Wolfgang Streeck in Eurozine:
The slogan with which the German government eventually sold the euro to the German electorate became: “The euro – as stable as the mark”. Germany's partners signed the treaty in the end, presumably hoping to amend it later under the pressure of economic realities, if not on paper then in practice. It helped that the 1990s were a period when, issuing from the United States, fiscal consolidation was a common political objective for the countries of OECD capitalism, in the context of financialization and the transition to a neoliberal, non-Keynesian money regime. It was in the spirit of the era to commit to a ceiling on public debt of sixty per cent of GDP and to budget deficits that would never exceed three per cent; financial markets would have looked with suspicion upon any country refusing to fall into line.
Today it is Germany, together with countries like the Netherlands, Austria or Finland, which is reaping the benefits of the EMU. But it is important not to forget that this has only been so since the financial collapse of 2008. During the first years of EMU, Germany was “the sick man of Europe”, and monetary union had a lot to do with it (Scharpf 2011). The common interest rate set by the European Central Bank, which had to take into account the economies of all member countries, was too high for a low-inflation political economy like Germany. A possible solution might have been wage increases forced by aggressive trade unions. In a heavily industrialized, export-dependent country like Germany, however, this would have meant not just fewer exports but also, in a time of increasing capital mobility, a drain of jobs to foreign countries. This explains the, to many outside observers, mysterious wage moderation of German unions since the early 2000s. By comparison, the more inflationary economies of the Mediterranean enjoyed negative real interest rates, coupled with a dramatic fall in the cost of public borrowing – the latter on the assumption by capital markets, encouraged by the European Commission, that with a common currency there would also be some sort of common responsibility for the solvency of member states. The result was a boom in the South and stagnation, along with high unemployment and growing public debt, in Germany.
That situation was reversed in 2008, and contrary to popular neoliberal mythology this had little to do with the “Hartz reforms”. They made a dent in public spending, especially as regards unemployment insurance, and opened the door to an expansion of low-wage employment outside of the core sectors of German economic strength. What really mattered was that the German economy, traditionally driven by foreign demand and due to its perennial “over-industrialization”, was in a position after 2008 to serve global markets in the high-quality manufacturing sector. As a result, it suffered much less from the fiscal crisis and the breakdown of credit than more domestic demand-led EMU countries.