Vedlejší ztráty evropské záchrany

Feb 18, 2013 Hans-Werner Sinn

MNICHOV – Eurozóna dnes zažívá šestý rok krize – a šestý rok snahy Evropské centrální banky a mezinárodního společenství o její ukončení. Politici se v jejím rámci nechávají vlákat do pasti plíživého intervencionismu, který slovy britského premiéra Davida Camerona může změnit eurozónu „k nepoznání“ a jenž porušuje základní evropská ekonomická a politická pravidla.

Nejnovější požadavek, který hlasitě vyslovil francouzský prezident François Hollande, vyzývá ECB k manipulaci s měnovým kurzem. Hollandea děsí rychlé zhodnocování eura, jež posílilo z 1,21 dolaru na konci července 2012 na 1,36 dolaru počátkem února letošního roku. Sílící směnný kurz vyvíjí další tlak na chatrné jihoevropské ekonomiky i na ekonomiku francouzskou a dál podkopává jejich už tak nízkou konkurenceschopnost.

Levné úvěry umožněné eurem nafoukly v jižní Evropě inflační ekonomickou bublinu, která po vypuknutí finanční krize praskla. Úvěrové podmínky se prudce zhoršily a zůstaly jen notně předražené a na kost okrájené ekonomiky, které se staly přehnaně závislými na zahraničních financích.

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Hans-Werner Sinn

Writing for PS since 2002
104 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 Euro Trap: On Bursting Bubbles, Budgets, and Beliefs (Oxford University Press, 2014).

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Chris Parry-Davies Apr 29, 2013

Hans-Werner-Simm is well known for his anti-Euro views and the incredibly simplistic analysis he uses to back this up. The problem is that beneath such simplifications there are indeed a series of problems where unstoppable economic dynamics intersect with intractable political constraints.

* Despite all the defects, Germany has in fact gained massively from the Euro - indeed has been and continues to be its greatest beneficiary. The problem is that the German politicians have stolen all the credit (attributing all the upside to their polices rather than the benefits of the Euro). As a result the German people now, mistakenly, see the whole project as a one-sided equation, where they pay and everyone else takes.

* The Euro was/is built on deeply flawed foundations, where the inherent structural problems of the lack of economic convergence/equivalence were papered over by merely political will (heavily driven by the Germans themselves). As we have seen with the on-going crisis in Southern Europe, these structural problems have not gone away but rather have been compounded by the poor economic and political responses (a endless succession of too little too late).

* Trying to solve the problems by austerity measures and fiscal consolidation have demonstrably failed, based as they are on deeply flawed understanding of the interdependence of the public and private sectors (simply put trying to balance the books through just slashing public expenditure, particularly while many of the Euro economies are locked into what is for them an over-valued currency, is doomed to fail as demand and growth chase their own tail in a downward spiral - as is now all too clear across Europe). Conversely, trying to solve the problems by yet more debt without resolving the structural problems is equally doomed to failure. Equally, there are limits to how far Germany can indeed keep bailing out the whole sorry system, even if it were not already up against the political buffers with the German voters (as per 1 above).

* George Soros's solution of issuing Euro-bonds might help in as much as it would it defray some of the burden (or at least perceived risk burden) across a broader base - and if the European Articles are the only problem, he's quite right in saying we should simply change the Articles. The problem is that this is that broadening out the credit base is all that this does: it still fails to address the real structural problems.

* Conversely, Germany actually leaving the Euro would be monumentally retrograde, defects or not - even assuming it was now actually possible (which is extremely dubious given the web of interdependence that it has now created). It would simply result in a massive appreciation in the new currency, in turn triggering am massive reverse in the German economy (my models suggest something like a 10-12% contraction of GDP, and unemployment soaring to circa 5 million - not to mention the German public finances going massively into the red). And this is before we get into this meaning the Euro would all but inevitably collapse generally, at very least fragmenting the European economies and seriously risking a continent wide economic and political collapse.

