International Complementarities of National Capitalism

The adjustment pattern of the German model to low growth and to the transition to the service economy proved unsustainable in the medium to long term, and ultimately led to a profound welfare state reform that in many respects broke with the quasi-corporatism of Modell Deutschland. This has been associated with the spectacular revival of the German economy, before and after the Great Recession, also because its competitive characteristics were significantly strengthened within the euro area. Yet, the success of Modell Deutschland of course also contributes to the increasing imbalances and to the divergent economic dynamics within the common currency area, which ultimately have the potential to disrupt it. The chapter explains in more detail how wage moderation remained stable in Germany even though the strategic interaction with the German Bundesbank, on which the wage-moderation arrangement for a long time had been based, was a thing of the past after the introduction of the euro. It points to functional equivalents for the disciplining effect of Germany’s accommodating social policy.