I n examining whether Germany’s less than stellar economic performance since the mid-1980s will continue, three questions must be posed:
- Will Germany be a force for intergovernmentalism and statism—or for federalism and liberalism—in the European Union?
- What will the economic agendas of the major German political parties look like?
- Will anything erect a hard budget constraint on—or prompt an exit of savings from—the German welfare state?
Without economic reform that goes beyond any now being sought, Germany is likely to pursue statist protections in the EU, suffer from an increasing vacuum of ideas in domestic policy debate, and thus sink into further stagnation. As a result, Germany in 2015 is likely to be a meaner, shrunken version of its current self. Outright economic crisis, however, is extremely unlikely—and this leaves the impetus of reform up to political leadership.
Until recently, Germany has been the swing vote on most economic issues in the EU between the more statist approaches (France, Italy) and the more liberal approaches (the United Kingdom, the Netherlands). This has reflected both Germany's middle position ideologically on economics and its status as the major net contributor to the EU budget.Americans often fail to appreciate how much of a force for internal liberalization the European Commission and Brussels based decisions have been, and how dependent those measures have been on German backing. Lately, however, Germany has leaned the other way, for example on takeover rules and in perpetuating the huge subsidies of the EU's Common Agricultural Policy (CAP).
This approach reinforces, and is reinforced by, Germany's relationship with France. Germany's role in these Brussels debates holds a mirror to Berlin's willingness to sacrifice its national prerogatives for the sake of European integration: the more federalist Germany is, the more it tends to support liberal or standardizing economic policies; the more "intergovernmentalist" Germany becomes, the more it tends to support logrolling deals between national governments that preserve economic protections.
