Greece’s giving up the euro would be “really serious” for Europe, Nobel laureate Joseph Stiglitz said.
“If Germany and the rest of Europe refuses to change the program, I think there’s no alternative” to Greece pulling out of the single currency, Stiglitz told Francine Lacqua in a Bloomberg Television interview on Tuesday.
Europe’s most-indebted state has been in a standoff with its lenders for months. This has triggered an unprecedented liquidity squeeze, which pulled the Mediterranean nation’s economy into a double-dip recession. Record deposit withdrawals and the state’s increasing difficulty in meeting debt payments have sparked renewed doubts about the country’s place in the euro area.
Even though Greece is a relatively small economy, its departure would be serious for the bloc by highlighting its impermanence, according to Stiglitz.
“You really are bringing more instability into Europe,” and risking that the euro currency project that was flawed from the start was would be “going down the tubes,” he said.
Greece’s anti-austerity government has repeatedly expressed confidence a deal with creditors was imminent, only to be rebuffed by the creditors seeking more concrete actions in areas including labor market deregulation and pension-system overhaul.
European Commission President Jean-Claude Juncker ruled out a pact being reached at a meeting of European Union leaders in Riga, Latvia, later this week, while saying that he does expect an international aid agreement with Greece at the end of this month or in early June. He denied reports from Monday that he had a compromise proposal to unlock funds for Greece.
Inflation in the euro area has been running well below the European Central Bank’s goal, prompting it to enact a quantitative easing program earlier this year in a bid to stimulate price growth.
In response to a question about whether he was worried that Europe faced the prospect of Japan-style low inflation in Europe, Stiglitz said “very much so.”
“Low inflation is a signal of a weak economy, that is to say weak aggregate demand,” he said.
Stiglitz won the 2001 Nobel Prize in economics with the University of California’s George Akerlof and A. Michael Spence, a professor at New York University.