Moreover, free labor mobility means that individuals can choose whether to pay their parents’ debts: Young Irish can simply escape repaying the foolish bank-bailout obligations assumed by their government by leaving the country. Of course, migration is supposed to be good, as it reallocates labor to where its return is highest. However, this kind of migration actually undermines productivity.
Migration is, of course, part of the adjustment mechanism that makes the US work as a single market with a single currency. Even more important is the US federal government’s role in helping states that face, say, high unemployment, by allocating additional tax revenues to them — the so-called “transfer union” so loathed by many Germans.
However, the US is also willing to accept the depopulation of entire states that cannot compete. Are European countries with lagging productivity willing to accept depopulation? Alternatively, are they willing to face the pain of “internal” devaluation, a process that failed under the gold standard and is failing under the euro?
Even if those from Europe’s northern countries are right in claiming that the euro would work if effective discipline could be imposed on others (I think they are wrong), they are deluding themselves with a morality play. It is fine to blame their southern compatriots for fiscal profligacy or, in the case of Spain and Ireland, for letting free markets have free reign, without seeing where that would lead.
However, that does not address today’s problem: Huge debts, whether a result of private or public miscalculations, must be managed within the euro framework.
Public-sector cutbacks today do not solve the problem of yesterday’s profligacy, they simply push economies into deeper recessions. Europe’s leaders know this. They know that growth is needed. However, rather than deal with today’s problems and find a formula for growth, they prefer to deliver homilies about what some previous government should have done.
This might be satisfying for the sermonizer, but it won’t solve Europe’s problems — and it won’t save the euro.
Joseph Stiglitz is a professor at Columbia University and a Nobel laureate in economics.
Copyright: Project Syndicate