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Germany's Sinn: an economist with a mission

Press echo, Reuters, 23 May 2012

MUNICH (Reuters) - Germany's best known economist Hans- Werner Sinn wanted to become a missionary as a teenager. His wife believes he is one.

The president of the influential Ifo think tank has been advocating for Greece's exit from the euro zone in newspapers and talk shows for two years, convinced this is the only way for the debtladen country to avoid economic disaster and for Germany to stop pouring money into a black hole.

Policymakers in Berlin do not act on all of his advice. But he has had huge influence on the tone of the euro zone crisis debate in the bloc's biggest member and paymaster.

Sinn, whose name means "sense" in German, believes he has a duty to explain complex realities to voters in layman terms and lay out the best policies from an economic viewpoint, free from ideological bias.

"I am an economist by heart, I have a political mind and I want to improve the world," he said in an interview in the neo-classical villa in Munich that houses Ifo.

"Over the years I have learned that you cannot talk to politicians and tell them what to do," said Sinn, instantly recognizable by the silver Amish-like beard he grew as a student and that his wife insists he keeps.

"You have to talk to the voters. People need to learn, to access informed discourse about the crucial issues."

Sinn has built a reputation as a serious academic with complex papers to his name, but it is with bestsellers such as "Casino Capitalism", which explains the global financial crisis, and his media-savvy, plain-speaking economic commentary that he has become a leading public figure.

British daily The Independent dubbed Sinn, who worked as a taxi-driver to fund his studies, one of the "ten people who changed the world" for providing what many have sorely failed to: clear analysis of the crisis free from mindboggling jargon.

Former ECB President Jean-Claude Trichet describes "Casino Capitalism", which aims to "help create a better and more stable financial system" and has sold more than 25,000 copies, as "one of the best books I've seen on the financial crisis."

"It should be economists' duty to translate economic insights into a language the normal citizen can understand," said Sinn's wife Gerlinde, who met him as a fellow student at Muenster University in the 1960s and who also teaches economics.

It was Gerlinde who, when Sinn recently wistfully recalled his desire as a 14-year old to become a missionary, exclaimed enthusiastically "But Hans-Werner, you are one!" She fell for him in part due to his insistence on speaking his mind.

But critics say that while Sinn's eagerness to appeal to a broad audience helps to raise awareness of economic issues, he runs the danger of over-simplifying and polarizing complex issues, using metaphors that are gripping but not strictly accurate.

For example, Sinn's criticism of the euro zone's cross-border payment system, which has allowed Greece and other debt-strained European states to build up a huge tab at Germany's Bundesbank, has prompted a fractious public debate.

"He says it means we have given the printing press to the Italians while money is being shredded in Germany, and that of course makes Germany very angry," said Peter Bofinger, a long-standing academic rival of Sinn. "But it's completely wrong, target balances have nothing to do with printing money in Italy."

"Nobody in the wider public understands finances and in order to get attention, he uses a metaphor which is very appealing to the German mind but this can be dangerous," said Bofinger, a member of the "wise men" council of economic advisers to the German government.

Nonetheless, some believe it was Sinn's incessant campaign to raise awareness of "Target 2" payment system risks that led the ECB to focus on the issue.

French President Francois Hollande was expected to lead a push to promote the idea of metalized European debt at an informal summit in Brussels on Wednesday, a proposal Germany opposes and Sinn says would destroy the euro zone by getting rid of any incentives to curb indebtedness.

THE SINN FACTORY

Sinn, who grew up in a village near Bielefeld in the west German countryside, was briefly a member of the centreleft Social Democrats and a "moderate rebel" during the 1968 student protest movement before renouncing any political affiliation.

While he aims to influence policy, he never wanted to go into politics himself. "I don't like to be forced to argue in a particular direction...I just want to say how things are".

Sinn moved with his wife and three children to the southern German city of Munich in 1985 to take up his post at the prestigious LMU university, and he has stayed there ever since.

The star economist, who has come to feel Bavarian and dons Lederhosen and a felt hat each year to Munich's Oktoberfest beer festival, says he received many offers from top institutions elsewhere but the counter-offers were too attractive to move on.

He was given the funds to create his own economic research institute CES in 1991, and in 1999 he also became head of Ifo, a think-tank bridging research and policy which publishes Europe's most closely-watched economic indicator, the Ifo business climate index.

