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Joseph Stiglitz: The Euro May Not Survive

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http://www.telegraph.co.uk/finance/financetopics/financialcrisis/8039041/Joseph-Stiglitz-the-euro-may-not-survive.html

Joseph Stiglitz, one of the world's leading economists, has warned that the future of the euro is "looking bleak" and the fragile European economic recovery could be irreparably damaged by a "wave of austerity" sweeping the continent.

The former chief economist of the World Bank and a Nobel prize winner also predicted that short-term speculators in the market could soon start putting pressure on Spain, which is struggling with a large deficit and high unemployment. Last week, Moody's cut the country's credit rating from AAA to Aa1.

The former adviser to President Bill Clinton also says that the banking sector has gone back to "business as usual" too quickly and that there are still risks of another financial crisis despite some improvements in regulation.

Mr Stiglitz, now a professor at Columbia Business School, makes the arguments in an updated edition of his book, Freefall, on the credit crunch. In the new material, exclusively extracted in today's Sunday Telegraph, he reveals fears that governments around the world will attempt to cut their deficits too quickly and risk a double dip recession.

Tomorrow, George Osborne will outline the Government's latest plans for multi-billion pound public sector cuts to tackle the historically-high UK deficit. He has faced criticism that the Coalition is in danger of cutting too hard and too fast but the Chancellor has said that without a credible programme for getting the UK economy into balance, interest rates will rise and growth will be choked off.

"The worry is that there is a wave of austerity building throughout Europe and even hitting America's shores," Mr Stiglitz said. "As so many countries cut back on spending prematurely, global aggregate demand will be lowered and growth will slow – even perhaps leading to a double-dip recession.

"America may have caused the global recession but Europe is now responding in kind."

Mr Stiglitz warned that Spain, similarly to Greece, was now in the speculators' sights.

"Under the rules of the game, Spain must now cut its spending, which will almost surely increase its unemployment rate still further," he said. "As its economy slows, the improvement in its fiscal position may be minimal.Spain may be entering the kind of death spiral that afflicted Argentina just a decade ago. It was only when Argentina broke its currency peg with the dollar that it started to grow and its deficit came down.

"At present, Spain has not been attacked by speculators, but it may be only a matter of time."

Turning to the euro, Mr Stiglitz said that the different needs of countries with high trade surpluses, particularly Germany, and those running deficits such as Ireland, Portugal and Greece, meant that the single currency was under intense pressure and may not survive. He suggests that one way to save the euro would be for Germany to leave the eurozone, so allowing the currency to devalue and help struggling countries with exports.

"Countries that share a currency have a fixed exchange rate with each other and thereby give up an important tool of adjustment," he said. "So long as there were no shocks, the euro would do fine. The test would come when one or more of the countries faced a downturn."

How the powerful Euro could say goodbye as they realise it was the biggest mistake they ever made.

Germany the first to say goodbye. ;)

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I've said this before a month or so ago, my money is on sterling, the Euro will go becuase you have the eurozone countries all pulling in different directions trying their best to get whats good for them so they will eventually pull apart and the dollar will drop to $3:£1 once it loses reserve currency status due to their own financial ineptitude and massive debts.

Its only a question of time till the focus shifts from the Eurozone to the US but my timescales for this rise of sterling are within the next 3-5years but we in the UK will be in for one hell of a bumpy ride.

I should add we have some qualities which are not trumpted much which stand us in good stead. Anyone guess what they are? :)

Stiff upper lip? Ability to hide insolvency? Jolly bankers and impish chavs crushing the skulls of taxpayers? Just guessing.

I suppose one of the qualities you're referring to is Britain's deep reserves of gold and essential commodities. I prefer America's democracy and ability to criticise itself. Sticking with £/$ parity.

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I should add we have some qualities which are not trumpted much which stand us in good stead. Anyone guess what they are? :)

World class infrastructure?

No dependency culture?

Well educated and flexible workforce?

