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Germany in crisis: the unification challenge, macroeconomic policy shocks and traditions, and EMU

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  • Jorg Bibow

Abstract

Conventional wisdom blames Germany's ongoing economic and fiscal crisis on the unification shock of the early 1990s and structural problems in labour markets. Challenging this view, this paper offers a fresh assessment that focuses on macroeconomic demand management. It is shown that Germany's fiscal crisis cannot be attributed to unification per se; it arose as a consequence of ill-guided macroeconomic policies pursued in response to that event. Many structural problems that popped up along the way were mere symptoms of persistent macroeconomic mismanagement and protracted domestic demand stagnation. Arguably, systematically ill-guided macroeconomic policies of this type are potent enough to wreck any real world economy, no matter how flexible it may be. Because Germany provided the blueprint for Europe's stability-oriented macroeconomic policy regime, it comes as no surprise that a peculiar repeat of certain symptoms that started to arise in Germany a decade ago may now be observed across the euro area—protracted domestic demand weakness and inflation stickiness because of 'tax-push inflation' in particular.

Suggested Citation

  • Jorg Bibow, 2005. "Germany in crisis: the unification challenge, macroeconomic policy shocks and traditions, and EMU," International Review of Applied Economics, Taylor & Francis Journals, vol. 19(1), pages 29-50.
    • Handle: RePEc:taf:irapec:v:19:y:2005:i:1:p:29-50
    DOI: 10.1080/0269217042000312597
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    References listed on IDEAS

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    1. Paul Davidson & Jan A. Kregel (ed.), 1991. "Economic PROBLEMS OF THE 1990s," Books, Edward Elgar Publishing, number 123.
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    Cited by:

    1. Eckhard Hein & Daniel Detzer, 2015. "Finance-Dominated Capitalism and Income Distribution: A Kaleckian Perspective on the Case of Germany," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 1(2), pages 171-191, July.
    2. Jörg Bibow, 2018. "How Germany’s anti-Keynesianism has brought Europe to its knees," International Review of Applied Economics, Taylor & Francis Journals, vol. 32(5), pages 569-588, September.
    3. Jorg Bibow, 2005. "Bad for Euroland, Worse for Germany: The ECB's Record," Economics Working Paper Archive wp_429, Levy Economics Institute.
    4. Detzer, Daniel & Hein, Eckhard, 2014. "Finance-dominated capitalism in Germany: Deep recession and quick recovery," IPE Working Papers 39/2014, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    5. Lila J. Truett & Dale B. Truett, 2011. "Whither Germany and the EMU In a Challenging Environment?," Working Papers 0019, College of Business, University of Texas at San Antonio.
    6. Joerg Bibow, 2005. "Liquidity Preference Theory Revisited—To Ditch or to Build on It?," Method and Hist of Econ Thought 0508003, University Library of Munich, Germany.
    7. Detzer, Daniel & Hein, Eckhard, 2014. "Financialisation and the financial and economic crises: The case of Germany," IPE Working Papers 44/2014, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    8. Jörg Bibow, 2013. "Lost at Sea: The Euro Needs a Euro Treasury," IMK Studies 35-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    9. Ruiz Estrada, Mario Arturo & Park, Donghyun, 2008. "Korean unification: How painful and how costly," Journal of Policy Modeling, Elsevier, vol. 30(1), pages 87-100.
    10. Jorg Bibow, 2015. "The Euro's Savior? Assessing the ECB's Crisis Management Performance and Potential for Crisis Resolution," Economics Working Paper Archive wp_845, Levy Economics Institute.
    11. repec:spo:wpmain:info:hdl:2441/5468 is not listed on IDEAS
    12. Eckhard Hein & Petra Dünhaupt & Ayoze Alfageme & Marta Kulesza, 2017. "Financialisation and distribution in three main Eurozone countries from a Kaleckian perspective: France, Germany and Spain compared – before and after the crisis," Working Papers 8/17, Sapienza University of Rome, DISS.
    13. Hein, Eckhard & Dünhaupt, Petra & Alfageme, Ayoze & Kulesza, Marta, 2017. "Financialisation and distribution in the US, the UK, Spain, Germany, Sweden and France: Before and after the crisis," IPE Working Papers 85/2017, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    14. Eckhard Hein & Achim Truger, 2005. "Macroeconomic policies, wage developments, and Germany’s stagnation," Macroeconomics 0508015, University Library of Munich, Germany.
    15. repec:hal:spmain:info:hdl:2441/5468 is not listed on IDEAS
    16. Joerg Bibow, 2006. "Inflation Persistence and Tax-Push Inflation in Germany and in the Euro Area: A Symptom of Macroeconomic Mismanagement?," IMK Studies 01-2006, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    17. Richard Charmler & Alhassan Musah & Evans Akomeah & Erasmus Dodzi Gakpetor, 2018. "The Impact of Liquidity on Performance of Commercial Banks in Ghana," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 4(4), pages 78-90, December.
    18. Jorg Bibow, 2006. "How the Maastricht Regime Fosters Divergence as Well as Fragility," Economics Working Paper Archive wp_460, Levy Economics Institute.

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