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Nothing points out the dilemma Europe faces than the interview of Joseph Stiglitz, Nobel prize-winning economist, with Peter Goodman in the The New York Times last Thursday. The interview tied to the Aug. 16 release of the economist's new book, The Euro: How a Common Currency Threatens the Future of Europe.

The major issue when it comes to conducting economic policy is national sovereignty.

Stiglitz says that each country in the European Union should be able to conduct its own economic policy. He argues that the austerity measures that Germany and other stronger European countries imposed on other member nations whose economies have not been so good have hurt workers. Such measures have hurt labor unions, particularly in the peripheral states of the community, and may lead to its shattering.

Make no mistake: Stiglitz believes that Germany is the "bad guy" in the picture.

To be sure, supporters of the EU argue that member countries need to relinquish their sovereignty to act together on economic policy. They say that is the sort of policy that will help sustain the strength of the currency union backing the euro, and that a strong currency union will benefit the different countries. 

The European Union was created in the 1990s and was built around the euro, then a new currency. On economic issues, each member country had to conform to the will of the community on broad economic issues. Some critics believe that this required the countries to relinquish some of their national sovereignty. 

These countries previously had their own currencies and conducted completely separate economic policies. 

The objective was to create a strong currency that would be well accepted worldwide -- one that could become a reserve currency for other countries. In order to do so, the currency union would have to be fiscally disciplined with a central bank that strongly supported the control of inflation.

To achieve the first of these goals, the currency union started with rules and regulations designed to achieve fiscal discipline and government debt amounts relative to the economic activity of each nation. The goal was to further the process of bringing countries closer together, not only economically but also politically. These measures were also meant to help some member nations restructure their economies. 

The European Central Bank was established in 1998 and under the leadership of its first and second presidents, Wim Duisenberg and especially Jean-Claude Trichet, the ECB took a hard line against inflation.

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But the EU's history has not been a happy one. Its mantra at times seemed to be to postpone addressing issues that required hard work in the short term. 

Germany and other countries with more successful economies imposed particularly severe fiscal constraints on other countries. Stiglitz has been one of the more vocal critics of European austerity programs.

In his book, Stiglitz argues that such programs have kept member nations from supporting their economies and their workers, and that that has created disenchantment within countries and fissures within the EU.

He writes that the common currency is "a failed experiment" and the strong objections to easing austerity programs is just a "doubling down" on this failure.

Stiglitz writes that the community needs to deliver on "a banking union with deposit insurance....something like a euro bond." He adds that this "European Central Bank shouldn't just focus on inflation -- you want it to focus on employment" and that there needs to be "a tax policy that deals with the inequalities...and you have to get rid of limits on fiscal deficits."

In other words, instead of shooting for the high standards needed for achieving a strong currency, the European Union should surrender to the lowest common denominator economically and to the reform and restructuring that is needed.

But, if such a surrender does take place, the euro will quickly depart its place on the list of reserve currencies and Germany and two or three other member nations will probably depart the EU quickly. This will mean the end of the currency union and any attempt to forge a political union.

Stiglitz sees this dissolution occurring anyway if things continue as they are. 

In the interview, Stiglitz states that the model for building a common currency union was the United States. He says that "they didn't have the political integration. They didn't have the conditions that would make a single currency work."

In other words, Europe was made up of sovereign nations that were unable or unwilling to give up their sovereignties to form "a more perfect union," one that could build on their strengths rather than on their weaknesses.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.