A protestor stand next to a 50 euro note dummy

Economics

خريطة طريق جان كلود يونكر إلى الكارثة الأوروبية

Sep 19, 2017 Hans-Werner Sinn

ميونيخ ــ ضلت مجموعة من المتنزهين على الأقدام الطريق. وهم يريدون الوصول إلى قلعة على ربوة على مسافة، ولكن يبدو أن المسار الذي يسلكونه يقودهم إلى اتجاه مختلف، والنصيحة الوحيدة التي يتلقونها من قائدهم هي "أسرعوا".

اليوم، تعيش منطقة اليورو نفس الموقف. فقد بات من الواضح على نحو متزايد أن إنشاء اليورو كان المسار الخطأ. فقد تسببت العملة الموحدة في نشوء فقاعة ائتمانية تضخمية في جنوب أوروبا. وعندما انفجرت الفقاعة، أودى الانفجار بالقدرة التنافسية للمنطقة، ونودي على شمال أوروبا لتقديم ضمانات قروض، وائتمان عام، وتحويلات ضخمة. وقد عملت هذه التدابير على الإبقاء على الأسعار النسبية الخاطئة التي نتجت عن الفقاعة، والتغطية على المشكلة الأساسية من دون علاجها.

من ناحية أخرى عمل اتفاق شنجن، الذي ألغى معظم الضوابط الحدودية بين دول الاتحاد الأوروبي، على تسهيل قدرة المهاجرين من المناطق الأكثر فقرا في آسيا وأفريقيا على التدفق إلى دول الرفاهة الاجتماعية في شمال أوروبا في السنوات الأخيرة.

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Hans-Werner Sinn

Writing for PS since 2002
111 Commentaries

Hans-Werner Sinn, Professor Emeritus of Economics at the University of Munich, is a former president of the Ifo Institute for Economic Research and serves on the German economy ministry’s Advisory Council. He is the author, most recently, of The Green Paradox: A Supply-Side Approach to Global Warming (The MIT Press, 2012).

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0 Comments on this paragraph, 9 Comments on this article

Henk Crop Sep 24, 2017

Mr. Juncker mainly points out in his State of the Union address how he wants to go full speed ahead with the completion of the EU. A Union in which life of the European citizen will almost entirely be controlled by Brussels and Frankfort. The National States will effectively be mostly dismanteled and remain responsible only for minor and local rulings.
This must be achieved by March 30, 2019.
Some highlights:
- EU control over the economy. Banking Union, Economy Minister, The Euro as the single currency, despite the disaster it has been for most EU countries, A deposit scheme to distribute financial risks over the States.
- Expansion of the EU. Balkan states. Schengen zone.
- An EU army, which means a separation from the NATO.
- Transfer of authority from the National Parliaments to the EU parliament.
- Immigration. A huge population explosion along the EU's southern borders takes place.
Africa alone has a population of 1200 million and birthrates of 4,7 to 7,7 per woman. For a constant population you need only 2,1. Over 35 years the population will double.
Mr. Junckers wants to make legal pathways for immigration. As illegal immigration will only stop if there is a alternative to periliiuos journeys ( of illegal immigrants). Solidarity must extend to Africa. Last year the EU admitted 720,000 immigrants.
- Mr. Juncker has no response to the Islamisation, which comes along with immigration. A concern of many Europeans as their values do not comply with those of Europe.
- Mr. Juncker repeatedly stresses the importance of democracy and freedom.
However he proposes many measures to curtail that. Such as:
+ Centralized control over finances, social security financing, militairy.
+ Transfer of money / financial risks over the EU countries.
+ Transfer of authorty from the National Parliaments to EU the parliament.
+ He wants to subsidise Political Parties, but only if they support his agenda
+ The democratic role of the EU institutions are undermined by the nomenclatura and carrousel. In the EU you see the same faces again and again. If an official dares not to swimm with flow he/she will never get one of these overpaid EU posts. Several proposals are made by mr. Junckers to facilitate Europhiles to control the EU parliament.
+ Mr. Junckers EU commission has about 25.000 officials to rule life of the Eu citizen.
This is not enough. The owners off the EU are the leaders of the Member States led by the EU President. Mr. Junckers now proposes to concentrate power even more by making himself, or successor President. So he will be leading the leaders of the member States also. It will mean the end of the EU as a democracy.
+ Mr. Juncker is in a hurry so he can implement his rulings before the NationalParliaments or the citizen realise what has happened to them.
- All these ideas are presented without any view on the financial consequences.
Who is going to pay for it?

