Saturday, 3 March 2012

Is Ordoliberalism the key to understanding a) the German or b) the Merkel way in Euro-economics

A very interesting article by Ulrike Guérot and Sebastian Dullien, "Why Berlin is fixed on a German solution to the eurozone crisis', in The Guardian on March 2.

The authors refer to Ordoliberalism and inter alia argue that: "..Crucially, its importance in German thought also suggests that a change in government in the next general election in 2013 is unlikely to change Berlin's approach to the big issues" and "These central tenets that lay out how to run an economy are largely an article of faith across Germany. Even the Greens have strong support for ordoliberalism".

To be honest, I had never heard of the term and I was and still am one of the critics of the ECB inflation policy in much of the 2000s that led to a Euro worth 1.3, 1.4 or even 1.5 USD and suffocating, IMHO, a large part the Eurozone's firms while benefiting greatly Eurozone imports from China, USA, even UK. And I do blame a German obsession, driven by Weimar Inflation traumas as well as JC Trichet's inflation minimisation philosophy.

I am also not a fan of the independence of central banks for reaaons that, it seems run 180 contrary to the Ordoliberalist philosophy (see below).

But I have also argued that the ideology that drives economic thinking in the Eurozone if not the whole EU nowadays has its foundations on a neo-conservative philosophy/ideology that is not German but shared by many of the current conservative governments in the EU/EZ, especially but not limited by any means to the Dutch one. In other words, that the problem behind Euro-austerity mania is not Germany per se, but German, Dutch and other economic neocons. And that Max Weber's "The Protestant Ethic and the Spirit of Capitalism" book (see a Wikipedia article on the book) is quite relevant to this austerity - neocon thinking.

In their Guardian article, Ulrike Guérot and Sebastian Dullien, in effect argue that there is a German way of thinking, Ordoliberalism, that drives German Euro-policy inter alia, and that it is a German not only a Merkel or CDU/CSU-FDP only philosophy.

I need to find out a lot more about this Ordoliberalism before I can comment on that.

As the Wikipedia article on Ordoliberalism suggests:

a) "Ordoliberalism is a German variant of neoliberalism[1] that emphasises the need for the state to ensure that the free market produces results close to its theoretical potential"

b) "Ordoliberal ideals (with modifications) drove the creation of the post-World War II German social market economy and its attendant Wirtschaftswunder"

but that:

c) "Since the 1960s ordoliberal influence on economics and jurisprudence has significantly diminished"

So are there fans of Ordoliberalism in Germany in 2012?

In his article "The eurozone will pay a high price for Germany's economic narcissism" in the Guardian (Jan 6, 2012) Hans Kundnahi suggests that:

"Merkel's economic advisers are deeply influenced by ordoliberal ideas – particularly on the role of the European Central Bank. To them, the role of a central bank is above all to maintain price stability – and thus promote growth only indirectly – rather than intervening to expand the money supply as the Federal Reserve and the Bank of England have done in the past few years.


Thus the former ECB chief economist Jürgen Stark – who called Eucken's book Principles of Economic Policy "a constant source of inspiration throughout my career" – resigned last September after it purchased Italian and Spanish government bonds. Bundesbank president Axel Weber quit last February for similar reasons. His successor, Jens Weidmann – formerly an adviser to Merkel – is equally opposed to the ECB's bond purchase programme."

So it does seem that OB is a dominant philosophy in the CB and Merkel camp today.

But is it (more widely) a German philosophy (affecting the whole country/political parties/Society, eg the Greens or SPD)? That is IMO the key question.

If indeed according to Stephen Padgett: "A central tenet of ordo-liberalism is a clearly defined division" of economic policy between the agents 1) monetary policy (the central bank) 2) fiscal policy (the government) and 3) macroeconomic policy (the social partners - employers and trade unions), and while I am in favour of collective bargaining for wages (yet it should be noted that Germany has no national horizontal minimum wage (unlike the USA and many EU member states, set either by government or the national social partners (Greece, NL)), only sectoral and other levels of collective bargaining), I can see a very wide rift between my POV and that of Ordo-liberalism's. A rift may actuially be an understatement, an "ocean" is more like it.

Why? Because I am of the opinion that economic policy must be comprehensive and thus formulated by a single source, ie the government. Otherwise, the costs of non or bad co-ordination between fiscal, monetary and macro-economic policies can be very high (see what is happening in Europe today). At least the US and UK central banks seem to be more "willing" to coordinate their monetary policies with government economic policy and that is better than nothing. Yet I still do not see the need for a central bank that is more than a mere department of the Ministry of Finance/Economy.

By trying to be a "restrained liberalism" as Hayek called Ordoliberalism, Ordoliberalism may have actually managed to become a model that is worse not only compared to middle of the road economic thinking but liberalism (libertarianism) as well! Worse than libertarianism or market anarchy? Is that possible? Well, there is good evidence it is!

I do see one positive element in Ordoliberalism: "The concern is that, if the state does not take active measures to foster competition, firms with monopoly (or oligopoly) power will emerge, which will not only subvert the advantages offered by the market economy, but also possibly undermine good government, since strong economic power can be transformed into political power". Because there is much more work to be done in the EU and Eurozone to make sure that competition works well and that there are not restrictive practices in the EU Single Market.

But the big questions, crucial for the future of the Eurozone and the EU, are: Is French, Spanish, Irish, Italian, Slovak et al thinking potentially compatible with Ordoliberalism? Can common ground be found? 


Or, alternatively, are there enough Ordoliberals in the rest of the Eurozone other than in Germany?


Is Ordoliberalism indeed going to be a driving or an infleuntial ideology in eg an SPD-Greens government coalition after the 2013 elections?


Much food for thought for those who care about the future of Europe.

PS. If Diogenes of Sinope was alive today, he would go live and critique the dominant way of thinking in Berlin, it seems (rather than NYC or LA or DC or London or Paris or Brussels). And he would have quite a challenge. Can one imagine a dialogue between Diogenes and Angela Merkel (by analogy to the one between Diogenes and Alexander the Great)?

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