Germany and the Crisis in the Eurozone: Towards a Permanent Cleavage between a German-led Core and a South-Eastern Periphery?

Abstract

Persisting cultural divisions over how economic policy work and related design flaws as well as enforcement problems have contributed largely to the still ongoing crisis and a fragile status of EMU - European Union and the Monetary Union. This is despite of several reform steps that have been adopted and that have resulted in some progress at least. Nonetheless, a future stable equilibrium has to be found beyond of just muddling-through in order to avoid lagging against the rest of the world. The European Union will only be able to play a significant role in the global economy in the future if member states engage in institutionalised cooperation. Lasting success and sustainable growth can only be achieved if the EU makes further progress towards implementing considerably stronger permanent (economic) governance structures. How successful and fast EMU will achieve this will also determine whether the EU will fall back into a periphery-status or remain a leading player in the world economy in the future. The related debate on whether the euro crisis has resulted in the emergence of a 'German Europe' or a 'European Germany' is however misleading to some extent for several reasons. This is partly because the national debates in the member states fail to acknowledge the full complexity of the domestic economic and political situation in other member states for the sake of gaining the upper hand in their own domestic discussions on the right way forward on structural reforms. It is misleading also to portray Germany as a more or less 'unimpeded' hegemon. This notion can be easily criticized when taking empirical evidence into account. To a large extent the alleged dominance of 'ordoliberalism' in Germany is, on the one hand, not as unchallenged among economists in Germany as foreign commentators often tend to pretend. At the same time also in countries like France one can find quite a few commentators who are more in line with the arguments put forward in the domestic debate on German economic policy than is often assumed. Since new dimensions of conflict are currently emerging (e.g. the refugee crisis), the division among Northern versus Southern countries will be potentially turn out to be enduring and possibly also accompanied by a new division among Western and Eastern member states. This new challenge could be a driving force behind the United Kingdom's exit from the EU. Ultimately, however, it may demonstrate to member states the non-sustainability of the current EMU arrangements and could in the future contribute, seemingly paradoxically, towards reaching more lasting and acceptable stabilizing compromises than had been possible until now. The papers in the panel will investigate these questions with a special emphasis on comparative domestic national debates on Germany's role and the future of economic and political reform in the eurozone.

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