* Taken together we - as in Europe as well as Germany - can't continue with the Euro as it is but, equally, can't afford to lose it. The only workable solution I can come with is to split the Euro into two - a Euro North and Euro South. This would enable the southern economies to make the necessary structural adjustments through currency depreciation; while enabling the Northern economies to continue to benefit from the essential benefits of convergence and common currency. Politically the support for the Southern economies could then be sold to the Northern electors as a one-off reverse dowry that would solve the problem instead of the present drip feed of support that fails to solve the problem and electors rightful fear as never ending
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Greg A Feb 27, 2013

Another daft and close minded article from Mr Sinn. He seems to live in a fantasy world. What he recommends would surely break up the Euro. Putting the whole eurozone on the edge of a cliff on a permanent basis (or even letting it fall) seems a very dubious way to economic recovery.

The ECB can surely do more. The ECB has always had a very hawkish approach to rates, always being afraid of inflation and only lowering them when they had absolutely no choice. In fact, the central bank rate in Europe is higher than in the US and Japan despite having a much worse economic situation. When the Fed and the BoJ are saying they will keep rates low in the future, you can be sure that the ECB will try to raise them as soon as it can...
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Basle Jean-Luc Feb 26, 2013

One of the euro premises, silly as it was, was that Southern European countries would invest the Northern manna which would not fail to materialize into productive investments to increase their competitiveness. It did not happen. There are many reasons for that. One of them is the lack of clusters of manufacturing and metropolitan areas, theorized by Paul Krugman. Another is the geography, history and culture of these countries. Be this as it may, these countries are known for their beautiful, sunny beaches where Northerners love to bathe in the sun. The logical outcome of the new European monetary system was a real estate bubble financed by Northern savings. Once the bubble burst, Northern governments blamed the peripheral countries for their carelessness. But who is guilty: the ones who spent the money or the ones who lent it?
Within the euro area, member nations are straight-jacketed in a modern version of the gold standard. The only way they may regain their competitiveness is by adopting deflationary measures which translate into lower real wages – an unfortunate circumstance for the folks who bear the brunt of this adjustment even though they are in no way responsible for this turn of event. Yet, German leaders and economists who no doubt know that Chancellor Heinrich Brüning’s disastrous deflationary policies led to Adolf Hitler’s electoral success in January 1933, blindly insist on austerity to restore these countries’ budget and trade balances. But it takes two to tango. If some countries experience a trade deficit, others record a surplus. The trade deficit of Southern countries finds its counterpart in the Northern countries’ surpluses.
There is another way out. Northern countries could stimulate their economies, starting with Germany. The much lauded Hartz reforms are a subtle form of mercantilism reminiscent of Hjalmar Schacht’s trade policies.* Cognizant of this common flaw in trade relation, John Maynard Keynes insisted at the Bretton Woods conference in July-August 1944 that the obligation to balance trade be the responsibility of both the deficit and surplus countries. A diluted version of his view found its way in Article IV of the International Monetary Fund’s Statutes but was never activated. Applying to the euro zone, Keynes’s principle means Northern countries must stimulate their economies while Southern countries must adopt the structural reforms necessary to put their economies on a sound footing.**
The idea that pressuring Southern countries is necessary for them to reform is as invalid as the IMF’s ‘stabilizing’ policies which met their fate in the Asian crisis of 1998. This insistence on blaming deficit countries is self-destructing. Germany’s employment depends in part on purchases by Southern countries. Forcing them to adopt deflationary policies can only hurt Germany and the rest of Europe. The end game will be political upheavals and demagoguery. The recent election outcome in Italy is a preview of what to expect in the future. To historians, the stability brought about by the Treaty of Rome will then look like a strange interlude in an otherwise distraught History.

* Hjalmar Schacht was Minister of economy (1934-1937) and President of the Reichsbank (1933-1939).
** While France which is not included in the group of Southern nations, must adopt structural reforms as well.
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Stamatis Kavvadias Feb 25, 2013

"The ECB can curb the euro’s appreciation through purchases of foreign currency. But, ultimately, it would have to do so by inflating its own currency until confidence in the euro falls back to the level that it had before the assurances were made."

