AS GERMANY winds down for the summer holidays, the country’s economists are getting wound up in a very public feud over the euro zone crisis.
In this buttoned-down world, far less free-wheeling than the Anglo-American scene, it is an remarkable war of words.
Setting events in motion was an open letter spearheaded by Munich economist Prof Hans-Werner Sinn, signed by more than 200 economists in Germany, Austria and Switzerland, describing as “wrong” the last EU summit agreeing to break the connection between banking and sovereign debt.
This proposal, to be discussed by leaders once a pan-EU financial regulator is in place, was, the open letter warned, a “first step towards a banking union, which means collective liability for the debts of the banks of the euro system”.
“Taxpayers, retirees and savers in the as-yet solid countries of Europe must not be made liable for backing these debts,” the authors said.
“Banks have to be allowed fail. If debtors cannot pay back, only one group should carry the burden – the creditors, because they took the risk with their investment.”
The letter, which attracted a huge amount of attention, has been described by finance minister Wolfgang Schäuble as a “disgrace”.
A prompt and pointed reply followed from another group of economists, accusing Prof Sinn and his group of stoking up populist anxiety. In their own open letter, they said it was “not the business of economists to unsettle the public with assertions and questionable arguments in a language marked by nationalist cliches”.
Prof Michael Hüther, head of the IW economist institute in Cologne, said Prof Sinn’s letter was “not scientific but pure emotion”.
“The paper implies the crisis countries have commenced a conspiracy against northern states,” he said. “If so . . . why are the Portuguese and Irish making such huge efforts? The idea that crisis states are doing nothing and taking advantage of us is nonsense.”
The second complaint against the Sinn-headed letter is of offering no realistic alternative to the concrete, bleak vision of a shifting crisis where no certain outcomes exist.
“Economists are just people and not clairvoyants,” said Dr Thomas Straubhaar, head of the World Economic Institute in Hamburg. “We can do little more than advise, highlight and deliver insights – with decision-making left to politics and business.”
Nevertheless the row is the latest PR coup for the Munich economist, known far beyond Germany’s borders with his trademark Captain Ahab beard and a talent for memorable soundbites.
Already a love-hate figure in Germany, the Munich economist’s arguments on the euro zone crisis have polarised public and published opinion even further with claims that Germany has, for years, been “stealth financing” euro zone crisis countries even before they began EU-IMF bailout programmes.
While the Bild tabloid dubs him “Germany’s cleverest professor”, Der Spiegel mocked him this week as “Professor Propaganda”.
It recalled his predictions a decade ago that the then-sclerotic German economy would collapse in on itself. Given how differently things turned out, the magazine expressed surprise at the popularity of his latest thesis – that the powerhouse German economy is now under threat from the southern European debt mountain.
“Like no one else he knows how to run the gamut of agitprop”, noted the magazine, quoting an unnamed employee of his Munich IFO institute as he had a flair for “intellectual despotism . . . and is only happy when everyone shares his view”.
Either way, the Munich professor appears to be enjoying the row he provoked. Unrepentant, he reiterated his core thesis to the Wirtschaftswoche magazine yesterday, that European politicians were dragging the euro zone towards “the thin ice of debt socialisation”.
