Nobel Winner Stiglitz Spells Doom for Dysfunctional Euro Currency

The 19 countries of Europe that share the euro currency — known as the Eurozone — have been rocked by economic stagnation and debt crises, made worse by the global financial crash of 2008. 

Some countries have been in depression for years while the governing powers of the Eurozone have careened from emergency to emergency, most notably in Greece. 

Stiglitz argues, in his book "The Euro: How a Common Currency Threatens the Future of Europe," that Europe's stagnation and bleak outlook are a "direct result of the fundamental challenges in having a diverse group of countries share a common currency the euro was flawed at birth, with economic integration outpacing political integration. "

​One of the central principles of the Stability and Growth Pact (SGP) is that countries must not run an annual budget deficit — the difference between its income and its spending each year — of more than three percent of its GDP.

Both Spain and Portugal are in breach of the SGP, triggering the warning from the Commission, which will lead to a fine of 0.2 percent of GDP. Spain's deficit hit 5.1 percent in 2015, while Portugal's is believed to have been 4.2 percent. Although threatened with a fine for being in breach of the SGP, neither country was, after Brussels decided it would give rise to further anti-EU sentiment in Europe. 

Taken together with the Greek third bailout — the subject of disagreement between its creditors — as well as economic difficulties in Italy and Portugal, it is all a sign of the dysfunctionality of the single currency, because of a north-south divide in the economies of the member states. For the SGP to work, all euro member states must have similar fiscal policies — which they patently don't have. 

"I think that there are limits to what a central bank can do. So the problem that I've said is not so much policy, even with the best of policies — and the policies have not been the best — but even with the best of policies it would have been virtually impossible to make the eurozone work, even with a genius as the policy maker," Stiglitz told Euronews.

He proposes three possible options for the EU: fundamental reforms in the structure of the Eurozone and the policies imposed on the member countries; a well-managed end to the single-currency euro experiment; or a bold, new system dubbed the flexible euro.