The<scp>G</scp>erman Model and the<scp>E</scp>uropean Crisis

Abstract

Abstract The large current account imbalances in the eurozone reflect persistent diverging trends between core and periphery countries, also fed by low interest rates and abundant capital flows brought about by the introduction of the euro. With the global financial crisis, the market sentiment has changed, and capital has left the periphery countries suffering from debt and growth problems due to their failure to bring price–wage dynamics into uniformity with those of the more disciplined countries. G ermany is called upon to provide financial assistance and additional external demand; however, though the euro is at stake, G ermans are recalcitrant. This article investigates the rationale of the G erman stance in light of the (corporatist‐etatist, neo‐mercantilist) G erman socio‐economic model and the widespread concern about losing the competitiveness that G ermany regained through painful reforms and changes in the last two decades.