One state, one interest? How a historic shock to the balance of power of the Bundesbank and the German government laid the path for fiscal austerity

Critical junctures and state actors: towards a micro-strategies approach of the global political economy

“…I propose to explore in greater detail how the characteristics of historically specific global institutional and economic conditions provided an opportunity structure for certain state actors to pursue intrinsic goals. In the 1970s, the decline of the Bretton Woods system, currency crises and the general loss of control over credit expansion provided a useful opportunity structure for central banks to expand their institutional power within the larger macroeconomic framework (Rademacher, 2021). This critical juncture shifted the macroeconomic policy focus from Keynesian macroeconomic steering (relevant since the post-war era) towards neoliberal approaches with an emphasis on fiscal and monetary austerity in most advanced and many developing economies.…”

“…By radically hiking up interest rates, the German central bank also enforced radical reforms in the fiscal realm, including the implementation of credit ceilings and spending limits for the government. The Brandt and the Schmidt administrations were opposed to implementing a money supply target -concerned about its restrictive impact on the fiscal sphere -and repeatedly asked for lower interest rates to avoid jeopardising economic stimulus packages and European integration processes (Rademacher, 2021).…”