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We All Live in Germany’s World

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Why do the Germans do what they do? Since the global financial crisis, Chancellor Angela Merkel’s government in the European Union has seemed to alternate between bad cop and compulsive hoarder. Berlin forced Greek governments to accept punitive austerity measures, blocked the issuance of Eurobonds, and most recently balked at the need to spend heavily at the European level in response to the coronavirus, until it was almost too late. With near-zero interest rates and crumbling infrastructure at home, Germany still refuses to spend even as the new Biden administration passes a stimulus bill of “planetary scale.”

Is this neoliberal seppuku? An opposition to the expansionary state so complete that it would rather perish than run a deficit?

There is no shortage of fodder for explanations based on the ideological and the irrational. The CDU all but copped to accusations of “sado-monetarism” in late 2019 when they tweeted a meme of the “black zero”—the German symbol for a balanced budget— in a leather dominatrix hat with the winking tagline: “We admit, we have a little fetish.”

Anglophone audiences have been especially hospitable to the idea that there is something peculiar, even pathological, about the behavior of the Germans when it comes to matters of money. When Michael Lewis turned to scatology and the history of Weimar hyperinflation to explain the German “preternatural love of rules” in a Vanity Fair article in 2011, he foreshadowed a decade of takes to follow.

Are there better explanations? In a new book from Stanford University Press, Unwitting Architect: German Primacy and the Origins of Neoliberalism, Julian Germann suggests there are. Tracking the rise of the German economy from its Cold War division to reunification in the 1990s, he makes the case that we need neither hackneyed theories of national character nor appeals to baked-in theories of “ordoliberalism,” nor nightmares of wheelbarrows full of money, to account for the state’s actions.

We can explain it all by a much simpler fact: Germany is an export nation and would like to stay that way with as little internal disruption as possible.

A century ago, John Maynard Keynes wrote that “the German machine was like a top which to maintain its equilibrium must spin ever faster and faster.” Since its rise to the world’s leading exporter of industrial goods in the late 19th century, Germany has spun outward, focusing on producing for markets beyond its borders, succeeding in the first version of a transition so many would try to emulate later: moving from trinkets and toys to machines to, finally, machines that make other machines.

After the Nazi catastrophe and its very different vision of continental autarky, the Federal Republic launched a ballyhooed “return to the world market,” to cite the iconic title of Economics Minister and later Chancellor Ludwig Erhard’s 1953 book. With help from liberalized trade with the nations it had very recently fought to the death, and the demand boost from the new American war on the Korean peninsula, West Germany returned to its outward-facing stance.

And there it has stayed. Although the United States was the behemoth of postwar globalization, the nation also benefits from a vast domestic market. Germany has been much more reliant on trade as reflected in a trade-to-GDP ratio three times of America from the 1970s to the present. In the 1980s and again in the 2000s, Germany even surpassed the American giant in the value of its exported goods.

It is in the defense of its status as Exportweltmeister, Germann argues, that we can find the explanation for German actions. The country has never sought to create “replica Germanys according to a single ideological blueprint,” as has sometimes been alleged. On the contrary, its goal has been an entrenchment of difference on the formula of “social market economy for me but not for thee.” The black-zero fetish, in other words, is not the twisted expression of Lutheranism but an all-too-reasonable attempt to maintain export-oriented growth while maintaining a class compromise at home.

As told in Unwitting Architect, the story matters for more than just Germany: In the country’s efforts to defend its export model, Germany has helped to accelerate the movement to what we now call the neoliberal order.

Germann zooms in on a series of turning points, most of them in the 1970s. The first is what is known in shorthand as the “end of Bretton Woods” when the United States stopped converting dollars into gold in 1971, launching the era of fiat money and floating exchange rates. Germann follows the work of other scholars to show that the earlier German decision to float the mark, and their unwillingness to prop up the dollar, must be recognized as a necessary condition for the U.S. move.

In other words, the closing of the gold window, often seen as an expression of American hegemony and unilateral power, was rather a sign of its weakness, and dependence on the cooperation of its partners, most importantly, France and Germany.

Germann sees the Federal Republic as the spoiler in further efforts to respond to the crises of the decade that followed. The 1970s were a period of inflation but also attempts to practice an expansionary Keynesianism beyond the scale of the nation, as Italian Eurocommunists and social democrats like Olof Palme and Bruno Kreisky responded to the parallel mobilizations for a New International Economic Order by the G-77 bloc of poorer nations at the UN.

