Economic crisis 'could mean death of the euro', warns Nobel Prize winner

By Rob Davies for the Daily Mail
Updated: 02:24 EST, 4 October 2010

Death of the euro? Nobel Prize winner Dr Joseph Stiglitz said failing European economies could mean a bleak future for the currency

Death of the euro? Nobel Prize winner Dr Joseph Stiglitz said failing European economies could mean a bleak future for the currency

The economic woes of Greece and Spain could trigger a break-up of the euro and plunge Europe's weakest countries back into recession, one of the world's leading economists has warned. 

Spain's unemployment has soared to 20 per cent and Brussels policymakers fear that it could go the way of Mediterranean counterpart Greece, whose economy teetered on the edge of meltdown earlier this year.

Nobel Prize winner Joseph Stiglitz said the stress placed on the single European currency by its failing economies meant 'the future prospects of the euro are bleak'.

He argued that the only longterm solution to the crisis might be for Germany, Europe's strongest economy, to ditch the currency altogether.

He said Germany's exit would allow the euro to fall in value, boosting exports from Europe's stragglers, whose goods would become cheaper for the rest of the world to buy. 

Dr Stiglitz, of Columbia Business School in the U.S., said the drastic measure would help stave off the threat of a double- dip recession posed by 'a wave of austerity' across the continent.

His forecast, made in a new version of his book Freefall, follows the Irish banking crisis which erupted last week, causing a fresh bout of turmoil in the euro area.

In a damning indictment of the EU's failure to prepare for ongoing financial strife, Dr Stiglitz said Brussels should have established a fund to help nations facing economic turmoil.

Without such a fund, he warned, Europe will be left with no option but to end the 'interesting experiment' of the euro in its current form.

In comments unlikely to be welcomed by Chancellor George Osborne, who is due to address the Conservative Party conference today, he added: 'As so many countries cut back on spending prematurely, global aggregate demand will be lowered and growth will slow  -  even perhaps leading to a double - dip recession.'