German Economic Policy after Fifty Years

Abstract

In a 50-year perspective, German economic policy offers an intriguing paradox. Until the 1970s it was viewed as very much an aberrant case: of an economic policy-making system that seemed wedded to old-fashioned ideas, at best embracing Keynesianism reluctantly and partially, at worst rejecting it. Germany stood out as an exception in a world economic system that was essentially Keynesian in inspiration and that viewed demand management, deficit spending and high levels of welfare state provision as essential building blocks of an effectively functioning modern economy. Yet it was precisely in this period that the German ‘economic miracle’ was in the ascendant. The paradox is compounded by the period after the 1970s. German economic policy appears as a more normal case: not because it adapted its governing ideas to those characteristic of OECD states but because — under the impact of monetarism — the consensus shifted in the German direction, that is towards primacy to monetary policy and budgetary consolidation. But during this period the German ‘economic miracle’ faded. Though Chancellor Helmut Schmidt proclaimed the international status of ‘Model Germany’ in the 1976 federal election, this status was increasingly challenged. By the late 1990s major questions were being asked about the performance of German economic policy. These questions related to what was perceived as a widening gap between the theory and practice of economic policy, to the nature of the economic policy-making system, and to the implications of the profound transformations affecting the organisation of economic activity, notably from globalisation, Europeanisation and German unification. This chapter explores these questions with the objective of plotting changes in the way that German economic policy has come to be perceived at the end of the millenium.KeywordsMonetary PolicyEuropean Central BankGrand CoalitionFiscal ConsolidationSocial Market EconomyThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.