Connecting Past and Present: Germany’s Search for a New Success Story

As Mark Twain once observed, “The trouble with the world is not that people know too little, but that they know so many things that aren’t so.'” The aphorism is appropriate in light of the current confusion concerning Germany’s role within Europe. According to German public and political discourse, Germany is experiencing a second economic miracle (look no farther than the FT Deutschland’s “Wirtschaftwunder blog”:http://www.ftd.de/wirtschaftswunder ) thanks to balanced social and economic policies, fiscal responsibility, and respect for the rules and institutions of the European Union. Although much attention has been paid to this “new” German model, little has been focused on how this reading of events was constructed or, to use Twain’s formulation, how and why many among the German public and elite are convinced of so many “things that aren’t so.” Doing so not only helps clarify the seemingly contradictory or ad hoc nature of contemporary German politics. It also sheds light on how problematic the current German approach is as a perceived solution to Europe’s woes.

Germany is struggling to reconcile the competing domestic and European dimensions of the financial crisis in the search for a story, or discourse, that makes sense of these complex events. The predominant German discourse frames the overall financial crisis as stemming from regulatory failure and the excesses of “Anglo-Saxon” capitalism. As such, the domestic response has emphasized fiscal responsibility and the “automatic stabilizers” of the German social welfare system instead of stimulus spending. Within Europe, German officials have emphasized austerity for states facing financial troubles and new EU rules for ensuring the credibility of the Euro and preparedness of the Union for future crises.

Two aspects of this nascent discourse are noteworthy. First, contrary to impressions of an ad hoc approach, key elements of the German response are grounded in ordoliberal thought and tradition. Second, and more important than the substance of recent policy decisions, the German discourse is setting the tone of the debate in Europe. Germany is cast as the voice of reason and discipline in the midst of a crisis caused by irresponsibility, exuberance, and a disregard for the rules and institutions of the Euro. Given such a diagnosis, discipline and punishment appear as appropriate responses.

As Sheri Berman notes in this seminar, Germany was never a fan of Keynesianism. As such, German resistance to U.S. calls for demand-led growth approach is no surprise. The collective memory of the Weimar Republic provided a powerful frame through which demands for deficit spending were filtered: these arguments were heard as exhortations to print money, awakening fears of hyperinflation, mass unemployment, and economic stagnation. The counterarguments deployed by German officials drew on the postwar experience of the _soziale Marktwirtschaft_ and the _Wirtschaftswunder_ in articulating an appropriate response: a rejection of manipulating the money supply as a macroeconomic instrument; a defense of fiscal responsibility; the state as a guarantor of the free market; and a social system that helps (responsible) individuals and employers bridge difficult times without fostering dependence on the state.

Although the oft-cited “automatic stabilizers” (job training, part-time work, furlough programs) constitute stimulus spending under another name, there are important qualitative differences, especially as regards who is considered an appropriate beneficiary (primarily those employed in skilled manufacturing). The discursive linkage to post-WWII German ordoliberalism is evident in a social dimension that emphasizes opportunities for labor market participation over general safety nets–a central aspect of Ludwig Erhard’s interpretation of the _soziale Marktwirtschaft._ Similarly, the insistence on fiscal responsibility reflects monetarist tendencies present in Erhard’s practice of ordoliberalism, more than the economic theory developed by Eucken, Röpke, and Müller-Armack. Invoking a legacy in which the state serves as the guarantor of free markets through the reasoned application of regulation made certain options appropriate and legitimate while discrediting others (such as stimulus spending). Moreover, German officials have interpreted the combination of domestic economic recovery, growing business confidence, and positive economic forecast as confirmation that their diagnosis was correct and their responses appropriate.

Germany has also led the drive for austerity in Europe, especially in response to the spread of sovereign debt crises. The general idea of austerity entered the debate through a “peculiar European Central Bank formulation”:http://www.ecb.int/pub/pdf/mobu/mb201006en.pdf, “growth-friendly fiscal consolidation” in 2010.

