Is Nobel Prize-winning economist Joseph Stiglitz right that Europe may have to abandon the euro to save the European project?

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A popular revolt could yet overthrow the euro – and the EU (Source: Getty)

Ruth Lea, economic adviser at Arbuthnot Banking Group, says Yes.

Granted, some may regard the common currency as an intrinsic part of the “European project”, but the euro is undermining the very foundations of a prosperous and peaceful union for all its members, which is surely what the European project is fundamentally about.


And it is impossible to envisage any return to prosperous and growing societies throughout the Eurozone while such diverse, if not diverging, economies remain locked in a one-size-fits-all monetary union – which, of course, doesn’t fit all.

The Eurozone, quintessentially a political project, was economically flawed from the start. Currency unions are fragile, unstable creatures when not backed by political integration and substantial fiscal transfers from rich to poor. And the Eurozone is no exception.

For prosperity to return to all, and the laudable ideals of the European project to be salvaged, the euro needs to be abandoned or, at the very minimum, the Eurozone needs to be reduced to a reasonably convergent core, setting the struggling periphery free.

Holger Schmieding, chief economist at Berenberg, says No.

Joseph Stiglitz is a great economist, but no expert on Europe.


Contrary to rumours, the Eurozone is not doing too badly. It is close to trend growth and unemployment is falling. Austerity was tough, but has shown results. Eurozone public debt has risen by less than half than it did in the UK since 2008. As a result, the Eurozone could afford to end austerity two years ago.

The euro acts like an intelligent gold standard: by preventing countries from papering over their problems through devaluation, it encourages pro-growth reforms. Germany turned from the sick man of Europe to the continent’s powerhouse. Euro members such as Spain, Ireland and Cyprus, which implemented the required reforms while receiving support, are now growing fast. Even Italy had a promising labour market reform.

Challenges remain, especially for France. But the risk that Brexit and fiscal repair eventually break up the English-Scottish currency union is at least as high as the risk that the euro fractures.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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