The long shadow of ordoliberalism: Germany’s approach to the euro crisis

Germany's approach to the euro crisis: why Berlin does not mind being unpopular. With the EU agreeing to a second Greek bail out in December 2011, the spotlight was on the delicate balance between demands for fiscal rectitude and the argument that growth needs flexibility.

The German government thought the only solution to the crisis was a German one, and that meant fiscal rectitude above all else. It also had the power to enforce its will. the January 2012 agreement over the wording of a new treaty aimed primarily at tightening Eurozone fiscal policy (the Fiscal Compact) showed that German positions rather than collective compromise won the day.

But – with Germany being criticised for inflexibility over the role of the ECB, Eurobonds, austerity and treaty changes – why did and does Chancellor Angela Merkel take such a consistently hard line?

This ECFR paper by Sebastian Dullien and Ulrike Guerot – ‘The long shadow of ordoliberalism: Germany’s approach to the euro crisis’ – argues that:

Germany’s rigidity is not just about simple national interest and the psychological scars of Weimar-era hyperinflation. It is about a broadly-held belief in the foundations for economic success, as shown by German historical success.

Austerity is not just about teaching others a lesson: it is about building the foundations for sustainable economic growth (and Germans believe that this view is substantiated by their country’s post-war and post-reunification experience). This is not up for negotiation.

Attacking excessive austerity and demanding a renegotiation of the new fiscal treaty will simply fall on deaf ears. Instead, a more promising strategy might be to demand pan-European growth and investment programmes with more spending and taxation power shifted towards the EU level.

ESO: Background information: German opposition backs ECB plan on bonds / German opposition backs fiscal union / German rift over euro crisis overstated http://www.europeansources.info/record/german-opposition-backs-ecb-plan-on-bonds-german-opposition-backs-fiscal-union-german-rift-over-euro-crisis-overstated/

---