Professor Propaganda: Is German Economist Exacerbating Euro Crisis?

By Sven Böll

Germany's Hans-Werner Sinn is fighting desperately against the euro rescue. His controversial theories fill the pages of newspapers for days at a time, but his answers are often simplistic. A growing number of his colleagues are distancing themselves from the influential Munich economist.

Critic of German economist Hans-Werner Sinn: "If this is the contribution of German economics to the euro crisis, I'm seriously concerned about our profession." Zoom
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Critic of German economist Hans-Werner Sinn: "If this is the contribution of German economics to the euro crisis, I'm seriously concerned about our profession."

Shortly after 5 p.m. last Tuesday, fatigue began to take hold in the courtroom at the Federal Constitutional Court in the southwestern German city of Karlsruhe. The judges sank back into their cream-colored armchairs, and the audience began to thin out.

The lawyers and judges had already spent about seven hours addressing the question of whether the European Stability Mechanism (ESM), the permanent euro bailout fund, is compatible with Germany's constitution. Constitutional law expert Karl Schachtschneider, one of the plaintiffs, made an impassioned plea for a a national referendum on the issue, while German Finance Minister Wolfgang Schäuble warned against the "immeasurable consequences" of a Karlsruhe veto.

It seemed as if everything had already been said by the time Munich economist Hans-Werner Sinn stepped up to the microphone. The professor gave a technical lecture on the economy, but what made his listeners perk up were his bold assessments.

Sinn was sharply critical of what he called a "bottomless pit," and he spoke of "false therapy" and a "machinery of asset destruction" and accused the European community of nations of employing instruments that are doing precisely the opposite of what they are intended to achieve. "They are getting in the way of a cure," Sinn said. When he was finished, the judges no longer had any questions.

It was a performance entirely to Sinn's liking. Before the gates of Germany's highest court, the 64-year-old professor with a Captain Ahab beard was given an opportunity to present himself, once again, in what is currently his favorite role: as a vehement opponent of the prevailing euro policy.

With his tirades against what he characterizes as Europe's bailout monstrosities, from the European Financial Stability Facility (EFSF) to the ESM, Sinn isn't just trying to show that it is possible, contrary to the prevailing view, to express the complicated issues facing the European monetary union in simple terms. He is also demonstrating to the nation that he has added a new type of individual to the German academic community, the economist campaigner.

A History of Bold Theories

Like no other professor, Sinn has long shaped the economic debate in Germany with his bold theories. Around the turn of the millennium, when the German economy was in the doldrums and the country was often referred to as the "Sick Man of Europe," he alarmed Germans with his assessment that labor market reforms would have to be much more severe to bring the country's job slump to an end.

A few years later, he warned that Germany, the world's top exporting economy at the time, had deteriorated into a "bazaar economy," because it had so many foreign suppliers. Now he even promotes the theory that the rescue policies coming from Brussels are not solving problems but are in fact making them worse. "Our children will be forced to go to southern Europe and get our money back," he warns.

Sinn is clearly a successful man. With his varying predictions of doom, the professor has managed to become Germany's most popular and strident economic expert. Some admire him, praising him as what the tabloid Bild called the country's "cleverest economics professor." Others fear him, deriding him as a stubborn nuisance. Finance Minister Schäuble acerbically characterized Sinn as an academic "who takes the task of making his opinion known very seriously indeed."

The Sinn spectacle reached a new high last week. After Chancellor Angela Merkel had agreed to a European banking union at the most recent European Union summit, the professor, in a joint letter signed by more than 200 economists, cautioned against the incalculable risks of such a move. An only slightly smaller group of German economists signed a petition opposing the Sinn letter. The dispute dominated the headlines for days.

Sinn must have been pleased, given that he was the focus of attention once again, because that's his main goal in all of his campaigns. And yet he hasn't always been the agitator he portrays himself as today.

At the beginning of his career, Sinn was more of a silent representative of a group of economists who were making a name for themselves, in Germany and abroad, with their scholarly essays. Even in the United States, economists spoke admiringly of the man they called "Häns-Wörnör."

Banking on Sensation

But at some point every reasonably prestigious German economist faces the question of whether he would rather spend the rest of his career impressing doctoral students in Boston or politicians in Berlin. Sinn chose the latter and, in 1999, took over as president of the Munich-based Ifo Institute for Economic Research, one of Germany's most influential think tanks.

Everything looked as if Sinn were embarking on a typical path in German political consulting, which included his membership on ministerial advisory councils and his candidacy for a spot on the venerable, five-member German Council of Economic Experts, which advises the government in Berlin. In the ensuing years, however, Sinn has discovered a much more direct way of influencing the economic debate.

In 2003, he wrote a book called "Can Germany be Saved?" which combined an analysis of Germany's weaknesses as an industrial center with a call for brutal reforms. His collection of radical theses became a bestseller.

By banking on sensation instead of ivory towers, Sinn has since become Germany's leading economic propagandist, a man whose impact is partly based on the fact that he pursues his theories more doggedly and sells them more stridently than any other professor in the country.

The head of the Ifo Institute spends more time than any other economist giving interviews, writing columns and appearing on talk shows, and he has a unique knack for applying the tools of agitprop.

When he wants to make it clear to the Germans how many risks they have already taken to rescue the euro, he develops an "exposure level" flood watch, which is regularly updated on the Ifo Institute's website. Just to make sure that everyone understands what the gauge means, it also depicts an eagle, the German national symbol, drowning in the rising floodwaters.

