German economic leadership is continually excoriated by academic economists and foreign politicians alike. But while these voices accuse the Germans of inadequately responding to economic crises, many German voters believe their leaders are too quick to throw taxpayer money at profligate countries along Europe’s periphery. In short, German policy puzzlingly seems to represent the worst of both worlds: it engages too modestly to satisfy foreign partners, yet it is perceived to be overly accommodating by skeptical German taxpayers. Why would Berlin act in a manner guaranteed to alienate both international partners and domestic voters? This paradoxical behavior can be generalized to a broader question. Namely, why is it that a country as pro-European Union (EU) as Germany is so cautious and indecisive in the domain of European economic cooperation? This paper attempts to answer this question by engaging in a thorough examination of Germany’s role in the adoption of the euro and applying the lessons of that analysis to the 2010 European sovereign debt crisis. Both cases suggest that the key to resolving this puzzle is to consider institutions seriously. One cannot speak of Germany as a unitary actor but must instead conceptualize it as an amalgam of different institutional interests that, through their often-complex interactions, determine national policy. The reason that Germany’s international economic policy is frequently so confusing, in other words, is that it represents the interests of important domestic institutions, not, necessarily, those of German partners or voters.
Methods and Case Selection
This paper is comprised of several sections. The first reviews the most prominent existing explanations for German economic decision-making and highlights their deficiencies. The second details the model endorsed by this paper and highlights its implications for our understanding of German international economic policy. The next section is the core of the paper, as it offers an extensive and detailed case study of Germany’s role in the adoption of the euro. Section four links the case study to the model defended in this paper, and section five then explains how the model helps expand our understanding of the German response to the sovereign debt crisis.
The core of the paper is the qualitative analysis of German decision-making during the adoption of the euro. The use of qualitative, as opposed to quantitative, methods is preferable for several reasons. For one, it enables a more detailed examination of the preferences and actions of important institutions without the risk of rigid coding rules degrading the fidelity of the analysis. It is also advised because of the limited number of cases upon which this paper focuses: there is simply no way to draw meaningful inferences from such a small-n data set without detailed qualitative analysis.
This limitation raises broader questions about the cases on which this paper chooses to focus. Why only the adoption of the euro and the sovereign debt crisis? To begin, it is important to recognize that for the first two decades of the Federal Republic’s history, Germany’s international economic policy was somewhat constrained. This circumstance was largely structural: until 1972, the Bretton Woods system gave the United States an inordinate amount of power over the global financial system, and the EEC only really began to emerge as a significant economic institution in the late 1960s. The global balance of power also meant that Germany was quite dependent upon the United States for economic assistance throughout much of the early postwar period. Germany’s unique, semi-subordinate economic position during its early history limits the number of cases suitable for analysis to those that occurred from the mid-1970s forward.
Beyond the historical limitation imposed by Germany’s somewhat unique post-war experience, there is also a matter of available source material. Simply put, the adoption of the euro and the European sovereign debt crisis are the two most extensively documented and reviewed events of any in modern European political economy. This deep literature, composed of both primary and secondary sources, is invaluable for the kind of thorough qualitative analysis conducted in this paper. Without this rich documentation, it would be very difficult to draw meaningful conclusions about German preferences with regard to European economic policy and cooperation. It is also noteworthy that the adoption of the euro occurred over the course of two decades. The process can, therefore, provide significant information about German policymaking even without examining other events in contemporary European economic history. Finally, and relatedly, the space limitations imposed on this paper demand concision and careful case selection. The paper, therefore, prioritizes a deep examination of euro adoption – and to a lesser degree the sovereign debt crisis – over a more cursory review of several, less richly-documented cases.
The Existing Literature
The literature on German economic policy has exploded in recent years given Berlin’s role in shaping and, at least in some cases, directing the response to the 2010 European sovereign debt crisis. Given the popular and policy attention directed toward Germany and its response to the recent financial crisis, it is no surprise that the academic literature expanded to meet this demand. Fortunately for this paper, however, the literature on German political economy did not begin post-2008. German economic strength and political clout within Europe have existed since at least the 1960s, and there is, therefore, a deep and expansive literature base focusing on economic decision-making and governance within the Federal Republic.
Much of the initial work and, indeed, the contemporary commentary on Germany is based around a unitary, rational actor model not dissimilar to that used in structural international relations theories like neorealism. This school of thought is represented today by scholars such as Hans Kundnani (2011; 2015; 2016), Steven Szabo (2015), and Beverly Crawford (2007). This view treats Germany as a single unit and posits that it is constantly maneuvering to improve its position within the global system. Crawford sums this view up well in her book Power and German Foreign Policy, stating that “Domestic politics, political culture, leadership, international institutions all contribute to German foreign policy behavior, but the principal factors at work are power and the state of the economy.” Kundnani and Szabo take a similar position, but they emphasize economics more explicitly by categorizing Germany as a “geo-economic power.” The precise meaning of this term is slightly ambiguous, but the general point is that Germany uses its economic strength to promote its interests, which frequently include acquiring more economic power. To put it more concisely, Germany uses it power to enhance its economy, and it leverages its economy to enhance its power. This is a compelling explanation of German behavior, as it is both intuitive and parsimonious. Moreover, at least some empirical scholarship focusing on German behavior during the European sovereign debt crisis seems to support this theoretical model. As Andy Storey puts it, “Merkel’s governments… have been prepared to go along with whatever slippery interpretation of, or disregard for, the rules is required to maintain the profitability of German (and other) banks [and] German hegemony within the Eurozone.”
This argument is not without its complications, however. For one, the answer to the question of exactly what constitutes German economic interests is often unclear. During the Greek government-debt crisis, for example, the German government faced a pair of options as unappealing as that between Scylla and Charybdis: allow the Greek economy to collapse and potentially break up the Eurozone by leading to investor flight from Greek, Italian, and Spanish bonds or offer substantial financial assistance and risk creating extensive moral hazard. Another issue with this view is that it understates German diplomatic power and overstates the ease with which economic resources can be exploited for political effect. As Hanns Maull cogently argues, “economic power does not usually lie in the hands of governments, but in those of economic actors. Governments are certainly able to influence their behavior through legislation and regulation, but again a lot will depend on the specific circumstances.” Finally, and as will be demonstrated later, this unitary actor model oversimplifies the German decision-making process by failing to account for the different power nodes – Bundesbank, Finance Ministry, and Chancellery – within the German state.
Another common explanation of German behavior focuses on the role of ideas and their power to shape and constrain the options available to German policymakers. As one defender of this approach put it, “the hold of old ideas… can’t be dislodged because they are so fundamental to actors’ understanding of events – and themselves.” This view has been popularized by many, especially among the “chattering classes,” but its most prominent advocates include Mark Blyth (2013; 2015), Matthias Matthijs (2015; 2016), Stephen Silvia (2011), Sebastian Dullien and Ulrike Guerot (2012), and Wolfgang Streek (2016). The specific idea that allegedly holds so much sway within the German government is that of ordoliberalism, an economic philosophy that promotes free markets governed by strong legal institutions. In many ways ordoliberalism can be viewed as a particular subset of neoliberalism that emphasizes the importance of a stable framework of rules and institutions for ensuring market stability, and some have indeed described it as little more than “the particular German variant of neoliberalism.” This is overly simplistic, as the Geneva School, Virginia School, and Heidelberg School of ordoliberalism influenced each other and policymakers in many countries, including the United States and United Kingdom. Nonetheless, ordoliberalism can clearly trace its lineage to interwar German and Austrian thinkers, and it has certainly influenced important institutions like the Bundesbank.
