The future of the European economy has been hotly debated since the Eurozone found itself in the midst of a financial crisis back in 2008.
Analysts have been queuing up to give their opinions on the matter, particularly on the back of speculation surrounding the single currency, which appears to be under ever-increasing scrutiny.
The UK's decision to leave the European Union (EU) has simply held up a magnifying glass to the debate, bringing a level of doubt over what has always been known as the European Experiment that has never been witnessed before.
The latest episode in the debate has come in the form of a recent Financial Times article penned by Joseph Stiglitz, an American economist and a professor at Columbia University and Nobel Prize winner, arguing that a split euro is the answer to helping secure the future of Europe's single currency.
Flawed from the beginning
The problems surrounding the euro were, according to Stiglitz, almost inevitably from the very beginning. He argues there were flaws from the very inception of the currency, mainly due to the EU deciding to eliminate two important adjustment mechanisms; interest rates and exchange rates. Additionally there were no new macro instruments in the event of an adjustment being needed.
He continues: “Add to that a central bank mandated to focus on inflation and with countries still further constrained by limits on their fiscal deficits, the result would be excessively high unemployment and gross domestic product consistently below potential output. With countries borrowing in a currency not under their remit, and with no easy mechanism for controlling trade deficits, crises too were predictable.”
But although adjusting real exchange rates could theoretically offer a viable alternative, Stiglitz insists the examples of Greece, Spain and Portugal point to a failure in how the process should be successfully implemented.
He claims that changes to the rules are needed, and that Europe needs to reassess its position, eventually transitioning away from the single currency or alternatively shifting towards what he calls a “flexible-euro” system.
North and south divide
This system, Stiglitz explains, will see the euro split into two, with a stronger currency covering the north of Europe and a softer value currency for the south.
In terms of dealing with debt, he believes that the most logical approach within this proposed structure would be to redenominate arrears under “Southern euro” obligations.
“As we move to a digital economy, modern technology enables a set of market-based reforms that can simultaneously achieve the triple goals of full employment, trade balance, and fiscal balance, through credit auctions and electronic trade tokens,” the expert explicated."
However, despite this potential solution, he has something of a stark warning that will stick in the minds of many readers.
"Europe may have to abandon the euro to save Europe and the European project."
Whether such a prediction carries any weight will be up for debate, but it is nevertheless indicative of a largely uncertain future for the economic landscape across Europe.