King, Stiglitz and the Euro

Note kindly translated by Anne-Marie de Grazia.

A piece of news is creating a stir among economists: Lord Mervyn King, former governor of the Bank of England (from 2003 to 2013), is publishing a book [1] in which he is thrashing the Euro. Le British daily The Telegraph has published on February 27th some excerpts of his work[2]

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Moreover, a new book written by Nobel Prize winner Joseph Stiglitz, is due to come out on May 31, entirely dedicated to the risks which the Euro is bringing to bear on the economy of the European Union[3]. Both of these books are particularly significant, the first being written by an economic « practitioner, » the other by one of the greatest economic theoreticians alive. The combination of both promise to be quite interesting.

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The publication of these two books is therefore symptomatic for the present crisis situation. We all know that there is a serious situation in Italy relating to the amount of bad debts into the banking system. We all know that the German banking system is at risk and that the Greek horror story is still going on. As a matter of fact ever since the crisis between the Eurozone and the Greek government in the first semester of 2015, tongues are getting untied and speech is getting freer. There is a political dimension here, which is the question of sovereignty, to which I have dedicated a recent book[4], and there is an economic dimension, the one treated by King and Stiglitz.

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Lord King and the Euro

Obviously, there are points on which one can disagree with King. His thinking continues to unfold within the « New Macroeconomic Consensus » or the « New Monetary Consensus » [5], which has been criticized elsewhere[6]. This consensus is today inspiring the actions of many Central Banks. It leads to policies sometimes qualified as « Neo-Keynesian. » But it would be more accurately called « Neo-Wicksellian »[7] in so far as these policies are based on a distinction between a balanced interest rate and the rate such as it practiced by a Central Bank. Particularly, one cannot think as does King that the interest rate is the absolute weapon in order to counter inflationist pressures in an economy. But when he writes that the Monetary Union (i.e. the Eurozone) is being strongly challenged by the problem of the existence of different rates of inflation according to the countries, he is uncontrovertibly right. I have developed the same argument in my book Faut-il sortir de l’Euro which was published in 2012[8]. Monetary Union implies that the same monetary policy will be implemented in all the countries of the zone, which means that it will be either too restrictive or too accommodating according to the country considered. He then writes: « Instead of being able to use differing interest rates to bring inflation to the same level, some countries found their divergences were exacerbated by the single rate ». In fact, the problem is merely displaced upon competitiveness and it confronts any country where inflation is structurally superior to the one in the dominant country in the Union (that is, Germany) with the following alternative: either to see its external competitiveness degrading rapidly (which translates into a strong unbalance of the balance of trade with Germany) or to impose austerity policies which will plunge it into recession.

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Another point on which Marvyn King is indubitably right is when he writes that Germany has forgotten its own history, and particularly the agreement it obtained from other countries for cancelling its debts after the Second World War. A third point of agreement is found in the analysis made by King of the political logic of the process put into motion by the Euro. He quite accurately points out the contradiction between the democratic spirit which is supposed to reign in the fold of the European Union and the technocratic character of decision taking. So that he writes: « Put bluntly, monetary union has created a conflict between a centralised elite on the one hand, and the forces of democracy at the national level on the other. This is extraordinarily dangerous. In 2015, the Presidents of the European Commission, the EuroSummit, the Eurogroup, the European Central Bank and the European Parliament (the existence of five presidents is testimony to the bureaucratic skills of the elite) published a report arguing for fiscal union in which “decisions will increasingly need to be made collectively” and implicitly supporting the idea of a single finance minister for the euro area. This approach of creeping transfer of sovereignty to an unelected centre is deeply flawed and will meet popular resistance ». When he points out that sovereignty will end up sacrificed in the process, he is right again, it goes without saying. This argument meshes in with those I have evoked in Souveraineté, Démocratie, Laïcité. He is predicting, very justly, the democratic rebellion of the people of Southern Europe from whom the institutions of the European Union and those of the Eurozone are seeking to wrench ever more wealth for the benefit of Germany and of its satellites. He is then predicting a crisis, economic as well as political, if the member countries of the Eurozone persist on the foolish and suicidal path of the single currency.

