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Joseph Stiglitz Predicts Dire Future for the Eurozone Lombardi Letter 2017-11-28 02:20:46 Eurozone Joseph Stiglitz Eurozone economy IMF Nobel Prize-winning economist Joseph Stiglitz provides insights on the slowing eurozone economy News https://www.lombardiletter.com/wp-content/uploads/2016/10/Eurozone-150x150.jpg

Joseph Stiglitz Predicts Dire Future for the Eurozone

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Eurozone

In an interview with Die Welt, a German national newspaper, the Nobel Prize-winning economist Joseph Stiglitz predicted a dire future for the eurozone.

He said, “There will still be a euro zone in 10 years, but the question is, what it will look like? It’s very unlikely that it will still have 19 members. It’s difficult to say who will still belong.” (Source: “Nobel laureate Stiglitz sees Italy, others leaving euro zone in coming years,” Reuters, October 5, 2016.)

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Stiglitz said about Italy, “The people in Italy are increasingly disappointed in the euro.” He added, “Italians are starting to realize that Italy doesn’t work in the euro.”(Source: Ibid.)

The eurozone’s economy has faced severe headwinds since the financial crisis of 2008 and 2009. Going forward, the common currency region is expected see mediocre growth. According to the International Monetary Fund’s (IMF) “World Economic Outlook,” the eurozone grew by 2.0% in 2015. This rate is expected to slow to 1.9% in 2016, and then slow further to 1.6% in 2017. (Source: “World Economic Outlook October 2016,” International Monetary Fund, last accessed October 6, 2016.)

Unemployment in the common-currency region remains elevated as well. In August 2016, the unemployment rate in the eurozone stood at 10.1%, meaning 16.326 million individuals were unemployed. (Source: “Unemployment statistics,” Eurostat, last accessed October 6, 2016.)

In order to fight the economic slowdown in the eurozone, the European Central Bank (ECB) has been very active. It has brought its benchmark interest rates below zero, and is currently in the midst of an asset purchase program. Previously, the ECB has been very clear that the central bank will do whatever it takes to preserve the euro.

Nobel laureate Joseph Stiglitz blamed the dismal growth in the eurozone on the common currency (the euro) and on the austerity policies in Germany. Stiglitz’s solution to this problem? He recommends the breakup of the euro currency, or the division of the eurozone into “north euro” and “south euro.” In the newspaper, he was quoted as saying that those are the only realistic options to bring back growth in Europe’s economy.

With all the uncertainty in the eurozone, and the central bank trying to induce economic growth, the region’s currency has faced severe headwinds. The euro index (the value of the euro compared to other major currencies) has declined close to 30% since mid-2008.

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