Heiner Flassbeck

Flassbeck views a currency union primarily as an "inflation community". This means that all member countries of a monetary union had to show the same price change rate. That could only be achieved by equalisation of growth of unit labour costs, with the aim to maintain the price competitiveness of all countries and to avoid high current account surpluses as well as deficits. As consequence for the eurozone he requests that all euro states had to comply with the Central Bank's target inflation rate. Because Germany had seriously undershot this target inflation rate through its concept of "wage restraint" since introduction of the monetary union, while other countries have met or slightly exceeded it, the German industry had gained market share on a large scale to the expense of the other countries in the eurozone. As solution for this problem, which he considers as the fundamental cause of the euro crisis, he proposes coordination of wage policies in the European monetary union. In view of the facts that the option of revaluations and devaluations is not given anymore because of the abolition of national currencies, the only alternative was a real devaluation of states with high current account deficits such as Spain, Portugal, Greece and Italy, as well as a real revaluation of Germany — brought by steadily higher wage increases in Germany than in the other eurozone countries.

In May 2013 Flassbeck wrote, it was irresponsible in the political discourse to repress the option to exit the Euro and that Germany without doubt would be hit hard in an exit scenario. On the possibilities to solve the crisis in the eurozone he demanded Germany to radically change its position to reduce the slope of competitiveness in the eurozone.

Flassbecks latest publication, the Ten Myths of Crisis (German: Zehn Mythen der Krise. 2012), predominantly contains a political evaluation of the finance- and eurozone crisis, as well as the estimation that the economic "Aufklärung" could be achieved not until a future expectable new crisis happens.

In September 2010 Flassbecks book The Market Economy of the 21st Century (German: Die Marktwirtschaft des 21. Jahrhunderts) was released: shocks and crisis were the normality in a market economy system, periods of stability the exceptional case. It needed an international monetary system like it already rudimentarily had existed in the early postwar period with the Bretton Woods system. In the new market economy of the 21st century, for every problem solutions should open-ended be searched for, which either could be borne by market or by state. Interests, exchange rates and prices for natural ressources would clearly belong to state price control on international level. Already in a system of decontrolled financial markets as existent since beginning of the 1980s, the price formation by way of supply and demand was suspended — so that a market in the classical meaning had not been existent there.

In media Flassbeck frequently holds his views on economic policy and theory, which in part are in favour of Keynesianism and particularly Joseph Schumpeter and Wilhelm Lautenbach. In April 2010, facing the beginning monetary crisis, also called euro crisis in Germany, he demanded to "separate the deals of the gamblers from the normal market activities" of banks. The function of rating agencies should no longer be left to the private sector. The austerity requested from Greece was unrealistic; the principal problem was not Greece but the economic imbalance in the European economic area, in particular concerning the competitiveness of the South European countries.

Flassbeck explained his positions on economic policy together with economist Frederike Spiecker in their book The End of Mass Unemployment (German: Das Ende der Massenarbeitslosigkeit, 2007). He does not consider the reasons for the weak growth and mass unemployment of many years in Germany as a result of technological progress, globalization or too high wages, but as a consequence of a not demand-orientated policy. Flassbeck since then instead advocates an economic policy which follows basic Keynesian principles and claims a "reform of thinking". After the first worsening of the financial crisis since 2007 he published his book: Failed. Why politics surrenders to economy (German: Gescheitert. Warum die Politik vor der Wirtschaft kapituliert. March 2009). There he particularly highlights the omissions made by German economics policy during the German reunification and its recurrence at the European monetary union. He put the economic crisis down to a structure-conservative policy which focused on individual economic (microeconomic) particular interests, with what the market economy in the end was questioned.

The Hamburg University of Economics and Politics appointed Flassbeck a honorary professor in March 2005.

That followed a period of working free lance as an economic researcher and a publicist. From November 2000 to December 2002 he worked as a senior economist at the United Nations Conference on Trade and Development (UNCTAD). From January 2003 up to his service retirement he was the chief economist, Chief of Macroeconomics and Development of the UNCTAD, since August 2003 Director of Division on Globalization and Development Strategies.

