A German Perspective on the Crisis

Hans-Werner Sinn provides a provocative assessment of the current crisis in Europe here.  His take on the recent robustness of the German economy is novel. The slides are particularly entertaining though not always flattering to Ireland.

42 replies on “A German Perspective on the Crisis”

Let’s get this straight!!!
How did the Irish debts grow so big after the crisis??
After the Irish Primeminister announced an unlimited gaurantee for all depts by Irish banks…. The European banks saw their chance to get rid of their bad debts. Some Irish bank directors saw some very large rewards and for this, the bad debts of many European banks were transferred into Irish charge. In this way, Ireland became the bad bank of Europe.
In order to make this work, the EU had to step in with the necessary money to pay off those European banks! If you look at what is now happening, the money that is been loaned to Ireland is being transferred directly back to German, French and other banks. Now, there are daily announcements from these banks that their bad depts were not so bad after all!! The Irish are now paying for their sins… check this out… the signs are everywhere to be seen.
Notice too the organised withdrawal of capital from Ireland to force them into getting Euro-help!
Many political parties in Europe receive large donations from banks, in addition to those who are legally working by these institutions!

Well, I am not sure what you perceive as entertaining, the slides are fundamentally explaining the situation and demystify the capital flow in the past 10 years, of which germany contributed as number two behind china.

He argues, like I do since April 2010, that only a debt/equity swap would have avoided Ireland to be pushed to the bottom of the barrel. The economical ineptitude of our officials, in particular DOF, has enabled the 32% deficit of which 20% are accounted for only by Anglo Irish Bank.

Our tax intake is 11.4% lower than that of germany, if the taxes would be the same, Ireland could easily afford a 200 bln debts package.

Globally, 4,900 bln were pumped into banks.

Of the 138 bln capital export from germany to Ireland, only 25 bln went to Irish accounts, the clear majority went into accounts of german holdings.

Go figure….

unfortunately I don’t speak German, so can’t absorb this.

However, may i politely object to the title of this thread? There have been multiple examples lately of Irish comparisons between current German financial policy and the Nazi regime. The worst example was the Star on the morning after the bailout, but I have seen it in several places.

It is unacceptable anywhere and i am quite embarassed by it all. In a time of national humiliation I feel it only compounds our shame. Could i suggest you tweak it to something a bit more tactful?

Given how WW2 has permeated popular culture (Raiders of The Lost Ark just on TV (Nazis everywhere), Chronicles of Narnia 2 followed (WW2 setting at start)), almost everyone makes analogies of this sort from time to time. Usually there is no reference to Germany at all and no harm is ever meant but they should be avoided. Our nearest neighbours regard the whole thing as a joking matter (and that’s in spite of the blitz) and it is impossible not to be influenced by them.

I think Nazi analogies are at best lazy. Its a shame to prove Godwin’s law in title.

I saw a presentation by Sinn himself where he resorted to lazy stereotypes about the Greeks, which I thought was way over the top.

This man is obviously suffering from a bad case of piles , must be from all those bricks he is expelling.
Mein savings , mein savings………….

The purpose of war has always been to acquire wealth. Our wealth has been taken from us and our sovereignty too. Although nobody has died – is this a form of “refined modern warfare”? Nobody is killed but the results are similar.
Is that why the war time analogies seem hard to avoid?

“unfortunately I don’t speak German, so can’t absorb this.

However, may i politely object to the title of this thread?”

Agreed about the language – but I must be a bit slow today since I can’t see the problem with the title?

Anyway here’s another German perspective on the crisis – in english – from Der Speigel which is worth reading:

“Leading German economists Peter Bofinger and Stefan Homburg are split over the euro’s chances of survival. In a discussion moderated by SPIEGEL, they talked about the wisdom of introducing a euro bond and what would happen if Germany left the common currency”


War against whom?

Obviously, people like Herr Bertie Ahern, Monsieur David Drumm and Signor Liam Carroll.
And, of course, those who borrowed more than they can afford, those who overcharged for their goods and services, those who voted the ‘wrong’ way , those who didn’t bother to vote, etc.

Tell you what Eureka – you fight the war against Leinster and I’ll fight everybody else in the country.

The money was taken from you in the first case by “Irish” banks and “Irish” developers, egged on all all the time by the “Irish” politicians you elected.
Look for the enemy within.

I don’t speak or understand German either. Is there an English translation of the speech?

Peripheral economies were flooded with cheap credit. The result, deliberate or otherwise, is that people in Ireland, Spain, Portugal, Greece will see transfer of wealth from them to others.
And that’s just the start.
And wall street firms had their second most profitable year in history.
This was probably not war in its design but awfully similar to it in terms of the ultimate outcome – ie transfer of wealth and sovereignty.