There is no need for this to happen. The ECB need not give any money it prints into circulation to the countries, as it has promissed, by buying their bonds. It is true that such an approach would cause inflation after a while, mostly because of markets in fear of the public in southern countries not backing their insolvent banks and their budget deficits. But this would take a while, as I said, because the euro is also in the northern countries. So, initially the expectation of the markets would be that the north will have to pay for the spending of the south, and bond interests would rise for the north. The ECB does not have any other way to print money, and that is why Mr. Draghi denied manipulation of the exchange rate.

There is a real problem here, as the eurozone (and the EU more generaly) do not have a way to bound funds in specific directions. This is because there is no unifying political authority with a significant badget.

But Mr Sinn is not talking about that --no. Nobody is! Nevertheless, I think I know what is in the back of Mr Sinn's mind. He would rather have the private banks buy Spain's and Italy's bonds than the ECB. He would prefer the ECB had another trillion euro program of cheap lending to the banks, so that Italy and Spain can no longger carry the burden of interest payment and become hostages of the north. Northen banks, you see, would rather have banks of the south insolvent, chasing insolvent sovereigns, so that they are eventually bought off for peanuts by the northen banks.

Am I accusing Mr Sinn with no reason? Let him say clearly what he proposes...
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Odysseas Argyriadis Feb 19, 2013

Don't know if I'm completely daft, but isn't the exchange rate rising due to the fact that the Fed is printing more dollars???
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Joshua Ioji Konov Feb 19, 2013

The artificial value of the Euro boosted by the Mr.Draghi last year statement was based on pure perception than on reality in the EU economy, which keeps high unemployment and growing public discontent with dysfunctional ideologically inclined economic policies. Subsidies that go to the wealthy farmers, VAT that hurts the bottom of the society cutting down on the consumption, austerity measures that grow market imbalance...
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Frank O'Callaghan Feb 19, 2013

While Jose Araujo is correct there is another criticism: Sinn does not mention a salient problem that the bailout countries have in common. They all reduced taxes on the wealthy while deregulating controls on capital. At te same time they enriched sectors of their state sectors and public service.
The selective enrichment of public servants in Ireland, Greece and Italy in particular with the huge increase in State pensions liability has been almost ignored by economists.
At the same time there has been a deterioration in the efficiency pf public services.
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Zsolt Hermann Feb 18, 2013

The "rescue policy" does not work, moreover causing "collateral damage", because it was only rescuing the financial lifeline, keeping the banks floating, but it did not do anything for the actual public that are being buried alive underneath the debt burden and austerity.
This is what happens when people want to delay hard decisions, looking deeply into the problem finding the root causes, and instead they satisfy themselves with superficial solutions waiting for a miracle.
And this is not a European problem the same thing is happening in Japan, especially in the US, and even in China.
Leaders, and the lobbies manipulating them only care about keeping the markets, the profit making machine churning until they can, completely ignoring the "collateral damage".
Which is of course a very short sighted policy, since unless they have an army of robots that will keep on consuming, they have killed the very social layers that could maintain their prosperity.
Until everybody accepts that our present lifestyle and socio-economic system is unsustainable and is doomed to failure as it goes against the natural laws of the system we live in we, both the 99% and the 1% will sink deeper into crisis until the total desperation forces us to change.
And then we also have to swallow the next bitter pill, nobody, no individual or nation can escape alone, we are all on the same sinking boat, tied together in the same unbreakable net.
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Steven Tolliver Feb 18, 2013

While the US Federal Reserve continues policies which keep the dollar low and China keeps the yuan tied to the dollar and now the new Abe gov't. in Japan pushes down the yen, there is nowhere for the Euro to go but up. We can't all devalue our currencies at once!
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Jose araujo Feb 18, 2013

Do people realize that Portugal, Greece, Ireland and Spanish Boom were in the 90's, after the Eu integration but previous to the Euro?

There is no evidence of inflationary economic bubble due to cheap credit, that's Austrian mumbo jumbo that isn't verified by data.

Capital movements after 2000 are explained by the trade deficit, consistent with a fixed exchange rate situation.

Financial crisis in the periphery were motivated by the sudden increase of the default risk associated with end of the perception of Euro solidarity, i.e. when the market realized the ECB was never going to play the role of lender of last resource.
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Vedlejší ztráty evropské záchrany

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