Virus May Prove Dark Moment for European Project, Stiglitz Says
Virus May Prove Dark Moment for European Project, Stiglitz Says
(Bloomberg) -- The global pandemic may pose an existential threat to the European project, according to Nobel prize winner Joseph Stiglitz.
“We have a crisis and there’s no evidence of solidarity,” Stiglitz, a professor at Columbia University in New York, said in a Bloomberg Television interview. “This may be a very dark moment for the future of Europe. There was already in Italy a lot of skepticism about the European project.”
Italy could have had better economic growth with greater flexibility in its exchange rate, Stiglitz said. The country is dealing with the pandemic already carrying a huge debt load, and the death toll from the virus and economic fallout from the lockdown have left the government with no option but to spend more to help its people.
The country’s populist opposition leader Matteo Salvini has said that the European Union took too long to respond, and that Italians should reconsider their membership of the bloc.
The virus has stirred memories of the global financial crisis a decade ago, when Greece was nearly forced out of the currency union. By contrast Italy, which may run into similar debt problems in the pandemic, is one of the region’s largest economies, and its departure would have a big impact.
Some EU countries have indicated a willingness to help, possibly granting an enhanced credit line by the European Stability Mechanism with minimal conditions, for instance.
The virus is also exposing inequalities across the globe and especially in the U.S., Stiglitz said, with large numbers of very vulnerable people “bearing the brunt” of the crisis.
It is having troubles channeling money into the business and productive sectors of the economy, which means that when the pandemic is more under control, the country may not be well positioned for a strong recovery, he said.
The ordinary procedures for addressing bankruptcy are also too slow and should be expedited, he added.
“Households and firms will see a significant erosion in their net worth, there will be lots of arrears in debt, people are now beginning to worry about bankruptcy cascades, and all of those are things which we’ve seen in the past,” Stiglitz said. “We should have been worried about avoiding it.”
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