European Imbalances and the German Growth Model

Since the days of the West German Wirtschaftswunder, the economic miracle of the 1950s and 1960s, the German economy is characterized by a strong export orientation of its industrial base. Net exports are of crucial importance for the dynamics of GDP growth in Germany, and there are close connections between the export orientation, monetary policy, the exchange-rate regime and governance structures in this “German growth model”. The model has undergone several metamorphoses, in interaction with the changes in exchange-rate regimes over time. Its inherent tendency of generating persistent and cumulative net lending positions may have helped other countries, notably in the European neighbourhood, to improve their economic performance. Yet it has also given, again and again, rise to worries about European and global imbalances, and subsequent financial and real crises. It may thus be discussed to which extent the German growth model has contributed significantly, not only to the rise, but also to the demise of the Bretton Woods system, the European Monetary System and the European Monetary Union. At present, the outcome at the last stage is still open. Yet, the positions that German policymakers and economists tend to take in dealing with the European debt crisis are not only deeply controversial in the rest of the world; they are also deeply rooted in the thinking modes of German growth engineers. The lecture will provide an overview over the characteristics of the German 

growth model, and highlight important changes over time as well as continuity in its basic structures and accompanying mindsets. At the analytical level, different approaches to modelling European imbalances will be examined in terms of contrasts between dynamic instability, sustainable equilibrium and convergent growth paths.