Is the German Rule-based Ordoliberalism the Solution
to the Eurocrisis?
The European Union is facing multiple crises. What started initially as a banking crisis turned into a sovereign debt crisis triggering staggering declines in economic growth rates in many of the highly indebted countries of Greece, Portugal, Spain, Ireland, and now also Italy. The results are increasing social unrest not just in peripheral countries but across the Eurozone. The Occupy movement rallying cry 1% against 99% reflects the disenchantment of many citizens against the neoliberal model of privatizing the financial profits while socializing the costs.
Much has been written about the political blunders of the Eurozone leaders acting in a fragmentary, uncoordinated, reactive and even populist manner addressing mostly their domestic interests and voters. There is increasing evidence of a re-nationalization in finance and banking across the Eurozone countries. In the meantime, legitimacy is declining and Euro-skepticism is increasing. This is not surprising given that until now (August 2012) thirty-five Euro zone crisis meetings have been organized in Brussels while at the same time the crisis seems to deepen. The economic turmoil has already led to the fall of governments in Ireland, Greece, Italy, Spain, Portugal, Holland, and also France.
Germany is singled out as the main culprit for its singular focus on austerity measures to handle the debt crisis in the Eurozone. Many critics wonder whether Germany is turning the Eurozone into a German ordoliberal rule-based system. I suggest that ordoliberalism is more precise to understand the German foci on austerity than neoliberalism which dominates the literature. Ordoliberalism starts from the assumption that a strict-rule based disciplinary system is required for markets to work efficiently. This ideological belief in stringent fiscal control is shared across the German political spectrum among elites, the economic profession, and the public alike, but not outside of Germany. The question we need to ask is whether this rule-based system provides the solution for the Euro crisis, and what are the democratic and social costs of such a rule-based system?
I propose three steps in the paper. First I want to present the ideological clash between Keynesian economists (mostly outside of Germany) arguing that austerity measures are self-defeating leading in the process to higher debts (and even less competitiveness) and the German ordoliberals who in contrast argue that only fiscal prudency can regain the trust of the markets. In the second step, I will discuss the recently suggested proposals at the summit of June 29, 2012 (such as a Banking Union, a €120 bn package of growth measures, and a Eurozone financial transaction tax). In the final section, I will address whether all the band-aid solutions suggested at the EU level are sufficient to resolve the crisis, and in particular whether the recent growth argument advanced by French president, François Holland, and the technocratic transition prime minister of Italy, Mario Monti, is realistic to think that we can “grow” out of the crisis focusing mainly on increasing competitiveness.
