Schnabl, Gun he
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Se en y‐ i e yea s Wes Ge man cu ency e o m: C isis as
ca alys o he e osion o he ma ke o de
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ORIGINAL ARTICLE
Se en y- i e yea s Wes Ge man cu ency e o m:
C isis as ca alys o he e osion o he
ma ke o de
Gun he Schnabl
Ins i u e o Economic Policy, Leipzig
Uni e si y, Leipzig, Ge many
Co espondence
Gun he Schnabl, Ins i u e o Economic
Policy, Leipzig Uni e si y, Leipzig, Ge many.
Email: [email p o ec ed]ig.de
Abs ac
The pape analyzes he ole o he 1948 cu ency and eco-
nomic e o m in Wes Ge many o g ow h and social cohe-
sion in Ge many and Eu ope. I desc ibes he heo e ical
ounda ion by Wal e Eucken and he implemen a ion and
de ense o he new economic o de by Ludwig E ha d. The
pape s esses he posi i e impac o he ma ke economy
on g ow h and wel a e in Ge many and Eu ope. Then, i is
shown ha Eucken's cons i u ing p inciples o he ma ke
economy we e g adually e oded a e eu o in oduc ion in
cou se o c ises, wi h he nega i e epe cussions on g ow h
and equali y being explained. The policy conclusion is ha
only he econs i u ion o p ice s abili y in he eu o a ea can
p e en a u he decline o wel a e in Eu ope. The 1948
economic e o ms p o ide an impo an bluep in o he
necessa y e o m p ocess.
1|INTRODUCTION
In Ge many, he communica ion and he public pe cep ion o p ospe i y ha e changed. Chancello Angela Me kel s ill
used o claim ha he p ospe i y in Ge many was a a his o ical peak and Ge many was well p epa ed o he u u e
(Ch is ian Democ a ic Union [CDU], 2017). The long- e m suppo o he go e nmen s in he elec ions sugges ed
ha his opinion was also p e alen among he Ge man people. In con as , whe eas he new Chancello Ola Scholz
has p omised a new economic mi acle hanks o hea y in es men in clima e p o ec ion (Die Wel , 2023), mos
Recei ed: 12 June 2023 Re ised: 31 Augus 2023 Accep ed: 1 Sep embe 2023
DOI: 10.1111/kykl.12359
This is an open access a icle unde he e ms o he C ea i e Commons A ibu ion-NonComme cial-NoDe i s License, which
pe mi s use and dis ibu ion in any medium, p o ided he o iginal wo k is p ope ly ci ed, he use is non-comme cial and no
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Kyklos. 2024;77:77–96. wileyonlinelib a y.com/jou nal/kykl 77
Ge mans see hei coun y in decline (Köche , 2023a,2023b). The Economis (2023) has dubbed Ge many again as
he sick man o Eu ope.
A he same ime, gi en he omnip esen goal o clima e p o ec ion, Ge many's ee-ma ke o de is inc easingly
called in o ques ion. The Minis e o Economic A ai s and Clima e Robe Habeck has announced o ans o m he
social ma ke economy in o an ecological–social ma ke economy (Bundesminis e ium ü Wi scha und
Klimaschu z, 2022). The popula jou nalis He man (2022) sees he end o capi alism as a condi ion o clima e p o-
ec ion. The axonomy o he Eu opean Union (EU), which is in o ce since 2022, has se he s age o a cen alized
alloca ion o capi al along ecological and social c i e ia (Koo hs, 2022).
I seems o go en ha Ge many's p ospe i y has been based on a ee-ma ke economy, o which he 1948
Wes Ge man cu ency and economic e o ms unde Ludwig E ha d laid he ounda ion. The cu en signi ican
inc ease in in la ion, which is unique in Ge many's pos -wa economic his o y, has pu he s age o a pain ul loss o
wel a e in Ge many and Eu ope. Bu he esul ing economic and poli ical ins abili y is no associa ed wi h he g adual
ans o ma ion o he Ge man economic o de .
Gi en he 75 h anni e sa y o he Wes Ge man cu ency e o m on June 20, 2023, his pape akes s ock
o he cu en s a e o he economic o de in Ge many. Building upon p e ious wo ks by Abelshause (1975),
Buchheim (1998), Ri schl (2005,2016), and Schnabl (2019a), i is shown how he cons i u ional p inciples o he
ee-ma ke o de by Eucken (1952) ha e become g adually unde mined. The pape explains how his has esul ed
in declining g ow h and ising inequali y, wi h economic and poli ical ins abili y in Ge many and he EU inc easing.
