In his 2022 Christmas lecture, the former President of the Ifo Institute, Hans-Werner Sinn, called for a reform of the euro and a return to nuclear power.
If the former president of the Munich Ifo Institute, Hans-Werner Sinn, had not accompanied the gloomy expectations for the coming years, which he outlined in his 2022 Christmas lecture, with suggestions for a solution, the audience would have accused him of pessimism. But because he also provided ways out of the crisis, he sketched the picture of a Germany in which opportunities keep pace with the great challenges, but require fundamental changes.
The many unforeseen events of the past few years, above all the Corona crisis and the Ukraine war, have ruthlessly exposed the weaknesses of German politics, said Sinn. If the Federal Republic wants to give its residents more reason to be optimistic again – most recently, German confidence in the future has fallen to its lowest level since the end of the Second World War – it has to solve two problems: the energy crisis and the standstill in economic growth with simultaneous inflation so-called stagflation. Sinn named ways out of both problems.
Sinn did not share the hope recently expressed by several experts that inflation in Germany was already over. On the one hand, Japan and the USA also suffered from galloping inflation, so the currency devaluation is not a purely European phenomenon and has deeper causes: the pandemic and quarantine blocked supply chains worldwide, there were no preliminary products, and supply fell. At the same time, “government financing from the printing press,” as Sinn calls it, increased the money supply sevenfold from 2008 to 2022. Demand for consumer goods grew “as never before in history” while supply was scarce. Inflation is the logical consequence.
Now that the match of the pandemic is slowly going out, inflation will not end immediately. The companies had filled their warehouses to the brim, thereby increasing the shortage. High wage increases, such as those at IG Metall, set a wage-price spiral in motion. Because there is a shortage of workers due to demographic change in many places and the basic income continues to reduce the incentive to work, there is a risk that the supply will become even scarcer. If the state then takes on billions in debt through special funds to support people, it continues to fuel demand with freshly printed money. “All of this points to a continued stagflationary scenario this decade.”
How does Sinn prevent that? On the one hand, the European Central Bank (ECB) must force states to control spending by increasing interest rates. She is currently doing this too timidly and has not regained control of inflation for a long time: “The debt excesses of the states are yet to come and will continue.”
Sinn wants to change that through a fundamental reform of the euro system: “This is not the euro as we imagined it.” In order for price stability to become the top priority for the euro again, voting rights in the Governing Council would have to be allocated according to country size. Montenegro with as many voting rights as the Federal Republic? “This does not work this way.”
Internally, Germany must tighten up the Basic Law in order to rule out behavior that actually contradicts the rules but is still legally acceptable. Sinn cites billions in debt as an example, which is disguised as a special fund.
Inflation is being fueled by problems with the green energy transition. “The climate problem is a scourge of humanity,” Sinn clarified. He welcomes the fact that young people are accepting this and, by making the debate emotional, are preventing the world from allowing development to happen.
As useful as Fridays For Future are, the excesses of a climate movement that lacks a cool head are problematic: “It has become an exaggerated movement, where you can no longer distinguish between reality and fiction.” People who stick to the streets , because they believe the world will fizzle out in three years – “that’s absolute nonsense”.
Sense demands an ethic of responsibility instead of an ethic of conviction, intelligent, deliberative, rational politics, “without destroying everything and chasing dreams”.
Sinn is well aware that climate gluers are also demanding rational politics, just from their point of view, and therefore explains what he means specifically: The consequences of the Ukraine war have shown that “green fluttering energy” needs other power plants to compensate for dark doldrums. Because of the dual phase-out of coal and nuclear power, gas remains Germany’s only option. “This means that the green energy transition is a shambles. It doesn’t work at all.”
Energy aid could mask this in the short term. In the long term, however, there is no solution – above all because electricity consumption is likely to quadruple or fivefold if the chemical industry is to do without gas and people in Germany want to drive their cars electrically and heat their houses electrically. “Then we also need four to five times as much conventional power plant capacity.” The “green movement” likes to ignore this “very, very embarrassing topic” for them, but can’t avoid it even with wishful thinking.
According to Sinn, for Germany to survive in the short term, the country needs:
Sinn also sees that Germany could solve the energy crisis with more storage capacities and new technologies such as nuclear fusion. However, these will not be sufficiently available for a decade at the earliest. Until then, Germany must survive and therefore make pragmatic decisions.
Politics, which harm the Federal Republic without combating climate change, do not change that. Example of the end of combustion engines: This destroys the advantages of German car manufacturers, who, because of their extensive metal industry, can produce combustion engines better than all other manufacturers. Chinese and Americans could build electric cars with lots of gimmicks better. The manufacturing industry is already developing weakly because of the self-inflicted problem of the most important German industry. Sinn asks: “Is Germany the sick man of Europe again?”
The world better fight climate change by founding a climate club of big countries. Current climate conferences have degenerated into rounds of compensation instead of solving the actual problem.
