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Nobel laureate warns European economic crisis may deepen

(Xinhua)

10:38, January 19, 2012

LISBON, Jan. 18 (Xinhua) -- The 2001 Economy Nobel Prize winner Joseph Stieglitz warned on Wednesday that the European governments' economic policies are likely to deepen the crisis instead of solving it.

"The European Central Bank focus is on inflation and not on the other issues that are central to economic growth. Europe will not recover from the crisis without growth and austerity will not bring growth," Stieglitz said at a Portuguese supermarkets association conference.

Stieglitz added that there has been an excessive focus on the deficit, and held that the problem of the eurozone is political.

Meanwhile, he stressed that the European Union did not go far enough on the fiscal area. "Euro was originally a political project and governments were not strong enough to create a finished project to make the euro work."

Blaming the austerity as a path to worsen the situation, he compared the current situation with the 1928 crash. "President Hoover succeeded in converting the stock market crash in the great depression with the austerity."

Citing the historical example of the 1930's depression, he suggested "spending money on high return public investments that might improve the balance sheet as technology, infrastructures and education," adding that this policy has been effective in the United States over the last fifteen years.

In terms of the current situation, he said that there should be no fear of restructuring the debt.

"Argentina and Russia had strong growth after restructuring. When Iceland did not pay for the banking system debts everyone said that it would take ten to twelve years until they could achieve economic growth. They are growing and they have a 8 percent unemployment rate, which is not the ideal situation, but better than predicted," he said.

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