The Visible Hand of Economic Prosperity

FRANKFURT – Germany has weathered the financial crisis much better than most of its neighbors. Regarded as the sick man of Europe as recently as 1999, today the country boasts the continent's strongest economy, accounting for roughly a quarter of its exports. Its unemployment rate, at just below 5%, is half the European average. The federal budget is balanced for the first time in a decade.

But it would be a mistake to assume that Germany's economic performance vindicates its policymaking. In fact, Germany's current economic dominance has been built on a policy framework that stands in direct opposition to that championed by former Chancellor Ludwig Erhard, the father of its post-World War II “economic miracle."

In lieu of Erhard's so-called ordoliberalism – in which the state lays the groundwork for a functioning market economy by actively managing the legal environment – the economic strategy pursued by Chancellor Angela Merkel's government has been haphazard, driven more by political expediency than by any underlying philosophy. Germany would be wise not to take its economic success for granted. In a time of increasing economic and political uncertainty, Erhard's guiding principles are more important than ever.

Indeed, Germany's policymakers seem to be stumbling from decision to decision. Instead of steering the economy, they are being driven by it, reacting with no clear sense of direction to the demands of the moment. The country's celebrated de-carbonization is putting its industry at risk. Collective bargaining, once left to economic actors, is becoming increasingly politicized. Changes in pension policy are boosting public spending and contributing to rising levels of debt.