of, and concern for, European solidarity.


I have remarked several times that there is something strange about the policies imposed on the afflicted countries. Normally, lenders impose conditions on borrowers designed to enhance the likelihood that the loan will be repaid. By contrast, the conditions imposed by the Troika reduced those countries’ capacity to repay, particularly in the case of Greece. As I write this, Greece is in a deep depression and has been so for years, with a 27 percent fall in GDP from its peak, a 24 percent unemployment rate, and a youth unemployment rate more than twice that: I can think of no depression, ever, that has been so deliberate and had such catastrophic consequences.

It is thus natural to ask, what is going on?


One possibility—a real one—is that the architects of austerity truly believed in the economic doctrines that they espoused, in spite of the overwhelming evidence against them accumulated over more than three-quarters of a century.

Advances in behavioral economics and psychology provide some explanation for the persistence of such beliefs—the theory of confirmation bias holds that individuals discount information that is not consistent with their prior beliefs. And in our complex world, it is easy to do so. It is hard, of course, to deny the decrease in Greece’s GDP. But it is possible to find alternative explanations—Greece didn’t do everything that it should have done.

I had seen such rationalizing on the part of the IMF in the multiple failed programs in developing countries and emerging markets. The programs were well designed, it was argued; the failure was one of implementation on the part of the country. Such arguments, I believe, are disingenuous—an attempt to shift the blame for the failure of the program to the victim of the program.


As we’ve seen, in the case of the 2015 program imposed on Greece, there was an attempt to blame Greece for the poor performance, and even the poor design, of the program. If they had only bargained better … If they had only had a more conciliatory finance minister than Yanis Varoufakis, one who adhered better to conventions (finance ministers always wear ties, but Varoufakis refused), one who was not so aggressive. Even many Greeks blamed themselves.

I had watched Greece negotiate programs with the Troika over a half-decade, first with the mild-mannered, intelligent, conciliatory George Papandreou, then with his successor, Antonis Samaras, and finally with the Syriza government. It is hard to detect much, if any, difference in outcomes.

It is not surprising that Germany and others in the eurozone would blame Greece. They would rather hold on to their incoherent and discredited theories; to reconcile what happened with what their theories predicted meant they had to blame Greece: the patient wasn’t following the doctor’s orders. In fact, few if any democracies have been able to achieve the magnitude of “fiscal consolidation”—reduction in the size of the fiscal deficit—in the span of a few years that Greece achieved. They succeeded in transforming a large primary deficit into a surplus in five years.

Even the way the money was given had the effect of making Greece look more dependent on Germany and its other eurozone partners than it was. The short-term credit, with tranches being dribbled out, helped reinforce the unfavorable image of Greece. Compare a five-year $100 billion loan with a sequence of five one-year loans, where the debt keeps getting rolled over. In the latter case, Greece has had to borrow $500 billion—and it still hasn’t gotten things in order. Of course, in terms of money, the two are identical. But to ordinary citizens, not used to the tricks of high finance, it makes a great deal of difference whether Greece has been lent $100 billion or $500 billion. The latter number seems to make it clear that Greece is on the dole.

As we’ve seen, Greece has gotten but a pittance of the money loaned—most of it went to private sector creditors—but it has paid a high price to preserve other countries’ banking systems.

The scenario is eerily similar to the predatory lending now rampant in the United States. A poor American will buy a $500 couch, overpaying by two or three times in order to get credit. Credit is provided at a rate of 200 percent a year. If a payment is missed, fees are added. Within a couple of years, the poor individual owes $2,000. But it’s not like he’s been living high on credit. His only profligacy was the $500 couch. All the rest is interest, interest on interest, and interest on the interest on the interest. In the case of the predatory lender, it is about money—the banks and other predatory lenders have figured out how much they can fleece poor people within the law.

