german car that i have. i am better off giving up my money and the car manufacturers that we are better off so once we started to think of trade between an individual and then we did the public policy. >> host: a capitalist manifesto understanding the market economy and defending liberty is the name of the book. >> guest: thanks for having m me.

[inaudible conversations]

good evening ladies and gentlemen and welcome to the upper west side. tonight i have the pleasure of introducing the author joseph stiglitz, a nobel prize-winning economist and best-selling author of a number of titles including the great divide, the price of inequality and globalization and its discontents. he's a columnist for "the new york times" and project syndicate and has written for "vanity fair," politico, the atlantic and harper's. he brings us to be his new book the euro of the common currency threatens europe. can it be saved.

the bank's misguided inflation only mandate explained how the euro zone policies especially towards crisis countries further exposed the design. he outlines three possible ways forward. fundamental reforms in the structure and the policies imposed by the member countries. a well-managed and to the experiment were a bold new system dubbed the flexible euro. they call this work a cogent and urgent argument of compelling interest to economists and policymakers. without further do please try me in welcoming joseph stiglitz. [applause] it is a pleasure to be here again. maybe i should begin with the

question why should an american like me be writing about europe, doesn't america have problems of its own that should get our attention? obviously, i think there are a number of reasons i will come to at the end why it's important for the united states. but as aas an economist, the pls it is an interesting experiment and even when they are not really great ideas. one of the reasons economists are interested is because it was an interesting experiment, and even if it was a foolish experiment, we don't have that many in economics and this is one on the grand scale.

he was found with the best of intentions and one cannot base the grand experiment of having as much implications for so many people. the political leaders that helped found that euro didn't really understand economics. it was influenced prevalent at the time.

ithe belief that the markets worked while. if only the government did its part to market would take care of everything else. make sure there wasn't. at the bank whose mandate was to keep inflation low and they had a set of restrictions. if you did those two things the market would take care of everything else and guarantee the success.

as the crisis evolved it wasn't just needs. spain and ireland had a surplus before that caused the deficits and debt so it would make sure and a remarkable thing is years after the germany still doesn't understand this they still think that mistake made at the

beginning of double down on a bad idea so they told all the countries you have to make an even stronger. this takes us to a particular moment in history because if it would have been found after a most people wouldn't have had that idea because the east asia crisis had no deficits and it

was the biggest crisis up until that point. it was caused by nist behaved markets and that is what happened in spain and elsewhere so it is interesting how it was found at a particular time that there was an influence and the consequences would have been. there's a couple othe of the res i was interested. one of his globalization into

the form of integration. many other forms and the mistake was trade integration, financi financial. they thought it was sharing a common courtesy to the more general problem is a mismatch on the pace of with the pace of politics and we see that here in the united states.

finally, a a single currency is finance and of course as we all know it is an area where ideology plays an important role in where things often don't work very well so trying to understand what has gone on brings up the insight into the financial markets. it was conceived the best of intentions not as an economic project it was a political idea so that politics wasn't enough to get the project done in a.

they would scratch their head into the vaults of different ideas and it's a critical point that's where they went wrong because while it was a political project, the politics wasn't strong enough to make the project work so i will explain a little bit later on we have a oe difference the rich and the poor state wasn't that much different in europe at the time since they opened up to the eastern european countries. we have a single currency at work because we have a whole set of institutions that make our economy.

they didn't put in place those institutions and the result was a political project to bring prosperity and bring the countries closer together and they thought there would be this political dynamic meeting to more political integration into it had the opposite effect. it's been a disaster economically. it led to political divisiveness and making it more and more difficult to address the other r issue is europe has to address together like the migration crisis. so the question was why has there been a failure and i can

go through the numbers about the extent to which the economy hasn't been performing well in the crisis countries like greece and spain, portugal, ireland, the downturn was worse than the great depression. unemployment in spain is separating things are getting really good at is only 20%. and youth unemployment is only 50% and that's because one of the great things you can move easily so that reason is that only 50% and a lot of the people have moved elsewhere in europe. in greece it is 60% and it should delete the gdp has gone down by 25%.