However, this ideational explanation does a less than satisfying job of explaining German behavior. For one, it is simplistic and smacks a bit of national stereotyping to assert that Germans uniformly subscribe to ordoliberal teachings. It is all well and good to speak of German punctuality and concepts like Ordnungspolitik, but this is ultimately no different than asserting that Spaniards are indolent because of the Spanish tradition of the siesta. Culture and ideational norms exist, but they do not uniformly apply to all individuals within a society at all times. Ideational explanations also ignore the role of institutions. So, while ordoliberal philosophy has clearly influenced the Bundesbank, there is little evidence that it holds much sway in the Foreign Ministry or Chancellery. Finally, ordoliberal explanations fail on an empirical level: Helmut Kohl pushed for Italian inclusion within the euro despite its weak finances, Gerhard Schröder’s government ran deficits in excess of the Stability and Growth Pact, and Angela Merkel was loath to pursue debt relief in Greece. None of these actions conform to ordoliberal teaching, so it is, therefore, difficult to accept ordoliberalism as the most compelling explanation of German economic behavior.
The last frequently cited explanation of German economic behavior concentrates on interest groups and domestic politics. Perhaps the most famous work in this vein is Andrew Moravcsik’s (1998) book, The Choice for Europe. Its central thesis is that powerful interest groups both within and outside of the government influence the specific policy choices pursued by Germany and, indeed, other European states. According to Moravcsik, state policy can largely be traced to “the commercial interests of powerful economic producers and secondarily the macro-economic preferences of ruling governmental coalitions.” Oppermann and Brummer (2012; 2014), Jacoby (2015), and Bulmer (2014) have all made similar arguments, contending that variations in German behavior can be explained by the political coalitions in power in Berlin. While the specific arguments vary, this school of thought maintains that political constituencies and coalition politics best explain the patterns of German behavior.
This is certainly true to some degree. Elections have consequences, and different parties and interest groups clearly prioritize different issues. But a focus on domestic constituencies often raises more questions than it answers. For one, individual governments frequently shift policies even absent a significant shift in interest group power. Conversely, there is often a large degree of continuity from one ruling government to the next. In the case of the euro, for example, the government of social democratic Gerhard Schmidt and that of conservative Gerhard Kohl both pursued policies of monetary integration. This line of scholarship also struggles to make any clear predictions about how interest groups arrive at decisions and manifest their power. Certain German trade unions and industry groups did not have an official stance on a common currency, for example, as various constituent members endorsed different positions. Therefore, it is difficult to say what “industry” or “labor” thinks.
This paper does not directly refute any of the aforementioned interpretations. Instead, it seeks to provide a framework that adds nuance and clarity, helping to overcome many of the weaknesses and shortcomings identified above. Toward that end, the paper introduces an explanation based on institutionalism. As a federal republic with strong checks and balances, a powerful court, and an independent central bank, Germany is a country in which political power is diffused among a number of entities. This decentralized organization exists not just in the political sphere and, in fact, can be seen visually. Whereas French railroad networks all terminate in Paris, for example, German rail infrastructure has no single endpoint, and lines frequently overlap to form regional junctions. As Allison and Zelikow (1999) point out in their path-breaking work on the Cuban Missile Crisis, this diffusion of power has important implications for policymaking because it allows organizational culture and interests to play an outsized role in shaping decisions. Policy does not represent some objective state interest or even, necessarily, the desires of the head of government. Instead, it emerges from the complex interaction of many different institutions and organizations, each with its own preferences and priorities. Moreover, leaders’ organizational affiliations significantly influence their preferred policy outcomes for various reasons ranging from institutional prestige to entrenched culture to potentially larger budgets. Institutions and the people that constitute them are, therefore, not neutral arbiters. They are concerned with parochial interests and, thus, frequently conflate the state’s interests with their own.
My argument is that institutional considerations are undervalued in much of the existing literature and represent an important omitted variable. Although there exists some literature on this topic, such as Heisenberg (1999) and Zimmermann (2012), it tends to focus on the static role of an institution rather than the dynamic interaction of multiple institutional actors. My argument is that this approach is incomplete, as it overemphasizes one institution and ignores that much of German policy is the result of a confluence of different and contrasting institutional interests. As noted previously, this interpretation does not invalidate the perspectives offered by other scholarly traditions. It does, however, resolve many of the weaknesses found within much of the existing literature. For example, an institutional approach obviates the need to determine Germany’s objective economic interests by instead identifying what different influential institutions believe Germany’s interests to be. Institutionalism also contributes important nuances to ideational explanations, as the ideas and values that influence German politics are interpreted and embraced to varying degrees in different government institutions. Ideas, in other words, are filtered through institutions. So, while ordoliberalism might not explain German behavior writ large, it actually does a reasonably good job of explaining Bundesbank preferences. Institutionalism also resolves many of the issues found within the literature focusing on interest groups by recognizing that these groups frequently manifest their influence through institutions. At the same time, government institutions often manipulate these groups for their own ends.
As the case studies below demonstrate, institutionalism offers a powerful and compelling explanation for German economic behavior on the European stage. While institutionalism alone does not resolve all questions – perspectives from the other interpretations adumbrated above are also important – it provides an effective framework through which to interpret the various interests and motives behind German policy decisions.
From Malaise to Maastricht – A Case Study
The first major attempt to create a coordinated European currency system arose from French President George Pompidou’s call for a fixed exchange rate system within a European monetary union. The impetus for this initiative was the lack of French economic competitiveness. French agitation for closer monetary coordination ultimately led to the creation of the Werner Committee, so named for its chair, Luxembourg Prime Minister Pierre Werner. Although the report generated by the Committee recognized the many potential shortcomings of a grand project of European monetary union, it ultimately endorsed the proposal with the hope that it would serve as a stimulus for further European political integration. Between April 1972 and January 1973, the initial step toward monetary union was taken, as the EEC member states joined the “snake in the tunnel” fixed exchange rate system. The system had two aspects: The snake represented the relatively tight bands between which European currencies could move relative to each other while the tunnel was the much wider band governing exchange rates between European currencies and the dollar. Unsurprisingly, this system quickly began to fail because there was insufficient economic convergence. Capital flooded into Germany, causing the D-Mark to constantly appreciate against other European currencies and forcing the Franc, in particular, to repeatedly fall outside the benchmarks mandated by the tunnel system.
The death of the snake led many in Europe to doubt the utility or sustainability of a currency union. Indeed, two different committees – the Marjolin Committee and MacDougall Committee – independently concluded that the French dream of a European currency union was unrealistic due to an unwillingness of countries to subordinate their national interests for the sake of economic stability. The French remained stalwartly determined, though, and Pompidou’s successor Giscard d’Estaing pushed to once more establish a fixed exchange rate system, which he dubbed the European Monetary System (EMS). While this proposal was similar to the snake, it was not asymmetrical, meaning that it would not just be weak currency country forced to bear the cost of economic divergence. In other words, under Giscard d’Estaing’s plan, West Germany and other countries with strong currencies would have to expand their monetary base during times of exchange rate divergence, potentially leading to domestic inflationary pressures. The idea was that by linking the franc to the D-Mark, France would be forced to increase productivity and “live within its means.” But the more salient reason for Giscard d’Estaing’s stubborn determination to improve France’s economic position was not growth per se, but jealousy. Simply put, he was tired of being second fiddle to West Germany, at one point saying, “[it’s] important for France to be influential in Europe… of the same order as West Germany.” For reasons not entirely clear, Giscard d’Estaing was able to win the support of German Chancellor Helmut Schmidt, who quixotically believed that a fixed exchange rate regime would help catalyze a European defense union.
