Europe should follow Irish example on austerity, says economist

Interview with Hans-Werner Sinn, RTE, 23.01.2015

Printing money would not solve the Eurozone crisis, says Hans-Werner Sinn.

European countries should follow Ireland’s example on austerity, according to one of Europe’s most influential economists.

The European Central Bank (ECB) has announced an historic measure to try to boost the euro zone economy.

ECB President Mario Draghi announced a full-scale quantitative easing programme - a move which is set to see €1.1 trillion being injected into the euro zone economy.

Speaking on RTÉ’s Prime Time, Hans-Werner Sinn, the president of Germany’s Ifo Institute for Economic Research think-tank, said printing money would not solve the Eurozone crisis.

“The other European countries in southern Europe say we do not want to repeat the Irish austerity path, there is another possibility. We solve more problems with a printing press. Is that really the right approach?.

“The money out of the printing press alleviates the pain but if it does so, there is not enough pressure to do a reform. I can only recommend everyone to follow the Irish example.”

“You would think that Greece would now be out of the woods or be recovering but it is not. They still have mass unemployment of more that 25 per cent and 50 per cent youth unemployment. The unemployment is twice as high as it was in 2010 when we first discussed the Grexit option so obviously this whole policy does not function, it does not work.”

Quantitative easing will involve the ECB going into the market and buying €60 billion of assets, mainly Government bonds, every month in a bid to inject cash into the economy.

The scheme is being resisted in Germany over concerns that ECB bond buying would ease pressure on countries to assert control over their public finances.

“Rather than becoming competitive and making yourself independent of a credit flow from abroad or a credit institution, you draw the money from the printing press. This has been the policy for years now throughout the crisis and one policy follows the next rather than carrying out the necessary reforms,” he said.

Mr Werner Sinn said quantitative easing would not have major impact on the Irish economy.

“Ireland has done its job itself. The Irish bubble burst in 2006. Ireland was tending a loan at the time. There was no one to help Ireland, there was no rescue programme, no special programme of the ECB so the Irish people tightened their belt.”

“There were wage and price cuts. The Irish price level declined by 15 per cent from 2006, relative to the rest of the Euro zone so it was a real devaluation and that really made the Irish economy competitive again.”

“Don’t forget since last year, and the year before we had an increase in the industrial output of Ireland of more than 20 per cent; it’s a marvellous performance,” he said.