The stability obsession

Ian Bruff explores the roots of Germany’s obsession with budgetary prudence and economic stability, which is driving austerity in Europe

April 14, 2012
7 min read

As the EU faces up to a daunting 2012, the news that unemployment fell to a 20-year low in Germany in December highlighted just how different its experience of the crisis has been to most other eurozone nations. Germany’s continued economic strength has translated into increased political power, and during the crisis it has sought to achieve two main goals. These are, first, to engineer a convergence of fiscal policies across the eurozone; and second, to enshrine this convergence in constitutional measures to prohibit ‘excessive’ budget deficits.

This has embodied a specifically German obsession with economic stability summed up in late 2008 when Germany’s finance minister, Peer Steinbrück, stated that the ‘crass Keynesianism’ of the British and other governments was a bigger danger than the prospects of global financial collapse. Understanding how Steinbrück, a member of the nominally progressive Social Democratic Party, could have made such a (widely supported) statement is essential for understanding why the cultural obsession with economic stability is blocking the emergence of alternative left responses to the eurozone crisis in Germany. With Germany dominant in steering eurozone economic policy, this has implications for anti-austerity campaigns Europe-wide.

Collective memory

The first thing to consider is the strength of the collective social memory in Germany of hyperinflation in the early 1920s. Although internationally hyperinflation is generally not viewed as on a par with the 1929 Wall Street Crash and subsequent Great Depression, for many Germans it represents the key cause of the economic and political disaster of the 1930s.

According to this dominant narrative, the fragility of the Weimar Republic stemmed from the inability of its government to prevent hyperinflation, creating the conditions for the rise of fascism. An instinctive ‘common sense’ view that political stability could only be guaranteed by economic stability came to dominate after the second world war. However, unlike in many other European countries – where ‘economic stability’ tended to align with a rejection of neoclassical economics – economic stability for West Germany ‘needed’ to be oriented towards price and currency, that is, towards monetary stability.

Although West Germany did embody, from the 1970s onwards, an economic model based on relatively progressive values, there was never a conversion to Keynesian economics or welfarism. ‘Excessive’ government spending continued to be frowned upon. For example, the Bundesbank was established as the world’s first fully independent central bank in 1957, with the control of inflation and the continued integrity of the West German mark among its prime objectives. The rise of the ‘social’ aspects of Modell Deutschland was possible, according to the dominant narrative, only because of the prior economic stability.

This ignores the fact that West German prosperity relied on continually growing exports to overcome the lack of domestic demand encouraged by this particular version of economic stability. Recent discussions of Germany’s dependence on deficit‑led recoveries in countries from which it is currently demanding growth-destroying austerity only scratch the surface of this irony: it has in fact been the case since the late 1940s.

German trade unions have been important in maintaining this system. Even though they regularly criticise the stagnant real incomes that many workers have experienced over the past three decades, monetarism in the name of exports is often in their immediate interests. Traditionally rooted in the highly productive manufacturing sector, unions have understandably sought to maintain their presence in areas of labour strength. This has constrained the possibilities for an alternative left narrative that challenges dominant thinking on the economy, even when one considers the fact that manufacturing employment has fallen substantially over the past four decades (albeit less than in other countries).

The stability obsession has also enabled German elites to portray their view of the global crisis as progressive, in contrast to debt-laden, reckless Anglo-Saxons, whose lax financial control facilitated the explosion of toxic loans, and whose spendthrift response to the crisis stores up greater trouble for the future. This is superficially appealing, especially considering Angela Merkel’s demands that banks pay their fair share of the bailouts. However, this reinforcement of the German ‘common sense’ approach has also hampered the emergence of left narratives, despite the widespread unease in German society about the implications of the eurozone crisis and the way it is being handled by the government.

The left’s balancing act

Die Linke – the national left alternative party, which won 12 per cent of the vote in the 2009 elections – has been forced to play a balancing act in the debates that have raged across Germany on this topic. Its stand-out policy proposal has been the call for eurobonds (covering government debt by bonds issued by the eurozone bloc as a whole instead of costlier, ‘riskier’ bonds issued by national governments) as both a solution to the crisis and something that is inevitable for closer European economic integration.

Although Die Linke chair Gesine Lötzsch has made it clear that eurobonds ‘alone are not enough’, the underlying causes of the eurozone crisis – the steady neoliberalisation of the European economy since the 1980s and the attendant growth of inequality, falls in the share of national income taken by labour, the growing dominance of finance and capital more generally – have not been at the forefront of the party’s interventions.

Within the German context, this attitude to eurobonds is quite radical because many view it as a licence to print money and reward profligate countries. A more typical position is Merkel’s insistence on automatic penalties for countries with ‘excessive’ budget deficits as the long-term solution to the crisis, and not the (mooted) ECB-led protection of states facing punitive borrowing costs. Nevertheless, eurobonds are potentially another means by which her goals of permanent austerity could be achieved, because the ‘right’ of countries to cover their debt in this way could easily be made dependent on harsh conditions set, in effect, by Germany.

The self-defeating nature of Merkel’s proposals, which will suck the life out of economies that play a part in sustaining Germany’s trade surpluses, could open up space for a more fundamental, left critique of the eurozone crisis to gain traction in Germany. This would be based upon a different form of protection from financial markets than a punitive fiscal stability pact. It would also build upon developments since the mid-2000s, when the harsh Agenda 2010 reforms (passed by the ‘progressive’ SPD-Green government) led to the formation of Die Linke and growing discontent with the increasingly neoliberal nature of German political economy.

Although the call for eurobonds is gradually acquiring greater political support, it is unclear whether the primary cause of this shift is Die Linke or ‘events’ forcing various rethinks. As such, we should not underestimate the potential for even a return to recession to be narrated as less a crisis of traditional orthodoxies and more the repeated inability of peripheral countries to become more ‘German’. This point is even more important when one considers the continued widespread support in Germany for the ‘European project’. A key outcome of the crisis is growing German dominance – although this should not necessarily be equated with growing German nationalism.

Presently, then, the German left remains on the defensive when it comes to a more encompassing critique of the eurozone crisis. Punches are being pulled in favour of winning the ‘reforms’ argument in Germany. This is understandable given the predominant opinion in Germany on the crisis, and in this sense the call for eurobonds is an effective response. However, by narrating the eurozone crisis in this way, the German left is not directly challenging the historically dominant ‘common sense’ ideas on economic stability/success. In the longer-term, a more fundamental critique of the underlying causes of the eurozone crisis can be achieved only by moving decisively beyond the German obsession with stability.


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