I am afraid these proposals make the EU a totalitarian state. An immense bureaucracy in which the citizen is just a taxpaying object, which will ultimately end in the fall of the EU Empire.
It is now urgent for the EU leaders to assume their responsibility and take back control over the EU organisations.
A poll in the Netherlands (de Telegraaf, 15 Sept. 2017 ) showed that 96 % of the respondents disagreed with the proposals of mr. Juncker.
( recommended reading: The Deep State of Europe, Basil A. Coronakis, 2016. )
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j. von Hettlingen Sep 20, 2017

Hans-Werner Sinn is no fan of the EU-federalist, Jean-Claude Juncker, who held a state of the union speech last week. He calls Juncker’s expansion of the eurozone and Schengen area as a norm for every EU member, reckless, and ridicules the EU leader's ambition of steering a new ship sailing happily into the future under a merged Commission and Council helmsmanship.
Sinn gives an example that illustrates Juncker's bad judgement - a group of hikers has lost its direction on the way to a castle on a hill. People realise that they are on a wrong path, but their leader urges them to hurry up and carry on. This analogy implies that Juncker - instead of figuring out which path the eurozone should be treading, is seeking to rush every country to join it, failing to see that "establishing the euro was the wrong path to take."
Indeed, at the height of the eurozone crisis five years ago, opinion polls in Germany indicated exasperation at the Greek situation and disenchantment with the euro. A slim majority of Germans thought the euro was a mistake in the first place, while most believed Greece should be allowed to leave, given the fudged figures it used to cheat its way into the eurozone.
The author says the "single currency caused an inflationary credit bubble in Southern Europe. When the bubble burst, the region’s competitiveness was destroyed, and Northern Europe was called on to provide huge loan guarantees, public credit, and transfers." Greece had accumulated a pile of debts following years of living beyond its means - public spending soared in the past decade and public sector wages doubled during the period. As the government upped its spending, tax revenues dwindled because of widespread tax evasion. So when the global financial crisis set in, Greece was not equipped to cope.
The author sees Juncker’s plan to "call for even more countries to join the eurozone and the Schengen" as irresponsible. The idea of facilitating their accession "threatens to recreate in spades the chaos of the past decade, which started with a bubble in Southern Europe, and culminated in the Greek sovereign-debt crisis." By accelerating the process, like "loosening the eurozone membership criteria and providing financial incentives for new members to join" Juncker would only "recklessly" extend euro loans to countries like Bulgaria, Croatia, and Romania, encouraging them to increase debts, creating more "substantial financial difficulties" in the future.
Equally sceptical of Juncker’s "proposal to extend the Schengen Area to the east," the author says the EU leader has failed to learn the lesson from 2015 - Europe has simply "too few internal and external border controls." The flow of migrants has not "slowed" because of the 2016 agreement between the EU and Turkey, but thanks to a fence "erected in Macedonia, at the behest of Austria and the Visegrád countries (the Czech Republic, Hungary, Poland, and Slovakia)."
The author also points out the effectiveness of the "Hungarian-Serbian border fence and Hungary’s ever-tightening controls at its border with Romania" that have "contributed to European stability." The next challenge is to deal with migrants "now crossing the Black Sea from Turkey to Bulgaria, and might come in even larger numbers if the EU membership negotiations with Turkey stall." This may send a message to Brussels to be in good stead with Ankara. Sinn suggests that "the rest of the EU should oppose any bid to eliminate existing border controls, which is exactly what would happen if Bulgaria and Romania were included in the Schengen Area."
In this respect many questions Juncker's vision, which appears blurry. The author says if Juncker would have his way, "an inflationary bubble in Eastern Europe, coupled with the dismantling of border controls, could destabilize the entire EU and create a fresh wave of economic migrants into Central Europe." Both Sinn and Juncker have views that are worth looking into. The best approach is to cherry-pick the moderate ideas and combine them together.
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Paul Daley Sep 20, 2017

Sinn's concern is that Eurozone expansion tends to produce asset bubbles in the new members. So, deal with that, not by halting expansion altogether, but by opening channels that allow the ECB to bypass asset markets when conducting monetary policy. National withholding systems are the obvious alternative since they could provide a channel for the ECB to lend directly to individuals on the basis of their income alone.

