Germany’s Favorite Rabble-Rouser Economist Lashes Out

Wolf Richter's picture

Wolf Richter

Hans-Werner Sinn, President of the German Ifo Institute that issues the closely watched Business Climate Index, is a thorn in the side of bailout politicians and eurocrats. When asked in an interview, published today in the Handelsblatt, if the Eurozone crisis hadn’t calmed down thanks to the promise by ECB President Mario Draghi to buy the debt of Spain, Italy, and other crisis countries, he sneered: all Draghi had done was explain to investors—from banks to hedge funds—that taxpayers in “sound countries” would make good on that debt. “That reassurance worries me,” he said.

In early July, he’d already irked the euro bailout establishment when he and over 170 economists warned in an open letter about a Eurozone banking union. It would collectivize bank debts that were “three times as large as sovereign debts.” Creditors should take the losses, not taxpayers, retirees, and savers of “still solid countries.” Banks should be allowed to fail. A banking union would “save neither the euro nor the idea of Europe” but would only benefit “Wall Street, the City of London, even some investors in Germany, and ramshackle domestic and foreign banks” that would continue doing business “at the expense of citizens in other countries,” all “under the mantel of solidarity.”

Rabble-rouser was the collective response from the red-faced German government.

And for a couple of years, he’d been raising a stink about the mushrooming Target-2 balances at the Bundesbank. These claims against the European System of Central Banks, he argued, now in the hundreds of billions of euros, could cost the German taxpayer dearly if the Eurozone fell apart.

He was accused of exaggerating and making gross mistakes in his analysis. The government tried to ignore him. The Bundesbank brushed him off; these balances were, despite their magnitude, “irrelevant,” it said. But plot twist: late February, Bundesbank President Jens Weidmann himself wrote Draghi a letter, warning him of the risks that these Target-2 balances posed.

Sinn has carried out his battle in the media. On TV even. Which irks the government even more. So, in the interview today, he didn’t mince words either. He was worried most about Spain, with its external debt that was “greater than that of all other crisis countries combined,” and with its unemployment problem that was as bad as Greece’s. A “dreadful combination,” he said.

And Italy? Let’s wait and see if Prime Minister Mario Monti runs in the elections, he said. “That would be a blessing.” But he pointed out that Monti’s reforms had gotten bogged down the moment Draghi uttered his bond-buying promise, which “suggested another solution.” The printing press. With the pressure off, unions blocked the reforms, he said. But the lack of competitiveness cannot be solved “with Draghi’s promise of protection.”

He painted a harsh reality. Since these crisis countries cannot devalue their currency to become competitive again, they have to go through the “painful process” of internal devaluation to produce goods at lower prices relative to other countries in the Eurozone. “With the exception of Ireland, this has not yet happened,” he said; and it’s not going to happen as long as the bailout money keeps flowing. But in the end, he said, “those countries that don’t want to become cheaper will have to exit the euro.”

He’d help the exiting countries with debt forgiveness and new money for their banks. But “the longer you delay the radical measures, the more private investors are able to sell their toxic paper without haircut to governmental bailout funds, and then hightail.” Taxpayers and retirees in sound countries would pay the price.

“Investors gain time, taxpayers and retirees lose time,” he said. The fact that the German government talks about implementing measures “to gain time” allows for only one conclusion, he said: “it has taken the side of the investors.”

How was this even possible? “The firepower of the financial industry” has been highly successful in influencing public opinion, he lamented. “That’s why politics has come to consider it a solution when creditors of southern countries are reassured with money from taxpayers in northern countries.”

He predicted that 2013 would remain calm up through the federal election because the ECB would continue its low-interest-rate-policies. Chancellor Angela Merkel’s government is counting on “this general calm” to get reelected. “Afterwards there will be new decisions,” he said. But he didn’t venture into details; too difficult. “Because the government, to take the wind out of the opposition’s sails, usually does the opposite of what it announces.”

As the Eurozone flails about to keep its chin above the debt crisis that is drowning periphery countries, and as the European Union struggles to duct-tape itself together with more governance by unelected transnational eurocrats, Sweden is having second thoughts: never before has there been such hostility toward the euro. Read.... Sweden’s Euro Hostility Hits A Record.

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kevinearick's picture

But “the longer you delay the radical measures, the more private investors are able to sell their toxic paper without haircut to governmental bailout funds, and then hightail.” Taxpayers and retirees in sound countries would pay the price.

“Investors gain time, taxpayers and retirees lose time,” he said. The fact that the German government talks about implementing measures “to gain time” allows for only one conclusion, he said: “it has taken the side of the investors.”

It's all welfare money now, and why is anyone surprised calculated unemployment is falling with the participation rate, as everyone parks, and walks out....equal rights to 'fee' pie.

All that's left is liar's poker.

NEOSERF's picture

I am starting to hope the Mayans were right...Earth 2.0

THE DORK OF CORK's picture

The irish domestic economy is very very sick............


The debt is paid off via export of high value goods as we have a very large trade surplus (multinationals) 


Although they pay very little tax it is enough for the moment.

rsnoble's picture

I can play rebel rouser on my fender.  

luckylongshot's picture

He didn't go far enough. What he should have done is laid the blame for the entire crisis at the feet of the Rothschild zionists (where it belongs) and suggested that they pay for the mess they created rather than the general public in Europe.

Widowmaker's picture

History shows repeatedly that they will pay.

