Hans-Werner Sinn — he of Target2 imbalance fame — had a piece on Project Syndicate last week in which he stood firm against George Soros and his demands for Germany to leave the euro if it continues to block the introduction of Eurobonds.
Though not because he thinks Germany is wrong to oppose Eurobonds, but rather because he believes there is no legal basis for such demands. Article 125 of the Treaty on the Functioning of the European Union, he says, expressly forbids the mutualization of debt.
He also accused Soros of not recognizing the real nature of the eurozone’s problems which he said were cheap credit, loss of competitiveness and a distinct unwillingness to take responsibility for previous bad decisions.
Oh, he also said that speculators must take responsibility for their decisions and stop clamouring for taxpayer money whenever their investments turn bad.
Well, turns out, even George Soros has the time to retort with an online comment. How do we know? Because he’s just left a strongly worded response on the Project Syndicate site accusing Sinn of deliberately distorting and obfuscating his argument (click to enlarge):
Soros says his point was that Germany would be ill-advised to leave the euro, however, if it’s not prepared to accept the contingent liabilities that Eurobonds would entail, it should step aside by amicable agreement. Not doing so, he says, would leave the rest of Europe at the mercy of Germany’s narrowly conceived national interests.
He makes some compelling points.
Here are a few extracts:
The current arrangements allow Germany to pursue its narrowly conceived national interests but are pushing the eurozone as a whole into a long-lasting depression that will affect Germany as well.
Germany is advocating a reduction in budget deficits while pursuing an orthodox monetary policy whose sole objective is to control inflation. This causes GDPs to fall and debt ratios to rise, hurting the heavily indebted countries, which pay high risk premiums, more than countries with better credit ratings, because it renders the former countries’ debt unsustainable. From time to time, they need to be rescued, and Germany always does what it must – but only that and no more – to save the euro; as soon as the crisis abates, German leaders start to whittle down the promises they have made. So the austerity policy championed by Germany perpetuates the crisis that puts Germany in charge of policy.
Japan has adhered to the monetary doctrine advocated by Germany, and it has experienced 25 years of stagnation, despite engaging in occasional fiscal stimulus. It has now changed sides and embraced quantitative easing on an unprecedented scale. Europe is entering on a course from which Japan is desperate to escape. And, while Japan is a country with a long, unified history, and thus could survive a quarter-century of stagnation, the European Union is an incomplete association of sovereign states that is unlikely to withstand a similar experience.
Related links:
TARGET2 and the European Sovereign Debt Crisis – Bindseil, Konig
Zur problematik der TARGET2 – FT Alphaville
Eurozone as a tragedy of the commons – FT Alphaville