But here, something else is going on. The IMF and the other “official” creditors do not need the money that they are demanding. Nor are they in the business of making profits. Under a business-as-usual scenario, the money received from Greece would most likely just be lent out again to Greece (typically, almost immediately)—to be given back again to the lenders, in a grand charade, a shell game, but one with real consequences.

As each loan, as each tranche of each loan, gets discussed, the Troika puts in demands that Greece finds unacceptable. And of course, politically, it is unpalatable for any Greek politician who cares about his country to simply throw people out on the street, as one Troika demand implied. But, with Greece resisting the demands of the Troika time after time, the country looks increasingly like a recalcitrant and unrepentant borrower. At least back at home, Germany’s case for treating Greece so tough is reinforced.


The German attitude discussed in chapter 1, referred to as TINA, set the tone for the negotiations: on the variable most critical for macroeconomic performance, the primary surplus, there was little if any give—in 2015, Syriza’s government succeeded in postponing the pace of tightening a little bit, in recognition of the changed circumstances, but the 2018 primary surplus of 3.5 percent remained fixed. Germany wouldn’t even negotiate with the IMF on the question of debt restructuring, which everyone knew had to occur. As we noted in chapter 7, Greece was made to sign up to a program that all parties knew was incoherent, the pretend and extend of no debt restructuring.

Some within Europe, with little background in economics, could fool themselves into believing that the program would work. When individuals come to a belief that is countered by evidence—beliefs that cannot and will not be shaken by evidence—we say that they are blinded by ideology. In recent years, we have seen ideologies shape behavior in a number of spheres of public and private life. In the arena of economics, so closely linked to politics and policies that shape society, it is no surprise that ideologies often play an important role.


Almost as surprising as the Troika’s not learning from history—that such private and public austerity virtually always brings recession and depression—is that Europe’s leaders have not even learned from the experiences within Europe.

The IMF should be complimented for at least recognizing that contractionary policies are contractionary, and at least it recognized some of the mistakes in the policies that had been imposed in the cases of Greece and Ireland.1Apparently, the other members of the Troika were unhappy with such honesty.2

The Troika, as we have noted, is still demanding that Greece achieve a primary budget surplus (excluding interest payments) of 3.5 percent of GDP by 2018 and beyond. That target is punitive. Ironically, not only have these policies cost Greece a depression, they have already cost the creditor countries substantial amounts and are likely to cost them still more in the future.


Why would Europe act in this way? Why did European Union leaders resist Papandreou’s first proposal of a referendum, or the Syriza government’s 2015 referendum—refusing even to extend by a few days the June 30 deadline for Greece’s next payment to the IMF? Isn’t Europe all about democracy? Papandreou believed that he would win the referendum—that a majority would support his painful measures; and he believed that that support was necessary for the effective implementation of the program. The Syriza government wanted to ensure that there was democratic legitimacy in their accepting a program that was so at odds with what so many in Greece had asked for, so at odds with the elections of January 2015.

That concern for popular legitimacy was incompatible with the politics of the eurozone, which was never a very democratic project. Most of its members’ governments did not directly seek their people’s approval to turn over their monetary sovereignty to the ECB. Moreover, the political accountability of the ECB, the major eurozone institution itself, was limited. When Sweden and Denmark sought public approval to join the eurozone, their citizens said no. Perhaps these polities understood that unemployment would rise if the country’s monetary policy were set by a central bank that focused single-mindedly on inflation. In the early 1990s, Scandinavians had painfully learned the consequences of paying insufficient attention to financial stability, as they experienced their worst economic downturn since the Great Depression.

