Several Nobel economics prize winners find that euro zone will survive the sovereign debt crisis, but the eventual split could be caused by Germany rather than Greece, writes Reuters.
The 17 holders of the Nobel Prize in economics came together this week on the island of Lindau on Lake Constance in southern Germany, to discuss the economic discipline.
Among the participants are Joseph Stiglitz, who received the Nobel Prize in 2001 for his work on markets reaction to asymmetric information, Myron Scholes, holder of Nobel prize in 1997 for work in the field of derivatives, and Robert Mundell, winner of the 1999 awards for his currency analysis. “I do not think the euro is on the verge of collapse. Europe must move forward, to a United States equivalent”, said Mundell.
Major topics of discussion were the slowing down of U.S. economy and whether a third round of quantitative easing from the Federal Reserve (Fed) would be helpful. Most participants think that it is not helpful.
Discussions were fierce on economic stimulus versus austerity, but the crisis in the euro area and the danger of breakage of the monetary union dominated the meeting. “It is very difficult to separate beaten eggs”, said Stiglitz, recognizing that discussions were taking place about “an optimal way of disintegration of the euro area”.
He said that economists are beginning to believe that it would be better for Germany to leave than for Greece.
Euro area, a nonsense if Germany leaves?
If indebted countries like Greece would leave the euro area, their currencies would be devalued, making it more difficult for them to repay their debt in euro. Instead, a rich country like Germany would be in a better position to pay its debt because its currency would probably appreciate against the euro.
Thus, issues of getting out of monetary union would be irrelevant in the case of Germany. No one said whether the euro zone would make sense without Germany.
The launch of the single currency project in 1999 was a triumph of politics over economics. Many analysts have questioned, at that moment, if a group of countries can have a single currency and common monetary policy without having to give up sovereignty over their budgets.
These initial fears now seem prophetic. After a successful first decade, the euro area is in an existential crisis. Three members of the eurozone, Greece, Ireland and Portugal have for asked international financial support, and other countries, like Spain and Italy are in danger. Meanwhile, in Germany there is growing opposition against other rescue programs.
Across the street from the conference center, on the wall of the old city of Lindau there are banners hung with texts like “The World is not for sale”, “Another Europe for another world” and “Shame on the Nobel Prize economists, who brought the world down with neo-liberal theories”.
At the conference, the tone is more optimistic. “It takes a real crisis to have real reform”, said Edward Prescott, who received the Nobel Prize in 2004, together with Finn Kydland.
He added that it takes more than a bandage. “I am optimistic. Europe must reform. They will sit down for discussions, they will agree and apply reforms. Then, Europe will experience an economic boom and will surpass the United States”, concluded Prescott.