Inquiring minds are reading Joseph Stiglitz, one of the world’s leading economists, warning that the future of the euro is looking very bleak. He also is warning that the fragile European economic recovery could be irreparably damaged by a “wave of austerity” sweeping the continent:
The former chief economist of the World Bank and a Nobel prize winner also predicted that short-term speculators in the market could soon start putting pressure on Spain, which is struggling with a large deficit and high unemployment. Last week, Moody’s cut the country’s credit rating from AAA to Aa1. The former adviser to President Bill Clinton also says that the banking sector has gone back to “business as usual” too quickly and that there are still risks of another financial crisis despite some improvements in regulation
Mr Stiglitz, now a professor at Columbia Business School, makes the arguments in an updated edition of his book, Freefall, on the credit crunch. In the new material, exclusively extracted in today’s Sunday Telegraph, he reveals fears that governments around the world will attempt to cut their deficits too quickly and risk a double dip recession. Tomorrow, George Osborne will outline the Government’s latest plans for multi-billion pound public sector cuts to tackle the historically-high UK deficit. He has faced criticism that the Coalition is in danger of cutting too hard and too fast but the Chancellor has said that without a credible programme for getting the UK economy into balance, interest rates will rise and growth will be choked off. “The worry is that there is a wave of austerity building throughout Europe and even hitting America’s shores,” Mr Stiglitz said. “As so many countries cut back on spending prematurely, global aggregate demand will be lowered and growth will slow — even perhaps leading to a double-dip recession. “America may have caused the global recession but Europe is now responding in kind.” Mr Stiglitz warned that Spain, similarly to Greece, was now in the speculators’ sights.
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