Today, part of the popular resistance to the euro is the concern of excessive influence of Germany and the ideas and ideologies that prevail there. In this book, we have repeatedly noted the role that neoliberalism has played in shaping the eurozone’s structure and policies. In many other countries, prevailing opinion agrees with those expressed by the research department of the IMF and by this book: austerity is contractionary and the Troika policies are counterproductive. But within the eurozone, such ideas have been given short shrift. It is not, of course, that Germany runs the ECB or the European Commission, the other two members of the Troika. Indeed, the ECB has never been headed by a German, and some of its policies, such as quantitative easing, have violated its orthodoxy. Yet, somehow, the old adage that “he who pays the piper calls the tune” has by and large played out. With the strongest economy in the eurozone, its dominance of policy is perhaps not a surprise.3

One might, accordingly, think that Germans would be enthusiastic about the euro. At the time the euro was created, many worried that, tethered with the profligate countries of southern Europe, the euro would be a weak currency and the eurozone would be marked by inflation. They got what they wanted, and perhaps more: a strong currency and a region bordering on deflation. But even in Germany, some polls show that almost two-thirds of its citizens think their country would be better off outside the eurozone4—though their reasons are different. They believe that they will eventually be forced to “share” with their poorer neighbors to the south in some bailout.

Sure enough, what one saw unfold, 16 years after the start of the eurozone, was the antithesis of democracy: Many European leaders in Europe wanted to see the end of Prime Minister Alexis Tsipras’s leftist government. They seemed to believe that they could eventually bring down the Greek government by bullying it into accepting an agreement that contravenes its mandate.

In the end, they failed to bring down the government—Tsipras was given a new mandate in 2015 with an even larger majority. But he was forced to accept conditions that were antithetical to what the vast majority of Greece’s people wanted. Greece had surrendered its economic sovereignty in order to stay in the eurozone. When I saw Tsipras returning from Brussels, having finally yielded to the demands of the Troika, the image of President Suharto surrendering Indonesia’s economic sovereignty 18 years earlier to the IMF, with the IMF’s managing director, Michel Camdessus, lording over the once-powerful leader, came to mind.5

As bad as things may be now, there are proposals for further “reform” of the eurozone that would make matters worse. Germany has clung to the notion that countries must live within their budgets, and if they only did so, then all would be well. And to enforce the rules, Wolfgang Schäuble, Germany’s finance minister, together with Karl Lamers, the CDU (Germany’s conservative party) former foreign affairs chief, have proposed “a European budget commissioner with powers to reject national budgets if they do not correspond to the rules we jointly agreed.”6 In effect, an appointed commissioner would have the ability to veto the actions of national parliaments.7


Though few would admit it, the debate—the struggle—over the euro is as much or more about power and democracy, about competing ideologies, visions of the world and the nature of society, than it is about money and economics.

This is not simply an academic debate between the left and the right. Some focus on the political battle: the harsh conditions imposed on the left-wing Syriza government should be a warning to any in Europe about what might happen to them should they push back.8 Some focus on the economic battle: the opportunity to impose on Greece an economic framework that could not have been adopted in any other way.

It is striking how the Troika has failed to convince the citizens of Greece, Portugal, and Spain of the virtue of their policies. I believe strongly in democratic processes—that the way to achieve whatever framework one thinks is good for the economy is through persuasion. In the current case, Greek, Portuguese, and Spanish citizens seem to have a better grasp of economics than Germany’s finance minister or the Troika.

Even if one weren’t deeply committed to democracy and democratic processes, the success of the programs being foisted on the crisis countries depends in part on “ownership,” on their believing that the medicine, as painful as it is, is the right medicine. The Troika has convinced some in the crisis countries that that is the case (more than I would have thought, given both the weight of theory and evidence against them). But the polls show convincingly that the majority have not been convinced.

Anyone engaged in public policy knows how important public perceptions are. If these public perceptions are wrong, then successful policy implementation requires countering them. For instance, in all countries, tax collections depend largely on voluntary compliance, but when the tax system is viewed as unfair and biased, one should not expect increased compliance—no matter how many lectures are given about the laziness and noncompliance of Greek citizens. So, too, programs that entail alienating and demoralizing the bureaucracy that is supposed to carry them out, and include cutbacks in their resources, predictably won’t be carried out well.