Low taxation?

Realistically paid and highly efficient public sector?

Strong manufacturing base?

Trade surplus?

Low wealth disparity?

Well designed benefits system?

High quality housing stock?

Small budget deficit?

Intelligent consumers?

Distributed economy?

Social cohesion?

Low consumer indebtedness?

Cheap housing?

High social mobility?

Small but efficient financial sector?

Great health-care system?

Light-burden regulation?

Trustworthy political class?

errrr....

Successful football team?

Good weather?

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I should add we have some qualities which are not trumpted much which stand us in good stead. Anyone guess what they are? :)

Long tradition of being 'good losers' ?

Innate love of pointless bureaucracy ?

or perhaps, judging from the above......

Olympic class sense of sarcasm ?

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In all fairness, we have lost out greatest tool....the last Subprime minister.....shame I cant remember the name.

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Turning to the euro, Mr Stiglitz said that the different needs of countries with high trade surpluses, particularly Germany, and those running deficits such as Ireland, Portugal and Greece, meant that the single currency was under intense pressure and may not survive. He suggests that one way to save the euro would be for Germany to leave the eurozone, so allowing the currency to devalue and help struggling countries with exports.

£ = Euro 1.14698

$ = Euro 1.37910

I have said it before and will say it again, imbalances and lack of political cohesion (consensus) will be the Eurozone's nemesis.

On holiday in Portugal a few weeks ago and they curse the overvalued Euro which does not help tourism one bit. Portugal is heavily reliant on tourism to survive. Same must go fro the other PIIGS.

My money is on the $ and £.

In the meantime FOREX is going hog wild on the Euro with £ down below 1.15 and the Dollar at $1.37. Pump and dump?

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Turning to the euro, Mr Stiglitz said that the different needs of countries with high trade surpluses, particularly Germany, and those running deficits such as Ireland, Portugal and Greece, meant that the single currency was under intense pressure and may not survive. He suggests that one way to save the euro would be for Germany to leave the eurozone, so allowing the currency to devalue and help struggling countries with exports.

£ = Euro 1.14698

$ = Euro 1.37910

I have said it before and will say it again, imbalances and lack of political cohesion (consensus) will be the Eurozone's nemesis.

On holiday in Portugal a few weeks ago and they curse the overvalued Euro which does not help tourism one bit. Portugal is heavily reliant on tourism to survive. Same must go fro the other PIIGS.

My money is on the $ and £.

In the meantime FOREX is going hog wild on the Euro with £ down below 1.15 and the Dollar at $1.37. Pump and dump?

which tourists are the Portuguese losing?

ah yes, the Germans and Dutch....all Euro spenders..

Ok, they lost the Brits, but we'll be back.

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which tourists are the Portuguese losing?

ah yes, the Germans and Dutch....all Euro spenders..

Ok, they lost the Brits, but we'll be back.

Not just tourism--how much better off would the Spanish be if they went back to the Peseta and sold SEATs at a more competitive price? In a world of over-capcity and consequential lower demand an expensive currency is a burden.

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..--how much better off would the Spanish be if they went back to the Peseta and sold SEATs at a more competitive price? ..

Six pounds, four shillings and thrupence ha'penny?

Go on - give us a clue. Not like VAG make any money from Socialist Spain and its militant Trade Union workforce :D:D:D

The Euro will survive. Sterling may not. A lot of posters here talking sh1t this morning - you folks need to make your mind up about issues and stop regurgitating the drivel in the lunatic Telegraph. Go on - have your own opinion for once - who knows? You might like it :D

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Not just tourism--how much better off would the Spanish be if they went back to the Peseta and sold SEATs at a more competitive price? In a world of over-capcity and consequential lower demand an expensive currency is a burden.

Of course...but you have to ask WHY these guys cant keep up?

could it be their economies are based on a housing boom?

Is it because banking is a parasite...even though it appears to be a big earner?

