Germany Prioritizes the Long-term Goal of Sustainability over the Short-term Goal of Revitalizing the World Economy

Abstract:

While Germany continues to defend an open trading system it is not prepared to play a proactive role in pushing for liberalization of global trade. Preventing further disintegration in Europe has a higher priority for the German government than further integration in the world economy. Such priority does not only match with widespread skepticism in the German electorate on the gains from globalization. It also complies with an implicit understanding in the government that further globalization should be subject to stricter public surveillance.

On financial stability, German authorities emphasize the need to minimize the role of taxpayers in future bail-outs and giving regulators the power to force troubled banks to restructure or liquidate. Germany is also keen for the imposition of a financial transactions tax at the global level. On macroeconomic policy, the increased reliance on domestic demand to spur growth in Germany will contribute towards global rebalancing. Given its fiscal space, boosting Germany’s public investment could be part of a collective effort to address global demand weakness while addressing long-term growth challenges through structural reforms.