Tuesday, May 18, 2010

The Euro, Eichengreen, Feldstein, Spence and Stiglitz.

Several American economists suggest ways of “saving the euro”:

Martin Feldstein, Barry Eichengreen, Michael Spence , and Joseph Stiglitz.

Feldstein, Eichengreen and Spence advocate some sort of fiscal centralization and political integration on the American model. All these good economists understand that a monetary union in a non-optimal currency area (Europe), can only survive if complemented by a central, fiscally redistributive, apparatus, that is, a state. But having the American example in mind they fail to understand that the conditions for a political integration in a large, centralized, federal state, of several independent and ancient states, which were approximately met in the context of developing empires of the 19th century (but at the cost of civil war or external conflicts), have radically disappeared since the information revolution of the late 20th century.

The globalization of markets has been followed by a general trend of disintegration of states. As a consequence, I think that the fiscal consolidation that would make the eurozone “workable” will not happen.

I thus feel, to my own surprise, much more in agreement with Joe Stiglitz, who seems much more realistic in his analysis than his colleagues.

Hat tip: Greg Mankiw.

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