Doomed Europe

By Felix Salmon
May 7, 2013
debate between George Soros and Hans-Werner Sinn about what Soros calls The German Question.

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It’s long — at some 4,500 words — but I can highly recommend the debate between George Soros and Hans-Werner Sinn about what Soros calls The German Question.

The debate is profound, and the two stake out radically different positions, even though they end up at pretty much the same place. Soros says that Germany should make a simple choice: either sign on to Eurobonds, where the euro zone as a whole would issue low-yielding debt to the benefit of all, or else leave the euro zone entirely. Either way, he says, Europe would win — either from reducing the fiscal burden of the various national debts, or else from seeing the euro devalue against the new Deutschmark.

Sinn agrees with Soros that Germany would be making a huge mistake were it to leave the euro zone; he disagrees vehemently, however, on the subject of Eurobonds. But both men are clear that given political realities in Germany, neither of Soros’s two choices is going to happen. Germany is going to stay in the euro zone, and Eurobonds aren’t going to happen.

That, says Soros, is a tragedy:

Europe would be infinitely better off if Germany made a definitive choice between Eurobonds and a eurozone exit, regardless of the outcome; indeed, Germany would be better off as well. The situation is deteriorating, and, in the longer term, it is bound to become unsustainable…

There is no escaping the conclusion that current policies are ill-conceived. They do not even serve Germany’s narrow national self-interest, because the results are politically and humanly intolerable; eventually they will not be tolerated. There is a real danger that the euro will destroy the EU and leave Europe seething with resentments and unsettled claims. The danger may not be imminent, but the later it happens the worse the consequences. That is not in Germany’s interest.

And even though Sinn thinks that Soros is wrong, his prognosis seems just as grim, filled with painful austerity and sovereign default:

The only remaining option, as unpleasant as it may be for some countries, is to tighten budget constraints in the eurozone. After years of easy money, a way back to reality must be found. If a country is bankrupt, it must let its creditors know that it cannot repay its debts.

My sympathies in this debate are with Soros, although Sinn does make a good point about the unintended consequences of Alexander Hamilton mutualizing state debts in 1791. (There really aren’t a lot of precedents for the kind of Eurobonds Soros envisages.) The overarching message from both of them, however, is that, as Soros puts it, “the current state of affairs is intolerable”. The only question is whether there’s a better alternative; Soros says there is, while Sinn says there isn’t.

The conclusion from them both, then, would seem to be that Europe as a whole is doomed to misery for as far as the eye can see, and that things are going to get worse before they get worse. I really hope they’re wrong. But so long as Europe’s future generations remain jobless, it’s hard to see a silver lining to this cloud.


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The rich from the poor indebted EU countries need to start paying taxes.

Posted by logicus | Report as abusive

The American sees a remedy. The European insists on paralysis.

That’s why Europe is what it is.

Posted by Panskeptic | Report as abusive

Being in the Euro just means there is no hiding place for economies that need restructuring. What the Euro effectively does to the Euro-periphery is to dress them in Madonna’s “underwear on the outside” attire; we can see all the holes in their system.

Posted by FifthDecade | Report as abusive

Margaret Thatcher was absolutely right. Eventually Socialism runs out of other people’s money. It looks more and more like today is “eventually”.

Posted by OneOfTheSheep | Report as abusive

This seems a little dated as the worst edge of the crisis has passed, and a some of this and that worked.

Posted by Chris_colorado | Report as abusive

Sinn’s take on state defaults of mid-19th century as flowing from Hamilton’s federal debt project is incomplete at best. The popular view of these defaults as the end of moral hazard is equally misguided. Since then, the US has doubled down on debt mutualization with a federal income tax and federal counter-cyclical spending. This may be good, bad, or neither — but the lessons Europe takes from US federalism too often seem selective and misinformed.

Posted by ag4601 | Report as abusive