In the days of the repeated crises in emerging markets, when IMF programs failed, the IMF would say that the programs were well designed. They wanted to shift blame for the failures to the countries: the problem was with the implementation. So, too, with the repeated failure of the Troika programs. It is an oxymoron to say programs are well designed when there are repeated and consistent failures in implementation. Programs must be designed so that ordinary mortals—bureaucrats constrained by resources, and political leaders constrained by electorates to whom they are responsible—can carry them out. And success requires the support of both the electorates and the bureaucracy. The Troika seems not to have recognized this; indeed, with their antidemocratic stances, for instance against referenda, they seemed openly hostile to these perspectives.

I am not so Pollyannaish to believe that democratic politics will necessarily lead to good economic or social policies. Americans who have seen economic policies pushed by conservatives in the United States, with strong support of electorates in certain states, have to recognize this: the result in some states has been austerity in an era of negative real interest rates when real returns to public investments are enormous. The repeated revival of supply-side economics, after its predictions have been strongly shown to be wrong just years earlier, provides another instance. But neither am I Pollyannaish about experts: it was the so-called experts in the financial sector who developed regulatory and macro-management models that led to the crisis of 2008. It was the experts who believed that the euro would lead to stronger economic performance.

In much of the world, there is a growing understanding that the ideology of the right has failed, and so, too, its economic doctrines of neoliberalism. As an American, I have seen and experienced this: beginning around 1980, the country began a bold experiment, of lowering taxes on the top, allegedly to improve incentives, and “freeing the economy,” deregulating, especially the financial sector. The results are now in: the bottom 90 percent have seen their incomes stagnate, large proportions have seen their incomes fall; only those at the very top have done well. And the economy as a whole has performed more poorly, with growth lower than that in the decades after World War II. The right rewrote the rules of the market economy in ways that benefited the few; that is why there is now a campaign to once again rewrite the rules, but this time to benefit the vast majority of Americans.9

The eurozone was another attempt to rewrite the rules—another attempt that has led to more inequality and economic stagnation. With these ideas now having failed on both sides of the Atlantic, it is no wonder that their devotees are on the defensive and have to rely on force (or in some cases, deception and unholy alliances with anti-immigrant groups) to achieve their political ends.

Austerity is contractionary; inclusive capitalism—the antithesis of what the Troika is creating—is the only way for creating shared and sustainable prosperity.10 But austerity is only part of a grander strategy concerning the role of the state. For instance, Wolfgang Schäuble has argued “that under normal economic circumstances the rate of public expenditure should not rise faster than the nominal growth rate.”11 There is, however, no general theory—either in economics or in political philosophy—in support of such a conclusion. If, as is the case in most countries, government is responsible for health care, and as people become richer and live longer, they as a democratic society decide to devote more public spending to health care, why should that not be done?

The changing structure of our economy and society may well call for an increasing share of public expenditures: in an innovation economy, basic research becomes increasingly important, and only government can finance such research; with more and more individuals living in cities, there is a growing need for publicly provided urban amenities; with heightened inequality associated with the market economy, a stable and just society may wish to undertake more aggressive actions to combat it; with global warming and other environmental risks, the government may need to do more to protect the environment.

The issue here, however, is not who is right, or which view is right. What concerns me is that the economic framework of the eurozone is being used to push for a particular set of views concerning the economy and society—and these perspectives are effectively being imposed on the crisis countries.12


It is not in the interest of Europe—or the world—to have a country on Europe’s periphery alienated from its neighbors, especially now, when geopolitical instability is already so evident. The neighboring Middle East is in turmoil; the West is attempting to contain a newly aggressive Russia; and China, already the world’s largest source of savings, the largest trading country, and the largest overall economy (in terms of purchasing power parity), is confronting the West with new economic and strategic realities. This is no time for European disunity and economic weakness.

