Crisis and Recovery in the German Economy: The Real Lessons

34 Pages Posted: 12 Aug 2015

See all articles by Servaas Storm

Servaas Storm

Delft University of Technology - Department of Economics

C.W.M. NAASTEPAD

Delft University of Technology - Economics of Innovation

Date Written: March 1, 2014

Abstract

Owing to its strong dependence on exports, Germany was among the economies hit hardest by the financial crisis. But unlike almost all other countries, Germany emerged from the crisis quickly and stronger than before. What lies behind this success story, if at all it is one? The commonplace - neoliberal - answer is that Germany’s success is the hard-won reward for strict economic management, combining fiscal conservatism and structural reforms of welfare and the labour market. The latter, by reducing labour costs, fostered competitiveness, boosted growth, and increased employment. “Progressive” economists arguing that Germany beggared its Eurozone neighbours by squeezing workers’ wages, share a similar view. However, this particular explanation of Germany’s resilience is wrong and unhelpful. Germany’s export success cannot be explained in terms of its (labour) cost competitiveness, but is caused by strong non-price competitiveness. This, in turn, is due - much more than is normally recognized - by the remaining distinctly non-neoliberal dimensions of Germany’s economic model (including a Keynesian crisis response). German and European policymakers preaching austerity and structural labor-market changes as the model for other Eurozone countries, misunderstand Germany’s rebound from crisis, with serious costs to Eurozone populations.

JEL Classification: E00, E02, E12, F02, F15

Suggested Citation

Storm, Servaas and Naastepad, C. W.M., Crisis and Recovery in the German Economy: The Real Lessons (March 1, 2014). Institute for New Economic Thinking Working Paper Series No. 10, Available at SSRN: https://ssrn.com/abstract=2638053 or http://dx.doi.org/10.2139/ssrn.2638053

Servaas Storm (Contact Author)

Delft University of Technology - Department of Economics ( email )

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C. W.M. Naastepad

Delft University of Technology - Economics of Innovation ( email )

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