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Crisis and recovery in the German economy: The real lessons

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  • Storm, Servaas
  • Naastepad, C.W.M.

Abstract

Owing to its strong dependence on exports, Germany was among the economies hit hardest by the financial crisis. But unlike almost all other countries, Germany emerged from the crisis quickly and stronger than before. What lies behind this success story, if at all it is one? The commonplace – neoliberal – answer is that Germany's success is the hard-won reward for strict economic management, combining fiscal conservatism and structural reforms of welfare and the labour market. The latter, by reducing labour costs, fostered competitiveness, boosted growth, and increased employment. “Progressive” economists arguing that Germany beggared its Eurozone neighbours by squeezing workers’ wages, share a similar view. However, this particular explanation of Germany's resilience is wrong and unhelpful. Germany's export success cannot be explained in terms of its (labour) cost competitiveness, but is caused by strong non-price competitiveness. This, in turn, is due – much more than is normally recognized – by the remaining distinctly non-neoliberal dimensions of Germany's economic model (including a Keynesian crisis response). German and European policymakers preaching austerity and structural labour-market changes as the model for other Eurozone countries, misunderstand Germany's rebound from crisis, with serious costs to Eurozone populations.

Suggested Citation

  • Storm, Servaas & Naastepad, C.W.M., 2015. "Crisis and recovery in the German economy: The real lessons," Structural Change and Economic Dynamics, Elsevier, vol. 32(C), pages 11-24.
  • Handle: RePEc:eee:streco:v:32:y:2015:i:c:p:11-24
    DOI: 10.1016/j.strueco.2015.01.001
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    More about this item

    Keywords

    Eurozone crisis; Germany's recovery; Cost competitiveness; Dualization of the economy;
    All these keywords.

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F15 - International Economics - - Trade - - - Economic Integration

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