Based on he indings, policy implica ions how o eanima e g ow h and how o s eng hen poli ical s abili y a e
de i ed.
2|CURRENCY AND ECONOMIC REFORM AS THE FOUNDATION OF
GERMAN WEALTH
The cu ency e o m in he h ee wes e n occupa ion zones o Ge many on June 20, 1948, laid he ounda ion o
Wes Ge many's pos -wa economic eco e y. Up o his poin , a s a e command economy, p ice con ols, public
alloca ion o goods, and monopoliza ion had de e mined he li ing condi ions o he Ge mans (Buchheim, 1998).
The e o m was based on he coincidence o h ee ac o s. Fi s , he US occupying o ces unde Gene al Lucius
Clay belie ed in ma ke p inciples and aimed o dissol e he la ge ca els (Ri schl, 2016). Second, Wal e Eucken
(1952)
1
and F anz Böhm (1950) had c ea ed he academic ounda ions o a libe al economic and legal
sys em. Thi d, Ludwig E ha d, an ad oca e o a libe al economic o de , gained s ong in luence on economic policy
making.
2.1 |Eucken's heo e ical ounda ion
Eucken (1952) as one he ounde s o Ge man o dolibe alism had de eloped se en cons i u i e p inciples o a ma -
ke economy (see also F ey ag & Schnabl, 2017). They cons i u ed he amewo k o a libe al economic o de which
was o be embedded in a libe al cons i u ional s a e (in e dependence o o de s).
In he co e o he sys em was a unc ioning p ice sys em o e lec sca ci ies o goods in a compe i i e en i on-
men . The p inciple has o be seen in he con ex o he p ice con ols p e ailing in pos -wa Ge many. The second
p inciple was p ice s abili y
2
o make lexible p ices main ain hei in o ma ion unc ion abou consume p e e ences
and he sca ci y o goods.
3
The p imacy o mone a y policy implied ha p ice s abili y was a p e equisi e o all o he
1
Eucken was an ad ise o he US and F ench occupying o ces.
2
To achie e p ice s abili y, Eucken (1952) hough o a peg o money supply o a bundle o goods.
3
See on Hayek (1945) on he use knowledge in he socie y.
78 SCHNABL
p inciples o be e ec i e (Eucken, 1952, p. 256). Fo ins ance, undue mone a y expansion would c ea e in la ion and
he e o e dis up he unc ioning o he p ice sys em. Go e nmen bond pu chases o he cen al bank c ea e mo e
spending powe o he go e nmen and he e o e open he doo he dis o ion o compe i ion by poli ically in luen-
ial co po a ions.
4
Open ma ke s— ha is, ee access o ma ke s—we e seen as necessa y o main ain compe i ion. New companies
should be allowed o en e he ma ke a any ime; non-p o i able companies had o lea e he ma ke . Eucken (1952)
demanded he emo al o in e na ional ade ba ie s, ee choice o p o ession, limi ed pa en p o ec ion, and ee-
dom o ade and comme ce.
5
P i a e p ope y—pa icula ly o he p oduc ion si es—was seen as a p e equisi e o
compe i ion and an e icien alloca ion o esou ces.
F eedom o con ac was o be ensu ed, albei wi h limi s de ined by he legal sys em, o ins ance, when a co po-
a ion cons ained he eedom o con ac o o he s. The liabili y p inciple should ensu e ha no only p o i s we e
p i a ized, bu also losses we e bo n. This should deli e an e icien alloca ion o esou ces. Eucken (1952)
demanded con inui y in economic policy making o allow economic agen s o ealize long- e m plans wi hou being
dis u bed by sudden e e sals in policy decisions, as s able expec a ions we e seen o be a p e equisi e o mo e
in es men and g ow h. Acco ding o Eucken (1952)all se en cons i u i e p inciples had o be ul illed oge he ,
because i one p inciple was no ul illed, o he s would become unde mined.
6
2.2 |Implemen a ion unde Ludwig E ha d
The cu ency e o m was building he backbone o a ee-ma ke o de and o Wes Ge many's economic eco e y.
I was ini ia ed by he Uni ed S a es based on he Colm–Dodge–Goldsmi h Plan (Colm e al., 1955). An impo an
s ep was o elimina e he o e hang o money ha had been c ea ed in e alia by wa inancing ia he cen al bank,
because he excess supply o money dis u bed he e icien use o esou ces. As he Reichsma k had ceased o be a
eliable means o paymen and s o e o alue, mos goods we e a ioned, which limi ed p oduc ion.
