German economist: ‘There is no alternative but Greece’s euro zone expulsion’
Hans-Werner Sinn is making headlines with inflammatory remarks again. This time, German newspaper Die Welt has him on record as saying Greece must be expelled from the euro zone. My translation is below.
Welt Online: Almost one year ago I asked you if you regretted the introduction of the euro – and you said: "If I’m honest, yes, but we have it now, so there is no alternative." And now?
Hans-Werner Sinn: The yes is a little more hesitant, but I do think that the euro can be saved because most member countries are still quite competitive. But one must certainly wonder whether one or two countries belong.
Welt Online: How can such a small country like Greece cause all these eruptions at all?
Sinn: Greece is a textbook case. During this financial crisis, the capital markets have raised only one question: Will Germany pay or not? And if Greece is cut loose, it is feared that Germany will not pay in the other countries.Then a lot of rich people will lose a portion of their wealth. This is precisely the point. That’s what this is all about.
Welt Online: Should Germany pay?
Sinn: it has already paid a lot. We have to end this soon. Investors will have to forgo some of their money. Greece cannot be helped with continual transfers. Rather, Greece must get back on its own feet.
Welt Online: Are there any alternatives to leaving the euro zone?
Sinn: No. I said a year ago already that it is not terrible if Greece leaves. Its problem is not just the debt. The real problem is the lack of competitiveness. And there are only three possibilities there. Greece could receive transfers permanently. The consumption of this country is 17 percent higher than its national income! I do not think the community wants this nor that they should. And I also do not think that’s good for Greece. The second option is to devalue Greece from within the euro area, by reducing wages and prices by 20 to 30 percent. But that’s a push and shove that puts the country on the brink of civil war.
Welt Online: The third remaining option is rehabilitation outside the euro area.
Sinn: Exactly. They move to the drachma and devalue. In this way, Greece would be competitive again very soon. Of course, there are problems associated with this solution. If the country leaves, there would immediately be a bank run. Then the banks’ balance sheets would burn up. But if it stays in and devalues to the same degree, then even the bank buildings would burn. That’s the difference.
Sinn macht Sinn; the logic makes sense. What Sinn is making plain is that Greece’s balance of payments problems would not go away if Greece were to remain in the euro zone. And this would mean more indebtedness and further transfers to Greece down the line when they get into trouble again – even if Greece defaults. So, if Greece stayed in the eurozone, it would have to go through the harsh internal devaluation route to competitiveness – and that mean depression, social unrest and potentially civil war. The alternative is leaving the euro zone completely.
EU leaders are now trying to figure out how to finagle a solution to this almost intractable roach motel of a currency union trap they have set up for themselves. Roaches check in but they don’t check out.
Source: "Griechenlands Euro-Zonen-Austritt ist alternativlos" – Die Welt