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1. Setting the record straight
Julio Saavedra 07/17/2012
Just for the record: Professor Sinn has never applied for a position in the Council of Economic Advisors or been approached for this purpose. To set a further point straight: he was not the initiator of the economists' appeal against expanding the ESM to engage in bank rescues, nor in recruiting signatories. He was merely among the first to endorse the appeal and, like many others, contributed with suggestions regarding its wording. Julio C. Saavedra Director of External Relations CESifo Group Munich
2. Propping up = continuing the bubble economy.
SHBasse 07/17/2012
To prop up the southern European economies only makes sense if a viable solution to the problems are in sight which is not the case. The understanding of the origin of the crisis is shallow and the explanation that we have overspent is simplistic and primitive. How can it be that all the old industrialized countries have ended up in not only one but two simultaneous crisis’s! The economic crisis is getting all the attention, but the deeper and even more serious crisis is the production crisis. We are continuing to lose jobs and competitiveness to the Far East. Germany and the other Northern European countries too! It does not help the old industrialized countries that their companies are successful if the jobs and the profit are created abroad. It is now proven that it is only the company activities in a country that benefit said country! http://unifiedscience2.blogspot.com/2011/02/deeper-causes-of-downturn.html Of course if you are drowning everything is better than going down! That is the only sound reason for continuing to prop up the Southern European countries
3. The Euro emperor is naked
derscheintrügt 07/18/2012
and Sinn has been pointing it out for a long time. The german financial and political establishment is desperately trying to keep up the appearance of "everything will be alright" by spreading BS of all kinds and by all possible means (including propaganda articles like the present one), but Germans are not buying it. Why else would many of them try to get rid of Euro banknotes from risky members of the Euro area as soon as possible, checking their serial number as soon as they receive them? People understand and don't like when they are lied to, at the latest when their immediate personal experience clashes with the purported "reality". Lied to? Well, yes, unfortunately. One example of many: ---Quote--- ...he adds everything to his list that he can drum up: the bailout package for Greece, the euro bailout funds, the European Central Bank'spurchases of government bonds and the German Bundesbank's claims against the European Central Bank system. Using this approach, he comes up with almost €800 billion ($983 billion) in liability for Germany alone. ---End Quote--- Currently Target II alone stands at roughly €800 billion, and it is growing by €50-60 billion a month. Half of that is owed by Spain alone. How are mediterranean countries supposed to pay back these debts? By exporting olive oil and cheese? People understand that - like in the US - their leaders are "backs to the wall", be it because their body language gives them away, be it because they are aware that spending more than you earn is not sustainable, neither on an individual level nor as a society. If for lack of convincing arguments reputed media (sic) like Spiegel Online have to lower themselves to Ad Hominem Attacks to discredit their critics, the desperation and the stench of fear in the corridors of power must really be at extreme levels, and it might be time to check the hatches for one last time before the incoming storm.
4. Professor propaganda
donlast 07/18/2012
I am not sure what this ad hominem article seeks to achieve. Prof Sinn would surely be flattered to think that he, Godlike, is creating problems that might otherwise not exist but for his intervention and theories. The truth is that Prof Sinn's "propaganda" is irrelevant. What is relevant, if the author cares to look, is the chart showing the liabilities Germany is taking on board in lending to the heavily indebted. The curve is rising like the north wall of the Eiger. Germany's credit standing and financial solvency is threatened. It is impossible for Germany to bail them out. The sums involved are huge and quite beyond the capacity of Germany to supply. And for what purpose? When debt becomes excessive it becomes toxic. It creates a debt death spiral. The engine rising asset values that previously supported and fuelled more debt reverses and the impact is deadly. For now we have falling assets values and activity and the capacity to pay down the debt shrinks. The only avenue then is either to write down the debt or write it off. The belief that the way out is to pump money into the system to raise economic activity is doomed to fail because the gross misallocation of resources caused by the debt bubble then simply becomes embedded and frozen. It is a false market structure that could only last by injecting fresh debt - the so-called Ponzi process. In other words, Schumpeter's "creative destruction" of a recession is not allowed to work its curative effect. So Prof Sinn is not a propagandist: he just doesn't want Germany to go bust.
5. ...economics just happens to be a social science...
jl1632 07/19/2012
The author writes “With Sinn, the problem is that he shares with missionaries the belief in eternal truths and infallibility, especially his own. But economics just happens to be a social science, not a natural science.” The author overestimates the influence of the science subject on the nature of statements that can be made. In nature and economics you need an approximating model and assumptions about the initial conditions. From there you can make approximating statements about future states of your model. These predictions will usually become less certain the further you look depending on the mathematical model properties – but not because of the science subject. The difference that the author might have in mind is that in nature science you can – in theory – justify your model by looking at more fundamental nature laws and sometimes draw some conclusions ab initio from (very) solid ground. But in practice this is mostly not feasible. If I now look at Prof. Sinns arguments with the eyes of a nature scientist then I find his concepts and arguments (model), observations (initial condition) and predictions (extrapolation) convincing. Although I have no economic background I can see that the Euro zone is in several aspects in a bad shape (by construction) and that many proposals made by politicians are going in the wrong direction. I am thankful that Prof. Sinn points out the mistakes – and, of course, he wants to be noticed, not because it is so satisfying for him but because it is so important for us.
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