7
A apid eco-
nomic eco e y could be expec ed, as a la ge sha e o indus ial plan s had su i ed he wa wi hou se ious damage
(Ri schl, 2005).
The cu ency e o m was implemen ed by he Wes e n Allied o ces unde he leade ship o he Uni ed S a es
(Buchheim, 1998). I was based on laws passed by he Allied mili a y go e nmen o ensu e he p inciple o p ice s a-
bili y. The Ge man e o m plan o Ap il 1948 (Hombu ge Plan) was no implemen ed. A wo- ie cen al banking sys-
em was modeled on he Fede al Rese e Sys em o he Uni ed S a es e lec ing he new ede al s uc u e o Wes
Ge many. In Ma ch 1948, he Bank deu sche Lände was ounded, which became he Deu sche Bundesbank in
1958.
8
The cu ency e o m was implemen ed on June 20, 1948.
9
To educe he immense mone a y o e hang o he
wo hless Reichsma k, he popula ion ecei ed DM 40 pe capi a, companies and adesmen DM 60 pe employee.
10
Cash and bank deposi s we e exchanged a a a io o 100 Reichsma k o 6.5 DM. Deb was exchanged a a a io o
100:10. Wages, p ices, and en s we e con e ed one o one. This induced losses o he holde s o cash and bank
4
Tha an in la iona y mone a y policy o he ECB unde mined all o he cons a i e p inciples will be shown in Sec ion 3.
5
Whe eas Eucken (1952) emained unclea how compe i ion could be ensu ed, Böhm (1950) and Hoppmann (1968) made impo an con ibu ions
conce ning o he design o he compe i ion policy.
6
Fo ins ance, i eedom o con ac is used o build ca els, he compe i ion is es ained, and p ices do no e lec sca ci ies anymo e. In la ion dis o s he
unc ioning o he p ice sys em. P i a e p ope y can be used o exploi consume s i monopolies a e possible.
7
Gi en ising cash holdings and bank deposi s due o cen al bank- inanced go e nmen expendi u e, he demand o goods and se ices ends o ise. I
he supply is es ic ed, p ices would ise as well. I he go e nmen aims o p e en in la ion, i has o ix p ices. Low adminis a ed p ices combined wi h
la ge sa ings would lead o a ho ding o goods and a black ma ke , which necessi a e a a ioning o goods o ensu e su icien indi idual supply.
8
The new Deu sche Ma k (DM) bankno es we e p in ed in he Uni ed S a es and we e b ough sec e ly o Ge many.
9
Fou days a e he Wes Ge man cu ency e o m, he e was a cu ency e o m in he So ie occupa ion zone. The sepa a e cu ency e o ms p omo ed
he di ision o Ge many, which esul ed in he ounding o wo Ge man s a es in 1949.
10
Fo de ails, see Maye and Schnabl (2023).
SCHNABL 79
deposi s, whe eas he owne s o physical asse s (goods, companies, and eal es a e) gained. The so-called
Las enausgleich p o ided pa ial compensa ion (Hughes, 1999).
11
The cu ency e o m was accompanied by economic e o ms by Ludwig E ha d, who had become in 1947 he
head o he Special O ice o Money and C edi in he Ame ican-B i ish Bizone and in 1948 di ec o o economics
by he Bizonal Economic Council. Based on he “Law Go e ning he P inciples o Planning and P ice Policy a e he
Cu ency Re o m”(Gese z übe Lei sä ze ü die Bewi scha ung und P eispoli ik nach de Geld e o m) o June 24, 1948,
p ices we e successi ely eleased agains he esis ance o la ge co po a ions. This allowed o a unc ioning p ice sys-
em, which could equalize supply and demand. Wage eezes we e li ed.
The p inciple o open ma ke s had been al eady embedded in he 1945 Po sdam Ag eemen , which aimed a
decen alizing he highly concen a ed Ge man economy (Schmid , 1999). In he yea 1947, se e al laws and egula-
ions we e implemen ed o achie e deca eliza ion and p omo e compe i ion. Finally, in Janua y 1958, he Law
Agains Res ain s on Compe i ion (Gese z gegen We bewe bsbesch änkungen) came in o o ce, which p ohibi ed ca -
els and made me ge s subjec o he app o al o he ca el o ice.
12
E ha d (1958, p. 101) a gued: “Any agmen a-
ion o he na ional economy in o es ed in e es s canno he e o e be allowed.”