The risk this plan posed to West Germany’s domestic economy spurred many powerful institutions to come out in opposition. Schmidt’s own Finance Ministry began to quietly voice its opposition within government circles, and major industrial groups, such as the Federation of German Industry (BDI) and German Chamber of Commerce (DIHT), also publicly denounced the plan. The financial and industrial interest groups were not entirely opposed – certain influential members of the Federation of German Banks (BDB) like Commerzbank, Dresdner, and Deutsche Bank were broadly supportive given their ties to export industries that valued predictable exchange rates – but the discordant views of their constituent members meant that even when these lobbies offered support, it was often tepid, muddled, and uncertain. The most formidable challenge by far came from the Bundesbank. Given its role as the steward of West German monetary policy, the Bundesbank was extremely displeased with Schmidt’s encroachment into its remit and the potential for higher domestic inflation as a result of EMS-mandated monetary adjustments. Bundesbank President Otmar Emminger used the immense institutional power and standing of the central bank to halt the EMS in its tracks, pursuing a two-pronged strategy. First, the Bundesbank publicly warned Schmidt that he did not have the authority to enter into a binding agreement over the EMS and, therefore, should not commit to any formal agreement with the French. Second, it used its status to organize meetings with the Finance Ministry and major lobbies within Germany, including the BDB, BDI, and DIHT. These meetings helped the central bank to coordinate messaging with disaffected constituencies and devise methods by which to block Schmidt from acquiescing to Giscard d’Estaing’s plan. The result was a July meeting between the chancellor and representatives from different labor and industrial groups in which Schmidt was informed in no uncertain terms that he lacked both the authority and the mandate to join the EMS.
Schmidt understood the magnitude of the opposition he faced, but he also felt compelled to honor his commitment to Giscard d’Estaing, even if that entailed a slight modification to the proposed EMS. Thus, when he later met with the French president in Bremen, he announced that the bilateral exchange rate system initially proposed was simply not feasible. However, he negotiated a different system based around the creation of a currency basket. This spooked the Bundesbank, leading Emminger to attend a Cabinet meeting and announce that Schmidt would need to include the Bundesbank in EMS negotiations or face active resistance from Frankfurt. The result of the inclusion of the Bundesbank in the negotiations was predictable: the ECU currency basket was scrapped and, although an arrangement called the EMS was created, it was little more than a renamed version of the “snake in the tunnel” fixed exchange rate system. This did little to resolve underlying economic problems, and inflation-prone countries like France faced collapsing competitiveness and were constantly forced to devalue their currencies against the D-Mark. Of course, when nearly every currency was repeatedly being revalued, it made little sense to classify the EMS as a fixed exchange rate system at all; nearly every currency had crashed out of the exchange rate band by the early 1980s, forcing the tunnel to be frequently readjusted. It was at this point that serious conversations began to occur in the European Economic Community about the future of monetary integration. And as the pressure within Europe for some kind of further integration intensified, so did the salience of internal bureaucratic and institutional politics within Germany.
The first major initiative of the 1980s was the introduction of the Single European Act (SEA) of 1986. The SEA’s primary objective was to expand upon the free flow of goods authorized by the Treaty of Rome by permitting the free flow of services as well. This fairly significant move masked an otherwise stagnant integration agenda. The SEA was largely a stand-alone policy that was itself hamstrung by protectionist pressures and fears about low wage foreign workers undercutting domestic service providers. Moreover, it received only passive support from the new Chancellor of Germany, Helmut Kohl. As usual, it was the French, once more suffering from high unemployment and economic stagnation, that pushed for another attempt at serious monetary integration. French President François Mitterrand had an ideological ally in German Foreign Minister Hans-Dietrich Genscher, who was also committed to further European integration. However, both Kohl and Bundesbank President Karl Otto Pöhl were skeptical given the repeated failures of previous attempts at fixing European exchange rates.
The central issue was the continual devaluation of the French franc. Between 1979 and 1985, the franc had been devalued four times and revalued only once. By comparison, the D-Mark had been revalued five times. This was not unambiguously deleterious for the French economy: the weaker franc was certainly a boon for French exporters. However, the continually weakening currency was deemed a national embarrassment and, given that France imported far more from West Germany than it exported, French consumers faced ever higher prices in their stores. The Germans were hesitant to negotiate with the French, who were supported by the Italians, as they felt that further exchange rate manipulation would be fruitless and unable to solve the deeper issue of economic divergence. They were also wary of incurring the wrath of the Bundesbank.
Nonetheless, Kohl was willing to countenance some kind of arrangement for stabilizing European exchange rates. Kohl, therefore, instructed the Bundesbank to participate in a committee of central bank chairs that convened over the summer of 1987 to devise a method for stabilizing exchange rates. The fruits of this meeting were codified in the Basel-Nyborg Agreement after EEC finance ministers approved the proposal at a meeting in Nyborg, Denmark. The agreement sought to better coordinate central bank responses to a currency hitting the lower band by calling for the weak currency country to borrow from central banks of stronger currency countries through the Very Short Term Financing Facility of the EMS. The central bank of the weak currency country could then, in turn, use these borrowed funds to buy back its own currency, reducing the supply of the weaker currency, thereby, causing it to appreciate. The central bank of the stronger currency country would increase its monetary base by both lending to the weaker currency country and directly purchasing the weaker currency. As a result, the stronger currency would depreciate relative to the weaker currency. Perhaps the most artful element of this arrangement was the currency in which the weaker currency country’s central bank repaid the loan of stronger currency country: the ECU basket currency unit. Since this was not a currency in domestic circulation anywhere in the EEC, this plan would require that the Bundesbank contribute a relatively larger portion of its hard currency reserves to prop up the weaker currency.
This system was accepted by the Bundesbank as a non-binding agreement for reducing currency volatility. Of course, the Basel-Nyborg Agreement created some risk of short-term inflation within West Germany as a function of Frankfurt expanding the monetary base to support the franc. The Bundesbank was willing to accept this risk, however, since it could always sell more securities to reduce the supply of D-Marks over the medium-term. For once, it seemed, there was a consensus solution to Germany’s problems. However, the Bundesbank quickly balked despite its earlier support for the plan. The issue was that the Bundesbank chose to interpret its commitments to the Basel-Nyborg Agreement as secondary to its commitments to domestic price stability. So, when French Finance Minister Balladur declared that there was a “presumption of automaticity” to the Agreement, the Bundesbank responded:
Decisions on economic and monetary policy are not being shifted from the sphere of national responsibility to Community level as a result of [the Basel/Nyborg] decision. Thus they do not imply an encroachment upon the autonomy of the Bundesbank in applying its instruments of monetary policy; nor do they lead to any obligation that could give rise to a conflict with its stability-oriented monetary policy.
In other words, the Bundesbank was committed to supporting the Basel-Nyborg Agreement to the extent that it could. However, it would never subordinate its primary mandate of domestic price stability to goals of broader European cooperation.
