The Long Shadow of German Ordoliberalism

Berlin Germany
A bird sits on top of one of the spires of the German Reichstag building in Berlin, December 31, 2005 (Max Braun)

Germany’s approach to the euro crisis stems from deeply entrenched neoclassical economic views. The fundamentals of these views will not change and must be taken into consideration when negotiating with Germany, for example by making the case for pan-European investment programs instead of outright atttacking austerity as a concept.

Contrary to popular belief, Germany’s reaction to the euro crisis — its strict focus on price stability and austerity — is not a result of historical experiences with hyperinflation, a selfish intent to maintain a surplus at the expense of others, or an intent to punish Southern European deadbeats.

Rather, the German approach stems from an entrenched belief in price stability coupled with budgetary discipline as the only road to prosperity. German economic orthodoxy holds that a European coordination of taxes, labor laws, retirement age, etc. is unnecessary. If everyone “does their homework” prosperity will naturally result. Hence the emphasis on fiscal discipline.

The European Council on Foreign Relations in a policy brief (PDF) recommends that member states accept these concepts when dealing with Germany. Instead of attacking austerity as such, they should demand pan-European investments, Europe level taxation and more time to implement austerity measures. The basic German position will remain the same regardless of government, even if a center-left coalition may be more open to eurobonds. Read more “The Long Shadow of German Ordoliberalism”

British, German Liberals Losing Appeal

The governing coalitions in Germany and the United Kingdom are under pressure as their junior partners have failed to deliver on key election promises. Both liberal parties are currently trailing in the polls as voters flee the center.

Chancellor Angela Merkel’s own Christian Democrats lost seats in the upper house of parliament last May in the wake of the Greek bailout effort. German voters have been skeptical of having to come to Europe’s rescue time and again and many are longing for a return of the Deutsche Mark.

The junior Free Democratic Party (FDP) has borne the brunt of voter dissatisfaction however. A liberal free-market party, the FDP pledged to lower tax rates ahead of federal elections last year. The liberals won nearly 15 percent of the vote in 2009. Forced to cut public spending, they have been unable to deliver on their promise. In recent polls, the party receives but 5 percent of votes, not enough to make the election threshold.

According to the leftist opposition in Germany, the government’s austerity measures as socially imbalanced and some 80 percent of Germans agree. Two thirds of voters are in favor of raising the top income tax rate instead, a measure both the chancellor and the FDP have so far rejected. Conservatives and business leaders are increasingly weary of the coalition meanwhile, predicting its demise as early as this summer.

In Britain, the Liberal Democrats, in coalition with the Conservatives since May last year, have similarly lost part of their appeal, particularly among students and young urban professionals. If elections were held today, the party would receive but 11 percent of votes; half of what they won last year.

As in Germany, the government’s fiscal policies are unpopular with voters on the left. The Liberal Democrats agreed to a raise in the value-added tax from 17.5 to 20 percent and supported an education reform measure which they said to oppose ahead of the elections.

In other parts of Europe, liberal parties have performed remarkably well. Small government conservatives were on the rise in Central Europe last year while in the Netherlands and Scandinavia, broad alliances of liberals, conservatives and populists remain firmly in power.

A new right is emerging across Europe, spearheaded in some countries, as in the Czech Republic, the Netherlands and Sweden, by traditional liberals and in others, including Germany and the United Kingdom, by conservatives who have moved to the center. Like Swedish Prime Minister John Fredrik Reinfeldt, David Cameron is far from an outspoken antagonist of Britain’s welfare state. These conservatives favor budget cuts and smaller government but do not believe in abolishing welfare provisions altogether.

The British and German liberals could be part of that new right except their base is divided. Leftists have been disillusioned by their support for spending cuts while moderate voters are drawn to the right where they find conservatives who a “tougher on crime” and share their concerns about immigration from Muslim countries and Eastern Europe. There doesn’t seem to be much room for social liberalism in the middle anymore.