When the government changed in October 1998 he was appointed State Secretary in the Ministry of Finance in the first Schröder cabinet. He counseled the former finance minister Oskar Lafontaine with his intent to establish together with French finance minister Dominique Strauss-Kahn a Keynesian fiscal policy and monetary policy on level of the European Union and to reform the international monetary system. After Oskar Lafontaine resigned from minister in March 1999, Flassbeck's work as a state secretary ended in April 1999 as well.

After he was operating at the Federal Ministry for Economy and Technology since 1980, he changed over to the German Institute for Economic Research (German: Deutsches Institut für Wirtschaftsforschung, DIW) in Berlin in 1986, where he worked on labour market- and business cycle analysis and concepts of economic policy. 1990 he became head of the department business cycle at the institute.

In his early scientific career, in the 1980s, Flassbeck in particular dealt with questions of foreign trade theory (an area of International economics) and monetary policy. In his work Free trade, GATT and the international currency system (German: Freihandel, GATT und das internationale Währungssystem. 1985) he offered an essay to redefine the benefits of free trade based on a new trade theory. In frame of a system of flexible currency rates a decision between protectionism and free trade could not be made and in addition the targeted national autonomy in monetary policy not be achieved. In his dissertation from 1988, Prices, Interest and Currency Rate, he spoke for "absolutely fixed currency rates" as only solution that could ensure an efficient and continuous adjustment of global economy and outer price stability. According to Flassbeck, the effects by revaluation and devaluation at flexible currency rates were equal to state interference at its discretion and as much exogenous as non-market driven changes in currency rate.

Flassbeck sees the need for a coordination of monetary policy, wage policy and fiscal policy. He assigns monetary policy an outstanding impact on growth and employment and refuses its shortening on retaining price stability. He declares monetarism fauiled to control inflation through money supply. It had been practised in the 1980s by some federal banks in response to the oil crisis and the stagflation going along with it in the 1970s but led to drop of investments and high unemployment. It was abandoned by the 1990s.

Heiner Flassbeck studied economics at Saarland University (1971–1976). During that time he was assistant at chair of Wolfgang Stützel with emphasis on currency issues. Afterwards, up to 1980 he worked in the assistants staff of the German Council of Economic Experts. 1987 he received a doctors degree Dr. rer. pol. at the Free University of Berlin with his work: Prices, Interest and Currency Rate. On Theory of Open Economy at flexible Exchange Rates (German: Preise, Zins und Wechselkurs. Zur Theorie der offenen Volkswirtschaft bei flexiblen Wechselkursen).

Heiner Flassbeck (born 12 December 1950) is a German economist and public intellectual. From 1998 to 1999 he was a State Secretary in the German Federal Ministry of Finance (German: Bundesministerium der Finanzen) where he also advised former finance minister Oskar Lafontaine on a reform of the European Monetary System. He became the Chief of Macroeconomics and Development of the United Nations Conference on Trade and Development (UNCTAD) in Geneva in January 2003, a position that he held until resigning at the end of 2012 due to his age.

Flassbeck does not attribute the Wirtschaftswunder (German for economic miracle) in the 1950s and 1960s to the economic policy of Ludwig Erhard and his only partially applied concept of an ordoliberal social market economy, but to the American monetary policy which, during the time of the Bretton Woods system (until about 1973), had significantly influenced the German interest level. Also, the steady exchange rates which often reflected an underrated D-Mark (former German currency), had essentially benefited the catching up of the other countries. Furthermore, Flassbeck compares the German economy growth in the years of the "Wirtschaftswunder" with other countries and concludes that West German growth rates were only slightly higher than those of France and Italy in the 1950s, but that already in the 1960s, it was slower than the average of those countries. In comparison with the growth of the Japanese economy, which much less had been geared to market economy and competition, the economic miracle appeared "like a stroll". Only the United Kingdom had not been able to keep up with that continental European and Japanese development.

A working market economy in the 21st century had the following needs/necessities/musts: