We'd rather pay than change: the politics of german non-adjustment in the eurocrisis

Abstract

Germany’s large current account surplus has been widely criticized, especially against the backdrop of the Eurozone crisis where the burden of adjustment was borne almost entirely by the crisis countries. We argue that Germany’s resistance to reduce its massive current account surplus through an expansionary policy at home is rooted in distributive struggles about the design of possible adjustment policies. In contrast, interstate financing – such as granting bailouts to crisis countries – is much less controversial, turning it into a politically more expedient choice. Using evidence from original survey data from 135 German economic interest groups, qualitative interviews with interest group representatives and policymakers in Germany, and data from public opinion surveys, we show that while there is general support for internal adjustment among German interest groups, they disagree heavily about which specific policies should be implemented to achieve this goal. Together with a broad public and elite-based consensus to avoid a break-up of the Eurozone, this polarization turns financing into the politically most attractive strategy. Rather than being rooted only in German ordoliberal ideas or Germany’s export-oriented structure, distributive conflicts contribute significantly to Germany’s resistance to reduce its large current-account surplus. This phenomenon can also be observed in other surplus countries, as a brief analysis of interest group dynamics in Austria and the Netherlands shows.