Hans-Werner Sinn calls for a new Europe
Migration, Brexit, the looming euro and debt crises and a US President who wants to limit free trade all point to one thing: Europe is in desperate need of reform. This was the central message of Professor Hans-Werner-Sinn’s speech, in which he presented his 15-point programme for the re-establishment of a European Union post-Brexit as part of the lecture series First-Hand Information on Economic Policy at ZEW.
All signs in Europe point to change. “We need to respond to those signs,” urged Hans-Werner Sinn, professor emeritus of economics and public finance and former ifo Institute President, during his presentation in front of an audience of around 350 guests and leading figures from the worlds of politics, science and economics. In light of recent developments, such as the imminent departure of Great Britain from the European Union and the European Central Bank’s free credit default insurance, far-reaching reform is necessary. “Europe needs reform,” said Sinn, “and the time for reform is now.
” While the US, the most important export market for the German economy, is under threat from the protectionist views of US President Donald Trump, Germany’s third main export market, the UK, is now also at stake due to Britain’s departure from the EU. “The UK leaving the EU will have the same economic impact as the twenty smallest member states leaving.” Brexit will also cause those EU nations in favour of free trade to lose their blocking minority of 35 per cent in the EU Council of Ministers. This minority will shrink to 26 per cent and upset the current balance of power in Europe. “For this reason alone, Germany must push for the renegotiation of EU treaties,” claimed Sinn.
“Europe needs a change in course”
Meanwhile, the ECB is using national resources and a “patchwork of complicated individual measures” such as the “Outright Monetary Transactions” programme and quantitative easing measures to approve loans, thereby increasing the risk of a massive increase in government debt. 2.3 trillion euros’ worth of securities are expected to be sold this way by the end of 2017 – a bottomless pit in Sinn’s view. “The German Bundesbank has to credit the lion’s share of quantitative easing because the liquid funds are accumulated in Germany,” explained the economist. Ultimately, this would make Germany liable to blackmail and the country would find itself forced into consenting to a European fiscal union. “Our economy is currently growing as a result of negative interest rates, abundant liquidity and an undervalued euro,” concluded Sinn, “this is not real growth, but rather artificial growth.”
“We cannot build a collective Europe on this basis,” said Sinn. He made the case for abandoning de facto joint debt liability so that Europe can regain some much needed stability. In the hope of setting Europe back on course, Sinn proposed a “breathing currency union”, which allows member states to leave the EU in order to devalue their currencies. Outstanding debt would need to be settled and the buying of government bonds would have to be stopped. “If we want to save the eurozone, Germany has to become more expensive,” concluded Sinn.
He ended by declaring himself in favour of distinguishing between the country of origin principle in the case of inherited entitlements and the host country principle in the case of earned entitlements. “Up until this point, we’ve been trapped between three irreconcilable aims: free movement within the EU, the creation of an effective welfare state, and social inclusion. It just can’t work,” Sinn added. Further points in Sinn’s programme included allowing asylum applications sent from outside the EU to be received and processed as well as the stabilisation of states bordering the EU to the south and the east. The concluding point on Sinn’s programme was a potential consolidation of all European armies, including the Eastern European armed forces.