Monday, 3 October 2016

A disaster in the making

Sir Paul Collier CBE is professor of economics and public policy in the Blavatnik School of Government at the University of Oxford. From 1998 until 2003 he was the director of the Development Research Group of the World Bank. In 2010 and 2011, he was named by Foreign Policy magazine to its list of top global thinkers. Collier currently serves on the advisory board of Academics Stand Against Poverty.

Why am I telling you this? Just to let you know that Collier has mainstream liberal views and knows what he is talking about.

What he is talking about on this occasion (here in the TLS) is the euro. Specifically, he is reviewing the recent book by Joseph Stiglitz (Nobel Prize winner in Economics, worked for Bill Clinton, also knows what he is talking about) on the subject. You should read the review.

Stiglitz says that the euro is - as mainstream economics always said it would be - a disaster. And he turns his well-intentioned, mainstream, liberal thinking mind to the question of how to resolve the situation.

Plan A is to save the euro by (in essence) turning the eurozone into one country, like the USA. But this isn't going to work for practical reasons so there will have to be a divorce.  Stiglitz and Collier have some clever-clever ideas for how to get an amicable divorce going. But there are political difficulties with that Plan B too.

All of this is sensible, mainstream, liberal, etc thinking. But it leads to this sentence: "Divorce is likely, but it will most probably happen when a fringe party of some varying shade of ugliness wins an election." Which means that we started with mainstream liberal sensible people thinking about the euro, and by a series of sensible steps, thinking about how things are in the real world, we have ended up saying that the solution to the problem of the euro - the central economic problem of Europe - is to elect a far-right party. So don't be surprised when that happens.

My own view is that there is more life in Plan A than Stiglitz/Collier think. After all, sensible people would never have started in the euro in the first place, and the people in charge of the euro have enough power to take steps to avoid themselves looking stupid for some time to come. But that will only make the "fringe party of some varying shade of ugliness" all the more ugly when it finally arrives.

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