I would argue even more strongly that all people have an interest in the success of the European project. Europe was the source of the Enlightenment, which resulted in the increases in living standards that have marked the last two centuries. The Enlightenment, in turn, gave rise to modern science and technology. We too often forget that for eons before, standards of living had changed little.13

In many parts of the world, and often even within the United States, while the fruits of the Enlightenment are readily enjoyed, its basic values are questioned. One of my friends in the Obama administration, exhausted from fighting to prevent global warming and climate change, has commented that he has to relitigate the Enlightenment every day. Europe has been in the forefront of the battle to save the planet; a more united Europe would be better able to wage that battle.

The Enlightenment was marked, too, by a new sense of tolerance, including of those who differed from oneself. The Enlightenment also gave birth to notions of basic human rights, to be enjoyed by all individuals. America was lucky to have been founded just as these ideas were percolating, and so one sees them strongly reflected both in its Declaration of Independence and its Bill of Rights. The struggle to create political and social systems fully reflecting these Enlightenment values is never-ending; there are constantly new frontiers, and in many of these areas, Europe, too, has led the way—from the fight for gender equality to the fight for the rights of privacy; from the struggle for transparency in government and the “right to know” to democratizing participation in all aspects of life.

The moment the world is in now calls out for these values. There is the existential fight to prevent unacceptable levels of climate change. While Obama has been a strong advocate for global cooperation, with so many climate deniers in the Republican Party and in the US Congress, Europe will have to play a pivotal role. Concerted action by Europe might enable the imposition of cross-border taxes on goods, from countries like the United States and China, that are made in a carbon-unfriendly way.

The world is engaged too in a war against ISIS and terrorism more generally. More immediately, the world faces a humanitarian migrant crisis—a crisis that Europe saw so vividly, as it flared in the summer of 2015. The imminent cause of that crisis was the war in Syria, itself part of a wider war against ISIS and terrorism. These crises pose multiple challenges both to Western values and to the European project. One is how to wage the wars against ISIS and terrorism without unduly sacrificing the very values we seek to protect. Europe will be central in ensuring a balanced and effective global response; a united Europe will be more effective in ensuring that the responses are consistent with our values.

While America has long celebrated its open doors for immigrants, the reality in recent years has been otherwise. The United States took a fraction of the number of refugees from Iraq—refugees created by America’s war against Iraq—than much-smaller Sweden. Evidently, the Bush administration felt no moral responsibility for the millions of displaced persons that their war had created. The world needs a united Europe to formulate a humanitarian response to these migrant crisis.

But as our discussion in earlier chapters has highlighted, for Europe to have a consensus response with fair burden-sharing will require a functioning European economy. The migrants will not want to go to countries where there is massive unemployment, and countries in deep recession or even stagnation can ill afford to accept them. Both migrants and the host country know that without jobs, these new migrants will not be able to start the new life that they crave for; and if migrants have to compete with those who have long been unemployed for jobs, there will be resentment and hostility.

Ironically, the policies imposed on Greece helped to create and shape one aspect of the migrant crisis. For instance, Greece had been home to many from the Balkans. As Greece’s economy plummeted, these migrants had to look elsewhere. With so many countries in the eurozone with high unemployment, the only place for them to go was Germany and the few other countries in the eurozone with full employment.14

The unbalanced flow of migrants is a predictable result of the economic imbalances the euro created within Europe. Chapter 5 highlighted how the current eurozone structure led to divergence; but the relatively few countries doing well will also resent having the burden of refugees placed on them. But as this book goes to press, the failure to resolve the migrant crisis poses an existential crisis for the EU: a fundamental principle of the EU is free mobility of labor, but that principle, in conjunction with the divergent eurozone, inevitably implies that the burden of migrants will lie with those like Germany that are relatively prospering. Without shared prosperity—at least more sharing that is likely to exist under the eurozone’s divergent structure—it will be difficult for Europe to abide by both its humanitarian principles and its principle of free mobility. Something will have to give: but it would be far better to change the monetary arrangements along one of the ways we have suggested.

