Is Germany Turning Japanese?

Working Paper
03-2
March 2003

After the recent IT bubble, Germany alone among OECD countries is beginning to share Japan's political-economic profile: too many banks with too little capital, macroeconomic policy division and deflationary bias, and financially and politically passive households. Germany has been spared Japan's fate of persistent stagnation so far because of its long-standing openness and commitment to international economic integration. But this commitment is newly in jeopardy, as Germany backs an approach to the European Union's enlargement that would elevate the power and interests of larger incumbent nations--a shift from Germany's traditional support for EU federalism. Posen argues that the change in the German approach to EU enlargement could well tip the country into a full-fledged Japan syndrome and that US foreign policy must take steps to forestall this development.