An emergency meeting of European leaders in Brussels on Thursday to discuss another Greek bailout will decide the future of the euro. If they do what they have done so often since the crisis first began in Greece some 18 months ago, they will simply have kicked the can down the road. Contagion is almost inevitable. A problem that began in the periphery has now moved to the center, and while Spain and Italy have been the most shaken, other nations will almost surely be affected in coming months.
What needs to be done is by now well-known: Issue European bonds, using the collective borrowing power of the European Union, and pass the low interest rates onto the countries in need, combined with a growth strategy that will engender needed revenues.
As in the United States, much of the revenue shortfall arises simply from the weak economy. Putting Greece, Spain and the other countries that are languishing back to work would do more to restore fiscal order than all the speeches and austerity measures combined.
Reforms are needed, and are being undertaken. But it is foolish to think that the full fruits of these reforms will be seen any time soon, and certainly not within the short time horizon of myopic bond markets.
Europe and the rest of the world (including the United States) should understand how much is at stake, both for the global economy and for global peace and security. Recent U.S. jobs data show the fragility of the recovery there. The United States had hoped to export its way out of the downturn, but if the country’s major trading partners in Europe are in crisis, and if the euro is weak (so the dollar is strong), there is little likelihood of this happening. We cannot be certain that the continuation of the European crisis will push the North Atlantic into a double dip, but we can be fairly sure that, at best, the likelihood of a long Japanese-style malaise will rise markedly.
The political stakes are large. The world has been thrilled by the democratic awakening in the Middle East, likening it to the transition toward democratic market economies in Eastern Europe and the former Soviet Union. But that transition is far from certain. The direction that these societies take is still under debate. Even where the market reforms advocated by the World Bank and the International Monetary Fund brought growth (as they did in Egypt and Tunisia), it was not shared growth. Unemployment remained high. Poverty increased. Even the people in the middle did not benefit. Privatizations were corrupt, and gave rise to new wealthy elites, and the striving for greater efficiency contributed to the growing unemployment.
In short, the market model has been discredited.
The success of Eastern Europe was, more than anything else, tied to the integration of these countries with Western Europe through the European Union. Indeed, from a global perspective, this has been the Union’s real achievement, more than the gains to the Continent’s G.D.P. from integration. Nothing holds out the promise of a successful transition for the countries of the Arab Spring more than closer ties with a stable and prosperous European Union.
But Europe cannot be stable and prosperous if large parts of the Continent are in economic turmoil, with youth unemployment rates that rival those in the Middle East. Nor can it provide a model to which people in the region should, or will, aspire.
But, one may ask, where else can they turn?
Theo Nasserite, socialist model has also failed, even worse than the neoliberal market model. It didn’t even produce growth.By Joseph Stiglitz, a Nobel laureate in economics and a professor at Columbia University.
Unfortunately, there are those who are arguing for a different direction, pointing to the failures of the Western models. These include Islamic fundamentalists, nationalists and advocates of a variety of forms of populism. Of course, in large parts of Europe, the European social model has worked extraordinarily well, and not just in Germany. It provides a well-articulated alternative market model to neo-liberalism, one that is consistent with the values and aspirations espoused by the youth that led the Arab Spring.
But if Europe cannot show sufficient solidarity in helping the troubled countries on the northern coast of the Mediterranean, if those countries sink into prolonged recession with high unemployment, then the European model will become totally discredited. Without Europe setting a good economic example, the path to a peaceful Arab Spring transition will be much more difficult.
Globalization has meant that we have become more interdependent: What happens in one part of the world has repercussions elsewhere. America’s flawed economic policies may have caused the Great Recession, but now the euro’s troubles will come back to haunt the United States and the Middle East. The trouble in the European economy will not only hurt the chances of a successful Arab Spring, it will exacerbate migration pressures that will in turn put more pressure on Europe.
Saving the euro — coming to the assistance of the countries of the Continent’s periphery — is not just a matter of charity or solidarity. It is also a matter of self-interest.
Joseph E. Stiglitz, a Nobel laureate in economics and a professor at Columbia University.