Economic divergence, especially when combined with a sense of unfairness and deep differences in views about values and economic principles, makes it difficult to forge a European consensus around other issues. Again, one sees this played out most dramatically in the migration crisis. Greece is at the frontier with Turkey and the Middle East, and after eurozone programs have led to a 27 percent decline in its GDP, it is in no position to deal with the large numbers of migrants arriving at its borders. The abuse that Greece received at the hands of its “partners” obviously made it less trusting in dealing with the migrant issue. Forcing Greece, already suffering from depression, to bear, by itself, so much of the brunt of the surge of migrants, especially those from Syria—has deepened the perception that European solidarity, or even a minimal sense of justice and fair play, have withered.


Globalization has meant that the world is more integrated than it ever was. It means that what one country does has effects on others, that what citizens do in one country can have effects on citizens in others. In many ways, we have become a global community—a community with a system of global governance without a global government.

There is an ongoing process of shaping that global community, and how it is shaped will reflect the values and concerns in different parts of the world. The voice of Europe, with the values that I have described in the previous paragraphs, needs to be heard, and it will be heard more clearly if the European project succeeds. It will not be heard if Europe is in disarray and if there is not shared prosperity.

The experiences of the eurozone have one further important lesson for the rest of the world: be careful not to let economic integration outpace political integration. Be skeptical of anyone who suggests that political integration will naturally follow from economic integration. And be especially skeptical of anyone who proposes a monetary union in the absence of adequate political integration. Perhaps the one silver lining in the European cloud is that this lesson has been learned: a variety of proposals for monetary unions elsewhere have quietly been put on the back burner.

Around the world, there are many efforts at advancing economic integration without commensurate moves toward political integration. The drivers of that integration—and the source of the flaws in the design—are often similar to those that we have seen in the creation of the euro. The euro was constructed on the simplistic premise that a single currency would facilitate the movement of capital and goods; the resulting economic integration would improve societal welfare everywhere within the eurozone. In the case of many economic changes, there are winners and losers; the changes are defended on the grounds that the benefits of the winners far exceed the losses of the losers and that in the long run, almost all will be winners. The argument for the eurozone too was that everyone, or almost everyone, would benefit. The reality, as we’ve seen, has been otherwise: Germany is the big winner; much of the rest of the eurozone, especially the crisis countries, are the big losers; and the eurozone as a whole has done poorly—the losses of the losers far outweigh the gains of the winner.15 The lesson is that markets are complex institutions; simplistic tinkering, based on ideology rather than a more profound understanding of how markets actually work, without a deep appreciation of the complexities, can lead to disastrous outcomes.

The United States today is pushing a trade agenda across the Pacific and the Atlantic that is premised on the idea that the freer movement of goods across more borders would similarly increase the well-being of all the countries involved—indeed, would benefit all the countries of the world. But, again, with simplistic free market ideology and special interests working together, the trade agreements that are emerging—the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership—are even more unlikely to deliver on its promises than the eurozone’s. There will be winners—the big corporations, especially the pharmaceutical companies and coal and oil companies threatening the environment. But as in the eurozone (in its current form), the losses of the losers will outweigh the gains of the winners. The agreement would make access to generic prescription drugs more difficult, would almost surely lead to more inequality, and would make it more difficult for governments to regulate the environment, health, safety, or even the economy in the public interest.16


The ongoing debate over the euro—its structure and the policies and programs imposed on the crisis countries—have raised deep questions about values and objectives. Too often, it seemed as if saving the banks, or even just the euro, was given precedence over human welfare. Success was measured in sovereign bond spreads—the difference between what the bonds of Greece or Italy were paying and those that Germany was paying. When those spreads came down, victory was declared.

So, too, as we have noted, programs were declared successful when unemployment started to fall or GDP started to grow—not when unemployment was restored to an acceptable level or when living standards were restored to what they would have been but for the crisis, or even more modestly, to what they had been before the crisis.

Remarkably, in assessing the success of the Troika programs—programs often motivated by worries about government debt and deficits—little attention was paid to the debt-to-GDP ratio, a measure of debt sustainability that had not improved. Indeed, as we’ve seen, the debt-to-GDP ratio rose in the crisis countries, in some cases to levels that would normally be viewed as unsustainable, because of the adverse effects on GDP.17 The denominator of the ratio has been reduced by more than the numerator has been circumscribed.

There should be a single, simple measure of the success of any economic program, and that is the well-being of a country’s citizens, and not just the 1 percent at the top. Well-being is more than just income, and there is more to the measurement of success than assessing what has happened to GDP, or even GDP per capita. For most individuals, meaningful and decent work is an important part of their life, and an economy that denies meaningful work for large fractions of its citizens—that denies employment for large fractions, let alone a majority, of its young—is a failed economy. An economic system or a set of economic arrangements that fails repeatedly to achieve well-being for large fractions of its people is a failed economic system, a failed set of economic arrangements. An economic system that leaves large fractions of the population facing high levels of insecurity, too, is a failure.

For young people, the prospect of living their dreams, a life with hope and aspirations, is critical to their well-being. For old people, a retirement with dignity and a modicum of security is essential to well-being. Many older people had planned not to retire, to continue working. But with high levels of unemployment and a major slowdown, these individual’s jobs have disappeared. One might say: they should have planned for this. But how could one have expected that Europe’s leaders would create such a dysfunctional system? Or would have imposed policies that have resulted in such dire outcomes? Advances in economic understanding were supposed to end the business cycle, or at least dampen it.

Research on individual and societal well-being has shown perhaps the obvious: individuals care about security and about jobs. The eurozone and the policies that have been imposed on the afflicted countries have increased insecurity and decreased jobs. A symptom of how bad things have become in many of the crisis countries, as we have noted, has been the dramatic rise in suicides.18 In the most important objective of economic policy, enhancing individual and societal well-being, the eurozone has been a disappointment, to say the least.

Monetary systems come and go. Monetary arrangements, like the Bretton Woods system that governed the world after 1944, was heralded at its onset as the replacement of the gold standard. It seemed to work in the years after World War II, but in the end, it did not last even three decades. The euro’s moment of glory was even shorter; and as I have argued, even in the brief time that it seemed to be working, the imbalances that would eventually bring on the euro crisis were building up, and the euro (and the associated economic arrangements) were largely to blame.

This book has shown that the euro can be saved, should be saved, but saved in a way that creates the shared prosperity and solidarity that was part of the promise of the euro. The euro was a means to an end, not an end in itself. I have laid out an agenda of reform for the structure of the eurozone and for the policies that the eurozone needs to follow when one of its members faces a crisis. These reforms are not economically difficult; they are not even institutionally difficult. But they require European solidarity—a kind of solidarity fundamentally different from the suicide pact that some leaders within Europe are calling for.

For all the emotions that the euro has brought on, for all the commitments that have been made to preserve it, in the end, the euro is just an artifice, a human creation, another fallible institution created by fallible men. It was created with the best of intentions by visionary leaders whose visions were clouded by an imperfect understanding of what a monetary union entailed. This was perhaps understandable: nothing like it had been tried. The real sin would be for Europe not to learn from what has happened in the last almost two decades.

Three messages emerge clearly from my analysis. A common currency is threatening the future of Europe. Muddling through will not work. And the European project is too important to be sacrificed on the cross of the euro. Europe—the world—deserves better. I have shown that there are alternatives to the current system. Moving from where the eurozone is today to one of these alternatives will not be easy, but it can be done. For the sake of Europe, for the sake of the world, let us hope that Europe sets out to do so.