Stiglitz slams austerity as ‘a dismal failure’

Eurozone austerity policies to tackle the region’s debt crisis have been a "dismal failure" as economic growth grinds to a halt, Nobel laureate Joseph Stiglitz said.

The Columbia University professor, speaking on the sidelines of a conference in the southern German city of Lindau, said that high unemployment and sluggish growth underscore the shortcomings of the response to the turbulence that swept the currency bloc.

“Now we see the enormous price that Europe is paying,” Stiglitz said in an interview with Bloomberg Television.

German Chancellor Angela Merkel, who led the focus on cutting budgets and overhauling labour regulations, is set to speak at the Lindau conference. The economies of Germany, France and Italy — the largest in the 18-member union — failed to grow in the second quarter, threatening the fragile recovery and raising pressure on the ECB to expand stimulus.

Eurozone inflation slowed to 0.4% in July, the weakest pace in almost five years, compared with the ECB’s goal of just under 2%. Unemployment was 11.5% in June, near the record 12% set last year as the region exited its longest-ever recession.

Stiglitz criticised the pace of construction of a European banking union as “too slow” and called for the mutualisation of eurozone debt. That’s a position Germany and other nations have rejected.

“You need more of what you’d call a fiscal union,” Stiglitz said. “If Europe could borrow as a whole, it could borrow at interest rates at the likes of the United States.”

While the ECB announced an unprecedented package of stimulus measures in June, including a negative deposit rate for the first time, “monetary policy can’t really be a substitute for these other policies,” Stiglitz said.

Data last week showed that Germany’s economy shrank 0.2% in the second quarter, more than economists forecast.

France scrapped its 2014 deficit target after its economy stagnated for a second straight quarter. Italy unexpectedly slid into recession. The weakness of the recovery leaves the eurozone more exposed to external shocks. ECB president Mario Draghi earlier this month warned of “heightened” political risks such as the intensifying conflict between Russia and Ukraine.

- Bloomberg