Hans-Werner Sinn, the head of the Munich-based Ifo economic institute believes that crisis-stricken countries should abandon the euro zone for a while and “not cling to the euro.” In his opinion, this scenario should enable ailing countries to recoup their competitiveness through devaluation. “A euro zone that one can join but never leave is a prison. I don't understand such absolutism,” Professor Sinn spoke in the interview to The Wall Street Journal Deutschland. The prominent economist lambasted the European Central Bank for abusing its authority. So, referring to the recent ECB's Governing Council meeting, he tells the WSJ the ECB is acting outside its mandate as it has bailed investors out and transferred the risk to taxpayers. Indeed, national parliaments must be in charge of the fiscal policy, not central banks. “Governments are all too happy that the ECB has taken over crisis management. They no longer have to push similar policies through their parliaments and face awkward discussions. That doesn't make it right,” the policy maker noted. Hans-Werner Sinn added that from the point of democratic principles, Europe is following the wrong path. Thus, parliaments are facing deadlock which makes them too dependent on the ECB’s Governing Council. The German expert thinks that the ECB's actions aimed at stabilizing the euro zone though curbing interest rates take too much precious time. This policy allows governments to postpone reforms. “There are side effects. First, if there is no return on investment any longer, capital may be allocated inefficiently. Second, the risk of losses rises: the ECB is turning itself into the creditor of banks whose health may be doubtful. If these fail, the loss will hit the ECB's shareholders—the taxpayer. This raises a legal problem,” Sinn stated. The policymaker is sure the ECB is not entitled to burden taxpayers this way.