no matter how you look at it even the best performing country would be a d. on any standard of you aryou are not breaking on a. if you look at what's happening, the suit said tamika -- citizens are doing really badly. from the economic point of view it hasn't worked. the reason is very simple. when you point single presidency it -- a single currency it took away from the way the societies adjust when they get hit by a shock like the global financial crisis coming in from the united states. you can lower your interest rate and exchange rate and that leads to more experts and helps your

economy grow. iceland, for instance very small island, small country but iceland has one of the biggest crises. it had the most poorly behaved financial sectors but they recovered very quickly and one of the reasons is because they have a flexible exchange rate. they were not part of the euro. then the worse after they've taken away the mechanisms of adjustment, they tied the hands of the countries even further and said you can't stimulate the economy for the fiscal policy or have more than the 3% deficit. and thethen they sent to the cel bank you have to focus just on inflation so that there's a lot of employment if you are worried about any inkling of inflation, raise interest rates so in 2011 when the economy was in bad

shape they raised interest rates twice a. so i try to explain is in a sense, it was flawed from birth and the ghost of a major controversy going on about what went wrong. there's one group othere is oneo say the only problem is they did the wrong policies, they did their own thing and the fact is they couldn't have been worse. so it is true that they've given a lot of the basis.

they discuss how ol old cannot e and still be called fresh. they say we like fresh milk and people from the rest say you want to know that only four days old to be called fresh. we think it should be ten -day-old milk that's called fresh. that became a major controversy for a while. can you imagine the economy is in depression and they are arguing how many days old milk should be. there was a little inkling about this. big dairy farmers in the netherlands wanted to ship their

milk down there to greece. it takes a few days. they wanted to call it fresh milk so the buyers wouldn't know if it was greek milk or dutch milk. it would worsen the economic situation in greece because the greek farmers income would go down so this is a policy designed to hurt greece and they were holding up money over the issues like this. so a lot of ground to say that the european leaders were not doing the right thing. but the basic feeling i argue is that it was a structure of the zone itself because it took away the adjustment mechanisms. there were other things you can

do to adjust. it's taking into account the prices in the countries. you either have to lower the price increase will raise the price in germany. that's the onlabout the only otf going about it. if you say it doesn't make a difference, yes it does because when you lower the prices and the wages increase, they owe a lot of money in the euros and af you lower the wages, what they becomes more burdensome and you go into bankruptcy.

so barrinso barring the prices r works. the alternative was raising the prices in germany but germany then tells the story. inflation is what brought it on but that made-up history. the real history as anybody knows was the unemployment rate. it was the high unemployment. related to the demand of europe to have large surpluses and repay the penalties imposed on germany at the end of world war i which they invaded against because he thought it would cause serious economic consequences. so it was the primary surpluses so the irony today is germany is assisting on greece having huge

surpluses to repay the debt that they have and not a surprise, causing the depression i described before. thiso they realize if you are gg to have a diverse set of countries share the common courtesy, it would be important over time to have them come closer and closer together. but they set up a system that led to the countries get further and further apart and now after the 17 to 18 years, the countries got rich and poor countries got poorer and it was predictable this would happen. let me give you one example.

they thought that would lead many tleavemoney to go from thee poor countries. that was sort of the ideology and if you bring back that economics course you might actually believe that but hopefully you don't allow people who've only taken a personal course to be in your policy making decisions so the problem is back in 2008 and 2009, we have a global financial crisis. where did the money flow after the crisis? the united states was the source of the crisis and the banks mismanaged everything. we are on a flow to the united d states.

