Greece and Spain are in “depression, not recession”, Nobel prize-winning economist Joseph Stiglitz said on Wednesday, blaming tough austerity measures for their downward economic spiral.
Stiglitz also maintained that the International Monetary Fund was “a little too optimistic” in its forecast last week that the eurozone economy would shrink by 0.4 percent in 2012 and rise by 0.2 percent next year.
“I’m more pessimistic than they are (about growth)… I see significant risk of continuing turmoil,” he said in New Delhi on the sidelines of a conference held by the Organisation for Economic Cooperation and Development.
“Spain and Greece are in depression, not recession. That impact was brought about by austerity” with the countries now trapped in a vicious cycle of spending cuts and slumping growth, he said.
Stiglitz, who served as a senior advisor to former US president Bill Clinton, was speaking on the eve of a key two-day summit of EU leaders in Brussels that will seek to address the eurozone crisis.
“Austerity is bringing Europe down and diminishes chances of making things work — it is the wrong measure,” said the Nobel laureate, who is a professor at New York’s Columbia University.
Unemployment in nearly bankrupt Greece is at 25.1 percent as its economy contracts and it negotiates with lenders about more budget cuts.
In Spain, the jobless rate is 24.6 percent with the government unveiling new spending curbs as it seeks to fend off another bailout that would bring more foreign supervision of the Spanish budget.
Stiglitz expressed scepticism EU leaders will commit to proposals to implement a banking union involving safeguards for depositors’ savings — measures needed, he said, to avert a flight of capital.
“There’s no real evidence to suggest EU leaders are willing to do anything but temporise” about Europe’s debt woes, he told AFP, adding time is running out to address the situation.
“Things are unravelling in the banking system in Spain,” said Stiglitz, who was attending an Organisation for Economic Cooperation and Development conference on devising new statistical indicators to assess economic wellbeing.
Stiglitz, author of a recently published book, “The Price of Inequality: How Today’s Divided Society Endangers Our Future,” said widening unemployment in Western countries is increasing social divides.
“Those at the lower end of the income scale see wages driven down and because tax revenues decline, fiscal pressures weigh on public services — they get hammered in every way,” he said.
Turning to US problems, he added it was unlikely the latest round of US quantitative easing — aimed at spurring growth by lowering borrowing costs — would fuel inflation in the United States because its economy is so weak.
He warned it was essential that US Republicans and Democrats clinch a compromise on the so-called “fiscal cliff” facing the country — automatic budget cuts and higher taxes due to take effect in January.
“Going over the cliff,” he said, would “markedly slow down the US economy” from its current tepid growth.