1994: 'EU eventually a federal state'
Sinn opened a 1994 article titled How much Europe? Subsidiarity, centralization, and fiscal competition, with these words (Ideas):
There will be eventually a European federal state with a common European government. I will sketch the obvious reasons for centralization.Even with the prospect of EMU in 2000, Sinn denounced the EU project as incomplete, and dangerously so, advocating a push for EU centralization, notably to impose tax harmonization and redistributive transfers. He thought EMU was oversold, but not quite for reasons observed today (macro imbalances), at least from skimming through his papers. He was reasoning, rather, 'in equilibrium', and comparing the cost and benefits for different groups arising from structural changes.
His philosophy has two tenets.
The first tenet is that the theory of the firm is reliable and, therefore, competition should not be hampered by EU red tape (minimum wage and protectionism). In this respect, he deplored the democratic EU vacuum that was already being filled by corporate lobbies, shaping policy in favor of producers at the expense of consumers, privileging established industries rather than nascent ones. To overcome this problem, he envisioned a strong role for the EU parliament.
The second tenet is that the same theory (of firms), is wrongly administered to the field of public goods. He was against the principle of subsidiarity as it would lead to a race to the bottom between member states, meaning the dismantlement of the welfare state. The proper theoretical framework is that of (utility enhancing) insurance contracts, which, in the public sphere, translates to redistribution, both inter- and intra- member states: "Firmly installed redistribution rules in terms of objective criteria are a protection for all countries, including the richer ones (which could get poor)"
In practical terms, he advocated a significant transfer of competence from the member states to the an EU government. He thought joining defense forces, and a few other areas such as traffic, energy and communications networks, would be an easy sell (economies of scale, averts free rider problem) and therefore a priority to keep the EU project going. To correct the negative effects of free trade and mobility of factors, a.k.a the four liberties, acted in the Maastricht treaty, he advocated harmonized taxes and redistributive transfers (albeit objective and open, unlike CAP) both intra- and within states. In the same vein, he advocated EU quality standards and controls (on goods and services), and a harmonized environmental protection to avert a free rider problem.
2001—2010 Wrong incentives and globalization spell/brought financial disaster
In 2001, Sinn wrote on financial market risk (SSRN). His philosophy, here, has strong parallels with that just described. The source of financial risk taking are limited liability and asymmetric information. To correct this market failure, national regulators have imposed solvency constraints. However, the competition between states themselves (which, as we recall, produces suboptimal results), will eventually lead them to weaken or overlook these constrainsts (race to the bottom). In 2010, Sinn wrote extensively on the financial crisis itself in a book titled 'Casino capitalism' (LSE). Excerpt:
By altering the incentives of banks and their shareholders we can change the business models and induce a more prudent financial system. Similarly, we should not blame deeply indebted homeowners because ‘nobody should be blamed for accepting an offer he cannot refuse.’ ['Similarly', because incentives determine behavior]Paradoxically, perhaps, in 2010, Sinn expressed support for EU's universal banking model (VoxEu).
Sinn is credited as having coined the 'Green Paradox' (Wikipedia). Capping demand 4 fossil fuels is only half equation. Will fail unless supply is managed.
2011— Euro crisis: 'only creditors should foot the bill'
In 2011, Sinn wrote about Greece (VoxEu):
[The internal devaluation imposed on Greece by the Troika] is similar to Germany under Brüning: from 1929 to 1933, German prices fell by 23% and wages by around 30%. The country was pushed to the brink of a civil war. Those politicians who think Greece could get back on its feet through a severe austerity programme underestimate the dangers, while those politicians who think fresh money will make Greece more competitive overlook the fact that this money will take away the pressure to reform and will leave current-account deficit untouched, which leads inevitably to a transfer union. It is better for all concerned, in particular for Greece, if the country leaves the euro temporarily. It could then devalue, become competitive once more and later, at a suitable exchange rate, join again. A good portion of Greek debts must in any case be forgiven. The French and German governments would then have to themselves save their banks. But they can cope with that.In 2011, Sinn supported the idea of the ESM, but under a 'stop loss' condition (VoxEU). In 2012, Sinn wrote that Europe needs no banking union beyond a common regulator (Prosyn):
Socializing public debt is already posing a risk to the still-stable eurozone countries. To do the same thing with bank debt could pull hitherto sound economies into the abyss, because bank’s balance sheets are much larger than the volume of government debt. In Spain, the public debt-to-GDP ratio is 69%, but the debt of the Spanish banking system totals 305% of GDP, or about €3.3 trillion – about as much as the combined public debt of all five crisis-stricken eurozone countries. While the enormous volume of the bank debt implies that governments should shy away from socializing banking risks, it also suggests that only the banks’ creditors could reasonably be asked to foot the bill without being overburdened.