As Sinn says, we should learn from past mistakes. But we should accurately identify the mistakes. The ECB, like other central banks, needs the capacity to lend against income as well as assets. Tieing its operations to asset markets exclusively simply guarantees asset bubbles. It has happened before, and it will happen again and again until the problem is corrected.
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Steve Hurst Sep 19, 2017

Juncker's anxiety is the whole federalism process falling apart hence the window of opportunity closing. Without federalism the euro will fail, without the euro Schengen is pointless. Without the euro Northern banks face a day of reckoning and even nominally sound accounts move swiftly to the at risk ledger triggering captial reserve problems and that in turn endangers Northern states principally Germany and France. In view of the sluggish resentment building in most of the EU to federalism Junckers then turns to the handout states to the East before that handout largesse tapers which it has to. Apart from any other forces in play the EU budget diminishes by 15% when the UK leaves. Junckers is like a market stall baker who has to sell his goods by the end of the day. Enticements and discounts will follow shortly for would be customers of his pastries. Perhaps the V4 should now be the Petit Four. Bon appetit baby
- Alisdair Hamilton-Wilkes Sep 20, 2017
  
  Nice analogy.
  
  Mr. Sinn does not speculate on other potential shocks to EZ only expansion but as you mention, Brexit is a bit of an elephant in the room.
  
  Apart from the 15% of the budget there could be a real shock to both the Sterling and Euro economies. Given the fragility to the EZ it should worry the Germans far more than not selling as many BMWs into the UK.
  - Steve Hurst Sep 21, 2017
    
    Alisdair
    
    Deutsche Bank have recently issued two caution notes - One that Brexit if bungled could trigger a financial crisis; the other that Italy could trigger a EZ crisis. With regard to Brexit I remain gobsmacked that the EU thinks it is sensible to tinker with a member who contributes 15% of budget and is a net contributor and secondly that the EU thinks it can mess around with a major financial centre with no talk of a downside. Italy is like Venice, slowly sinking with a rising tide and too many visitors for the locals comfort
    - Alisdair Hamilton-Wilkes Sep 21, 2017
      
      That's exactly right. It's not Brexit but a recession in Italy and an increase in the costs and complexities of banking across the continent etc etc that should be worrying governments.
      
      Even the 15% isn't really that much money, the Germans could pay it from their surplus if they chose but a further increase in non-performing loans in Italy! A sudden rise in the French fiscal deficit...! A recession along these lines could just make all the trends go in the wrong direction and Germany will be presented with a stark choice between two bad options.
      
      The conspiracy nut in me wonders if the Brussels elite would like to precipitate such a situation as the only way to get Germany to do something it really doesn't want to do.
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Pavlos Papageorgiou Sep 19, 2017

Sinn's comment about "printing presses" shows deep lack of understanding of the Euro crisis, and perhaps a philosophical bias. Sinn apparently alleges that Southern European countries were able to generate Euros in their central banks, and use these to pay for their fiscal deficits.

If Southern European countries were allowed to do this, the Euro crisis would have been relatively painless. It would have materialized as a period of above average inflation, which is effectively a soft transfer from surplus to deficit countries. Arguably that would have been the most preferable route out of the crisis, if it were allowed.

Instead, debtor countries like Greece and Ireland were expressly forbidden from using monetary expansion to cancel their debt, either through their own central banks or through the ECB. Germany's political leadership and Germany's ECB board members pushed for these rules when the Euro was created, and during the crisis the same German leadership enforced a strict "no monetary way out of debt" executive policy. As a result, a very deep depression was imposed on the real economy of Southern Countries.

Sinn ought to be properly aware of these facts regarding the fiscal debts of Euro member states, ECB policy, and actions taken during the crisis. He's been vocal on the topic and probably has influence on policies that were adopted. As such, Sinn's deep lack of understanding is alarming.

If instead Sinn was making a point about household debts and private money creation by commercial banks, then may I suggest not using the "printing presses" metaphor which usually refers to the monetary actions of sovereign states.
- Fouad Sayegh Sep 20, 2017
  
  You are technically correct about the "printing presses", but the presses where indeed going at full tilt in an indirect way. All the big European banks lent heavily to Greek banks and they in turn lent heavily to consumers and the Greek Government. The ban on monetary expansion by member states was necessary so that the Northern EU could maintain control. That control was enhanced by creating a debt dependency through unrestricted lending.
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