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Wirtschaftsinstitut Ifo – A think tank in Munich characterizes the negative ECB image of the Germans News

Sunday, September 3rd, 2017 | Economy

The Ifo Institute for Economic Research has gained fame as the sharpest intellectual spike for the ECB during the Euroraum financial crisis. The then president, Hans-Werner Sinn, said at the time that billions of euros would be spent on taxpayers' money to keep a shaky monetary union. Although 16 months ago Sinn was the director of the Ifo Institute, but also under his successor Clemens Fuest, the institute is shaping the public debate.
It is a great merit of sense "that he has made a topic that is really very complex, made it clear to the public," says Fuest in an interview with Bloomberg at the Ifo Institute. "Critical discussion must be possible."
The thinksmiths founded in 1949 with the help of the former Minister of Economics and later Federal Chancellor Ludwig Erhard quickly became one of the leading research institutes in the country and took over the task of advising the Ministry of Economic Affairs in its economic outlook. The monthly Ifo business climate index for Europe's largest economy has long been an important indicator in the financial markets.
Early criticism of the ECB
But Ifo reached public fame in 2001, rather politically, as Sinn denounced the financing of the stricken Euroraum economies by – as he said – the back door. It demonstrated that ECB emergency liquidity leads to imbalances in the Target2 payment system, with potential costs for the core countries. This was taken up by the German media and came to the attention of a public who was already afraid that it would have to pay for the excesses of other states.
The ECB said that Target2 is little more than a billing system; a risk exists only if the Euroraum disintegrates and the periphery countries do not fulfill their obligations. However, Sinn Staub had stirred up and made use of its reputation in order to attack the ECB in many other places. So he said she had exceeded her mandate and almost dictatorial powers.
Great resonance
This rhetoric is often heard by Germans and the media of the country and is a factor in the public debate. The Bundestag elections will be held next month. The Target2 balances are again rising as a result of the ECB's quantitative easing program, and Sinn's criticism has been used by the right-wing conservative party AfD, which is making a move out of the eurozone. For the colleagues of Sinn, this is a problem.
"Sinn has given a serious voice to the concerns of many Germans about the euro, but it has gone beyond what is academically sensible," says Holger Schmieding, formerly working at the Kiel Institute for the World Economy and now Chief Economist at Berenberg. "The German fears have not been confirmed by reality, and there is a danger that exaggeration will lead to alarms too often, which could damage the reputation," said Schmieding.
New face
Fuest, a former student of Sinn, came to the Ifo Institute after having previously led the ZEW Center for European Economic Research in Mannheim. He has recently been elected President of the International Institute of Public Finance, an association of economists specializing in public finances.
Fuest also says that the institute should not shy away from controversial issues around the euro. "If you pretend not to have the problems, you will not create trust, but you will leave the field to those who are really radical and non-materially opposed opponents, namely the AfD or others."
The strength of its new platform is to a large extent due to the sense that restructured the ifo institute after taking over the management in 1999. At that time, the institution had lost some of its funding and was criticized by the panel responsible for assessing the research institutes because of the unsatisfactory contributions to the economic debate.
«Obligatory information»
"You can talk about Mr. Sinn as you like – he is not in the public at all controversial, so criticism of him has always hit the institute," says Joachim Ragnitz, Deputy Head of the Ifo Dresden Branch, in order to investigate economic activities in connection with East Germany in particular. "In the end, however, he brought about a change."
Now it is up to Fuest to use this influence. "Ifo is not a political institution, so it is not our job to defend the euro or to attack the euro," he says. "We as individuals have our views, but it is our task to inform the public what happens and what economic research says about it."
(Bloomberg)

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