Before concluding that the Bundesbank was indifferent, or even inimical, toward the objective of European solidarity, one must consider the generosity of West Germany’s central bank in the support it offered to EEC countries suffering from perennially weak currencies. In January of 1987, months before the Basel-Nyborg Agreement was formally in force, the Bundesbank closely coordinated with the Banque de France to address high German interest rates and French labor protests. The result was the selling of 5 billion D-Marks and purchase of 100 million francs by the Bundesbank to defend the French currency. When this move proved insufficient, Frankfurt reduced its discount rate 50 basis points, making it the lowest of any European central bank and, thus, reducing demand for the D-Mark. The Bundesbank continued to engage in strategic interventions over the coming years to support weaker currencies, though this engagement was usually conducted on an ad hoc and inconsistent basis. Regardless, there is little evidence that the Bundesbank deliberately tried to undermine other European currencies or sabotage European integration. There is also little question, however, that it was steadfast in clinging to the primacy of its policy prerogatives and domestic mandate.
This obstinate monetary conservatism irked the French, and so Mitterrand continued to badger Kohl in an effort to extract some concessions on monetary coordination. He was supported by his Finance Minister, Edouard Balladur, who became increasingly convinced that the Bundesbank only considered the D-Mark/dollar exchange rate, which he felt was “not in the spirit of the EMS.” Eventually, during a June 1988 summit in Hannover, the French president persuaded Kohl to commit to supporting another committee tasked with investigating the feasibility of monetary union. This decision had been strenuously opposed by Bundesbank President Karl Otto Pöhl and Finance Minister Gerhard Stoltenberg. Indeed, Stoltenberg wrote a public memorandum in which he called for patience, suggesting that Basel-Nyborg had to be properly evaluated and all EEC currencies had to meet the narrow currency band requirements before progress on broader integration could occur. This opposition, though spirited, was ultimately overcome by Chancellor Kohl’s skillful use of the bully pulpit and iron grip over his party. Kohl was aided by Foreign Minister Genscher, who was able to coordinate a pressure campaign from several countries designed to shape the narrative and influence policy elites in Bonn. Genscher also benefited from his position as acting President of the European Council, which permitted him to put his version of the French proposal – the Genscher Plan – on the Council’s agenda during the Hannover meeting. Both Kohl and Genscher were deeply moved by the European project, and they were perfectly willing to give up an independent monetary policy for greater European solidarity, as the arena of monetary policy was one in which they had no control.
The Bundesbank did not suffer a complete defeat, though. Its prestige both within West Germany and among its central bank peers gave it immense shaping power over the composition and mandate of the committee. This proved important in the leadup to the Hannover meeting, as it meant that Kohl was significantly constrained in his ability to strike an agreement with the French. The first point of emphasis for the Bundesbank was that economic stability form the bedrock of any decision developed by the committee. This was a relatively minor victory, as Kohl shared this view. The Bundesbank’s more substantial achievement involved the composition of the committee. The initial plan was to create a panel composed of academic economists, but the Bundesbank felt that these ivory tower types might be too dovish on inflation and, more importantly, fail to represent Frankfurt’s interests. Thus, Pöhl lobbied vigorously to ensure that the committee was composed primarily of central bankers, which would guarantee that he, as Bundesbank President, could attend and exert his influence at the meetings. Despite opposition from the French, the prestige of the Bundesbank and its veto power over any significant monetary change meant that Kohl and the other European leaders had to acquiesce. The end result was a compromise solution: the committee would be composed primarily of central bankers but chaired by Jacques Delors, European Commission President.
Pöhl was strategic, realizing that outright opposition to monetary union would weaken his position and provide ammunition to his critics who could accuse him of opposing integration. His strategy, therefore, was to insist upon adherence to strict criteria that he felt would be unpalatable to European politicians. The most important of these conditions were solid public finances and a completely independent ECB. Indeed, there is some speculation that Pöhl believed his standards would leave the committee in deadlock, but this did not occur. While the French and Italian political elite may have opposed the Bundesbank’s demands, French and Italian central bankers were actually quite sympathetic. Moreover, everyone knew that German assent was imperative to the success of the committee. As French Finance Minister Pierre Bérégovoy noted, “It was power politics. If the institutions were not created to the liking of the Bundesbank, there would be no Eurofed, and a European Central Bank would have been impossible without the Bundesbank.” When the Delors Committee published its final report, the rhetoric perfectly matched that of the Bundesbank.
The Bundesbank was now in an ideal position. It felt that it had inserted a poison pill into future monetary integration by demanding that such exacting language be included in the Delors Report. Indeed, Bank of England Governor Robert Leigh-Pemberton went so far as to say that “most of us, when we signed the Report… thought that we would not hear much about it.” But even if integration went forward, as indeed it did, it would progress along the lines favored by Frankfurt.
The Delors Report was officially accepted by European leaders during the 1989 Madrid Summit. At this point, the influence of the Report was still uncertain, as many states remained deeply opposed to any move toward a single currency. West German leadership was ambivalent. The Foreign Ministry still emphatically supported monetary integration, but the Finance Ministry and Bundesbank remained staunchly opposed. Kohl also seemed uncertain, telling Mitterrand that public opinion was not with him. Nonetheless, it was Kohl who pushed through a compromise in Madrid that allowed for at least a limited degree of progress. He suggested that initial preparations for the requisite economic convergence begin July 1, 1990. However, he also demanded that the specific process remain open-ended, allowing a large degree of flexibility and the opportunity for future modifications.
Kohl’s focus on European monetary union was interrupted by the fall of the Berlin Wall on November 9, 1989. As he and his Cabinet were preoccupied with the potential for German reunification, Pöhl seized the initiative. He began publishing op-eds in German newspapers decrying the French stampede toward monetary union, which he felt was a political ploy to destroy the D-Mark. But while Pöhl was focused on European monetary union, his compatriots in the West German government were focused on German monetary union. Against the wishes of the Bundesbank, Kohl announced a 1:1 conversion rate between the D-Mark and East German Ostmark. The Bundesbank Executive Board was livid, as it felt this decision should have been vested in the central bank. Moreover, Bundesbank leadership was worried – quite correctly – that this political decision would lead to rampant inflation in the newly-integrated German states.
The Bundesbank was also concerned with Mitterrand’s talk of a “political union,” which many felt was little more than a meaningless phrase designed to tempt Kohl into reenergizing the discussion over monetary union. Bundesbank concerns over Kohl’s increasingly autonomous policymaking were compounded by the release of Delors’ follow-up report, which dropped requirements for centralized control over fiscal standards and set an explicit date for “stage 2” of the monetary union process. The central bank was determined to assert itself, which it did when Pöhl issued a public speech decrying the report. He received strong support from Finance Minister Theo Waigel, who rebuked Delors’ updated report at a September 9 finance minister meeting in Rome. The Bundesbank Council convened ten days later to elucidate its redlines and warn Kohl not to ignore them simply out of “political expedience.” These demands included the familiar requests for central bank independence and a prohibition on public bailouts, but they also contained a prohibition against a set timeline. Over the course of negotiations with other European central banks, the Bundesbank eventually conceded to a “stage 2” start of January 1, 1994 to which Kohl was forced to accede.
