Creating a Eurozone that works Joseph Stiglitz Creating a Eurozone that works Harry Fox

Intro Europe is unsustainable, it’s a “halfway house” Policy and Structure Reforms Economic reforms

Structural Reforms 1. A Banking Union 2. Mutualization of Debt 3. A Common Framework for Stability 4. A True Convergence Policy – Toward Structural Realignment 5. A Eurozone Structure that promotes full employment and growth for all of Europe – Macroeconomics 6. Structural Reforms of the Eurozone to ensure full employment and growth for all of Europe 7. A Commitment to shared prosperity

1. A Banking Union A common banking system Common regulations, Deposit insurance, And resolution Most important is a common deposit insurance fund Provide flexibility to those ”weak” countries

2. Mutualization of Debt Create a Eurobond Lower interests rates could be implied leading to lower debt defaults Limiting the movement of capital

3. A Common Framework for Stability The movement from current automatic destabilizers to automatic stabilizers Six parts to stability reform Common fiscal framework – “stringent budgetary rules” Solidarity fund for stabilization – unemployment insurance, money to the workers and small business Automatic stabilizers Flexibility in credit creation Regulating the economy to prevent excesses – prevent “bubbles” Stabilizing fiscal policies - “fiscal policy, directed at needed investments, needs to be put more in the center of macro- stabilization”

4. A True Convergence Policy – Toward Structural Realignment Misalignment of rates of growth covered by the common exchange rate. 1. The need to discourage surpluses – convergence policy needed Trade deficits lead to risks of instability Current account balance and equilibrium 2. Expansionary wage and fiscal policies in surplus countries Minimum wages need to be increased and/or leveled 3. reversing the other divergence policies Industrial improvements

5. A Eurozone Structure that promotes full employment and growth for all of Europe – Macroeconomics Change the mandate of the European Central Bank More credit to the medium and small size enterprises

6. Structural Reforms of the Eurozone to ensure full employment and growth for all of Europe 1. Making the financial system serve society Recycling the savings, “intermediation” 2. Reforming corporate governance “short-term myopia” 3. A super-chapter 11 for bankruptcy The absence of one in the EU 4. Promoting environmental investments Sustainable environment Prices on carbon emissions

7. A Commitment to shared prosperity The increase in inequality The need for the EU to create a true stability Tax control Race to the bottom Citizen based taxes

Reforms in crisis policy Importance of discretion and flexibility 1. From austerity to growth Recognizing the limits of monetary policy Recognizing the principle of the balance-budget multiplier 2. Toward debt restructuring High debt leads to stranglehold on potential growth for a economy

Conclusion It can be done! Full employment Find economic equilibrium, shared prosperity Provide credit for small and medium size enterprise (ECB)