Why Germany Won't Play Ball

Thursday, 26th March 2009

It's not just Gordon Brown who wants the rest of europe to splash some cash to get us out of the mess we're in. There are plenty of commentators on the American left - Paul Krugman for one - who also fret that unless european countries join the massive stimulus bandwagon they threaten to delay, or even cancel, everyone's recovery. Enemy number one, obviously, is the Germans.

But as Tyler Cowen points out, the Germans might have some good reasons for their reluctance to go on a spending spree. They remember the costs of German unification and can recall how spending massive quantities of money wasn't a magic cure-all then either:

The two countries united, lots of money was spent and lots of money was borrowed...The results were less than wonderful. The higher demand boosted measured gdp growth in the short run (bananas and porn, plus reconstruction) but Germany fell into economic stagnation. The new demands took the West German economy only so far. The higher taxes and debt then kept the German economy down for many years. Few Germans were happy with the economic fallout from this "stimulus." And that was with a relatively well-functioning financial system and a reasonable amount of initial optimism.

You can list many dissimilarities between German unification and the current U.S. situation (and in the comments I am sure you will). Still, as historical examples go, I believe this one has some relevance. When European leaders are skeptical about fiscal stimulus, they have some reasons, some of them quite recent.

Add to that the instinctive, institutionalised German aversion to inflation and their awareness that they've been paying for europe for more than forty years now and you have a series of good reasons why Germany might not be keen on spending yet more money and creating yet more debt with absolutely no guarantee - or even probability - that this will work. Factor in the truth that Gordon Brown's hectoring, bullying, smug tone could hardly be less effective in diplomatic circles now that it's all gone Horribly Wrong in Britain and you can see why the Germans might be reluctant to help out. They've paid a lot for their sins, but it's hard to see why a kid born in Leipzig or Bremen tomorrow should really be saddled with debt to help Gordon Brown out of the hole he dug for himself.

Filed under: Economy (1006 more articles) , Europe (744 more articles) , Germany (144 more articles)

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Mark Adrian Solomon

March 26th, 2009 7:58pm Report this comment

The Germans' sensible approach - reluctance to throw more debt at a crisis caused principally by uncontrolled debt - is based on their historical experience and fear of inflation, Weimar being more important than reunification overall. Whatever the cause, their getting their way is one of the few hopes those of us who want a sane approach to the current crisis have, everyone else having seemingly taken leave of their senses. But then neither the US nor the British left have any track record of sanity on economic issues and they are in power in both countries now so it falls to the Germans to inject some sanity into proceedings and to save us from ourselves. Strange sensation, cheering on the Germans, but then the world has gone mad!

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