13
The Basic Law (G undgese z), which wen in o o ce in he yea 1949 wi h he ounda ion o he Fede al Republic
o Ge many, acknowledged in line wi h Böhm (1950) ha he economic and legal o de s we e in e dependen . I
made impo an con ibu ions o he libe al economic o de as p i a e p ope y, eedom o con ac , and he liabili y
p inciple we e embedded.
14
In A icle 14, he Basic Law eads “P ope y and he igh o inhe i ance shall be
gua an eed.”and “P ope y en ails obliga ions.”
The con inui y o economic policy making mainly emained in he esponsibili y o Ludwig E ha d
15
who de ended
cons an ly he new o de .
16
Mone a y policy was cons ained bo h by he independence o he new Wes Ge man
cen al bank
17
and he peg o he DM o he dolla unde he B e on Woods Sys em.
18
When he mone a y policy
s ance o he Fede al Rese e Bank became inc easingly expansiona y in he second hal o he 1960s (wi h
Ge many impo ing in la ion), he Ge man ma k was inally delinked om he dolla o p ese e p ice s abili y (Von
Hagen, 1998).
E en hough se e al sec o s such as insu ance, banking, anspo , and se e al public monopolies emained
excluded om ee compe i ion (Rhonheime , 2017) and impo an ma ke ba ie s p e ailed (Ri schl, 2005), o la ge
pa s o he economy Eucken's p inciples we e al oge he ul illed.
11
The Law on Equalisa ion o Bu dens (Las enausgleichsgese z) o Augus 14, 1952, aimed o p o ide inancial compensa ion o Ge mans who had su e ed
p ope y damage o o he disad an ages as a esul o Wo ld Wa II and i s a e ma h, including he cu ency e o m. Those who had conside able asse s
emaining (especially eal es a e) paid a le y. The le y amoun ed o 50% o he calcula ed asse alue by 1948 and could be paid in o he equaliza ion und
o e 30 yea s. By sp eading i o e many yea s, he bu den was only 1.67% pe yea , so ha i could be paid ou o he income alue o he a ec ed asse s
wi hou ha ing o liquida e he asse . The bu den g adually became easie because o he mode a e in la ion since 1952.
12
The law did no co espond o ull compe i ion, because i allowed o example o a ionaliza ion ca els (Rhonheime , 2017, pp. 96–97).
13
E ha d (1958, p. 136) was conce ned ha en ep eneu s could mo e om pe sonal esponsibili y o he socializa ion o isks. He ega ded ca els as
de imen al o he small and medium co po a ions, which we e no able o build ca els (E ha d, 1958, pp. 137–138).
14
The Basic Law also included he eedom o exp ession (A . 5), he eedom o eaching (A . 5), he eedom o assembly (A . 8), and he eedom o
associa ion (A . 9).
15
In 1949, E ha d became Minis e o Economic A ai s o Wes Ge many, which he emained un il 1963.
16
As ep esen ed by he ollowing ci a ions: “Ich habe als Bundesminis e 80 P ozen meine K a dazu e wende , gegen Un ug anzukämp en.”(As a
ede al minis e , I spen 80 pe cen o my ene gy igh ing agains nonsense.) and “Die Volkswi scha is kein Pa ien , den man pausenlos ope ie en kann.”
(The economy is no a pa ien ha can be ope a ed on non-s op.) The book w i en by E ha d (1958) had he i le “Wohls and ü alle”(P ospe i y o
E e yone) in Ge man and “P ospe i y h ough Compe i ion”in English.
17
The Bank deu sche Lände , which was ounded on Ma ch 1, 1948, consis ed o he legally independen Landeszen albanken in he indi idual s a es o
he Wes e n occupa ion zones (Buchheim, 1998). F om he ou se , he Bank deu sche Lände was independen o Ge man s a e o gans, including he
ede al go e nmen . I gained i s au onomy is-à- is he Allies in 1951. A icle 88 o he Basic Law obliged he Fede al Republic o Ge many o es ablish a
cu ency and a cen al bank as he Deu sche Bundesbank. The Ac on he Deu sche Bundesbank (Gese z übe die Deu sche Bundesbank) o 1957 de ined
in §12 he independence om he ede al go e nmen : “Die Deu sche Bundesbank is e p lich e , un e Wah ung ih e Au gabe die allgemeine
Wi scha spoli ik de Bundes egie ung zu un e s ü zen. Sie is bei de Ausübung de Be ugnisse, die ih nach diesem Gese z zus ehen, on Weisungen de
Bundes egie ung unabhängig.”
18
Which o ced he Ge man cen al bank o ollow he mone a y s ance o he Fede al Rese e Bank o he Uni ed S a es (Hol e ich, 1998).
