Die Deutschland Illusion, the latest book by Marcel Fratzscher—director of the Berlin-based Deutsches Institut für Wirtschaftsforschung (DIW) and economic advisor of the German Ministry of Economy—tackles some of the most important questions in the German public debate around the euro crisis and its consequences: is Germany in the right when it stresses the importance of budget savings and, generally, sound public finances throughout the European Union? Given its economic strength, would Germany not be better off outside of the single currency? Did the decisions made by the European Central Bank (ECB) during the crisis go against Germany’s economic and political interests? Finally, were the latter sacrificed (in order to save southern European countries) in the setting up of the European Financial Stability Facility (EFSF), the European Stability Mechanism (ESM), and the banking union? Answering all these questions, however, is not the author’s only aim. Another, perhaps more ambitious goal is to establish a new “European vision,” which should work as a blueprint for German and European political elites in the years to come.
Germany’s three illusions
Notwithstanding the complexity of some of the issues covered in the book, Fratzscher’s language and presentation are such as to make the volume accessible not just to academics and practitioners, but also to a lay audience.
A strong export sector notwithstanding, the country’s economy still displays a number of structural imbalances that are producing inequalities of earnings and future life chances among its population.
The book is divided into four main sections. In the first three, the author embarks on a critical evaluation of what he dubs “German illusions,” that is three publicly held beliefs responsible for the drifting apart of Germany and the rest of Europe. The first such illusion is the one seeing Germany as a “best case” economy. Germany’s political leaders and public opinion, Fratzscher argues, wrongly believe to be living in some sort of “second economic miracle.” Using hard economic data, the author counters this conviction by showing how, a strong export sector notwithstanding, the country’s economy still displays a number of structural imbalances that are producing inequalities of earnings and future life chances among its population. Contrary to most German right-wing politicians, who blame southern European governments for relying too much on aid funded by German taxpayers, Fratzscher contends that Germany’s government played a major role in defining the EU’s crisis management strategies.
Fratzscher contends that Germany’s government played a major role in defining the EU’s crisis management strategies.
In the second part of the book Fratzscher confronts the popular political view according to which the euro is the main culprit in Europe’s economic crisis, and both Germany and southern European countries would therefore benefit from exiting the monetary union. To counter such arguments the author draws on a mix of historical and economic reasoning, on the basis of which he explains how, contrary to what Eurosceptics say, leaving the euro would very likely cause huge sufferings, for Germany as well as its southern neighbours. The third illusion Fratzscher debunks is the broadly held opinion that Germany was a victim of the management strategies adopted at the EU level to deal with the euro crisis. According to the author, at the basis of this conflict lies the troubled relationship between the German Bundesbank and the ECB, which in turn originates from these two institutions’ different philosophical approaches to policy-making. To make his point, the author briefly (too briefly, unfortunately) touches on Immanuel Kant’s deontology and Jeremy Bentham’s utilitarianism, bringing some welcome philosophical elements into the overall economic approach of the book.
It is in this part of the book that Fratzscher also turns his criticism more towards the German government, and particularly towards what he defines the scapegoat tactic adopted by the latter. Contrary to most German right-wing politicians, who blame southern European governments for relying too much on aid funded by German taxpayers, Fratzscher contends that Germany’s government played a major role in defining the EU’s crisis management strategies. He adds that the country profited hugely from some specific decisions made by the ECB, as well as from the establishment of EU-wide financial safety mechanisms, most notably the EFSF and the ESM. Last but not least, he blames the German government for limiting the powers and effectiveness of the banking union in its search for a minimalistic agreement.
A European vision – with some limits
After debunking Germany’s three illusions, in the fourth part of the book Fratzscher presents the part construens of his arguments, by sketching an action plan for the German government to get back on a truly Europeanist track. The plan consists of ten fundamental points, among which a turn towards an investment-focused economic policy (at the national as well as EU level), a deepening of the banking union, the elaboration of a new and political “Euro-contract,” and the possibility of restructuring the Greek debt. Taken together, this action plan should be seen as responding to Germany’s political need, as the EU’s leading nation, to make a critical choice within a “possibility constellation” consisting of the three options of integration, disintegration and status quo.
The above prescriptions are only part of the normative component in Fratzscher’s book. In it, the author also depicts a “EU vision” based on four core principles, i.e. solidarity, responsibility, common goods and the rule of law. Ultimately, the action plan for Germany is meant as an instrument to turn such a vision into a reality. Fratzscher’s book is a recommended reading for anyone with an interest in European politics—one that will provide readers with an excellent picture of the dynamics of the German political debate, and a unique contribution to it. Indeed, it should be underlined that the book has had a remarkable effect on the public debate in Germany, popularizing a critical stance towards the government’s EU policies which could once be seen as heterodox, but which is now gaining more and more support among German economists and civil society representatives.
One critical remark is that, as the reading is done, one gets the feeling that the author was somewhat constrained by the space of the volume (which still runs to almost 300 pages). What is lacking is, in this reviewer’s opinion, a section or chapter devoted to the question of how to realize the proposed EU vision within Germany’s and Europe’s actual political context. The discussion of the second illusion too seems a bit too short compared to the remaining two. Finally, more space could and should have been devoted to all those sections of the book in which Fratzscher combines economic thinking, history, logics, politics and philosophy. It is in those parts—like, just to mention one example, the author’s discussion of the Kantian and utilitarian approaches to economic policy-making—that this volume appears most clearly as not just the opinion of a high level academic expert (as valuable as that already is) but a truly thought-provoking piece of public intellectual work. It is a pity that those sections are not always developed in all the depth they deserve.
Photo Credits CC: new 1lluminati