In memory of Dr. Andreas Höfert

The value of 170 experts’ opinion

| Tags: Andreas Höfert

A band of 170 German-speaking economists, led by Professor Hans-Werner Sinn of the Munich Institute for Economic Research ifo, published an open letter last week and denounced the decisions of the recent EU summit. This stirred hefty debate, an angry reaction from German Finance Minister Wolfgang Schäuble, and criticism from some renowned economists.

For the broader public, the debate among economists again gives the impression that we eggheads know nothing. For each economist with a view, the saying goes, you find another holding exactly the opposite view. However, one needs to differentiate here between the expert or scientific argumentation, and the normative opinion. The former is what we economists should debate. But if we economists express a view about the latter, then it should be done without appealing to our supposed expertise, since it is ultimately a political opinion.

What critique did Professor Sinn and his 170 colleagues make against the EU decisions? In their letter they state that the decisions adopted at the last summit are a “step towards a banking union, which means collective liability for the debts of all banks in the Eurozone.” They continue by saying that this would mean the citizens of countries like Germany, which have strong economies, could end up paying other countries' debts. So much is straightforward.

Everyone who has followed the euro crisis so should know by now that one of the two stable solutions is a much deeper European integration than the current one. Such an integration – including a banking union – will demand significant sacrifices of both the strong economies (paying more) and the weak ones (saving more and undergoing painful adjustment processes).

The economists continue by stating, “Banks’ debts are nearly three times higher than government debts.” This might be true, but it is disputable whether all this debt is really in such great jeopardy as the letter implies.

From this disputable argument, the economists conclude that “the taxpayers, retirees and savers in the so-far solid countries of Europe must not be made liable for backing these debts, particularly since gigantic losses are foreseeable from financing the southern countries’ inflationary economic bubbles.” Here the letter leaves the scientific field and enters the normative debate. Indeed, what is the economic argument for saying that the taxpayers must not be made liable? And what is the alternative?

If the solution of “more integration” for the Eurozone is rejected based on the costs it might bear for the German taxpayers, then the alternative would ultimately be the other solution: disintegration of the euro. But this would bring equally tremendous costs for German taxpayers, who probably, instead of guaranteeing the potential losses of banking debts in Europe, would likely have to pay for the actual losses occurring on the balance sheets of the German banks.

Don’t get me wrong. I am not arguing here for or against the euro. But someone who stresses the costs of one alternative without explaining the costs of the other clearly takes a position, and hence makes a political rather than a scientific or expert statement.

An expert opinion, as such, can be quite valuable. Consulting businesses are built on this. But when this opinion becomes political, it is worth just the same as any other opinion.