Germany Is Stuck with a Crisis It Did Not Foresee and Can No Longer Control

Written by | Monday, October 26th, 2015
European Values

Peter Nedergaard and Holly Snaith (LSE European Politics and Policy Blog)

Germany is often described as a hegemon, mostly because of the fact that it is automatically labeled as the center of the decisive power with respect to European matters. German philosophy thus has a significant influence primarily towards institutions. Given the experience of dealing with financial crises in the past, Germany is also logically positioned at the Eurozone’s forefront, being its, let’s say, watchdog or the main leader, who, however, not always made the right move when designing and sustaining the Eurozone.

The term ‘ordoliberalism’ is connected with both Germany and the Eurozone, which has led to the formation of a strong legal and institutional framework and which has been subsequently used as the foundation for successful economic policies after WWII. In contrast to Keynesianism, the philosophy of ordoliberalism is not promoting unlimited market interventions but rather only a certain type of state interventions. More precisely, these include for example setting rules that in turn support the competitive market to the greatest extent possible. Other characteristics of this approach include also the influence of price stability, constitutional predictability in economic policy and restraints on economic management. A strong ordoliberal tradition, which is deeply entrenched in the crisis management regardless of the left-right patterns, still prevails in Germany.

Ordoliberalism has thus been – boosted by Germany’s successes in the 20th century – brought to the limelight. Yet, during the recent crisis, the Germans have made several mistakes under this principle. First, they did not trust the Pact for Stability and Growth in the pre-crisis phase, which was supposed to shield the states from the crisis. The result was a delayed reaction to the crisis.  Second, the concept of the German economic and monetary union assumes the existence of a smaller number of actors than the number that is currently involved in the matter. Still, the values of the German ordoliberalism were spread among Member States as the most successful economic model – although admittedly every one of them works in a different way and thus it is necessary to realize that this German model is not completely universal.

(The study can be downloaded here: http://blogs.lse.ac.uk/europpblog/2015/08/25/germany-is-stuck-with-a-crisis-it-did-not-foresee-and-can-no-longer-control/)

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