white sox very simple reason. the united states has the deepest pockets of any country. i was in a phone call after they went down and the question was how do we respond to the bush initiative to have $700 billion given to the banks. so the democratic party was trying to decide and the nominee was running for president. what should we do in response? the response was only why the billions of dollars int and the answer was don't worry, the reason of the 700 billion is because it was too big but don't worry, there's lots more money if you need it. the treasury and federal reserve

for a holy unknown celebrity. that's when the general principle comes behind the government but if the spanish government is backing the spanish banks, do you want to keep the money or put them in the german banks where it made a lot of sense people took money out of the spanish banks but what happens then? there's athere is an enormous cn of lending. the spanish economy gets weaker. what happens then the tax revenue gets weak, they can today about the banks so more money goes out in a vicious

circle. the same thing with talented people. we decide as a system the rich get richer and the poor get poorer. this is the basic problem that needs to be done and it seems to me there's two ways there needs to be more your pointless euro europe. it has to integrate more with the place of disintegrating. if you think about the minimum

necessary to place to begin is what makes it impossible. one of the things to migrate to a there's a fundamental difference between the united states and europe if everybody leaves south dakota that was there are not many jobs there, nobody cares a lot. the nature of a national identity is different. but other important parts are

when washington mutual, one of the biggest banks went into trouble it wasn't a stat the stf washington that bailed out washington mutual. it was the federal government fdic. when we go into a recession, we have a national unemployment insurance system fo so the costs picked up nationally. in europe it's just the opposite is greece has to bail about and they have to pay. one of the things you have to have is the common deposit insurance. the idea of what they called the banking unit is now accepted that the juries has not now.

sometime in the future but of course the damage that is being done is going to be hard to reverse. the spanish banking system isn't good to come back. one of the things europe did unknowingly and i don't think many people realize that at the time, they created the crisis to the sovereign debt crisis. when you borrow money in the currency you don't control there's always the risk of not being able to repay. the united states will never have a sovereign debt crisis like that because we owe a lot of money tha but would veto it ,

the dollars. more dollars. it's only as of the printing press breaks down or at least we have no electricity. you could imagine but in europe it is not under their control so they've created a declaration from recent years. you need industrial policies. you have to have a solidarity fund to shift the cost.

most importantly a system adjustments of those that did the surpluses raised the spending. creating what is necessar necest isn't a block, if not allow the economically. germany keeps saying we are not a transfer union which means we don't share risks with other

people. because the policies they wound up bailing out a. the price is creating institutions that might make it work. the other a try to describe in the book. i think it can be done that without cause the planet has to remember.

you might keep the idea of the single currency to try to keep the advances and recognize they put the cart before the horse. they could get a stability among the exchange rate and then they could go to have single curren currency. where will this all go.

if i were to give a forecast. i don't think any would have been undertaken. it's the kind of brinksmanship. it will be an introduction between the politics. if you've been in the depression for a long time, what is

happening is we should care and they've made the difficult to address this crisis. one of the reasons is divided into 25% unemployment? they want to go to the countries that have low unemployment rat

rates. they are making it difficult to address the other problems. europe has been issues of human rights. it's not going to be as forceful

[inaudible] elements of the first question. this is a global problem.

it's very simple they rape as aa result of the activities in ireland then they said that the home office pretending that was the source of all the prophets of apple.

when irelan ireland joint europd was to. they kept it secret until the new deal to pay 2.5%. they didn't say whether they were there.

if they publicizethey publicizey operating in europe that would be a political scandal. when we bring the profits back to the united states pay should be taxed. he said if a tax that we can't. there is a fundamental flaw in the tax.

but you have the taxation based on the economic opportunity products generated. it wasn't his home office with employees that generate a prof profit. they try to b tried to be shockt what happened. their celebratory and most people would argue that it was politically driven. can you speculate on what he

would think would hav happen ine uk? >> the problem is they did contribute to a brexit because if you are on the one side of the channel looking across and saw two things going on, the dysfunctional europe and germany dominating everything else in a kind of rigidity saying spain is 20% unemployment and a the commission said the deficits are still high we need another dose of austerity so there's a kind of rigidity a lot of people reacted against.

there's a lot of uncertainty going forward. it still may be bad going forward. canada and the united states we both prosper very well and i think they do well without sharing a common courtesy and without being part of the mark market, we don't have a free flow.

i don't think on either side of the two economies would do a lot better if we formed a single economic unit. there may be some but i think the issue is put political. putting people get away you should have saved this euro. >> i wonder why you focus so much on the euro to create a

system of supporting the economic integration. what would have happened if to all the small economies would have been more disastrous