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IPE special report May 2018

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Stiglitz, Sinn butt heads on effectiveness of Eurobonds

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US Nobel laureate Joseph Stiglitz and German economist Hans-Werner Sinn agree that the euro is unlikely to survive if nothing changes within the European Union, but when it comes to Eurobonds, they do not see eye to eye.

Speaking at this year’s risk management conference organised by Union Investment in Mainz, they both highlighted structural problems within the euro-zone rather than the failures of peripheral member states.

Sinn, president at economics research institute ifo, reiterated his belief that countries should be allowed to exit from the single currency and thereby devalue their currencies and debt.

For Stiglitz, the euro in and of itself had been “a mistake”, but, “now that you have it”, there needs to be structural reform in order to move from austerity to growth.

“You have to have a banking union with not only common supervision but common depositary insurance, a stronger fiscal union, that will include something like a Eurobond,” he said. “You could come up with another name if this one is tarred.”  

The economist pointed out that Europe’s debt-to-GDP ratio was currently lower than that of the US and argued that, if Europe “borrowed together”, interest would come down, providing a measure of relief for euro-zone countries struggling with high interest.

But Sinn was sceptical about introducing a joint deposit vehicle without more political and administrative unity.

“We need to have the United States of Europe, which would be an insurance contract that needs to be signed – then we can have euro-bonds, etcetera,” he said.

“We cannot just behave, through the backdoor, as if we had the United States of Europe because that would cause a lot more trouble.”

Stiglitz, on the other hand, argued that adequate monitoring would help mitigate risk.

“The future is far more important than the last 10 years,” he said.

“If you can get a system that works from here on, then you can figure out the legacy problem.”

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