Nobel laureate Joseph Stiglitz said the European Union should admit the mistake it made imposing austerity on Greece and soften its stance or bear the consequences if the country exits the euro area.
“For the wellbeing of Europe and for the betterment of the world, I think the European Commission should soften,” Stiglitz said Tuesday in an interview in Split, Croatia. “Greece has done an enormous amount of work.”
Time is running out for the Mediterranean country to secure new funds before June 5, when it faces a 300 million euro ($327 million) payment to the International Monetary Fund that it may not be able to repay on its own. A standoff with its German-led creditors has triggered record deposit withdrawals from the nation’s banks and wiped out liquidity, pushing the economy back into recession.
Stiglitz’s comments echo calls from economists including fellow Nobel laureate Paul Krugman for EU leaders to compromise to avoid a messy Greek exit from the euro that could send shock waves deeper through the currency bloc. U.S.
Treasury Secretary Jacob J. Lew will urge Group of Seven countries to find a constructive and pragmatic outcome in negotiations at a meeting in Germany on Wednesday, a Treasury official said.
“Europe bears a lot of responsibility as there were fundamental flaws in the design of the euro zone,” Stiglitz said. “They created a system of divergence, not convergence, and when you combine that with austerity, that’s a recipe for the disaster we’ve seen.”
Greek officials plan to meet Wednesday in Brussels with their creditors, who have set an end-May deadline to reach a deal. There’s been little progress in talks, with Greece insisting it won’t impose more more cost-cutting and EU states saying it must stick to the structural overhauls agreed to under the 240 billion euro bailout program.
The EU “should help Greece,” Stiglitz said, by starting “fundamental reforms” in the euro zone, shifting policy from austerity to promoting growth and allowing governments to temporarily assist struggling companies. As growth begins to be restored, governments should take actions to improve the efficiency of the public sector, he said.
“Europe should admit that it made a mistake,” said Stiglitz, who was in the Croatian Adriatic resort town to receive an honorary degree from the University of Split. “When you make a mistake of this depth, the worst thing in the world is not to admit it and not to change it.”
Croatia, which joined the European Union in 2013, “shouldn’t rush to the euro,” Stiglitz said. While the country is set to exit a six-year recession this year, it’s under pressure from the EU to narrow its budget deficit and lower public debt now at 85 percent of output.
“It doesn’t make sense to focus on the deficit when you are in recession,” Stiglitz said.
Another option would be to devalue its currency, which is tied to the euro in a managed float, Stiglitz said. And while President Kolinda Grabar-Kitarovic said in an April interview that Croatia may join the euro zone by 2020, Stiglitz said the currency’s troubles had undermined the entire project.
“If European voters 20 years ago were told what the consequences of the euro would be, would anybody have voted for it?” he asked. “I think the answer would be, knowing what they know now, that nobody would have voted for it.”