This week in place of Paul Krugman, who is away brooding…
Nobel Memorial Prize winning economist Joseph Stiglitz went on RTE R1’s Morning Ireland earlier to tell co-host Gavin Jennings about our lost decade(s) ahead.
Gavin Jennings: “As we leave the bail-out, in your view, do we have reason to celebrate?”
Professor Stiglitz: “Well, it’s better than not leaving. You have reason to celebrate for not being under the thumb of the Troika, but I don’t think that anybody thinks that you’re back to robust recovery, nobody thinks that Europe is really doing well.”
Jennings: “Do you think we deserve any credit for what we’ve done?”
Professor Stiglitz: “I think there was some foolishness in assuming for instance that on the public backs – the burdens of the debts of the banks – that’s going to saddle you for years to come. I think some really serious mistakes [have been made] – that having being said, you’ve managed reasonably well – given the demands that were put upon you.”
Jennings: “You said, not long after the bail-out that it was a noose around the country’s neck that would strangle it, and that Ireland has done all the wrong things. In your view, who got it wrong, who is to blame?”
Professor Stiglitz: “I think that obviously a good share of the blame has to go to the ECB – The European Commission for not re-structuring the debts – for not saying, you know – you have private banks that made bad decisions, the shareholders, the bondholders of those banks have to bear the costs – not the taxpayers. And to bail out the banks’ bondholders was a deep mistake. Obviously, it was also a problem with The Government to accept those burdens which will saddle future generations. Given that Ireland has benefited so much from being part of the Euro – there wasn’t much after that, once you’d made those bad decisions that you could do. That is to say, in the context of where you were – limited ability to finance – hard to have a non-austerity package without some money.”
Jennings: “Whatever about how we got into this mess, was there an alternative for how we got out of it?”
Professor Stiglitz: “I think once you have accepted the burdens of the debt, once you made the decision – it probably was the right decision, to stay in Europe – the room for manoeuvre was greatly restricted. And I’ve been very impressed at the way that the Irish people have accepted, you might call the pain.”
Jennings: “Impressed, or astonished?”
Professor Stiglitz: “Astonished maybe, astonished – without protest, you know, it was a loss of democracy. There is a democratic deficit, here in Europe – I would have thought that the citizens of the country should at least express disappointment, severe disappointment with the way things have been working out.”
Jennings: “So, if taxpayers ended up paying for these mistakes and in your view, wrongly – the cause of these mistakes, or those who should bear the blame for those mistakes are somebody else, and you said the ECB. How could they, or how should they have paid for those mistakes?”
Professor Stiglitz: “How should the ECB have paid for those mistakes? Basically – who should have paid? The first mistake was making the citizens pay for it. First of all, the bondholders under conventional bankruptcy – if you are owner of a firm, if you lend money to a firm and the firm goes bankrupt – you suffer. You get the upside in capitalism, but you have to take the downside. That’s why you get returns that are often quite high. So that was where the burden should have laid. It should have laid with the bondholders and the shareholders. And I think what was really going on was that the ECB and others in Europe wanted to save the banks and the other investors in Europe who had put their money into these bonds. So it was really a trade-off between banks all over Europe and Irish citizens. Irish citizens are not so much bailing out the Irish economy – they’re bailing out foreign bondholders.”
Jennings: “In your view, how long do you think it’s going to take us to recover, are we looking at three years, ten years, thirty years – can we ever recover along the road we’re going down now?”
Professor Stiglitz: “Well, the word recover has two different meanings. Will you get back to the growth path that you were on? Almost surely no! Will you get back to where you were – with maybe a lost decade, a lost two decades – yes! I think you will get back to where you were, but it will be a lost decade, at least. And I think that’s the reality that Europe needs to wake up to. What I find so upsetting is most of this is totally unnecessary. You know – the mistakes that were made before 2008 were totally unnecessary, but the mistakes that were made in 2008 and afterwards are even more unnecessary. Because we know, we knew then that austerity would not work.”
Listen here
(James Horan/Photocall Ireland)