@ A-Mac

think the title was different originally.

@ All

that said, i don’t think Reich-era references are that out of place. The rate on the EFSF loan is at war-reparation-style levels. An understanding of history right now might go some way to figuring out a solution to this mess. Remember, the EU-project has enabled the longest sustained period of peace on our continent, ever. It’d be a shame to see it all fall apart because we can’t figure out where the “blame” for all this should fall.


“In the European context, strong wage moderation in Germany created further imbalances within the West, as well as between the East and the West. Within the West, the lack of a comprehensive industrial policy and public investments created a rise in the costs of production (unit labor costs, that is, wages divided by productivity) in countries such as Spain, Greece, Portugal, Italy, and Ireland. Thus, the high current account surpluses of Germany, Austria, the Netherlands, and Finland existed along with widening trade deficits in the other EU countries.

As export markets shrink, Germany is suffering from the curse of its neo-mercantilist strategy—growth based on export markets via stagnant or declining wages, which had led to decades of stagnant domestic demand. “

An old blessing that brought to mind the b*stards in the EZ protecting the bank bondholders .

Go bhfana í ngrá linn,
Iad siúd atá í ngrá linn.
Iad siúd nach bhfuil,
Go gcasa Dia a gcroíthe.
Agus muna gcasann Sé a gcroíthe
Go gcasa Sé caol na coise acu
Go n-aithneoimid iad as a mbacadaíl.

May those who love us,
Love us.
And those who do not love us,
May God turn their hearts.
And if He doesn’t turn their hearts,
May He turn their ankles,
So we’ll know them by their limping


“…there is ministerial responsibility in this matter. This is a grossly serious matter which has been reported to the Financial Regulator. A man has lost his job as a result. He honorably resigned. The degree of breach was 40 times the accepted margin. This is a disaster. If we are not prepared to face the issue and investigate it when it has been laid before the House, there is absolutely no hope for the financial system or its reputation worldwide.
I have made very clear requests that this matter should be examined. How can the Financial Regulator investigate himself? He was in breach of his responsibility.”


But is it that this crisis did not really begin in Europe? It began with deregulation. This is not just a failing of the Euro – this is a global problem with deregulation. Maybe it is time to start seriously thinking about a world central bank. One that could oversee a multitude of currencies and one that would apply strict and simple rules to money lending.
It should not be beyond us and could really work out quite well.

“If banks have made disastrous loans on a large scale, then bank shareholders need to get hit, followed by bank bondholders, followed by unguaranteed depositors if there be any such. ”

Part of the problem of flights of (small) deposits is that these depositors feel that they are not what BLTD refers to as “parri passu” with bondholders, but somewhere beneath. They know that the blanket guarantee will be honoured for the bondholders because these have the muscle to follow through the court system. Small depositors have no such clout and, rightly or wrongly, feel they will be sacrificed to protect the big guys. Hence the quiet drain on deposits.

BTW what on earth does Estonia feel it will gain by joining the Euro right now. Surely it would make more sense to wait till the dust settles on the euro survival debate?

Link to a proper academic foot noted paper that is relevant to the subject under discussion.


Link to a proper academic foot noted paper that is relevant to the subject under discussion.


@ seafóid

Thus, the high current account surpluses of Germany, Austria, the Netherlands, and Finland existed along with widening trade deficits in the other EU countries.

Prof. Hans-Werner Sinn had a book published in 2003: Ist Deutschland noch zu retten? (Can Germany Be Saved?) – – Its blurb read: “Taxes keep rising, the pension and health insurance systems are ailing. More and more companies are going bankrupt or are leaving the country. Unemployment has reached alarming levels. Germany is outperformed by its neighbours. Its growth rates are in the cellar, and it can’t keep up with Austria, the Netherlands, Britain or France. Germany has become the sick man of Europe.“

Özlem Onaran says “Germany is suffering from the curse of its neo-mercantilist strategy—growth based on export markets via stagnant or declining wages, which had led to decades of stagnant domestic demand.”

This is the common, lazy conventional view; wonder what her analysis of French economic policy would be?

Germany’s low level of unemployment during the recession was surely also part of a nefarious plot!

As for Finland, if Nokia fails to get its smartphone strategy in gear, who should take the balme other than Apple?

Anti Euro sentiment seems to be increasing in Germany – more from Der Spiegel:

“Surveys show that many Germans are worried about the future of the euro, but the country’s political parties are not taking their fears seriously. The number of grassroots initiatives against the common currency is increasing, and political observers say a Tea Party-style anti-euro movement could do well”


@Mickey Hickey
Excellent article and deserves – at the very least – a thread of it’s own. Good to see that some popularly derided prophets like Peter Schiff and Steve Keen weren’t omitted. To summarize – “common sense trumps manic irrationality”

@ Mickey Hickey

First class paper many thanks

‘The finance, insurance and real estate (FIRE) sector includes all sorts of wealth-managing nonbank firms (pension funds, insurers, money managers, merchant banks, real estate agents etc.), as well as
deposit-taking banks, which generate credit flows. It is conceptually separate from the real sector which comprises government, firms and households’

Between the shenanigans in our banks and the pricing chicanery of ‘our’ FDI sector, the Irish economy must be a case study in financialisation. Many accountants have profited from their participation in the credit bubble, but insolvency work won’t last forever, and our real economy will eventually have to be dug out of the ditch.

That task will call for a broader measure of professionalism in accounting practice, as well as a much higher lelvel of economic literacy on the part of our accountancy profession.

“..as well as a much higher lelvel of economic literacy on the part of our accountancy profession.”

The thrust of the paper seems to be somewhat opposite to this remark – ie it seems to recommend a much higher lelvel of accountancy literacy on the part of our economics profession.

To illustrate this point see page 30 where he quotes the French 18th century economist Jean Baptiste Says” accountants view of the economic system”.

“Say’s principal grudge against the Physiocrats (whom he ridiculed with zest) was their penchant for such abstraction. In his Treatise on Political Economy he wrote that
“[i]nstead of first observing the nature of things, or the manner in which they take place, of classifying these observations, and deducing from them general propositions, they commenced by
laying down certain abstract general propositions, which they styled axioms, from supposing them to contain inherent evidence of their own truth. They then endeavoured to accommodate the particular facts to them, and to infer from them their laws; thus involving themselves in the defence of maxims evidently at variance with common sense and universal experience…””

which is almost swiftian in it’s satiric quality

@ A McGrath

Fair enough, but think about it this way. Some serious people are sitting around taking serious decisions about other people’s money. The economists may be consulted occasionally, but the accountants will be in the room.

My German was better but I can still understand most bits until (of course) the crisis resolution mechanism.

He doesn’t appear to have much sympathy for Ireland as he correctly points out that we are a rich country that doesnt pay much in the way of taxes, be they Corporation Tax at 12.5% or aany other taxes.

He is very interesting on the reason for Germany’s low growth during the first six or seven years of the euro and its mroe recent boom.

For anyone who has not previously seen it, the pictures of the Anglo-Irish Bank rescure circulated about 3 or 4 years ago and revolve around a drug dealer in Rossaveal if my memory is correct.

I suppose you could look at it that way but I don’t believe it was the main point made.

I guess we’re way off the original thread topic whatever it was – I did manage to locate the Anglo Irish bit towards the end of part two. Clever but I’m guessing a bit self serving and not entirely the truth. I would have thought there is a hell of a lot more we are not hearing. Maybe Patrick above hit the nail on the head with:

“After the Irish Primeminister announced an unlimited gaurantee for all depts by Irish banks…. The European banks saw their chance to get rid of their bad debts.”

Anyway back off topic to Mickey Hickeys link to the “No one saw this coming” paper. I thought overall it was a powerful indictment of conventional economics, although I would love to hear the views of the economists of this site on this. The fact that all the forecasters who got it right were apparently belonging to the “common sensical” flow of funds school which he says is ignored by academia in favour of the more complex equilibrium school which forecasts were consistently way off the mark, says a lot about conventional economics – and not much good. OECD got wrong. IMF got it wrong and US Fed economic advisors Macroeconomic Advisors, got it wrong – even while the whole structure was collapsing about their ears they were all still predicting “soft landings”. Seems like a radical overhaul of Academic economics is overdue. Back to basics lads I would say.

@ A McGrath

Agree entirely. I am only noting the particular clout ( and public responsibilty) that accountants have.

What bugs me is that Angela Merkel seems to forget that the Germans still owe a heap of money to many nations devastated by their actions in WW2. How dare that cow take a hard line with the Irish.

That shower have only just cleared the debt they owed for WW1. Never mind the next time they started a war. Who the “Ef you see kay” do they think they are. More German arrogance! Stuff ’em.

Burn the bond holders, just like Ollie did in Finland. Now that he is a Eurobrat he want s us to play it straight? The Finns did alright after frying the bond holders thank you very much. Cheeky pillock!

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