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http://www.telegraph.co.uk/finance/financetopics/financialcrisis/8039041/Joseph-Stiglitz-the-euro-may-not-survive.html

How the powerful Euro could say goodbye as they realise it was the biggest mistake they ever made.

Yes, the PIIGS could then emulate Chav Island and print their way to certain decline instead of facing up to the problem.

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Dollar won't survive either. In fact, no fiat currency in history has survived for long (average life is around 40yrs).

I'm not sure what his point his?

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The only way over the long run I could see it working is an actual national EU government that had vast transfer payments. Think the USA government with social security, medicare, defense spending.. and can pump huge amounts of money in when neccessary through the central bank and fiscal spending.

Even when California is in a world of trouble it can count on that federal spending coming in just as usual, or even increasing.

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The only way over the long run I could see it working is an actual national EU government that had vast transfer payments. Think the USA government with social security, medicare, defense spending.. and can pump huge amounts of money in when neccessary through the central bank and fiscal spending.

Even when California is in a world of trouble it can count on that federal spending coming in just as usual, or even increasing.

what use is a mega inflating currency?

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Perhaps the bureaucrats understand that the unfinished Euro project will have done its job if it achieves two things:

1. Greater central control of tax raising and disbursement of funds to enable greater transfer payments as you would get within a country to balance things out.

2. Labour mobility rises to the level of that in America to act as another safety valve for the future.

hmm, item 2 requires a common language OR a social security system that works the instant you set foot in the country...like ours.

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Also all certifications to be totally transferable within the zone. Not some nations keeping others out by saying they aren't qualified to work in Germany at their trade.

Right now what is holding the Euro together is effectively the deficit countries are allowed to run unlimited government deficits and the ECB will backstop all of them. And this can actually go on for a long time, because ultimately the ECB could backstop many trillions of debt from these countries.

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I should add we have some qualities which are not trumpted much which stand us in good stead. Anyone guess what they are? :)

A mountain of gold reserves to allow us to move to a gold backed currency?

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Oh don't, aa3 is a believer in infinite printy printy. Seriously.

When we have full employment, factories are running flat out with as many under construction as possible, and real wage inflation starts showing up.. then I will say 'slow down the presses'.

People have become so used to a depressed economy that they think it is normal. Like hard to find work, hard to make a profit, overcapacity, etc..

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When we have full employment, factories are running flat out with as many under construction as possible, and real wage inflation starts showing up.. then I will say 'slow down the presses'.

Where do you expect to get 'real wage inflation' from?

Running the presses flat out when Chinese people will do the same jobs for $0.50 an hour is just a means to make the rich richer and the poor poorer as the rich get first dibs at the money and the poor have no wage bargaining power.

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Dollar won't survive either. In fact, no fiat currency in history has survived for long (average life is around 40yrs).

I'm not sure what his point his?

Wasn't it in the early 70's that Nixon finally stopped redeeming dollars for gold. Which by my maths 1970 + 40 = 2010, so at some point over the next couple of years that cut off point will be reached.

Fiat once more may have printed itself to oblivion.

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When we have full employment, factories are running flat out with as many under construction as possible, and real wage inflation starts showing up.. then I will say 'slow down the presses'.

People have become so used to a depressed economy that they think it is normal. Like hard to find work, hard to make a profit, overcapacity, etc..

"Slow them down"? Sorry, but once you let this genie out you won't arrest it by slowing down its progress.

Wheelbarrows would be popular.

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Yes, the PIIGS could then emulate Chav Island and print their way to certain decline instead of facing up to the problem.

Yes one of the unintended consequences of the euro sovereign debt crisis is that it is enforcing Thatcherism across the PIIGS. If they had their own currencies they would "inflate the problem away". Or at least try to. Unfortunately I think the problems will really kick in when the German recovery really takes off. They'll want to tighten money while the PIIGS are still making cuts. IMO that's when it'll break up.

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  • 152 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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