Hence the fascist police state race to protect them from you and millions more choking on injustice.

overmedicatedundersexed's picture

the fatherland, onward to the fourth reich...germany will control europe with the might of german makes the world go round the world go round..cabaret of credit, mien herr.

Lord Peter Pipsqueak's picture

If he spoke out like that in the UK he would probably die in a car "accident" or maybe commit "suicide".

Jack Sheet's picture

Wait for his invitation to the 5 th floor of the Tate Gallery!

shovelhead's picture

Heads roll...

Witches burn...

Lutherans on Ice.

Coming soon.

falak pema's picture

Basel III is virtually dead now; the banks have free thread, as money gets printed unlimited by FED as also under the sterilised HF table of ECB.

THere is no turning back now.

The NWO of Oligarchy control has decreed that creditor nations MUST now participate with debtor nations to balance, over the coming decade, the great CB experiment  of holding together the world monetary system. While limited and controlled deleverage occurs at the expense of first world people's wealth thru monetary dilution relative to commodity prices, in low/ near-stagnant growth mode, to bring down labor rates/productivity rise in line with BRIC world. Doldrums of soft, prolonged recessionary climate.

Painful, very painful for XY-Millenium genertions of first world, as for sheeple of third world, who will be canon fodder to pacify the great RESET world wide. Private wealth and public misery of debt ridden balance sheets. Open up new continents to corporate rape and RM acquisition...the race is on. 

THAT IS THE NEW DOGMA. Get used to it. 

And if there be heretics in first world to this new norm, they will be silenced, marginalised, or eventually sent to the stake to be burnt like Joan of Arc or Jan Hus. 

Drones, clones and robotic dreams of surveillance and thought control. Tipping times indeed. 

Where are those Renaissance chimes? This looks like the beginnings of the Counter-Reform.

q99x2's picture

The Bonfire of the Goldman Sachs.

Sandmann's picture

German politicians have a tendency to Groupthink and Universal Truth Ideology denying any alternative viewpoint - it pre-dates the Nazis and continued with the Greens/Left and infects all parties over the Neo-Pagan Humanism of EU Religion symbolised by the Evangelicum of the Euro. They are inflexible and strident like Martin Schulz - completely devoid of comprehension. It is the fate of Germans this time to liberate themselves before it goes terribly wrong....

From Germany With Love's picture

There is much truth to that. The key mentality in Hitler's ascension to power has been opportunism. Lots of people were highly skeptical about the Nazis before Hitler becoming chancellor. But when he took over it became a self-fulfilling prophecy that the Nazis had defeated democracy and people switched sides.

During the Iraq War (whatever one may think about that) a friend of mine here in Germany, who had never been interested in politics before (!!!) (or after), handed me a book about the evils of the Iraq invasion and American foreign policy. That influential was the general mood at the time.

Germany is consensus-oriented. If you are against the consensus, you disturb the peace and therefore the fairly smoothly running organization within germany. You always run the danger of being "Der Irre vor dem Werkstor" (the madman in front of the company's gates).

F**k that.

fockewulf190's picture

Sinn is great, and he always makes sense, but he has almost no chance of influencing policy within Germany.  Almost the entie political class is for the Euro and the EU, and the opinions of the public be damned.  I´m telling you, they WILL fly this bitch, on full afterburner no less, straight into the ground!  Keep stacking Phyzz!

From Germany With Love's picture

Sure they will. What's to blame? The oligopol of established political parties.

Jack Sheet's picture

Correct. In common with the US, the huge majority of academic economists in Germany are bought and paid for, Sinn being a notable exception. Otherwise they would rapidly find their salaries and research grants being "deflated". Not only is the political class pro EUSSR, but also the Council of 5 economic "experts" - all academics, in particular that detestable Keynesian puke, Bofinger.

All Risk No Reward's picture

>>“it has taken the side of the investors.”<<

It is much worse than that.  Big Finance Capital, the Debt Dollar Tyrants that weaponized the monetary system with Debt Money Tyranny...

...financed and promoted those people they consider their operatives into office.

Who financed Obama?  Who financed Romney.  ObamaCare?  RomneyCare?  BanksterSnare?

Who finances the media used to promote politicians?

The long story short, the Debt Money Tyrants pick, finance and promote EVERY establishment candidate for major office.  EVERY ONE.

Youtube "George Carlin The Owners" and note that he only has one point wrong...  they aren't going to steal social security.  They already stole it.  It's already gone.

Voter fraud occurs before anyone casts a vote.  WHO picks, WHO finances and WHO'S mega corporate media assets promotes the candidates?

Big Finance Capital.

They control everything big.

Boycott big.

Big is bad.

Very bad.

Oh, and styop using credit cards - use cash.  2-3% of every credit card purchase is extracted from your local community by Big Finance Capital financial front companies.

Cash, cash, cash.

worbsid's picture

Germany's Ron Paul.

From Germany With Love's picture

No, that would be MdB Frank Schäffler.

The member of the Bundestag who almost had caused the end of the current Euro policies by instigating a party member poll within the rulling FDP party. Narrowly lost - but he's one of the few upstanding politicians here in Germany. (He also early on advocated letting the damn banks go bust.)

Most of the others subscribe to cronyism and not to order and rules. I guess the term "Ordnungsrahmen" does not mean much anymore these days.

Oh, and he reads ZH, check out his fb profile: