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Top economist Hans-Werner Sinn warns of difficult years ahead for Germany: "The state will be hopelessly overwhelmed"


Top economist Hans-Werner Sinn warns of difficult years ahead for Germany: "The state will be hopelessly overwhelmed" Created: 06/26/2022, 15:28 By: Georg Anastasiadis, Wolfgang Hauskrecht Hans-Werner Sinn is a professor emeritus at the Ludwig-Maximilians-Universität and was head of the ifo Institute from 1999 to 2016. © picture alliance / ZB Business savvy or particularly stupid? Economist Ha

Top economist Hans-Werner Sinn warns of difficult years ahead for Germany: "The state will be hopelessly overwhelmed"

Created: 06/26/2022, 15:28

By: Georg Anastasiadis, Wolfgang Hauskrecht

Hans-Werner Sinn is a professor emeritus at the Ludwig-Maximilians-Universität and was head of the ifo Institute from 1999 to 2016.

© picture alliance / ZB

Business savvy or particularly stupid?

Economist Hans-Werner Sinn predicts difficult years in Germany in the Merkur interview.

It's not just the Ukraine war that's to blame.

Munich – The Ukraine war has cast a dark shadow on the global economy.

Energy prices are exploding, as is inflation.

Many Germans worry about the future.

That would be justified even without the war, says Hans-Werner Sinn.

In particular, Germany overslept the demographic change.

The 74-year-old former President of the Ifo Institute for Economic Research in Munich believes that the state can no longer guarantee the level of prosperity that we are familiar with.

A conversation about past failures, the current situation and what could come.

Russian gas: embargo would be the wrong way - "Germany is struggling in a trap"

Mr. Sinn, German economists are arguing about whether a gas embargo against Russia would be justifiable.

your assessment?

Hans-Werner Sinn:

I don't think a gas embargo makes sense.

The federal government is in the right position here.

48 percent of German households heat with gas - and half of the gas comes from Russia.

Without the Russian gas, Germany would face massive difficulties, at least in the short term.

The calculations that are being made with regard to an only slight slump in the gross domestic product are not effective because the gross domestic product does not include any imports, i.e. not the direct damage caused by a lack of gas imports.

If we're freezing because there's no gas, it doesn't show up in these calculations.

Would the state be able to prevent collapses through financial aid - like Corona?



He cannot get the gas with financial aid.

There are no terminals for LNG, i.e. liquid gas.

The first will be operational in 2026.

And the floating terminal, which may be available by the end of the year, has far too small a capacity.

So we have to accept gas from Russia until further notice?



Unilateral dependence on Russia has led us into a trap.

In this trap we are now wriggling around.

German economy: particularly enterprising or particularly stupid?

We have delegated our energy supply to the Russians, our security to the US and our growth to the Chinese.

Were we particularly business savvy or particularly stupid?


We were good at business, but only in the business sense.

A clever state structural policy was missing.

It certainly wouldn't have been right to dispense with Russian energy altogether - but it wasn't right to make oneself so dependent either.

Our energy sources are not diversified enough.

This applies in particular to the decision to shut down the nuclear power plants in 2011 after the Fukushima accident due to a momentary public mood.

That was frivolous and wrong.

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The West hopes to end the war with sanctions.

Is this hope realistic?


There are two types of sanctions.

One sanction, run by the US and backed by Europe, is to deprive the Russians of the money they used to make from exporting resources.

To confiscate Russian foreign exchange holdings at western central banks means retrospectively recalling payments for gas already delivered.

That makes the West richer and the Russians poorer.

The other type of sanction is that we stop buying new Russian gas.

In doing so, we are also damaging the Russians a bit – but above all ourselves. The Russians have China as an alternative customer.

The Power of Siberia pipeline is already delivering gas to China, and a new pipeline, Power of Siberia II, connecting the western part of Russia's pipeline network with Beijing has already been agreed.

The Russians can already pledge the gas volumes flowing over it to the Chinese for loans.

So the West can turn off the gas supply to Russia, but not the money supply.

Its embargo policy is driving Russia into the arms of China, strengthening the very country the US will have to fear most in the future.

As long as we don't have China on board, we can't defeat Russia with sanctions.

Gas from Russia: import stop?

"You can easily demand it as a western ally"

What do you think of the proposal to impose import duties on gas?


That would take away part of the Russians' revenue, but it also means they'd rather sell to China and India, and through them to the rest of the world.

If the bucket has multiple holes, plugging one of them will do no good.

Many European countries, including France, are putting pressure on Germany to finally stop gas supplies.


Germany has always had stable supply relationships with the Soviet Union – in all the crises and wars that have occurred.

Building on that, the gas supplies were relied on, and it will continue to be supplied.

As a Western ally, you can easily demand that gas supplies be stopped if you are not as dependent as we are.

Incidentally, there are other countries that purchase large amounts of Russian gas, such as Austria and Italy.

The war in Ukraine is causing prices to skyrocket, and Germans are unsettled.

Are the good times over for the next ten, 15 years?


Not just for the next 15 years, but for a longer period.

On the one hand, this is because the Greens want to turn off cheap energy anyway.

On the other hand, it is because the demographic problems are getting out of hand.

We've actually known that since the early 1980s.

We now have the baby boomers, the 56 to 60 year olds who want to retire soon.

Behind this population cohort there are not too many new people.

We have a huge supply problem because the working population is falling away.

Some say that there is a shortage of skilled workers, but in reality it is about all professional classes.

Germany is particularly affected because the pill came earlier here than in other countries.

Germany and the negative effects of the ECB

To date, the federal government has not really addressed this problem.


There is a broad scientific discussion about possible solutions.

The government then took up one of these discussions in the form of the Riester pension – albeit much too puny and afflicted with far too many errors.

The concept arose from the realization that Germans should save the money they no longer invest in raising their children because they have too little of it.

But there should have been attractive forms of savings.

If one had relied on stocks instead of fixed-income investments, a considerable fortune could have arisen from Riester.

With its sovereign wealth fund, Norway is showing us how successful an equity strategy can be.

Fixed-income investments are considered safe, but they are extremely vulnerable in the event of inflation.

keyword inflation.

We're already talking about six percent this year, maybe more.

But the European Central Bank (ECB) does not dare to raise interest rates because it fears that the economy will suffer.


The mandate is clearly set out in the Maastricht Treaty: the ECB must keep prices stable and must not weigh them against other goals such as growth or full employment.

There is absolutely nothing to debate here.

The ECB must act and stabilize prices.

Some say yes, the ECB didn't cause the price hikes, so it doesn't need to do anything about it.

You couldn't argue any more wrongly, because the mandate does not focus on the causes of inflation, but on the possibilities of combating it.

And that consists of interest rate hikes.

Incidentally, the central bank did indeed contribute to the price increases – via its government bond purchase programs.

With freshly created central bank money, government bonds were bought for over 4,000 billion euros.

As a result, the ECB pushed interest rates on government bonds down and encouraged governments to borrow.

There is a second effect: the ECB caused the euro to depreciate by not following the interest rate turnaround by the Americans.

This devaluation translated one-to-one into higher import prices – including the prices of imported energy.

Greens and political change in Germany: "Your energy transition is a shambles"

Bavaria's Prime Minister Markus Söder says we have to let the nuclear reactors run longer and discuss fracking again.

The Greens are against both.

Who is right?



We still have three nuclear power plants that are operational and three that were shut down last year.

A total of at least five to six power plants can be kept in operation or put into operation.

And according to EU regulations, this is green energy.

What will be done now is to increase the use of coal-fired power plants.

This is justifiable from a security point of view, because lignite is on German territory.

Nobody can take this energy away from us - but of course it is CO2-polluting.

And fracking?


Basically, fracking is just as good or just as bad as other fossil sources - but it is additional CO2.

We need low-carbon energy sources, and that's where nuclear power comes in handy.

It won't be that easy with the Greens.


I never believed that the Greens were as seriously interested in the climate issue as they acted.

Because then they would not have demonized nuclear power.

The Greens emerged from the anti-nuclear movement.

When the climate issue came up, they were initially caught on the left foot.

But then they also embraced this new topic and boldly swung to the dual phase-out of nuclear power and coal.

At the latest, Putin has now made it clear that their energy transition is a shambles.

The rippling current from wind and solar energy, which they rely on, needs electricity from gas-fired power plants as a complement in order to secure the power supply during the many dark lulls.

The green hydrogen that they dream of can also offer a replacement in the longer term,

Hans-Werner Sinn is a professor emeritus at the Ludwig-Maximilians-Universität and was head of the ifo Institute from 1999 to 2016.

© picture alliance / ZB

German prosperity: Corona as a “match that ignited inflation”

Many no longer know what to do with the savings.



Or is there a risk of a slump here, too, because interest rates are rising?


Hard to say.

As long as interest rates don't rise as fast as inflation, it remains profitable to invest in stocks or real estate.

What must and can the federal government do to shoulder all these problems?


Above all, the federal government must stop incurring debt and pursue a long-term structural policy again.

Governments have rained money like manna from the sky during the pandemic – while lockdowns have been announced everywhere.

That was the match that ignited inflation.

We must now adjust demand to the reduced supply and at the same time increase supply through clever energy and structural policies, such as those pursued by various Bavarian state governments in the post-war period.

At the same time, the ECB must raise interest rates in order to curb private and government demand for credit.

As nice as the justifications for new debt may be - climate rescue, education, infrastructure: Debt is directly inflationary.

And how do we solve the demographic problems?


We have to give the few children we have a better education – especially the many migrant children.

We need compulsory pre-school education to better introduce these children to the German language.

And schools need to work better.

The last two years have been a total disaster.

Everyone was thought of, just not our children.

The schools went from one lockdown to the next, the alternative teaching on the computer was miserable.

The children were deprived of their future opportunities.

We also need a different family policy so that the birth rate goes up again.

For too long, politicians have relied on the mistaken belief that families can shoulder the brunt of securing state finances by caring for the next generation of taxpayers and contributors.

How tight is the belt?

Are we only at the beginning of a negative prosperity trend?


Yes, that's how it is. And it's not new that it will happen like this.

Scientists have been predicting this for a long time, but the public discourse is too short of breath to hear it.

What is your message to the citizens?


Take care of yourself.

Don't believe that the state can do it.

The state will be hopelessly overwhelmed with the socio-political tasks.

The social security systems are not in a position to continue developing living standards in the way we are used to.

The sooner everyone recognizes this, the more they will take precautions for the later years of life.

The only advice I can give young people is: think about traditional family pictures, make sure you have children so that you can grow old with these children.

In view of the difficulties of the state, family cohesion will become increasingly important.

Interview: Georg Anastasiadis and Wolfgang Hauskrecht

Source: merkur

All news articles on 2022-06-26

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