Tuesday, August 28, 2012


One of the more painful spillovers from the Eurozone crisis is that, from time to time, I have to try to make sense of the writings of Hans-Werner Sinn.  Since he is the creator of a questionnaire that asks managers about their business outlook, he is regarded as an oracle by much of the German press.  Unfortunately, his writing, which is ostensibly about economics, only randomly and sporadically intersects normal economic reasoning.

He has been on a rampage for over a year regarding the Target2 system, under which national central banks in the euro area are credited and debited for transfers between them.  Because of the large surplus run up by the Bundesbank, which corresponds to deficits at the Banks of Greece, Spain and other southern realms, Sinn thinks that hardworking Germans are financing a “stealth bailout” of nearly a trillion euros.  The fact that all euros are claims against the European Central Bank, and not against individual CB’s of eurozone countries, seems lost on him.  Somehow, allowing euro transactions to clear despite capital flight from Madrid and Athens to Frankfurt or Munich constitutes a raid on German wealth (rather than the economies of the countries from which capital is fleeing).

But I digress.  In his latest screed on the topic, Sinn writes
Germany agreed to relinquish the Deutsche Mark on the condition that the new currency area would not lead to direct or indirect socialization of its members’ debt, thus precluding any financial assistance from EU funds for states facing bankruptcy. Indeed, the new currency was conceived as a unit of account for economic exchange that would not have any wealth implications at all.
Take a look at this second sentence, which I’ve bolded for emphasis.  It seems to say that, in some magical way, the euro was designed to facilitate exchange without ever serving as an asset.  A money that is not an asset.  This is coming to you from the most influential “economist” in the German-speaking world.  Am I missing some other way to assign a meaning to this sentence that is remotely compatible with elementary economics?


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