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

SPAIN According to The Daily Telegraph, Nobel Prize winner Joseph Stiglitz, the former chief economist of the World Bank, in an updated edition of his book Freefall serialised in the newspaper, has predicted that short-term speculators in the market could soon start putting pressure on Spain. The country is struggling with a large deficit and high unemployment. Stiglitz warned that Spain, similarly to Greece, was now in the speculators sights. “Under the rules of the game, Spain must now cut its spending, which will almost surely increase its unemployment rate still further,” he said. “Spain may be entering the kind of death spiral that afflicted Argentina just a decade ago, known in Spanish-speaking countries as el corralito. It was only when Argentina broke its currency peg with the dollar that it started to grow and its deficit came down. Moody's cut the country's credit rating from AAA to Aaa last week. Stiglitz also predicted that the future of the euro is “looking bleak” and the fragile European economic recovery could be irreparably damaged by a “wave of austerity” sweeping the continent. On the euro, Mr Stiglitz said that the different needs of countries with high trade surpluses, particularly Germany, and those running deficits such as Ireland, Portugal and Greece, meant that the single currency was under intense pressure and may not survive. 

 

He suggests that one way to save the euro would be for Germany to leave the eurozone, so allowing the currency to devalue and help struggling countries with exports

"Countries that share a currency have a fixed exchange rate with each other and thereby give up an important tool of adjustment," he said. "So long as there were no shocks, the euro would do fine. The test would come when one or more of the countries faced a downturn."