Over the years, Sinn has combined the two institutes into CESifo, a formidable force some have dubbed the "Sinn factory", employing some 200 people and churning out surveys and proposals on a vast range of topics from education to entrepreneurship.

"He doesn't need to lecture at the LMU now he is Ifo president but he does it voluntarily because he loves it," said Florian Buck, 28, a PhD student under Sinn's supervision.

Sinn takes his graduate students on three-day trips to the Alps to discuss research in-depth and test out his latest theses before taking them onto talk shows.

"He likes nothing more than if someone else has a different opinion, he really gets excited. He loves exchanging economic arguments and convincing people of his standpoint," Buck said.

Sinn has made a name for himself with provocative theses, some of which have seemed prescient, others less so. In any case, most make their way into the public eye, coining terms like "the bazaar economy" that enter mainstream debate.

Sinn's 2003 book "Can Germany be saved?" advocated proposals on expanding the low wage sector similar to those subsequently implemented under former Chancellor Gerhard Schroeder to help the economy regain competitiveness.

But his thesis that Germany's export success was "pathological", overly reliant on imports and resulting in a "bazaar economy", was more hotly disputed, with other academics arguing the country produces high-end and not bazaarlike goods.

GERMANY'S DR DOOM?

Despite his many seemingly gloomy diagnoses, Sinn did not join New York University professor Nouriel Roubini, dubbed "Dr. Doom", in predicting the financial crisis, although he was warning about lax financial regulation as early as 2001.

And two years ago, he began advocating for Greece to leave the euro zone, an opinion that was taboo back then but is gaining traction in Germany now. He says the case for Portugal to exit the currency bloc is strengthening too.

Sinn compares Greece's situation to that of Germany during the Weimar Republic, when it too had to drastically cut wages and prices, fuelling the rise of the Nazis.

"Austerity programs in the euro zone of this order of magnitude are not possible and should not be demanded," he said, noting that youth unemployment was already over 50 percent. "The alternative, however, cannot be to simply fund Greece forever."

"If you take everything together - the public rescue programs, the haircut on its debt, and Target credit-, the country has so far received 460 billion euros altogether, equaling 116 Marshall Plans," he said.

"And what have you got to show for it? Nothing, just a catastrophe. How much longer must we go on before politicians understand it is a dead end?"

If Greece left the euro zone, it could return to growth within a year, said Sinn. If not, it will slide into a chronic recession "that could destroy society".

Sinn said there would be contagion for those countries in a similar situation which were not carrying out necessary adjustments, and such market pressure was necessary to keep states fiscally accountable.

Other debt-laden euro zone states such as Spain and France need to follow a strict regime of austerity, exerting downwards pressure on wages and prices, in order to regain the necessary competitiveness for remaining in the common currency bloc.

Germany would have to accept inflation rates about two percent higher than in these countries for about a decade. "To rebalance the trade relationship with Portugal and Greece about twice that differential is required," he added.

MISSION NOT OVER YET

But it's not all doom and gloom for Sinn, whose office is adorned with prints of vibrant paintings by German expressionist Franz Marc as well as an oil painting by his daughter.

He says Germany's bounce back from the shock of reunification provides a model for others. Its economy underwent a period of severe price depreciation in the 1990s and early 2000s but is now considered one of Europe's strongest.

"That was an extremely painful medicine, but one that worked," he said. "For years, Germany had the lowest rate of investment among OECD countries, and the lowest growth rate in both the euro zone and Europe in general. We also had mass unemployment."

"Germany went through its own euro crisis," Sinn said. "It was a period of high tension and social frictions."

Now Germany is booming again, ironically partly due to the debt crisis as German savers and financial institutions do not dare to invest abroad, instead keeping their money at home.

"So we have a building boom - a boom because of the crisis. This boom will self-correct the imbalances in Europe."

Sinn, who recently became a grandfather and whose desk is adorned with framed photographs of his family and esteemed colleagues, has said he will retire in four years time.

But he finds that difficult to imagine: "I like my job and these are important times, so one doesn't want to sneak away."

(Writing by Sarah Marsh; Editing by Noah Barkin and Philippa Fletcher)

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