Why is Germany in Europe’s catbird seat? Yes, it’s Europe’s largest economy, but not so long ago it was the “sick man of Europe,” earning only disdain or indifference from its European neighbors. What really matters is what didn’t happen: the German economy did not blow up in the global financial crisis like its erstwhile Anglo detractors – the UK and the US. Thanks to the Chinese stimulus plan, German exports quickly boomed again and without a huge domestic debt or banking crisis holding it back, Germany was the only one in a position to bail out the rest of Europe (to a point) and thus call the political shots. So, why did Germany come through the financial crisis of 2007-09 in relatively good shape? The answer lies in understanding why the German financial system (and economy generally) didn’t come to depend on a derivatives pyramid and debt-driven growth.
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