Fearing imported inflation that would undermine its export model, Germany helped to block the campaigns of global reformists (which, one might add, had little chance of success in the first place) and, along with the United States, to push the IMF into a renewed role of financial disciplinarian, beginning with the loan to the British in 1976 that helped discredit the Labour Party for two decades.

In the run-up to the other iconic moment of the decade—the decision by Fed chief Paul Volcker to float interest rates and produce the so-called Volcker Shock—Germann also credits social democratic chancellor Helmut Schmidt’s intransigence (typically dismissed by scholars) with narrowing the space of U.S. decision-making. Thus, it was Schmidt who helped force Volcker’s hand toward the move that would drive rates up to close to 20 percent and trigger the Third World Debt Crisis, another mile marker on the path to the neoliberal order.

For Germann, the 1970s were a dry run for what he calls “the Janus-faced character of German crisis management,” as the export champion pushed measures that controlled inflation and ensured price stability in Europe and beyond while preserving a generous social state at home and “wage restraint in exchange for job security.”

By his account, German policymakers acted not out of a universalistic vision of “rolling back the frontiers of the state” to unleash “the magic of the market,” as the rhetoric of Thatcher and Reagan would have it, but a much more pragmatic rearguard defensive move against what they saw as something that would endanger their global competitiveness.

After the Cold War, the Federal Republic sought to continue their balancing act as European integration expanded to include a common currency and eventually the absorption of the former communist states to the East.  The Eastern European hinterland of low production costs for high-value German exports became a key part of the national model in the 2000s, even as the balancing act began to tip toward squeezing social prerogatives at home.

In the wake of the Hartz IV welfare reforms led by Third Way social democrat Gerhard Schroder, as sociologist Oliver Nachtwey has shown, the working poor have nearly doubled and the country has becomes characterized ever more by a dualized labor market: an inner circle of the unionized few and a widening penumbra of a flexibilized precariat.

Against its reputation as a softer, gentler “variety of capitalism,” Germanys’ union density was in the bottom half of global rankings by the 2010s, around 17 percent to the U.S. 10 percent, and five percentage points behind the U.K.

Deflation and falling demand within the EU due, in part, to Germany’s dogged opposition to expansionary policy has posed ever less of a problem as Germany pivots further east. The Federal Republic was an early arrival to liberalizing China, becoming its second-biggest trading partner after Japan already by 1970. When Germann finished his book, China was Germany’s third-biggest export market after the U.S. and France. By the time it arrived on bookshop shelves, it had risen to number two.

A new Comprehensive Agreement on Investment between the EU and China signed, significantly, independently of the United States just before President Joe Biden’s inauguration, indicates that trade will continue to flow in this direction. Beijing’s fashionable 798 District, built in the abandoned factories constructed by East German engineers in 1957, now hosts Audi’s Research and Development Building part of the Volkswagen Group, the largest brand in China by sales.

Germann’s “Janus-faced” formula offers an attractive solution to the riddle of German political economy, where critics blame everything on ordoliberalism while ordoliberals themselves insist on their own marginality. It also helps explain why resistance to deviation from the Black Zero status quo can seem so bipartisan—or polypartisan, as the case may be. Recall that the 1970s actions were presided over by Social Democrats rather than Christian Democrats.

It’s best to avoid dwelling too much on book titles but one could quibble that “unwitting architect” runs the risk of casting German politicians as creatures of a hardwired destiny. While Germann inveighs against “ideational” explanations, the German low-inflation export model is an idea too, albeit one calcified into a way of life apparently without alternative.

But change might be afoot, with rhetoric reshaped by the exigencies of pandemic response and the attempt to woo voters ahead of September’s parliamentary election. SPD finance minister Olaf Scholz recently blocked the reappointment of one of the few card-carrying members of the ordoliberal Freiburg School, Lars Feld, from a third term as chair of the German equivalent of the Council of Economic Advisers. One of those who remains has called for a reform of the “debt brake,” which has embedded the Black Zero in the German constitution since 2009. The Green Party, currently polling in second place, have an electoral platform demanding the replacement of the debt brake with a “carbon brake.”

Under the pressure of discontented voters, looming ecological threats, and demands for the reterritorialization of supply chains, we may find that Germans have something more than the single idée fixe described in this book at their disposal. Whether they will then be able to reinvent the economic model that has anchored its domestic class compromise and served its wealthy so well for most of the last century remains to be seen.

This is not a CAPTIS article. Originally, it was published here.