Not only the consequences of war: the great economist Sinn: “The good times are over – take care of yourself”
Economist and longtime Ifo boss Hans-Werner Sinn predicts tough years for Germany. The fault lies not only with the war in Ukraine, but above all with the country’s unresolved demographic problems and the enormous national debt of recent years.
Hans-Werner Sinn sees prosperity declining in Germany. Besides the fact that energy is becoming more and more expensive, the main reasons for this are the unresolved demographic problems and the huge public debt of recent years.
“We now have the baby boomers, the 56 to 60 year olds who want to retire soon. Behind this population cohort, there are not too many new people. We have a huge supply problem because the working population is shrinking,” the 74-year-old told the Münchner Merkur in an interview (Saturday edition). The state will be “desperately overwhelmed”. “Social security systems are not able to continue to develop the standard of living as we are used to,” predicts Sinn. He advises citizens to save in time for retirement age: “Take care of yourself. Don’t think the state can do it.”
Pension Riester is “far too puny” – the good times are over for a longer period
Sinn blamed the state for not finding solutions. The Riester pension is “far too puny and afflicted with far too many errors”. Instead of relying on equity savings with its sovereign wealth fund, for example Norway, the federal government has opted for fixed income investments with Riester, which are extremely sensitive to inflation. The good times, Sinn predicts, will not just be over for the next ten or 15 years, but “for a longer period of time.” In fact, we knew since the early 1980s that this would happen. “But the public discourse is too breathless to hear that.” Sinn advises young people to return to traditional family patterns, that is, to have children. “Given the difficulties of the state, family cohesion will become increasingly important.”
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The federal government, again criticizes Sinn, must finally stop going into debt and once again pursue a long-term structural policy. “Governments rained down money like manna from heaven during the pandemic – as lockdowns were announced everywhere. It was the match that triggered the inflation.
The ECB must raise interest rates
The European Central Bank (ECB) must also react and finally raise interest rates in order to curb demand for credit from governments and individuals. “The mandate is defined very clearly in the Maastricht Treaty: the ECB must maintain price stability and must not weigh it against other objectives such as growth or full employment. There is nothing to debate here,” Sinn told Munich-based newspaper Merkur.
According to Sinn, the federal government should not use issues such as climate protection, education or infrastructure to justify new debt. “The debt is immediately inflationary. You can fund these important things through tax increases or spending cuts in other areas. And anyone who argues that the ECB has not contributed to price increases is wrong, according to von Sinn. It is partly responsible for its government bond buying programs, as it has purchased government bonds worth more than 4 trillion euros with freshly minted central bank money.
Going back to nuclear power makes sense
Faced with the energy crisis caused by the war in Ukraine, Sinn advocates a return to nuclear power. “We still have three nuclear power plants that are operational and three that were shut down last year. In total, at least five to six power plants can be kept in operation or commissioned.” The economist harshly criticized the Greens. “I never believed that the Greens were as seriously interested in the climate issue as they were taking action. Because then they wouldn’t have demonized nuclear energy. At the latest, Putin has now made it clear that their energy transition is a shambles. Electricity from gasworks is also still absolutely necessary.
Sinn clearly rejects the much-discussed gas embargo against Russia. “The federal government is in the right position here. 48% of German homes are heated with gas – and half of the gas comes from Russia. Without Russian gas, Germany would face enormous difficulties, at least in the short term. Germany has failed to diversify its energy imports. “Unilateral dependence on Russia has led us into a trap. We are now squirming in this trap.” The state cannot supply the gas, even with financial aid, because the large LNG terminals, that is to say liquefied gas, have been lacking for years.
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National debt, negative interest rates, inflation – by Hans-Werner Sinn
Sanctions won’t bring Russia to its knees
Sinn does not believe the West can bring Russia to its knees with sanctions. “The Russians have China as an alternative client. The Power of Siberia pipeline is already delivering gas to China, and a new pipeline, Power of Siberia II, linking the western part of Russia’s pipeline network to Beijing has already been agreed. The Russians can already pledge the volumes of gas transiting there to the Chinese for loans. So the West can turn off the gas tap to Russia, but not the money one. The embargo policy pushes Russia even further into the arms of China, “precisely the country that the United States will have to fear most in the future.”
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Sinn does not believe in import duties either. According to him, if this would deprive the Russians of part of their income, it would also mean that they would prefer to sell to China and India, and through them to the rest of the world. Meaning: “If the bucket has several holes, there is no point in plugging one.”
Hans-Werner Sinn: inflation will come in waves
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