Over the next few months, progress appeared to be moving along at a steady pace. The Bundesbank and German Finance Ministry agreed to a firm date for “stage 3” in return for strict convergence criteria as a prerequisite for a country’s acceptance into “stage 3,” the existence of sanctions to enforce compliance with fiscal rules, and a strongly independent ECB. Thus, by November 1991, the Bundesbank was able to issue a position paper that broadly endorsed the status of negotiations and green-lit further progress on monetary integration. The result, of course, was the signing of the Maastricht Treaty in December. The treaty itself was a huge success for the Bundesbank, as it included strong language on the importance of economic stability, sound finances, and ECB independence. As Kenneth Dyson notes, “Far more significant was a renewed assertiveness of the Bundesbank and clear evidence that Germany’s bargaining positions in the IGC (Intergovernmental Conference) were being strongly influenced by it.”
However, this was not the end of the saga, as another exchange rate crisis emerged over the following months. As German inflation continued to climb, the Bundesbank grew increasingly concerned and began to hike interest rates in order to reduce the money supply. Indeed, the Bundesbank discount rate rose to almost 9% during the summer of 1992. The result of this interest rate hike was predictable: capital poured into Germany, which caused the D-Mark to appreciate substantially relative to most other European currencies. This was only exacerbated by weakening British and Italian economies, which were experiencing a large degree of capital flight. As investors fled other European currencies, there was increasing pressure for the Germans to act. The Bundesbank did nothing. Indeed, in July of 1992, despite solid evidence that the German economy was slowing, Frankfurt decided to nevertheless raise rates to the chagrin and frustration of its EMS partners already struggling to keep their currencies within the agreed- upon bands. Without German cooperation, it became impossible for the fixed exchange rate system to remain intact. On September 16, Black Wednesday, the British pound left the ERM, and it was followed by the lira the next day. This extremely aggressive rate policy made little economic sense for Germany, but it successfully signaled that the Bundesbank’s commitment to fighting domestic inflation would not be diminished post-Maastricht. It also demonstrated that the central bank was not a mere puppet of Berlin.
Despite this bold move, the Bundesbank was not completely immune from outside pressure. When the franc began to fall into serious trouble around September 20, the date of the French referendum on Maastricht, the Bundesbank stepped in. It had been harangued by both the Finance and Foreign Ministries over the previous weeks, and even domestic industry was growing concerned about the European currency volatility being created by the Bundesbank. On September 23, therefore, the Banque de France and Bundesbank jointly intervened to rescue the franc and ensure it remained within the ERM. Despite this show of solidarity, the Bundesbank was still slow to cut rates, leading Norway to cease pegging its currency to the ECU in December. Bundesbank obstinacy continued into 1993, forcing Ireland to devalue its currency 10% in January. And when Frankfurt did decide to meaningfully reduce interest rates, it was the result of domestic rather than foreign pressures: the economy was slowing, unemployment was ticking up, and organizations like the Finance Ministry, BDI, and DIHT were complaining through back channels. In short, while the German central bank was compelled by Berlin to support France, Germany’s major partner in the pursuit of a European currency union, it had no qualms allowing other European currencies to collapse.
Currency rates had stabilized slightly by the early summer of 1993, but then instability returned. The franc and Danish krone were trading near the floor set by the D-Mark, and once again the Bundesbank was loath to intervene. At a July 29 meeting, the Bundesbank Council debated whether to hold firm against “political” rate reductions or drop interest rates to support other European currencies. The result was a theoretical compromise: a 0.5 percent reduction in the Lombard rate and a long-term plan to lower the money market rate. In practice, this reduction was much too modest to consequentially alleviate pressure on the franc and other EMS currencies. As George Soros remarked, “For France to stay after the Bundesbank action would be like for a battered wife to go back from the hospital to her husband.” The Banque de France demanded substantial Bundesbank intervention, but this demand was rebuffed. The French then suggested that Germany leave the ERM. German Finance Minister Waigel would have none of it, though, as this would (correctly) suggest German culpability for the exchange rate instability. Ultimately, Kohl chose to side with the Bundesbank over the French, with the result that the ERM effectively ceased to exist as such by the fall of 1993. Although there was, in theory, a fixed exchange rate for EMS members, the bands had been so expanded by the fall of 1993 that the currencies might as well have been floating.
At this point, it appeared the push for a single currency had stalled. Polls suggested voters were strongly against the Maastricht Treaty, and even most businesses stood against Kohl’s plan for a single currency. It was at this point that another institution entered the fray: the German Federal Constitutional Court (FCC). The FCC was hearing a case regarding the legality of the Maastricht Treaty, which required an extremely long time to adjudicate. The final ruling, however, granted currency union advocates a narrow win by determining that the Kohl-dominated Bundestag had the authority to ratify Maastricht without a popular referendum. This was a huge boon for those supporting monetary union, as Kohl was by this point a committed integrationist. “Ich wollte Deutschlands und Europas Einheit” (I wanted Germany and Europe’s unity), he remarked at the time. There were restrictions, however, and the FCC insisted that signing onto Maastricht was not “an uncontrollable, unforeseeable process which will lead inexorably toward monetary union.” Karlsruhe also insisted that any progress toward currency union proceed only after proof was given of the fiscal and financial stability of other participating states.
Kohl seized on this ruling to advance his cause through the Bundestag. As he put it, European unity was a “matter for the heart.” Thus, despite facing a competitive election in October of 1994, Kohl continued to lobby vigorously for a currency union. He also determined that he needed to oversee the process personally. As he explained, other European leaders “want Helmut Kohl to be there because we need another push and the Germans have a special role here.” The CDU-led coalition barely clung to power in the 1994 election, but that was enough. Kohl now pushed resolutely ahead for currency union. Unfortunately for Kohl, this was easier said than done, as both the French and German economies were suffering from high unemployment and sizeable budget deficits. As a result, there was significant pressure in both countries to devalue currency and run up deficits far beyond the permitted 3% of GDP that was enumerated in the convergence criteria.
To circumvent the budgetary problems, the German Finance Ministry under Waigel developed a clever bookkeeping trick to reduce the deficit without cutting spending. Specifically, the plan was to revalue Germany’s gold reserves, which had been priced significantly below market for years. The problem was that the FCC had previously tasked the Bundesbank with assessing whether EU countries seeking to join the single currency were compliant with the convergence criteria. In other words, the court gave the Bundesbank, not the Finance Ministry, the authority to determine if this gold revaluation was legitimate. It did not hurt the Bundesbank’s case that the gold was held by the central bank, not the Finance Ministry. In any event, the Bundesbank predictably ruled against the move, declaring that it was a short-term trick that did not suggest strong underlying finances. Thus, the Finance Ministry was forced to use more traditional means, such as tax increases, to reduce the deficit to acceptable levels.
Germany was not the only country struggling to meet the fiscal requirements imposed on those hoping to join the single currency. Indeed, throughout 1997 there were concerns about France and Italy, too. This created a large degree of skepticism among German voters. At one point in 1998, for example, a full 71% of Germans opposed euro adoption. Miraculously, it seemed, all eleven countries seeking to join the single currency submitted 1998 numbers that met the requirements. Many immediately began decrying these statistics as nothing more than political manipulations and cooked books, so they eagerly awaited the Bundesbank’s assessment. Surprisingly, the Bundesbank agreed with the national reports. While it expressed reservations about certain countries’ debt levels, it agreed that they had all met the deficit restrictions and, therefore, technically qualified to join the Eurozone. This finding was enough to convince potential skeptics within the Bundestag, and Germany voted to join the Eurozone soon after despite large amounts of opposition from influential domestic pressure groups.
