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.