Bundesbank President Jens Weidmann honours Hans-Werner Sinn

Jens Weidmann during his speech at the ceremony to mark Hans-Werner Sinn's Retirement
Jens Weidmann during his speech at the ceremony to mark Hans-Werner Sinn's Retirement

Bundesbank President Jens Weidmann has paid tribute to the achievements of economist Hans-Werner Sinn. Mr Weidmann was speaking at a ceremony to mark the retirement of the long-serving ifo Institute President and the 25th anniversary of the Center for Economic Studies (CES), which Professor Sinn founded.

Addressing an academic symposium in Munich attended by around 300 invited guests, Mr Weidmann pointed out that under Hans-Werner Sinn's stewardship the ifo Institute had developed into an internationally renowned research institution. He went on to say that the 68-year-old was not only an outstanding economist but also "an influential public intellectual who has shaped the major political debates over the past few decades by injecting economic arguments into them." Jens Weidmann said that Professor Sinn, like few other German economists, possessed the ability to make economic arguments accessible to the public. "In doing so, he was sometimes polarising, often trenchant and always battlesome – but these are defining characteristics of an influential public intellectual," the Bundesbank President remarked.

Laws of economics cannot be ignored

One of Professor Sinn's fundamental convictions, Mr Weidmann continued, was that no politician could permanently turn a blind eye to economic logic because to do so would eventually prove to be extremely costly.

As an example, he cited the debate surrounding German monetary union in the early 1990s, when Professor Sinn warned against raising east German wages to west German levels too quickly, as that would lead to a rapid rise in unemployment. Hans-Werner Sinn argued then that social transfers to compensate for lost jobs would be much more costly than government subsidies to compensate east German employees for accepting lower wages.

Mr Weidmann commented that, to this day, this policy of redistribution had only partly achieved its objectives. "Unemployment in eastern Germany is still higher than in the western part, and per capita income in eastern Germany is still only 71% of that in western Germany." This experience went some way to explaining why many German economists are sceptical about establishing a transfer union in Europe, Mr Weidmann said. Looking to Europe, the Bundesbank President explained that these problems would be aggravated by the balance between control and liability being thrown further out of kilter. "Decisions would mainly be taken at the national level, while the consequences of those decisions would be spread across the entire euro area," he added.

A trailblazer of Agenda 2010

Mr Weidmann also addressed the issue of the Agenda 2010 debate, reminding the audience that Professor Sinn had warned, back in the early 2000s, that the German welfare state was ill-equipped to deal with globalisation and that he felt that the wages of the less well-trained employees in Germany were particularly at risk.

Even then, Professor Sinn had advocated relying more on government wage subsidies and less on wage substitutes. "This made Hans-Werner Sinn one of the trailblazers of the so-called Agenda 2010 reforms that were enacted between 2003 and 2005," Mr Weidmann pointed out, adding that, as a matter of fact, this policy – besides other factors – had helped lower German unemployment.

However, he cautioned that recent economic policy decisions like introducing the minimum wage and the option offered to long-term contribution payers to draw a full pension at 63 could be seen as a roll-back of the Agenda 2010 reforms. Mr Weidmann said that although the minimum wage was currently having a slight, positive economic effect, the long-term effects of the minimum wage would certainly be less benign. In this context, much would depend on whether a politicisation of the work of the Low Pay Commission could be avoided.

The single European currency was another central point of focus in Hans-Werner Sinn's work, Weidmann told the symposium audience, and referred, inter alia, to the debate surrounding the payment system known as TARGET. In his description of the current state of the euro area, Professor Sinn was rather pessimistic, Mr Weidmann pointed out, and quoted from a book written by Professor Sinn in which he described the euro area today as a "shambles, staggering from one crisis to the next". The Bundesbank President stressed that he took a more positive view, however. "After all, there has been some progress in the euro-area countries and institutions," Mr Weidmann said. But he did agree with Hans-Werner Sinn that the liability principle needed to be more rigorously enforced once again.

Professor Sinn having already said that he was planning to write more books, Mr Weidmann closed by wishing him the necessary energy for that as well as for future debates.