Dark clouds on the Eurozone Sky

 August 3, 2015

In Wolfgang Schaeuble’s Germano-centric EU, no institution is more important – apart from his Politburo-like Eurogroup and the Office of the Chancellor – than his Ministry’s Council of Economic Advisers. The most influential adviser among them is Professor Hans-Werner Sinn from Munich, a Christian missionary-manqué turned tele-economist.

Like any good German, Professor Sinn has but a few ideas, but fixed, which he peddles forcefully with evangelic zeal in the national and international media. That is, when he is not using them as ideological tonic poured regularly in his Finance Minister’s ear.

When he doesn’t appear on TV to explain to his nation why the euro-crisis is like a bottomless pit for German money, or impart advice to the lawyer-trained flock which dominates the Eurogroup, Professor Sinn presides the Ifo think tank in Munich where he benevolently enforces – according to his hapless colleagues – a virulent form of “intellectual despotism”.

One of the fixed ideas Professor Sinn has advocated in the media and to Wolfgang Schaeuble since 2012 is of course that of Grexit. He is apparently convinced that countries like Greece and Portugal would need an internal devaluation of their wages and pensions of between 30 and 40 percent in order to shore up their competitiveness, compared to a 10 to 20 percent devaluation in Spain and Italy. Such steep reductions would not possible without generating huge social strife within the European Union, therefore Greece or Portugal should temporarily exit the eurozone. Thus, instead of resorting to this internal devaluation (read drastic reductions of salaries and pensions), they would revert for a while to their national currencies, which could be devalued and used as shock-absorbers while at the same time reducing their debt load via haircuts.

This simplistic way of trying to “solve” a complex situation has been lapped up by Wolfgang Schaeuble, like he did with another incredibly stupid idea: the “schwarze null” option as the main goal of budgetary policy. (It seems that neither surpluses nor deficits are desirable in Schaeuble’s world.)

To make his ideas triumph, Hans-Werner Sinn has blown out of the water all other options, such as “dexit”, or two EU currency zones, which was put forward as early as 2011 by a much more thoughtful colleague of his from Munich, Professor Alfred Steinherr. How exactly has Sinn achieved that ? By presenting – in a 2013 Project Syndicate commentary – the dexit option as if it were just another zany brainchild belonging to George Soros, knowing full well that in European capitals the billionaire’s reputation alone would be enough to kill any further debate on dexit.

Since the 13th of July 2015 diktat from Brussels, Professor Sinn and the five “wisemen” from the German Council of Economic Experts have aggressively started a campaign aimed at arming the Eurozone with new rules and procedures that would make the eviction of financially-shaky EU members easier. As lawyer-trained politicians generally find it hard to grasp complex economic arguments, this proposal could become EU official policy tomorrow. This could only make matters worse, as the adoption of exit rules will not contribute substantially to addressing the euro’s and the eurozone’s plight.