The stock of central bank money in the euro area has increased almost sevenfold from the beginning of the financial crisis in summer 2008 to autumn 2021, from 880 billion to almost exactly 6 trillion euros, much faster than economic output rose.

4 trillion euros of the increase was explained by the purchase of government papers.

Three quarters of the new national debts of the euro countries were financed from the printing press.

The dangers of inflation are in the air.

For many years, despite the increasing money supply, inflation did not materialize because the new money was hoarded by banks and other market participants. The ECB took the lack of effect as an opportunity to purchase more and more government bonds with fresh money. In the meantime, however, inflation has started. Since the demand effect of government deficits coincided with the shortage of materials at the end of the pandemic, there was massive kick-off inflation in 2021 with double-digit growth rates in commercial producer prices. Further impetus effects are to be expected in the next few years because the energy turnaround and the retirement of baby boomers mean cost increases again. These impetus effects could set in motion a self-reinforcing inflation spiral, in which the excess money is discharged in an inflationary manner, similar to ketchup,which lay in the refrigerator for a long time and suddenly squirts out of the bottle after shaking.

The inflation brake has been destroyed

Faced with this danger, the central banks would have to collect the excess money again today by selling the government bonds that they have taken possession of.

But that won't happen because the heavily indebted eurozone countries are stonewalling.

The inflation brake has been destroyed.

As an economist, you seldom feel so helpless as you do today when faced with the looming danger of inflation. The helplessness does not result from a lack of understanding of what should happen, but from the knowledge of the huge distribution conflict in Europe, which prevents the concern about price stability, which the Maastricht Treaty of the ECB has given up, from being taken seriously. It is too obvious that the crowd of those representatives in the Governing Council who advocate stability-oriented policies are a hopelessly small minority. It would help if the governments of the inflation-concerned countries spoke up publicly. That would not be an attack on the independence of the ECB, but a necessary discussion about the contractual limits,within which this independence only exists. A broad public debate on the matter is needed before it is too late.

It is unreasonable for voting rights in the Governing Council to remain as unevenly distributed as they are today. Every citizen of the Eurozone has the right to an equal political representation in the Governing Council, because the decisions of this Council have, as is now abundantly clear, enormous redistributive effects. Anyone who thinks that these redistributive effects are only the inevitable implication of a monetary policy serving the common good is misjudging the reality. He overlooks the suspicious facts or does not want to see them. Only an adjustment of the voting rights to the population size of the EU countries can ultimately remedy this.

Europe needs a political union with a prosperous and stable society.

This requires stable money that gives citizens the certainty that the fruits of their efforts will not be passed on to strangers through inflation.

If this monetary stability is not achieved, dispute and argument will spread in the EU.

The text on this page is an edited excerpt from Hans-Werner Sinn's new book “Die Wundersame Geldvermehrung”, which is published by Herder-Verlag (432 pages, 28 euros).