Assessing the Path to the Euro
The Euro adoption saga largely conforms to the model I defend above. Namely, the long and winding path from EMS to the single currency can, to a great extent, be explained by bureaucratic infighting within Germany. Different ministries and institutions had unique preferences and priorities that often conflicted. Thus, it was the relative strength of these bodies and their clout at any given time that explains German behavior throughout the period. The Bundesbank, for example, conformed to ordoliberal teachings by resisting a politically-driven process, demanding strict convergence criteria, demanding strong guarantees regarding central bank independence, and insisting upon the prioritization of low inflation above all else. The Finance Ministry was predominantly allied with the Bundesbank, though it exhibited streaks of independence. It occasionally disagreed with Frankfurt over the need to support other European currencies, for example, and it also found itself at odds with the Bundesbank during the gold revaluation incident of 1997.
The Foreign Ministry and Chancellery were much more inclined to look favorably upon French single currency proposals, a perspective that derived chiefly from their institutional positions. Neither controlled German monetary policy, so the adoption of the single currency was largely inconsequential to their relative institutional power. Moreover, as institutions much more invested in foreign policy and European cooperation, they had an interest in promoting further integration and comity among European states. Their continued pressure ultimately proved decisive, as it created inertia and prevented the Bundesbank from derailing attempts at monetary integration. Finally, the Constitutional Court played a major role toward the end of the process, as it was uniquely empowered to assess the constitutionality of the Maastricht treaty and currency union. The Court had little direct interest in currency issues, but it did have an abiding interest in protecting the German constitution and German sovereignty. As a result, it consistently ruled in manners that allowed German institutions some degree of veto power over further integration while never categorically ruling against integration. Sometimes this benefited the Bundesbank, as when Karlsruhe demanded clear confirmation of other European states’ compliance with the fiscal convergence criteria, but this was not always the case. In short, a combination of parochial interests and institutional mandates shaped the German decision-making process around the adoption of the euro. And while philosophical and rationalist considerations like ordoliberalism and German economic self-interest certainly played a role, these notions were mediated by the different institutional actors within Germany. Economic ideas cannot, therefore, be regarded as neutral and objective concepts but must instead be understood through the prism of bureaucratic politics.
Applying these Lessons to 2010
When the initial financial crisis broke in 2008, the German government responded aggressively on the home front by engaging in substantial fiscal stimulus. By October of 2008, the government guaranteed all private bank accounts and passed the Finanzmarktstabilisierungsgesetz, which allocated 480 billion euros for emergency bank recapitalization. The government also permitted financial institutions to transfer toxic assets to “bad banks” in exchange for bonds. Finally, the government passed a December stimulus package of 54.3 billion euros, or 2.1 percent of GDP. This placed Germany third in magnitude of fiscal stimulus among G7 countries and above the OECD average. However, the Germans were far less willing to support foreign economies, as we shall soon see.
While the worst of the financial crisis had passed Germany by 2010, it was just beginning for many of Europe’s peripheral economies, especially that of Greece. Eventually, it was decided that a bailout package would be necessary to rescue the Greek economy and prevent a Greek default. Germany, given its large economy and clout within the Eurozone, wielded immense influence over the bailout process. However, the old institutional rivalries quickly reemerged in determining how to address the Greek debt crisis. This time, it was the Finance Ministry and Chancellery that were at odds regarding the structure of the bailout. The crux of the dispute centered around whether to include the IMF or keep the bailout a strictly European affair.
The Finance Ministry was deeply opposed to IMF inclusion, as it stood to gain from a bailout organized exclusively by the E.U. After all, the Finance Minister held a significant amount of influence in the European Council and, by virtue of the size of the German economy, in the Eurogroup as well. Chancellor Merkel was opposed to an exclusive-E.U. approach, however, as she felt that placing more power in Brussels would weaken her power as leader of Germany. By including the IMF, over whose governing board Germany (directed by the Chancellor) wields significant influence, the Chancellery could ensure that it remained in control of the policy response. As Luke Wood puts it, “By pushing for IMF involvement, Merkel was aiming to ensure that the German Chancellor retained control over disbursement of bailout funds and surveillance of the conditions under which Greece would qualify for future. The alternative to the IMF, proposed by the Finance Ministry, would be an expansion of ECB powers and greater decision-making authority delegated to the European Union.” In other words, Chancellor Merkel wanted power to remain with the German government, whose agenda the Chancellery sets, while Finance Minister Schäuble sought to increase the power of the Commission and Eurogroup, as that would strengthen his Ministry’s influence. The Finance Ministry and Chancellery ultimately arrived at a compromise solution: The IMF would contribute to the bailout and set strict austerity requirements, but there would be a concomitant “growth and employment” package spearheaded by the Commission. Thus, while Merkel maintained her economic authority, Schäuble was able to create a new avenue of influence for his Ministry through the Commission.
Much as with the adoption of the euro, the Bundesbank and FCC were also significant players in the German response to the sovereign debt crisis. This, at first, seems puzzling because both institutions had in some sense been subsumed by the European Central Bank (ECB) and European Court of Justice (ECJ), respectively. Nevertheless, both came to play prominent roles as the crisis developed. The Bundesbank, while diminished, retained a large degree of influence due to its position as a constituent bank of the ECB which, additionally, ensured that Bundesbank President Jens Weidmann sat on the Board of Governors and played a role in shaping policy. Weidmann used this to his advantage in 2012, as he was opposed to ECB President Mario Draghi’s massive bond buying program. Thus, on July 27, 2012, the Bundesbank publicly opposed the ECB’s position and warned that it would create excessive moral hazard. Interestingly, Merkel and Schäuble quickly slapped down the Bundesbank and declared their complete support for the ECB. Weidmann was undeterred, however, and repeatedly attempted to block Draghi’s initiatives to the point that the ECB President publicly rebuked him. This bond buying scheme became known as Outright Monetary Transactions (OMT), and it was implemented on September 6, 2012 after being announced at a press conference.
The OMT program significantly calmed investors and worked to stabilize government interest rates throughout the European periphery. However, the program came with risks. If the ECB kept loading up on questionable Greek and Spanish bonds that ultimately led to losses, European governments – especially Germany – would be forced to recapitalize the central bank. As Mody explains, “OMTs created a fiscal union by the backdoor.” This continued to infuriate Weidmann, who equated it with printing banknotes. However, the Bundesbank simply did not have sufficient voting power within the ECB to block Draghi’s initiative. Moreover, its position was continually contradicted by Merkel, who realized that OMTs were the only way to stabilize European bond markets without requiring German taxpayer money if all went well.
While the Bundesbank failed to block OMTs, it continued to resist ECB policy. In November of 2013, Draghi pushed for an ECB rate cut to combat undesirably low inflation within the Eurozone. Predictably, this angered the Bundesbank given its institutional and ideological commitment to price stability. Jens Weidmann thus organized with ECB Governing Council members from Austria and the Netherlands to block any rate reduction. Again, they failed to secure enough support to block Draghi, but their resistance proved disruptive enough to disquiet financial markets and raise doubts about Draghi’s hold on power. Weidmann also exploited public opinion in Germany to create a headache for Merkel and others explicitly or tacitly allied with Draghi.