However, German articulations of the concept have taken a harder edge, with the implication that harsh cuts are the appropriate punishment for states that have flaunted the rules of the monetary union or have been irresponsible with public finances. To some, this stance contains a pernicious message of vengeance, or of Germany being “strong against the weak.'”:hhttp://www.tagesspiegel.de/meinung/merkels-europapolitik-ist-versailles-ohne-krieg/2934968.html. For their part, German officials have justified their conception of austerity in terms of what it means to be a member of the European community. As Merkel “pointedly stated”:http://www.nytimes.com/2010/03/26/business/global/26ecb.html, a good European is “not necessarily one who offers help quickly. A good European is one that respects the European treaties and national rights so that the stability of the euro zone is not damaged.” What is important here is that key actors (German and European) do not mean the same thing when invoking the austerity trope, or when invoking “Europe” and the European idea in defense of policy positions.

These brief examples from the broader German discourse highlight the struggle to define a story that “makes sense” of a complex series of events in order to respond to them, as well as the difficulty of conducting politics amidst competing discourses. As is typical, the emergent German discourse exaggerates some “actual” events and ignores leaves others altogether. Understanding the sources of this discourse make clear the fact that it is not just an ad hoc policy response, but one that could have been anticipated with some attention to the larger historical and political context. The central problem, though, is that the current German story is not sustainable. As Mark Blyth “has noted”:http://www.watsoninstitute.org/news_detail.cfm?id=1388, pushing austerity for Europe (and a blunt or vindictive variant of austerity at that) amidst a massive economic downturn constitutes a fallacy of composition on a grand scale. If neither governments nor consumers are spending, then there is no route out of the crisis. The dilemma is even more pointed for Germany, in that _”Wirtschaftswunder II”_ cannot be sustained without consumption of German exports by other Eurozone economies.

What, then, can be done to help Germany navigate out of the crisis to which it has contributed, even as so many believe that the country has not only escaped crisis but, in doing so, has highlighted a path for others to emulate? Three scenarios suggest ways in which the debate may develop in Germany and Europe – Germany as the rule-maker, Germany as the contrite winner, and Germany as the blissfully ignorant fool – are discussed here in brief. Readers are invited to contribute their own thoughts and suggestions as to other options.

Although Germany seems to have adopted the role of “rule-maker'” at present, there is no European consensus that this new role is appropriate or desirable. Part of the problem is that there is no European level narrative to help legitimate this role. For much of the post-WWII era the European project helped justify difficult domestic policy decisions. For example, the idea of a Single Market provided an overarching narrative for a range of reforms in the 1980s, as did the Euro in the 1990s. However, both of these were grounded in a “negative integration” narrative of removing barriers to the fundamental freedoms. A rule-making role requires a narrative of “positive integration” to justify new institutions and regulations, yet averting a future but as of yet unknown crisis is not as compelling a narrative as the creation of a single market or single currency.1

A second variant may be the idea of Germany as the contrite winner. Little mention has been made of the ways in which Germany (and France) flouted the rules of EMU, especially the deficit criteria, in the not so distant past. This is little short of ironic given the current austerity drive. Although difficult to imagine in the current political climate, there might be space for a discourse in which relaxing the austerity-punishment focus is made possible by invoking these “forgotten” elements of recent European history. This would, in effect, involve a mea culpa on the part of Germany and the construction of a discourse that emphasizes the long-term interest of all rather than the short-term “tit-for-tat” spiral that characterizes the current political dynamic.

Finally, the status quo may continue for some time, especially if demand for German exports via China sustains the idea that the German recovery is the product of German policy innovation at home and persistence vis-à-vis the rest of Europe. In this scenario, Germany plays the blissfully ignorant fool implied by Mark Twain’s aphorism, in that it is only sustainable until growth declines in conjunction with declining exports and Germany finds itself in trouble vis-à-vis its own banks, and a new crisis ensues.

All of this brings us back to the question of future the pathways for Germany. What are the options to work out of the corner into which the government has backed the country? What combinations or recombinations of history, memory, and events might provide the way out for Germany? Without offering a definitive answer, the foregoing should at least highlight that the possibilities are constrained by ideas and perceptions as much as they are by bond markets and balance sheets.

1 The notion of negative vs. positive integration is drawn from the work of Fritz Scharpf. See, for example, “Negative and Positive Integration in the Political Economy of European Welfare States,” Jean Monnet Paper Series No. 28, Firenze: Robert Schuman Centre at the European University Institute, 1995.