Germany is threatened by a debt tsunami, a leading German economist will say in a lecture on Monday evening. The same economist said in a Sunday newspaper interview that Greece should quit the euro. Meanwhile, Morgan Kelly, a professor of economics at University College Dublin, has won a lot of attention for his latest bleak analysis of Ireland's economic outlook but his drastic prescriptions are without consideration of downsides. There are no volunteers among his colleagues never mind elsewhere, for huge pay cuts.
Prof. Hans-Werner Sinn, president of the Ifo Institute for Economic Research at the University of Munich, on Monday night at the Humboldt University, Berlin, will examine the build-up and risks of the current euro crisis and show how the threatening tsunami can be averted.
Sinn has said Germany is still enjoying the economic upswing, but all around the euro a gigantic debt tsunami is building up. The GIPS states of Greece, Ireland, Portugal and also, in part, Spain cannot only not refinance their own government bonds, also their foreign trade debts are now being assumed and deferred by the European Central Bank (so-called Target2 claims).
Over the years the southern European countries have lived beyond their means and now they are being subsidised with additional billions. The time bomb of the swelling amount of liabilities of now €1.5trn is ticking. Of this Germany will have to cover €400bn, with a growing trend.
Sinn said the German Bundestag has long recognised the explosiveness of the European Stability Mechanism (ESM) and is insisting on its own budgetary powers. More and more members of parliament are declaring their unwillingness to carry the additional liability risks. Legislation on the introduction of the ESM will be brought before the Bundestag this summer.
At the week-end, Prof. Sinn said Greece will be unable to solve its debt
crisis if it keeps the euro currency. The German public, too, is upset over the
billions being spent to keep Greece afloat.
Prime Minister George Papandreou of Greece on Saturday attacked “rumour and speculation” after Germany's Der Spiegel magazine reported that Athens was threatening to leave the Eurozone in order to bargain for easier terms on its huge debt obligations.
“Markets continue to have doubts and we have scheduled our next steps for
2012,” said Greek finance minister George Papaconstantinou
who commented in
reference to his discussions in Luxembourg on Friday night with the finance
ministers of Germany, France, Italy, and Spain. ECB President Jean-Claude
Trichet, European commissioner for Economic Affairs Olli Rehn and Eurogroup
president Jean-Claude Juncker also attended.
With the prospect of a second Greek bailout rising, George Osborne Britain’s chancellor of the exchequer, told the BBC that participation in the Irish bailout was a “special case.” Britain did not wish to take part in any “second bailout” of Greece, he added.
Meanwhile, a survey published on Sunday showed that the German people were
still opposed the bailout of Greece a year ago.
in an article in The Irish Times, Prof. Morgan Kelly said: "At a stroke,
the Irish Government can halve its debt to a survivable €110bn. The ECB can do
nothing to the Irish banks in retaliation without triggering a catastrophic
panic in Spain and across the rest of Europe. The only way Europe can respond is
by cutting off funding to the Irish Government.
It is likely that Ireland would have to negotiate a restructuring of debt in 2013 when the current EU-IMF bailout deal ends.
The country has no shortage of hurlers on the ditch who make radical proposals but do not have to detail their prescriptions and the downsides.
To cut the budget deficit of €18bn at stroke would be a drastic step but by having collapsed banks the whole SME sector would be a risk.
On RTÉ radio’s This Week on Sunday, Minister for Communications Pat Rabbitte said he agreed with Kelly’s analysis of how Ireland got into its current difficulties.
“The piece is a powerful horror polemic,” he said.
“I don’t dispute most of the analysis but I do dispute the prescription.” He
said people had a “ghoulish fascination” with Prof Kelly’s analysis but they
needed to look at the “prescription”.
Prof. Patrick Honohan,
governor of the Central Bank, said sustainability of Ireland’s debt depended on
its economic growth prospects.
None of Kelly's admirers could address how the prescriptions could work in almost 400 posts on the Irish economy Blog.
I challenged academics to make specific proposals on cutting the budget deficit; there were none.
Emotion is not a strategy and we had a Civil War, because for some emotion trumped facts.
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