will remember the controversial debate about how to convert the east german mark into the deutsche mark. in the end, wages in eastern germany were converted one to one into the deutsche mark. the then president of the bundesbank karl - otto pohl had warned – for the same reasons that hans - werner sinn put forward – that this was to the disadvantage of companies in eastern germany. however, he later acknowledged that there was hardly any alternative, as “ political realities were stronger than economic logic ”. the high level of unemployment in eastern germany was cushioned by transfers from the western part. while the exact amount of these transfers is difficult to calculate, hans - werner sinn once estimated that transfers paid up to the present day amount to around €1. 8 trillion – roughly the size of the german gdp in 1991, 4 but this number certainly comprises more than just the transfers via the social security system. a central tenet of “ jumpstart ” is that it would have been much cheaper to compensate employees for accepting lower wages than to compensate the unemployed for their job losses. 5 “ implement distributional objectives through transfers and not by altering factor prices ” was the economic principle that hans - werner sinn saw violated in the formation of the sinn, gerlinde and sinn, hans - werner ( 1993 ). kaltstart – volkswirtschaftliche aspekte der deutschen einheit. 3rd revised edition, deutscher taschenbuch verlag. ibid. sinn, gerlinde and sinn, hans - werner ( 2015 ). die deutsche vereinigung als vorbild fur europa? faz, 2 october 2015. sinn, gerlinde and sinn, hans - werner ( 1993 ). kaltstart – volkswirtschaftliche aspekte der deutschen einheit. 3rd revised edition, deutscher taschenbuch verlag. bis central bankers ’ speeches economic union between the two germanys. and he feared that this would allow wages to remain above the market clearing level for too long. and also the distributional objectives were only partly achieved : not least because unemployment in eastern germany is still higher than in the western part, per capita income in eastern germany is still only 71 % of that in western germany. it is this experience which explains at least partly why many german economists are sceptical about establishing a transfer union in europe, as at the european level these problems are aggravated by the fact that the balance between control and

liable in case their investment fails. ” hans - werner sinn devoted at least three books to this issue, all of which contain impassioned calls to realign control and liability. an important step in this direction with regard to investments in banks was made at the beginning of this year, when the bank recovery and resolution directive, ( brrd ) became effective. it helps to ensure that, in the future, the shareholders and creditors of a bank will be first in line to absorb any risks and losses. and in this context it is important to note that because of the new basel iii regulation, banks are now obliged to maintain higher capital buffers. this helps to increase bank shareholders ’ liability if the bank has to be restructured or even resolved. to ensure that the principle of liability – or as walter eucken put it : “ those who reap the benefits must also bear the costs. ” – is also respected with regard to sovereign debt, the founding fathers of the euro had incorporated the no - bailout clause into the maastricht treaty. it was the “ linchpin of the construction of the euro ”, as hans - werner sinn wrote in one of his books. but with the institutions and rules in place before the crisis, simply letting a sovereign default happen proved to be risky for the financial stability in the euro area. because government bonds were treated, wrongly, as risk - free in the capital regime for banks, they held a significant stock of government bonds – the sovereign - bank nexus is strong in the euro area. hans - werner sinn suggested a number of measures that would bring more market back to the sovereign debt market. here, i would like to mention only two that strike me as being particularly important – and which are similar to points that i also make frequently : the first is to do away with the regulatory privileges afforded to public debt. the second proposal is to limit assistance from the rescue mechanisms to what is absolutely necessary to assess whether the situation at hand is one of illiquidity or insolvency. while hans - werner sinn tries to achieve this by limiting the time for assistance up to two years the bundesbank has suggested to introduce an automatic three - year maturity extension for all government bonds – which would be activated the moment a government applies for an esm programme – designed not to let private bondholders off the hook until it is clear that the problem is one of illiquidity and not insolvency. addressing both issues is