To block the ECB, prominent opponents challenged the legality of ECB policy at the FCC. Most of these challenges were struck down by Karlsruhe, but this was not the case in every instance. In February of 2014, for example, the FCC ruled 6-2 that the OMT program was incompatible with German law. As Andrew Watt explained at the time, “The [FCC] does not have jurisdiction over the ECB, of course. But it can rule that actions by German institutions… in support of acts by the ECB that it has deemed illegal are themselves unconstitutional under German law and thus verboten.” In other words, the FCC could ban the Bundesbank from complying with the ECB, thus potentially leading to the disintegration of the monetary union. In the 2014 ruling, the FCC decided to reconsider after the ECJ issued a revised interpretation that at least partially resolved Karlsruhe’s concerns. However, the resolution of these concerns was far from certain at the time, and commentators worried that “if the most important member state government and its central bank are banned by the country’s constitutional court from involvement, there must be doubts as to whether the OMT programme is really operational… All it will take is a small shock, or an upward blip in interest rates… and the whole edifice, until now held up by a sort of collective suspension of disbelief, could come crashing down.”
As before, the FCC did not deliberately seek to undermine the Eurozone. After all, it ruled against a challenge to the Greek bailout in 2011, refused to grant an injunction against the signing of the Fiscal Compact in 2012, and backed down upon hearing the ECJ’s ruling regarding the 2014 OMT case. If Karlsruhe had been motivated to destroy the single currency, it had ample opportunity. The FCC did want, however, to ensure that the German Bundestag continued to exercise control over German policy and did not become merely a rubber stamp for decisions made in Brussels or Frankfurt. As Federico Fabbrini documents:
In sum, in all its decisions reviewing the legal measures adopted at the EU level, and implemented in Germany, to respond to the Euro-crisis [sic], the German Constitutional Court eventually upheld the contested provisions as in conformity with the Basic Law… [but it] also did not fail to express its skepticism toward the most recent developments occurring in the EU constitutional framework.
Much as in the case of euro adoption, the German response to the 2010 sovereign debt crisis was largely the product of conflicting institutional interests. The Greek bailout was delayed in part by German lethargy, but also as a result of infighting between the Chancellery and Finance Ministry. ECB credibility was undermined at important points by Bundesbank recalcitrance despite strong support from the German government. And the FCC, while never explicitly seeking to undermine the Eurozone or the EU, continued to foster market uncertainty as it agreed to hear case after case on the constitutionality of certain monetary and fiscal policies.
Not only does an institutional explanation account for the preponderance of German behavior during the crisis but the other explanations consistently fall short. Ordoliberal explanations shed little light on the reasons that Germany stimulated so aggressively during the initial financial panic of 2008. After all, ordoliberalism mandates that the state provides clear rules to ensure market stability. It does not demand government intervention in the markets to prop up struggling firms. Indeed, it actively rejects this approach. Nonetheless, German stimulus measures were more aggressive than both the G7 and OECD averages. Ordoliberalism also militates against bailouts due to its dictate that risk-takers bear losses, which Schäuble ironically noted when referencing Walter Eucken during a press conference on the crisis. Yet, as Sandbu (2015) notes, the Germans were loath to pursue debt restructuring for ideological reasons and because of a misplaced fear that it would collapse market confidence. There was also a self-interested reason for German opposition to debt relief: German banks held most of the debt, so forgiving it would have hurt the bottom lines of many German financial institutions. So while it is certainly true that particular actors, such as the Bundesbank, were strongly ordoliberal in their preferences, it is simply inaccurate and somewhat facile to assert that, accordingly, Germany pursued ordoliberal policies.
Arguments emphasizing the salience of German self-interest are also not without merit but are ultimately unsatisfying in their expository potential. German decisionmakers did worry about their country’s interests; they worked diligently to protect their banks, for example. However, there was a wide range of disagreement among German institutions, with each prioritizing German interests differently. Merkel and Schäuble were concerned about the fiscal burden imposed upon taxpayers by continued bailouts, so they frequently – though not always – favored Draghi’s OMTs and interest rate reductions. This shifted the problem from the fiscal to the monetary realm and, thus, shielded them from angry voters. Moreover, when voters did become upset, Merkel could easily criticize the ECB to score domestic political points without actually having to do anything herself. In other words, shifting the problem onto the central bank took control, and therefore blame, out of her hands and provided her with politically expedient cover. The Bundesbank, given its mandate for price stability and sound monetary policy, was unable to blithely accept this shifting of responsibility. It worried that excessively loose monetary policy would create moral hazard, potentially put Germany at risk for southern European defaults, and, at worst, debase the currency. Finally, the FCC worried about ceding too much control to supranational bodies like the ECB. It, therefore, reiterated time and again the sovereignty of the Bundestag. It had no strong position on the most prudent economic response to the crisis, but it firmly held that it should be within the purview of the Bundestag, rather than some European bureaucracy, to determine what the appropriate response should be.
Interest group-based explanations also offer only a partial explanation. It is certainly true that powerful constituencies, such as the financial sector and industrial groups, had an important voice. However, more often than not German institutions manipulated interest groups to do their bidding. For example, Jens Weidmann’s strategic use of the press to create alarm about ECB policy was the catalyst that prompted many to oppose Draghi’s initiatives and, ultimately, bring suits to the FCC. Indeed, this chain of events closely mirrors the Bundesbank’s strategy in the early 1980s when it coordinated with industrial groups and trade unions like the BDI and DIHT to box in Gerhard Schmidt. It is also far from obvious that interest groups were as decisive in shaping the German response to the sovereign debt crisis as common wisdom would suggest. For one, German voters, lobbies, and commercial groups lacked any direct control over the ECB, which greatly limited their influence. But even in the realm of domestic politics, their influence is uncertain. For example, analysis of political manifestos and campaign rallies in the leadup to the 2013 Bundestag elections reveals that they “virtually ignored the Eurocrisis, primarily because the two largest parties had little reason to discuss the crisis in any detail.” This is not to say that voters and other interest groups did not impact the German response to the crisis, but it does suggest that their influence was more constrained than many seem to assume.
Germany’s actions in the sphere of European political economy are often a source of bewilderment and consternation for many. While outsiders continue to demand that Germany play a more active role, German voters often feel that their government has been too involved and invested in matters relating to the European Union. These frustrations and recriminations are only magnified by Berlin’s frequent backtracking and propensity to change tact, which leaves stakeholders on both sides confused and frustrated. So what explains this behavior? I argue that it is the dispersion of power throughout several important German institutions, each with its own particular interests and culture, that accounts for Germany’s frequently confounding decision making. Indeed, it is a misnomer to speak of German decision making at all, as the policies adopted by the country are almost never unanimous and rational. Instead, they represent a convoluted confluence of different institutional preferences that interact to ultimately create official policy. Only by understanding the preferences and relative power of institutions like the Bundesbank, FCC, Chancellery, and various ministries can one truly hope to understand German policy.
 Barry Eichengreen, The European Economy Since 1945 (Princeton, N.J.: Princeton University Press, 2008), 192-194.
 Beverly Crawford, Power and German Foreign Policy (New York, N.Y.: Palgrave Macmillan, 2007), 1.
 Andy Storey, “The Myths of Ordoliberalism,” Working Paper 17-02, ERC Project “European Unions,” University College Dublin, 17.
