This weekend's events in Europe have clarified who is really running the show across the 'union'. Hans-Werner Sinn, Chairman of the Ifo Institute for Economic Research, vehemnt euroskeptic, and head of the so-called 'five wise men' advising the German government and specifically Angela Merkel, confirmed his call from 2012 for a "temporary grexit from the euro." The right wing economist previously explained [15] "Greece and Portugal have to become 30-40% less expensive to be competitive again. This is being attempted through excessive austerity measures within the euro zone, but it won't work. It will drive these countries to the brink of civil war before it succeeds. Temporary exits would very quickly stabilize these countries, create new jobs and free the population from the yoke of the euro."
It seems key given this to comprehend what Sinn's thought process is. Here is Sinn explaining why a temporary exit from the euro is in everyone's best interest and expressing his euoskepticism in 2012 [15]...
If Greece exited the monetary union, the Greeks would purchase their own goods again, and wealthy Greeks would return to invest. And if Portugal leaves, it will have similar positive experiences. The Ifo Institute has studied some 70 currency devaluations and found that recovery begins after one to two years. We are, of course, also suggesting just a temporary exit. Greece and Portugal have to become 30 to 40 percent less expensive to be competitive again. This is being attempted through excessive austerity measures within the euro zone, but it won't work. It will drive these countries to the brink of civil war before it succeeds. Temporary exits would very quickly stabilize these countries, create new jobs and free the population from the yoke of the euro.
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We should stop proclaiming the end of the world in the event of an exit. Instead, we should shape the exit as an orderly process with relevant aid for the banks of the country in question and for the purchase of sensitive imports. What we are currently witnessing in Greece is a disaster -- and it's not a disaster caused by an exit, but rather by remaining in the euro zone.
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Spain only has to devalue by 20 percent. That's achievable within the euro zone. Greece and Portugal are in a separate category. These are the only two countries that consume more than they produce.
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On the basis of sound analysis, I am pointing to a danger that that many do not perceive, and I am weighing things up. Euro-zone member states have made available €1,400 billion ($1,780 billion) in bailout loans, €700 billion of which has been contributed by the Bundesbank through its TARGET loans. On top of this, there is the ESM with €700 billion, which is to be leveraged to €2,000 billion with the help of private investors. This stabilizes the capital markets, but it also destabilizes the remaining stable European states and wipes out the savings of retirees and taxpayers. We are gradually sliding into a trap from which we will no longer be able to escape. This risk is, in my opinion, the greatest risk of all.
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You can't convince me that it makes sense to stand by idly and watch as we take on increasingly greater risks. We are destabilizing our political system with this excessive rescue policy...
I was too quick to endorse the euro because I thought it would liberate the continent from endlessly fluctuating exchange rates. My mistake was that I believed that the nations of Europe would adhere to the Maastricht Treaty and not socialize the debts of Southern European countries. Older colleagues had already pointed to this danger at the time.
And explaining [16] that Q€ was never expected to help the southern nations of Europe and may lead to a messy end for the euro...
I do expect QE to bring about some inflation. Given that an exchange rate is the relative price of a currency, as more euros come into circulation, their value has to fall substantially to establish a new equilibrium in the currency market. Experience with similar programs in the United States, the United Kingdom, and Japan has shown that QE unleashes powerful forces of depreciation. QE in the eurozone will thus bring about the inflation that Draghi wants via higher import and export prices. Whether this effect will be sufficient to revitalize southern Europe remains to be seen.
There is a risk that Japan, China, and the US will not sit on their hands while the euro loses value, with the world possibly even sliding into a currency war. Moreover, the southern EU countries, instead of leaving prices unchanged, could abandon austerity and issue an ever greater volume of new bonds to stimulate the economy. Competitiveness gains and rebalancing would fail to materialize, and, after an initial flash in the pan, the eurozone would return to permanent crisis. The euro, finally and fully discredited, would then meet a very messy end.
One can only hope that this scenario does not come to pass, and that the southern countries stay the course of austerity. This is their last chance.
And finally yesterday, reiterating the strategy that is now in place... [17]
The temporary exit of Greece from the euro, with lure a potential “haircut” of the debt, suggests the Chairman of the Ifo Institute for Economic Research in Munich, Hans-Werner Sinn.
“A temporary exit from the euro would be the easiest way for Greece to get out of this mess”, says in an interview with the weekly magazine “Hot” the German professor, who has been insisting for years on the exit from the Eurozone of economically weaker countries-members.
As he says in his interview, “unfortunately, the euro has jeopardize the European integration project and if we do not find methods to restore the competitiveness of Southern Europe in a way that allows a temporary exit, there is the possibility to “kill” this plan”.
Professor Sinn, who has served for many years as head of the “five wise men” – advisors of the German government and Chancellor Angela Merkel, also appears contrary to the pursuit of countries like France and Italy, and the European Central Bank (ECB ) to relax the harsh financial policy imposed by Berlin in the Eurozone and defends the policy of strict austerity.
In regard to Greece, in fact, the president of Ifo believes that “it is absurd to accuse Germany, the greater austerity relief force in Greece, that it imposes austerity, because it does not intend to give unlimited guarantees and accept the unlimited accumulation of additional debt”.
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Anyone positioning for more centrist union-supporting rhetoric, hope is no longer a strategy as the hardest conservatives are now in charge.
