It?s two months since Britain?s worst foreign policy blunder of the modern era and it still rankles. The vote to take us out of the European Union was not about economics, less still diplomacy; it?was a collective act of myopia, distrust, arrogance and fury. It was about emotions, negative ones; and behaviour is something that economists struggle to capture.
Joseph Stiglitz does better than most. For years the former chief economist at the World Bank and adviser to President Clinton has been inveighing against the rise in inequality and unaccountable elites. In his latest book, he returns to one of his pet hates, the single currency project of the Brussels establishment, and sets about disembowelling it.
Flawed at birth in the 1990s, the euro is the story of platitudes ?uttered by politicians unschooled in economics who create their own reality?. Its architects, or rather Argonauts, laboured under the misapprehension that economic integration would beget political integration, and strong economic growth shared by all. They?did not take into account the diversity of the continent, nor did they?build mechanisms that would withstand shocks.
The flaws in the currency came to a head after the banking crash of 2007-08. The currency, he notes, was not the innocent victim of a crisis created elsewhere. ?Markets, ever prone to irrational exuberance and pessimism, mistakenly and irrationally presumed that the elimination of exchange risk? meant the elimination of sovereign risk ? the risk that a government could not pay back what it owed.? While the bankers and the super-rich were bailed out, and have seen their share of GDP increase yet further, so the rest have either stagnated or suffered real-term declines from already low wages. With youth unemployment stubbornly high, an entire generation has been sacrificed. If we don?t act, the author says, we will not be talking about a lost decade, but a lost quarter of a century.
Stiglitz is contemptuous of the advocates of austerity within a single currency straitjacket. Jean-Claude Juncker, European commission president and scourge of UK Eurosceptics, is, he reminds the reader, ?the proud architect of Luxembourg?s massive corporate tax-avoidance schemes?. As for Angela Merkel, she is trapped in a world of ?deficit fetishism?, as she invokes the thrifty Swabian housewife who would never spend what she doesn?t have safely tucked away in her pinny.
Yet, having spent 300 pages dismantling the currency project, the author suggests it is still worth salvaging. The case he makes for a ?flexible euro? needs more detail in order to convince. His would be a more ?social Europe?, with a stronger system of burden sharing, tax harmonisation, a progressive tax system and social safety net to be shared by all, and industrial policies to help those countries that are behind to catch up. To put it more crudely (in my words, not his), the Germans would have to give up a bigger chunk of their dosh. The chances of that happening in the near future are…?zilch.
The rights and wrongs of the single currency seem ? for the moment at least ? a sideshow to the consequences of the referendum. In an addendum written as the book was going to the printers, Stiglitz seeks to make sense of that decision and to link it to his broader narrative.
And yet, try as he might in the mere days he must have had to update the book, Stiglitz does not provide further insights into Britain?s act of collective self-harm. He notes one of two of the Boris-isms, otherwise known as porky pies, told by the Leave campaign. There were ?plenty of false stories circulating?, he declares, before adding: ?but some were based on a grain of truth?. No they weren?t.
He deals more convincingly with the consequences of the migrant flow across the continent. The countries that had done a better job of keeping unemployment low (Germany and the UK) have been the favoured ports of call, but the imbalances have had few positive effects. This influx was ?largely borne on the backs of ordinary workers ? and among the beneficiaries were the corporations in western Europe who could obtain labour at lower cost?.
Their criticisms of Brussels may have been right and may have carried weight, yet many on the radical left failed the voters during the referendum. They refused to make the broader case for being at the heart of a European project that kept the peace, presented millions with opportunities they would otherwise not have enjoyed and gave so many people in so many countries a sense of identity that goes beyond narrow nationalism. Instead of taking on Juncker and the Eurocrats, they raised the white flag. In so doing they left the field to the agitators on the working-class estates, the blazer-wearing smug men of the shires and the tiny smattering of rightwing ideologues. As a result, the inequalities against which intellectuals such as Stiglitz so passionately rail will grow yet greater.
John Kampfner is author of The Rich: From Slaves to Superyachts ? A 2,000-Year History. The Euro and Its Threat to the Future of Europe is published by Allen Lane (?20). Click here to buy it for ?16.40
The Euro and Its Threat to the Future of Europe by Joseph Stiglitz ? review – The Guardian