MercoPress. South Atlantic News Agency

Stiglitz calls on Euro zone governments to “burn the speculators”

The Greek situation is a repeat of the Hong Kong case in the late nineties, says the Nobel Prize

European governments should intervene in stock markets and “burn” the speculators one of the world's leading economists was quoted by European media. Professor Joseph Stiglitz said authorities in the Euro-zone should do what the Chinese authorities did in the late 1990s when the Hong Kong currency came under attack.

The Nobel Prize winner has been advising the Greek government on how to deal with its economic crisis as it poses the biggest test yet for the Euro.

The Chicago Mercantile Exchange calculates that speculators have now bet 7.6 billion US dollars in short positions against the European currency.

Prof Stiglitz said Greece's political leaders are striking the right balance between cutting public debt and stimulating economic growth. He said the country would categorically not require a bail-out, but urged governments to teach the speculators a lesson by intervening in stock markets, as happened in Hong Kong.

There, the speculators knew the government would respond by pushing up interest rates, which in turn would cause share prices to fall. So the Chinese authorities bought heavily in the stock market - forcing share prices up instead and “burning” the speculators who had bet that share prices would fall.

“The speculators will always look for the weakest link. What they're doing now is a version of the Hong Kong double play in 1997 /1998,” he said.

”When you raise interest rates, the stock market goes down, so they bet that the stock market would fall. They (the speculators) said we can't lose because if they don't defend the currency, we'll make money on the currency”.

“If they do defend it, we'll make money on the stock market. What Hong Kong did in response was to raise interest rates and intervene in the stock market”.

”They burnt the speculators and Europe needs to do the same thing.”

Prof Stiglitz, who has advised Presidents Clinton and Obama, is also the author of a new book Freefall: Free Markets And The Sinking Of The Global Economy.