We’d rather pay than change the politics of German non-adjustment in the Eurozone crisis

Abstract

Germany’s large current account surplus has been widely criticized, especially against the backdrop of the role of macroeconomic imbalances in the Eurozone crisis. 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. To explore this argument, we leverage original survey data from 135 German economic interest groups, qualitative interviews with interest group representatives and policymakers, 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 a politically 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. Because similar dynamics can be observed in other surplus countries, we argue that distributive struggles within surplus countries played an important role in interstate conflicts about the management of the crisis.

The silent losers of Germany’s export surpluses. How current account imbalances are exacerbated by the misrepresentation of their domestic costs

“…Starting with fiscal rebalancing ( G ), sectoral interest-based explanations suggest that exporters are wary of expansionary fiscal policies ( G ) because they are inflationary. However, surveying stakeholders’ policy preferences in Germany, Redeker and Walter ( 2020 ) find that export-sector employers are actually quite open to fiscal rebalancing when contrasted to other alternatives. But even if real appreciation does produce costs, more spending on public goods like infrastructure also has benefits for business prospects.…”

Financial adjustment as a driver of growth model change: a balance-sheet approach to comparative political economy

“…Enduring change to growth models in the long run can result from internal contradictions and ‘endogenous’ overheating that cannot easily be resolved (Blyth and Matthijs 2017 ; Hopkin and Blyth 2018 ) or from policy feedback processes that weaken the political balance underpinning a particular institutional arrangement (Acemoglu and Robinson 2013 ; Pierson 1993 ; 2000 ; Regan and Brazys 2018 ). During more acute crises, distributional conflicts between dominant interest groups determine the choice and political support for external adjustment paths (Redeker and Walter 2020 ; Walter 2015 ; Woodruff 2005 ); decisions that can prove consequential because not all crisis responses enable new growth models to emerge (Bohle 2018a ; Brazys and Regan 2017 ).…”

Exports vs. investment: How political discourse shapes popular support for external imbalances

“…For most Germans, prioritizing international competitiveness over consumption or investment does not yield immediate material benefits. Nonetheless, German voters and interest groups consistently support policies that generate external surpluses, such as fiscal restraint and low-deficit policies (Redeker and Walter, 2020;Hübscher, Sattler and Truchlewski, 2021).…”

“…Nonetheless, German voters and interest groups consistently support policies that generate external surpluses, such as low-deficit policies (Redeker and Walter, 2020;Hübscher, Sattler and Truchlewski, 2021). It remains unclear why a large majority of the population tolerates a large external surplus that deprives them of higher wages and consumption opportunities.…”