ECB's Stark contra Sinn, plus: A dire warning by the Ifo Institute

Dr. Juergen Stark (Source: ECB)

ECB's Chief Economist Jürgen Stark (Image via Wikipedia)

There are more important things than Target2. Sailing and cycling, for example. I spent Pentecost on a a sailboat in the Netherlands and now I’m about to embark on a cycling trip with my dad in Germany.

This explains why my blogging on the Target2 debate has become a little bit tardy, recently. Since Friday, however,  some remarkable events have happened.

On Friday ECB‘s chief economist Jürgen Stark got involved. At fist, I could not quite belief what my colleague Dirk Heilmann, who attended Stark’s press meeting told me: Stark recommended my piece on Target2  which was published in Friday’s edition of Handelsblatt. (It’s a shorter and less technical version of my piece ”The stealth bailout that does not exist – debunking Hans-Werner Sinn.) (Further below of this post, there’s an English version of the piece Dirk wrote for

Stark also stressed that some of Sinn’s claims are “simply not true” and that some academics [read: Sinn]  are

“at risk of losing their good reputation”.

My piece in the printed Handelsblatt and the comments by Stark finally triggered a reponse by the Ifo Institute. In today’s newspaper, we publish a reply by HWS. In that piece calls me a “demagogic talent” and claims that I misrepresent his work.

Currently, there is no english version of Sinn’s reply available and I don’t have the time to translate the complete text.

Update: An English version of Sinn’s reply entitled “On and off target” is available on Please be aware that  I neither claimed that Sinn said “The tolerance shown by the ECB towards the Target balances was wrong” nor that he said “The Bundesbank is liable in the same volume as its lending to the Eurosystem.”

Even more amazing is a comment written by Ifo Press spokesman Jürgen Gaulke on the Handelsblatt website on Friday. Gaulke claims

“that Professor Sinn never said – as Handelsblatt claims in the subtitle – that the ECB is conduction a secret bailout at the expense of Germany”.

I wonder if Gaulke ever really reads what his master writes. Sinn’s piece on Vox was entitled „The ECB’s stealth bailout“ and Sinn explicitly claimed that the payments to the periphery are „likely to crowd out normal German money creation by way of the Bundesbank’s lending to German banks”. If this was true (it isn’t), this would be harmful for the German economy, wasn’t it?

Gaulke comes to the following conclusion:

“In any case, reading of the article by Olaf Storbeck cannot be reccomended by any means. We reccomend to read the original”.

The whole thing is really getting mental….

Update: Mr. Gaulke wrote me an email stressing that the comment posted on Handelsblatt’s website wasn’t this personal opinion but an official statement by the Ifo Institute. I’m happy to make this clear.

Mr. Gaulke also claimed that I misunderstand his point and asks if I do it on purpose. I don’t really know which other interpretation of the sentence “Professor Sinn never said – as Handelsblatt claims in the subtitle – that the ECB is conduction a secret bailout at the expense of Germany” is possible… In his comment on the website Gaulke also says that I misquote Prof. Sinn because I would claim that Sinn would (falsely) claim that the Bundesbank would have to bear  possible losses from Target2 claims. Sinn did initialliy claim that  in February, but since April he rightly says that the Euro system would share the losses. I”ve never written anywhere that Sinn claims the opposite, neither in my articles here, on the German blog or in the printed article. In my German blog post I even mention this point explicitly. I wrote:

Interestingly, [with regard to possible risks of Target2 balances] Sinn’s most important point are not the loss risks – those 114 bn Euro the Bundesbank would have to write off if all Target2 claims would go bust. Sinn asserts that the Target2 claims would crowd out invesetment capital for Geman companies. At this stage, HWS completey goes awry.

Here’s an English version of the piece by Dirk Heilmann about Jürgen Stark on Target2:

“ECB’s Jürgen Stark lashed out”

By Dirk Heilmann, Handelsblatt

The Chief economist of the ECB, Jürgen Stark, as harshly criticised claimes made by economists – first and forward Hans-Werner Sinn – regarding the ECB’s conduct in the euro debt crisis.

Without directly mentioning names, Stark in particular criticised  the President of the Ifo Institute, Hans-Werner Sinn, and his analysis of an alleged “stealth bailout” for countries like  Greece and Portugal via the “Target2” payment system of the central banks. Stark also disregarded the idea that capital flows to the Euro zone peripheriy restrict credit growth in countries like Germany, which have huge Target2 claims against the Euro system.

Several economists and journalists endorsed those claims put forward by Hans-Werner Sinn, president of the Ifo research institute. Recently, however, there has been mounting criticism.

On Friday, Stark explicitly recommended an analysis in Handelsblatt (published on Friday). In that piece Handelsblatt Economics Correspondent Olaf Storbeck rejected Sinn’s arguments (note: The Handelsblatt piece was a shorter and less technical version of my piece “The stealth bailout that does not exist – debunking Hans-Werner Sinn”)

Stark made his claims at a press talk at the conference Tagung “The ECB and its Watchers” on Friday inFrankfurt. Unfortunately, some people driving the public debate about the details of bailouts are “not well informed”, Stark asserted.  “This seems to be true with regard to academic circles as well as with regard to financial journalists.” In academia, “some people are at risk of losing their good reputation”. The chief economist of the ECB did not mention names.

Cross border payments between central banks and private banks via the Target2 system were merely a technical operation, Stark stressed. According to him, the claims the Bundesbank has against the euro system are not a measure of financial risk. Anybody who claims the opposite distorts the facts. “We should not argue from a nationalistic perspective”, Stark warned. According to him the growing payments via the Target2 system reflect the deeper financial integration within the monetary union.

Hans-Werner Sinn has frequently claimed that the liquidity, which is transferred to banks in the periphery via Target2, hampers credit growth in other countries. “This is simply not true”, Stark stressed. Lending of German banks was “by no means” hampered by these operations.  In fact, German banks have liquidity reserves that they are currently not using.


Filed under Monetary Policy, Target 2

4 Responses to ECB's Stark contra Sinn, plus: A dire warning by the Ifo Institute

  1. Joerg Berthold

    Dear Sir,

    I’m referring to your comment in Handelsblatt from last weekend.
    ” … losses are shared within the Euro system. So, no danger for the German taxpayer”.

    A minor point could be the contribution by each member to bear that losses … because, as a naive person, I assume that the losses are eventually to be cleared. Right?
    I assume also that the major contribution likely will come from the largest economy in the Euro system … and guess, which one is the best candidate to deliver this major contribution. So, the load for Germany could become tremendous, and, I think, this has to be included into the story.

    Best Regards

    I suggest to annually offer an Oscar for the best economist of the year, and skip instead the Nobel price for Economy … create a new Nobel price for math, which haven’t got one despite being SCIENCE.

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