Germany is falling out of love with economic orthodoxy
Thomas Fricke and Simon Tilford, directors at Forum New Economy, have written an opinion piece for the Financial Times. They argue that Germany could be on the cusp of another paradigm shift.
PUBLISHED16. NOVEMBER 2019
READING TIME1 MIN
Chances are high that Germany is undergoing a paradigm shift, as growing numbers of policymakers and voters back increased investment at home.
Many instinctively see Germany as a fairer, less market-driven economy than, say, the US or UK. And they are partly right: the German state redistributes more than the British one, and far more than the US one. But Germany has also been the driving force behind the dominant economic orthodoxy in Europe over the past 20 years: balanced budgets, deep-seated scepticism about the role of the state in the economy and a strong focus on export competitiveness.
Is this now changing? And what could it mean for Germany and Europe as a whole? Outsiders have long expressed frustration at the apparently strong consensus in Germany over economic policymaking. For the best part of 20 years, there has been little to separate the Christian Democrats and Social Democrats. For successive US governments, Germany has been seen as a significant cause of global imbalances through its unsustainably high export surplus. For many Europeans, Germany’s obsession with fiscal probity and trade competitiveness has hindered attempts to confront the challenges facing the eurozone. The signs are now multiplying that change could be afoot, not least because the country’s economic prospects have worsened sharply. The global slowdown is hitting demand for German exports, while years of fiscal constraint have lowered economic potential; the country’s infrastructure and skills base urgently need upgrading. Last week, Germany’s leading business lobby, the BDI, together with the trade union federation, issued a joint call for a €450bn public investment package.
The hitherto robust orthodox consensus among the country’s Council of Economic Experts — an academic body that advises German policymakers — is crumbling. And there is even a new readiness to acknowledge the risks of the country’s export dependence. But the real reason that change could be in the offing is that Germans themselves appear to have had enough.