The warning of J.E. Stiglitz

It is exactly the same diagnostic which one will find in the book by Joseph E. Stiglitz, which will be published at the end of May. Stiglitz too is aware of the exorbitant political cost induced by the existence of the Euro in its present form. He is announcing a crisis which, according to him, will be political as well as economic, lest the countries of the Eurozone decide to dissolve the Euro quietly, or make the single currency evolve towards a common currency. I confess having some doubts about the latter solution. Not that it is not very attractive intellectually speaking. But the complexity of the mechanisms which would have to be implemented renders it more than improbable. It is the second solution, the one of a concerted dissolution of the Euro, which should logically impose itself.

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But resistances are very strong, particularly among the French elites which persist in not seeing reality, and which are keeping up an insane discourse about the « risks » which such a dissolution would expose us to. In fact, it is precisely maintaining the Euro which exposes Europe to immense risks, in economic matters as well as concerning political risks. That’s what we have been writing on this blog [9]. One can well think that the European Union will not be able to survive the Euro in its present form and that the battle to « save » the Euro will carry away with it the very forces which would be necessary in order to work out a reasonable reconsideration of the European Union. In this perspective, we must hold the leaders past and present, together with their official oppositions, in France, in Germany and in many other countries of the EU, as the worst enemies of Europe, not in the institutional meaning, but in the sense of a community of peoples which should be held together by the goals of peace, prosperity and democracy.



[1] King, Mervyn A., The End Of Alchemy: Money, Banking And The Future Of The Global Economy, Londres, Little, Brown (to be published soon)


[3] Stiglitz Joseph E., The Euro: And its Threat to the Future of Europe, New Yok, Allen Lane, 31 mai 2016, (to be published soon)

[4] Sapir J., Souveraineté, Démocratie, Laïcité, Michalon, Paris, janvier 2016.

[5] Goodfriend M., et R.G. King, (1997), “The New Neoclassical Synthesis and the Role of Monetary Policy” in Bernanke B.S., and J.J. Rotemberg (edits), NBER Macroeconomic Annual 1997, MIT Press, Cambridge, MA.

[6] Arestis P., et M. Sawyer (2008), “A Critical Reconsideration of the Foundation of Monetary Policy in the New Consensus Macroeconomics Framework”, Cambridge Journal of Economics, Vol. 32, n° 5, pp. 761-779. Tymoigne, E., (2007), “Fisher’s Theory of Interest Rates and the Notion of ‘real’: a Critique”, Working Paper n° 483, Annandale-on-Hudson, (N.Y.), The Levy Economics Institute of Bard College, 2007.

[7] Canzoneri M., R.E. Cumby, B. Diba et D. Lopez-Salido, (2008), “Monetary Aggregates and Liquidity in a Neo-Wicksellian Framework”, NBER Working Paper Series, n° 14244, National Bureau of Economic Research, Cambridge, MA.

[8] Sapir J., Faut-il sortir de l’Euro ?, Paris, Le Seuil, 2012.

[9] Sapir J., « L’Euro contre l’Europe », note publiée le 16 février sur le carnet RussEurope,


Jacques Sapir

Ses travaux de chercheur se sont orientés dans trois dimensions, l’étude de l’économie russe et de la transition, l’analyse des crises financières et des recherches théoriques sur les institutions économiques et les interactions entre les comportements individuels. Il a poursuivi ses recherches à partir de 2000 sur les interactions entre les régimes de change, la structuration des systèmes financiers et les instabilités macroéconomiques. Depuis 2007 il s'est impliqué dans l’analyse de la crise financière actuelle, et en particulier dans la crise de la zone Euro.

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