Hans-Werner Sinn: Some countries should be allowed to temporarily leave the euroOpen Europe yesterday hosted the launch of Professor Hans-Werner Sinn’s new book, ‘The euro trap: on bursting bubbles, budgets and beliefs’. At the beginning of his presentation, Professor Sinn described Open Europe as “one of the most important platforms for the public discourse on the continent.” He argued that “there is no real solution” to the Eurozone’s problems, therefore “we need to choose among evils”. Professor Sinn suggested three steps: forgive part of the debt of the Eurozone’s peripheral countries; let some countries leave the single currency temporarily to regain competitiveness while giving them the chance to re-join later; impose stricter budget constraints on central banks.Andrew Sentance CBE, senior economic adviser at PwC and a former external member of the Bank of England’s Monetary Policy Committee, said that “real depreciation” of the euro would be a “more hopeful” solution than a break-up. He added, “There are too many hidden barriers to trade in services in Europe. Removing them would be a very pro-growth measure.” A video summary of the event will be available on the Open Europe website shortly.
I fear that Professor Sinn squandered an opportunity to educate the public. The true problem with the euro is that it is a fiat currency managed by a central bank that is under constant political pressure to print money as the solution to all ills. Mr. Sentance's comments confirm this view. But a nation cannot become more competitive by depreciating its currency. An honest currency reveals problems that need to be solved, such as onerous labor laws, restrictive business regulations, high taxes, and lack of adequate defense of property rights. The solution to Europe's economic problems is to reverse its century old retreat from free market capitalism, most importantly its retreat from sound money.