«Ways out of the Global Debt Trap: Restructuring and Forgiveness»
«Target Loans and Negative Interest Rates: the Dissolution of the Boundaries of ECB Policy»
The analyses of the speakers at the 47th Economic Conference sounded gloomy and pessimistic. But many in the packed auditorium at the Metropol described them as realistic. William White, former Chief Economist at the Bank for International Settlements (BIS), developed four scenarios for the future. He talked about the global dimension of rapidly rising sovereign debt. An exit from expansionary monetary policy is necessary, he said, because the high level of debt – not only of governments, but also of individuals and companies – harbours great risks. But an exit would be painful and therefore politically difficult. Proper debt restructuring, including debt relief, seems the least bad option; financial repression or even fiscal dominance combined with high inflation would be the worst alternatives.
Hans-Werner Sinn, professor emeritus at the University of Munich and Germany’s best-known economist, focused on the eurozone and Italy. The global economy is growing and German exports are strong, partly because the euro is still below purchasing power parity and Germany is undervalued in euro terms. The German domestic economy is being stimulated by low interest rates and a continued flight to real assets. The overcoming of all debt limits has also boosted the domestic economy in the eurozone. However, a look at industrial production shows that the southern European countries are still in serious trouble. The crisis also continues in France. The Bundesbank has some 1,000 billion worth of worthless claims on the other euro countries on its balance sheet, for which it has had to grant overdraft facilities. This is one of the reasons why Germany has already accumulated huge losses in the Eurosystem. The new Italian government will demand a lot of money from Germany and threaten to leave if it does not get it. As long as Germany is prepared to give the money and continue to provide new guarantees for over-indebted eurozone countries, the euro will continue to exist. Of the three alternatives – “far-reaching reforms in Italy”, “Italy’s exit from the euro” or “Italy’s financing by the euro partners, especially Germany” – the latter seems the most likely to him. The fact that Italy’s exit (from the euro) seems to him to make the most economic sense could be heard between the lines, but an explicit statement on the subject could not be coaxed out of him.
Speech by William White (in German)
Senior Fellow am C.D. Howe Institute, Toronto, ehemaliger Berater und Chefökonom der Bank für Internationalen Zahlungsausgleich (BIZ)
Speech by Hans-Werner Sinn (in German)
Professor at Ludwig Maximilian University of Munich, President Emeritus, ifo Institute Munich
The global economy is growing and German exports are strong, partly because the euro is still below purchasing power parity and Germany is undervalued in euro terms. The German domestic economy is being stimulated by low interest rates and a continued flight to real assets. The breaking of all debt barriers has also boosted the domestic economy in the eurozone. However, a look at industrial production shows that the countries of southern Europe are still in deep trouble. The crisis also continues in France. The Bundesbank has about 1,000 billion worthless claims on the other euro countries on its balance sheet, for which it has had to grant overdraft facilities. This is one of the reasons why Germany has already accumulated huge losses in the euro system. Italy’s new government will demand a lot of money from Germany and threaten to leave if it does not get it. As long as Germany is prepared to give the money and keep giving new guarantees to the over-indebted countries in the eurozone, the euro will continue to exist.
Professor Sinn has spoken freely. The following lines reflect some of his thoughts on credit, debt and interest rates in the eurozone.
