The Euro Trap: On Bursting Bubbles, Budgets, and Beliefs - Softcover

This detailed, heavily footnoted book by prominent German economist Sinn (Univ. of Munich) assesses the euro and the ongoing concerns about the economies of the euro-zone countries. He provides considerable data, often on individual countries (e.g., Greece, Ireland, Spain, and Italy), and retains a clear point of view on what occurred and why. (J. E. Weaver, Drake University, CHOICE)

Professor Sinn has again enlightened and provoked us, and offered strong policy medicine. In his view, the southern tier should temporarily exit the Eurozone, devalue, and establish fiscal order with clear financial and public balance sheets, hence regaining competitiveness. A new EUrestructured as a federal state with a US-type financial system, tight fiscal constraints on the states, a new target balance settlement system, and interregionally-neutral monetary policywould then welcome them back on new terms. This model is contrasted with Sinns view of existing policyforced huge north-to-south capital transfers (debt mutualization) and a printing-press central bankwhich he believes has resulted in recurrent bubbles, the acceptance of southern tier non-competitiveness, and a history of stumbling from crisis to crisis [continued below].

Sinn lays out all of the relevant issues, and in the process teaches us how Europe got into this pickle. Complex puzzles are solved, myths exposed, and the arcane explained in non-technical terms. While others will surely disagree with this analytical and historical perspective, they must now deal with Sinns clear delineation of the relevant issues and explain how they weight and interpret these issues differently. All readers will gain perspective and learn much from Sinns timely effort. The book is a must-read for all who are interested in thinking through the web of difficult questions now facing Europe; I highly recommend it. (Robert Haveman, Professor Emeritus of Economics and Public Affairs, University of Wisconsin-Madison)

The Euro Trap merits a wide audience. The book has many strengths. It is detailed, but easily read. It recognizes and agrees that a driving force behind the euro is politicalto strengthen Europe and prevent future wars, so the euro must be strengthened, not abandoned. Most of all, it is honest in showing that the long euro crisis is not just a financial crisis, as many want us to believe. Differences in costs of production across Europe prevent recovery. Sinn concludes that to restore competitiveness in the indebted countries these countries should exit the euro temporarily and depreciate. The author recognizes that making that adjustment will not be costless or simple, but it is necessary and sufficient to restore growth. (Allan H. Meltzer, Professor of Political Economy, Carnegie Mellon University, and Distinguished Visiting Fellow, the Hoover Institution, Stanford University)

With his customary energy and directness, Hans-Werner Sinn in this important book rethinks the origins of the current dangerous weakness in the Eurozone, and considers possible repairs. He sees through the immediate financial complexity to the deeper underlying problems that have to be resolved. One of these is that in a monetary union without a common fiscal policy the central bank is driven to de facto fiscal actions. Another is that the peripheral countries suffer not merely from an overhang of debt but from a lasting need for real devaluation, with the loss of income it entails. Not everyone will agree with the remedies Sinn proposes, but then he forces them, if they are serious, to come up with genuine alternatives. Sinn is a heavyweight. (Robert M. Solow, Professor Emeritus of Economics, Massachusetts Institute of Technology)

The great financial machine is still running, but Hans-Werner Sinn puts me in mind of an exacting, careful engineer who has detected a design flaw deep in its works that had been overlooked by everyone else. This is the book of this discovery and it is so thrilling and so full of disquieting detail that I read it in one sitting. (Frank Schirrmacher, Co-Editor of the Frankfurter Allgemeine Zeitung)

Hans-Werner Sinns Euro Trap starkly lays out the fundamental weaknesses of the Eurosystem. The book does not limit itself to pointing out the mistaken approach of the euro rescue policies; it also proposes new strategies to attain long-term stability for the currency union. (Helmut Schlesinger, former President of the German Bundesbank)

The book offers a comprehensive view of the European balance-of-payments crisis and the associated competitiveness crisis that haunts southern Europe, basing its analysis on a rich body of indisputable, but so far little or only partially known, empirical facts. This important work lifts a veil from before our eyes. (Erich W. Streissler, Professor Emeritus of Economics, University of Vienna)

Hans-Werner Sinn describes what is wrong with the Eurozone in its current form, and that bold reforms are needed. This book is an important contribution to the Eurozone debate, and a must-read for everyone who wishes to participate in it. (Harald Uhlig, Professor in Economics, University of Chicago)

The Euro Trap is a brave and brilliant analysis of the quagmire that the Eurozone has fallen into. Hans-Werner Sinns lucid and lively description of the monetary transfers from north to south, and his proposed exit strategies, must be studied carefully by citizens and policymakers in Europe and around the world. (William D. Nordhaus, Professor of Economics, Yale University)

This book offers a critical assessment of the history of the euro, its crisis, and the rescue measures taken by the European Central Bank and the community of states. The euro induced huge capital flows from the northern to the southern countries of the Eurozone that triggered an inflationary credit bubble in the latter, deprived them of their competitiveness, and made them vulnerable to the financial crisis that spilled over from the US in 2007 and 2008. As private capital shied away from the southern countries, the ECB helped out by providing credit from the local money-printing presses. The ECB became heavily exposed to investment risks in the process, and subsequently had to be bailed out by intergovernmental rescue operations that provided replacement credit for the ECB credit, which itself had replaced the dwindling private credit. The interventions stretched the legal structures stipulated by the Maastricht Treaty which, in the absence of a European federal state, had granted the ECB a very limited mandate. These interventions created a path dependency that effectively made parliaments vicarious agents of the ECB's Governing Council.

This book describes what the author considers to be a dangerous political process that undermines both the market economy and democracy, without solving southern Europe's competitiveness problem. It argues that the Eurozone has to rethink its rules of conduct by limiting the role of the ECB, exiting the regime of soft budget constraints and writing off public and bank debt to help the crisis countries breathe again. At the same time, the Eurosystem should become more flexible by offering its members the option of exiting and re-entering the euro - something between the dollar and the Bretton Woods system - until it eventually turns into a federation with a strong political power centre and a uniform currency like the dollar.