Stiglitz: Sarkozy Has Clearer Economic Vision than US

France’s President Nicolas Sarkozy has articulated a much clearer vision of what needs to be done to fix the global financial system than the United States, according to Joseph Stiglitz, Nobel Laureate and Professor in Economics at Columbia University.

Source: Wikipedia Joseph E. Stiglitz

Sarkozy has said that tackling monetary imbalances would be a key part of France’s agenda at international meetings and that the “disorder” in currency markets has become unacceptable.

Stiglitz agreed with President Sarkozy’s concerns that the strength of the euro could cause considerable problems saying that it was putting Europe at a disadvantage.

“A dollar reserve system that might have made sense for the 20th century makes no longer makes sense for 21st century,” Stiglitz said at a conference in Paris entitled “New World, New Capitalism. “On both a national and international level, President Sarkozy has explained very well some of the economic, social and political reasons why something has to be done about bonuses whereas in the United States there has been no real discussion about that.”

“Unfortunately too many people in the United States on the right have their heads buried in the sand,” said Stiglitz. “They try to pretend that we should go back to the kind of market economy that we had before the crisis. The reality is that we had a storm that the market created and it’s a storm that has happened over and over again.”

Stiglitz also said that the market economy failed and it is only through state intervention that the global economy was saved.

The Bank for International Settlements, known as the central banks’ bank as it fosters coordination between various central banks, is also concerned that banks may not have learned any lessons from the crisis. It has summoned central bankers and financial chiefs to a meeting this weekend in Basel to discuss concerns of a return to excessive risk-taking in the financial markets, according to the Financial Times.

Increased Moral Hazard

The reforms of the financial institutions implemented so far are insufficient and the U.S. is now faced with a bigger problem, Stiglitz said later in his conference presentation.

"It's clear that reforms of international financial institutions are moves in the right direction, but they're too little and too slow, we'll be in the next crisis before they occur," he said.

"So far what has been done has been totally inadequate" in fields such as compensation, derivatives and the banks that are too big to fail, he explained.

"We wound up with a financial system that is more concentrated, with a problem of moral hazard that is even greater," he warned. "Uptown in Columbia for instance, the only question is when the next crisis will occur."

For Europe, if democracy and integration are to be effective, there must be some degree of solidarity said Stiglitz, who slammed the recent pressure on tiny Iceland to pay back Dutch and British savers that lost out when Icelandic banks collapsed.

Europe will face another challenge in dealing with Greece in the next few weeks, and how it will tackle this problem will be crucial for its future, Stiglitz added.

- Written by Anjuli Davies, special to CNBC.com, and Antonia Oprita, associate producer, CNBC.com