 Hanns W. Maull, “Reflective, Hegemonic, Geo-economic, Civilian…? The Puzzle of German Power,” German Politics, 27, no. 4 (2018), 12-13.
 Vivien Schmidt, “Speaking to the Markets or to the People? A Discursive Institutionalist Analysis of the EU’s Sovereign Debt Crisis,” The British Journal of Politics and International Relations 16 (2014), 194.
 Storey, 4; Harold James, “Rule Germania,” in Ordoliberalism: A German Oddity? Thorsten Beck, Hans‐Helmut Kotz ed. (London, England: Centre for Economic Policy Research, 2017), 26.
 David M. Woodruff, “Governing by Panic: the Politics of the Eurozone Crisis,” Politics and Society 44, no. 1 (2016), 94.
 For a thorough treatment of the development of European neoliberal thinking, see Quinn Slobodian, The Globalists: The End of Empire and the Birth of Neoliberalism (Cambridge, M.A.: Harvard University Press, 2018).
 Andrew Moravcsik, The Choice for Europe (Ithaca, N.Y.: Cornell University Press, 1998), 3.
 Markus Brunnermeier, Harold James, and Jean-Pierre Landau, The Euro and the Battle of Ideas (Princeton, N.J.: Princeton University Press, 2018), 47.
 Graham Allison and Philip Zelikow, Essence of Decision 2nd Ed. (New York, N.Y.: Addison-Wesley Educational Publishers, 1999), 306.
 Ibid., 307.
 Ashoka Mody, Eurotragedy: A Drama in Nine Acts (Oxford, England: Oxford University Press, 2018), 39-40.
 Pierre Werner, “Report to the Council and the Commission on the Realization by Stages of Economic and Monetary Union in the Community,” in Monetary Committee of the European Communities, 1986, Compendium of Community Monetary Texts (Luxembourg, Office for Official Publications of the European Communities, 1986), 12.
 Eichengreen, 247.
 Mody, 54-55.
 Ibid., 55-56.
 Karl Kaltenthaler, Germany and the Politics of Europe’s Money (Durham, N.C.: Duke University Press, 1998), 47.
 As quoted by Mody, 57.
 Andre Szaz, The Road to European Monetary Union (New York, N.Y.: St. Martin’s Press, 1999), 52.
 Kaltenthaler, 49.
 Ibid., 50.
 Ibid., 54-55.
 Moravcsik, 327; 330.
 Kaltenthaler, 59-60.
 Keith Bain and Peter Howells, Monetary Economics: Policy and its Theoretical Basis (New York, N.Y.: Palgrave Macmillan, 2003), 195.
 Kaltenthaler, 61.
 Dorothee Heisenberg, The Mark of the Bundesbank (Boulder, C.O.: Lynne Rienner Publishers, 1999), 92.
 Crawford, 132.
 Heisenberg, 100.
 Crawford, 118-119.
 Femke van Esch, “Why Germany Wanted EMU: The Role of Helmut Kohl’s Belief System and the Fall of the Berlin Wall,” German Politics 21, no. 1 (2012), 39.
 David Buchan, Philip Stephens, and William Dawkins, “EC Moves on Monetary Union; Delors First Stage Agreed, Thatcher Opposes Further Steps,” Financial Times, June 28, 1989.
 Committee for the Study of Economic and Monetary Union, Report on Economic and Monetary Union in the European Community (Luxembourg, Office for the Official Publications of the European Communities, 1989), 3.
 Mody, 69.
 Heisenberg, 106.
 Alasdair Blair, Dealing with Europe: Britain and the Negotiation of the Maastricht Treaty (New York, N.Y.: Routledge, 1999), 151.
 Mody, 72.
 Kaltenthaler, 91.
 Mody, 75.
 Heisenberg, 116.
 Ibid., 117.
 Ibid., 121.
 Kenneth Dyson, Elusive Union: The Process of Economic and Monetary Union in Europe (London, U.K.: Longman, 1994), 154.
 Kaltenthaler, 93.
 Mody, 99.
 David Marsh, The Bundesbank: The Bank that Rules Europe (London, U.K.: William Heinemann, 1992), 5-6.
 Mody, 101.
 Heisenberg, 132.
 Ibid., 138.
 Kaltenthaler, 100.
 This was the interest rate charged by the Bundesbank for very short-term loans to other central banks.
 Heisenberg, 144.
 Helmut Schlesinger, “Wege zu einer Europäischen Wirtschafts und Währungsunion und die Stellung Deutschlands darin,” Deutsche Bundesbank, November 5, 1992, 3.
 Indeed, he had been a proponent of European integration for most of his life. See, for example, Kenneth Dyson, “Chancellor Kohl as Strategic Leader: The Case of Economic and Monetary Union,” in The Kohl Chancellorship, ed. William Paterson and Clay Clemens, 42-43 (London, England: Frank Cass, 1998) and Klaus Hofmann, Helmut Kohl: Kanzler des Vertrauens: Eine Politische Biographie (Bonn, North-Rhine Westphalia: Aktuell, 1984), 24; 81.
 van Esch, 43.
 Mody, 107.
 Tom Heneghan, “Kohl Fights Impression He Would Quit in Midterm,” Reuters, October 7, 1994.
 Matt Marshall, “Bonn Abandons Gold-Revaluation Plan,” Asian Wall Street Journal, June 4, 1997.
 Klaus Zimmermann and Tobias Just, “The Euro and Political Credibility in Germany,” Challenge 44, no. 5 (2014), 103.
 Heisenberg, 168-169.
 Reimut Zohlnhofer, “Between a Rock and a Hard Place: The Grand Coalition’s Response to the Economic Crisis,” German Politics 20, no. 2 (2011), 231-233.
 Luke B. Wood, “The Bureaucratic Politics of Germany’s First Greek Bailout Package,” German Politics and Society 34, no. 1 (2016), 42.
 Ibid., 43.
 Ibid., 48-49.
 Mody, 311.
“German-French Statement for Eurozone Integrity,” Deutsche Welle, July 27, 2012.
 Mario Draghi, “Introductory Statement to the Press Conference,” ECB, August 2, 2012.
 Mario Draghi, “Introductory Statement to the Press Conference,” ECB, September 6, 2012.
 Mody, 313.
 Michael Steen, “Weidmann Isolated as ECB Plan Approved,” Financial Times, September 6, 2012.
 Mody, 314.
 “Weidmann urges governments not to rely on ECB to solve crisis,” Reuters, August 26, 2013.
 Peter Spiegel and Stefan Wagstyl, “ECB Split Stokes Fears of German Backlash; Frankfurt Rate Revolt Deepens Division,” Financial Times, November 9, 2013.
 Andrew Watt, “Karlsruhe’s Underappreciated Threat to the Euro,” Social Europe, February 11, 2014.
 Federico Fabbrini, “The Euro-Crisis and the Courts: Judicial Review and the Political Process in Comparative Perspective,” Berkeley Journal of International Law, 32 no. 1 (2014), 86-87.
 Ibid., 92.
 Storey, 14.
 Helen Thompson, “Germany and the Euro-Zone Crisis: The European Reformation of the German Banking Crisis and the Future of the Euro,” New Political Economy 20, no. 6 (2015), 857-860.
 Wade Jacoby, “The Politics of the Eurozone Crisis: Two Puzzles behind the German Consensus,” German Politics and Society 32, no. 2 (2014), 78.
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