'..cheap credit would ultimately lead to a lingering infirmity, if not to Europe’s economic collapse, because the eurozone would become a central management system with state control over investment.'<blockquote>'It is now clear that the ECB itself has caused a large part of the capital flight from countries like Spain and Italy, because the cheap credit that it offered drove away private capital. The purpose of the ECB’s measures was to re-establish confidence and bring about a recovery of the inter-bank market. In this, too, it has not really been successful, despite the huge amount of money that it put on the table.
Indeed, now the French are looking wobbly. As capital fled the country between July 2011 and January 2012, France’s TARGET debt increased by €95 billion. France, too, has become uncompetitive, owing to the cheap credit brought by the euro in its initial years. According to a recent study by Goldman Sachs, the country’s price level must drop by an estimated 20% vis-à-vis the euro average – that is, depreciate in real terms – if the economy is to regain competitiveness within the eurozone.
There are many who would solve the problem by routing more and more cheap credit through public channels – bailout funds, eurobonds, or the ECB – from the eurozone’s healthy core to the troubled South. But this would unfairly force savers and taxpayers in the core countries to provide capital to the South on terms to which they would never voluntarily agree.
Already German, Dutch, and Finish savings amounting to €15,000, €17,000, and €21,000, respectively, per working person have been converted from marketable investments into mere equalization claims against the ECB. No one knows what these claims will be worth in the event of a eurozone breakup.
Above all, however, the permanent public provision of cheap credit would ultimately lead to a lingering infirmity, if not to Europe’s economic collapse, because the eurozone would become a central management system with state control over investment. Such systems cannot work, because they eliminate the capital market as the economic system’s main steering mechanism. One cannot help but wonder how thoughtlessly Europe’s politicians have started down this slippery slope.'
- Hans-Werner Sinn,
A Crisis in Full Flight, Apr. 25, 2012</blockquote>
Context<blockquote>
'..sanity..''..pruning the eurozone..' - '..reviving the entrepreneurial spirit?..''..Draghi's money. It covers up problems..' - inflationism .. intervention, obfuscation, rationalization and degradation..''..public finances in advanced economies were in “dire straits” and that fiscal deficits were “unsustainable.” ''The Ecole Nationale d’Administration has produced .. very few entrepreneurs.'</blockquote>