D-Austerity: Is It Really Schäuble’s Fault?

Over the past few years, Germany has frequently been described as the ‘Great Villain’ of Europe. Its critics point to neo-mercantilist strategies expressed by Germany’s export surplus based on high productivity, restrictive wage policies and an undervalued currency. Since Germany at the same time imposes a rigid austerity regime at home and abroad, the country is blamed for slow growth which suffocates pro-European political forces and enables anti-European (and anti-German) populism across the Union. On the other side, defenders of German policies point to the efforts made to contain the Euro crisis and the support for highly indebted countries in the South and propose to think of Germany as a model that, if followed by other countries, would also lead them onto the road to success.

The overall argument is difficult to assess unless an effort is made to examine more closely Germany’s austerity regime. This paper will take some steps in this direction and look a) at the income-side of public finance, namely the changing German distribution of tax and other income, and b) at spending in areas relevant to economic and social policy such as public investment, pensions, health, unemployment, and public sector wages. The paper will consider statistical evidence and scrutinize the various interpretations of policy-making in an effort to assess the German austerity regime and its conflicting interpretations.