“Stunningly destructive” and “dismal failure” is how Nobel laureates describe growth in the European Union after destructive austerity policies and the euro crisis.
Economists are casting doubt on the effectiveness of monetary policy in the 18-member eurozone, which is yet to fully shake off recession and produce sustained growth.
Data from earlier this month shows that economies have broken down, and growth has come to a standstill. The three largest economies- Germany, France, and Italy- all failed to grow.
Nobel laureate and Princeton University economist Christopher Sims warns that the euro countries hit worst by the crisis may be looking for an exit from the failed currency experiment.
“If I were advising Greece, Portugal, and Spain, I would tell them to prepare contingency plans to leave the euro,” the 2011 Nobel Prize winner said.
Economist and Professor at Columbia University Joseph Stiglitz called the eurozone’s efforts to recover from the debt crisis a “dismal failure” in an interview with Bloomberg TV on the sidelines of a conference in Lindau, Germany
“Now we see the enormous price that Europe is paying,” Stiglitz said, adding, “hopefully the reality of this failed policy will strike.”
Stiglitz is especially critical of the European Central Bank's monetary policy which has done little to tackle deflation and continues to dither on changing interest rates.
In June, the central bank cut its main refinancing rate to 0.15 percent from 0.25 percent, and the deposit rate from zero to -.10 percent, the first time the ECB has seen a negative rate and the first time a major central bank has crossed the zero threshold.
Stiglitz also suggests the eurozone needs to speed up its creation of its banking union so debt can be borrowed on a mutual, and not individual, basis.
As early as 2014, over 6,000 banks across the eurozone will be united under the supervision of the Frankfurst-based European Central Bank.
Inflation has dropped dangerously low to 0.4 percent sparking fears about deflation, or falling prices. The European Central Bank’s goal is to have 2 percent inflation. Unemployment in the eurozone is down slightly, but at 11.5 percent still near the record 12 percent figure from last year.
MIT Economics Professor Peter Diamond, who won the Nobel Prize in 2010 – warns that work may be more and more difficult to come by.
“It is a terrible outcome, and it is surprising how little uproar there has been over policies that are so stunningly destructive,” Diamond said.
The stagnation is attributed to the failed recovery from the eurozone crisis, and is also in part affected by the local Ukraine-Russia crisis.
Sanctions and trade wars between Russia and the EU could cut 2 percent off eurozone GDP in the next two years, according to Gabriel Sterne at Oxford Economics.