Euro currency doomed unless changes made, says Nobel-winner Joseph Stiglitz

Stiglitz: Eurozone structure doomed the euro
Stiglitz: Eurozone structure doomed the euro

The structure of the euro zone has "doomed" the euro currency to "failure," and if changes aren't made, the region could suffer a break-up, Nobel prize–winning economist Joseph Stiglitz said Tuesday.

"Unless they put in place the kinds of institutions we have in the United States that do allow a single currency to work, they are going to face the real threat of some form of a break-up," the Columbia University professor said in an interview with CNBC's "Power Lunch."

The problem is when the euro was constructed, two important mechanisms of adjustment used when a country hits a shock — the exchange rate mechanism and the interest rate — were taken away, he explained.

"Then instead of putting something into place, they tied the hands of Europe further by restricting the ability to use fiscal policy, and then they told the central bank to … focus mainly on inflation."

A worker puts 50 euro bank notes into a counting machine.
Simon Dawson | Bloomberg | Getty Images

Stiglitz, who is the author of the new book "The Euro: How a Common Currency Threatens the Future of Europe," believes the euro zone is trying to have it both ways, living in what he calls a "halfway house," which is "unsustainable."

He believes it will have to do one of two things. It can move toward "more Europe," which means putting in additional institutions like a banking system. He also would like a way to mutualize debt and would like to see the mandate for the European Central Bank change.

"These are not big changes economically, but they are bigger than the politics seem to allow for today. And the result of that is if they don't make those changes, it's really hard to see how the single currency will survive," Stiglitz said.

The euro zone can also go toward less integration, "which means some form of an amicable divorce, perhaps a breaking up into two or three regions, some kind of flexible euro system," he said.