Top economist warns of European 'wave of austerity'

 

Nobel laureate economist Joseph Stiglitz has warned a "wave of austerity" is sweeping across Europe that could trigger a new recession, in comments published in a newspaper Sunday.

Stiglitz, who won the Nobel Prize for economics in 2001, also said the future of the euro was in doubt and raised the prospect that speculators may soon target Spain, which is struggling to recover from a long downturn.

"The worry is that there is a wave of austerity building throughout Europe and even hitting America's shores" according to Stiglitz in extracts from an updated edition of his book, "Freefall", published in the Sunday Telegraph.

"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.

"America may have caused the global recession but Europe is now responding in kind."

He described the euro as "an experiment that may now be faltering" and said without a major institutional overhaul its 16 member states should consider giving up on the currency.

"It is perhaps better to admit failure and move on than to extract a high price in unemployment and human suffering" he said.

On Spain, Stiglitz - a one-time economic adviser to former US president Bill Clinton - cautioned deep spending cuts being introduced could prompt the country's economy to slow down and enter a "death spiral".

"Spain may be entering the kind of death spiral that afflicted Argentina just a decade ago" said the economist.

"At present, Spain has not been attacked by speculators, but it may be only a matter of time."