Gaining currency - fatal-flaw theories about the euro zone
Interview mit Hans-Werner Sinn, The National, 24.05.2012
The euro-zone crisis has triggered slumping economic growth and surging unemployment. Despite multi-billion euro rescue packages to prop up Greece, Ireland and Portugal, the fate of the 17-nation single currency hangs in the balance.
Below we talk to four experts about the future of the euro zone: Christian Saint-Etienne, an independent centrist politician from France and professor of industrial economics at the Conservatoire National des Arts et Métiers; Hans-Joachim Voth, a German economic historian and research professor at the Economics Department of Pompeu Fabra University in Barcelona; Professor Hans-Werner Sinn, the president of the Ifo Institute for Economic Research; Paul Goossens, the former editor-in-chief of the Belgian newspaper DeMorgen, based in the European capital Brussels.
Only the responses of Hans-Werner Sinn are listed.
How did we get into this mess?
Sinn: The euro led to a convergence of interest rates. That encouraged the southern countries to take on excessive debt. It led to an inflationary overheating, which eroded their competitiveness. Now the countries are too expensive and have to become cheaper. The trade unions and everyone else are resisting that. The result is mass unemployment and a continued need for transfer payments.
Who is to blame for it?
Sinn: The euro. Because it prevented crisis-hit countries from tackling their lack of competitiveness through currency devaluations.
Where do we go from here?
Sinn: Some countries will have to quit to devalue, others can regain their competitiveness inside the euro zone. Others again will have to allow inflation to rise. The attempt to adjust exchange rates inside the euro zone is extremely difficult.
If Greece exits the euro zone, will the European project disintegrate?
Sinn: No. The example of Ireland shows that the capital markets can very well distinguish between countries. Ireland has c its prices by 15 per cent in the last five years, is competitive again now and has current account surpluses again. The capita markets have rewarded that by disconnecting Irish interest rates from the rates of other crisis-hit countries.
Reporting by Colin Randall, Ferry Biedermann and David Crossland