80 SCHNABL

2.3 |Economic mi acle, social ma ke economy, and common ma ke
The ee-ma ke economy could un old.
19
The cu ency e o m became one o he “mos s iking posi i e collec i e
expe iences o he Ge mans”
20
dubbed economic mi acle (Wi scha swunde ). Whe eas p ice con ols had led o
hoa ding p e iously o he cu ency e o m, on June 21, 1948, he shops opened and he shel es we e illed. The
high demand caused p oduc ion o ise o p e-wa le els wi hin a sho ime pe iod (E ha d, 1958, pp. 13–15).
The high g ow h (see Figu e 1) was in undamen al con as o he economically (and poli ically) agile in e wa
pe iod.
The high g ow h buil he economic basis o a gene ous social secu i y sys em, wi h he ma ke economy
becoming a Social Ma ke Economy (Soziale Ma k wi scha ). The a ibu e “social”
21
was added o he ma ke econ-
omy, wi h social equali y being embedded in he Basic Law (A . 20, Pa ag aph 1): “The Fede al Republic o Ge many
is a democ a ic and social ede al s a e.”In addi ion o he se en cons i u i e p inciples, Eucken (1952) had o mu-
la ed ou egula i e p inciples: monopoly con ol, he con ol o excesses on he labo ma ke (such as wages below
he subsis ence minimum), he in e naliza ion o nega i e ex e nal e ec s (as in he case o en i onmen al pollu ion),
and edis ibu ion in a o o e y low-income g oups, o ins ance, ia a p og essi e ax sys em.
19
In con as , Abelshause (1975) a gues ha he high g ow h a e Wo ld Wa II was mo e due o he pos -wa econs uc ion. This iew is in
con adic ion o he pe sis ence o low g ow h in Eas Ge many.
20
The quo e is a ibu ed o Ludwig E ha d.
21
on Hayek (1988, pp. 116–117) ega ded he wo d social as wha he called “weasel wo d”:“a weasel is alleged o be able o emp y an egg wi hou
lea ing a isible sign, so can hese wo ds dep i e o con en any e m o which hey a e p e ixed while seemingly lea ing hem un ouched.”“Though abuse
o he wo d ‘social’is in e na ional, i has aken pe haps i s mos ex eme o ms in Wes Ge many whe e he cons i u ion o 1949 employed he
exp ession soziale Rech ss aa (social ule o law) and whence he concep ion o ‘social ma ke economy’has sp ead—in a sense which i s popula ise
Ludwig E ha d ce ainly ne e in ended. (He once assu ed me in con e sa ion ha o him he ma ke economy did no ha e o be made social bu was so
al eady as a esul o i s o igin.) Bu while he ule o law and he ma ke a e, a he s a , ai ly clea concep s, he a ibu e ‘social’emp ies hem o any
clea meaning. F om hese uses o he wo d ‘social’, Ge man schola s ha e come o he conclusion ha hei go e nmen is cons i u ionally subjec o he
Sozials aa sp inzip, which means li le less han ha he ule o law has been suspended.”
FIGURE 1 Real g ow h in Ge many 1950–2022. Sou ce: Ge many, Des a is, S a is isches Bundesam . F om 1950
o 1990 Wes Ge many, since 1991 uni ied Ge many.
SCHNABL 81
The academic ounda ion o he Social Ma ke Economy was laid by Al ed Mülle -A mack (1947,1956, p. 390)
o “combine he p inciple o eedom on he ma ke wi h ha o social balance.”He had iden i ied h ee le els o
sociali y: Fi s , he ega ded he ee ma ke o ha e social consequences i sel , because he ma ke educa es eco-
nomic agen s o be eliable and aligns he p oduc ion wi h he p e e ences o he consume s. Second, he cons i u-
i e p inciples o he ee-ma ke o de we e ega ded as social, because hey p e en ed monopolies and secu ed
mone a y s abili y (Mülle -A mack, 1956, p. 390). Only hi d, edis ibu ion should lead o mo e equali y (and con ib-
u ed o he poli ical accep ance o he ma ke o de ).
The p og ams o he wo main poli ical pa ies only slowly adap ed o he economic success o he e o ms. The
Social Democ a ic Pa y (SPD) openly opposed hem.
22
In 1950, he Social Democ a s iled a mo ion o emo e
E ha d om his o ice (bu ailed). Only in 1959, he Social Democ a s admi ed hei suppo o he—now—Social
Ma ke Economy in he Godesbe g P og amme, including he goal o economic policy o inc ease weal h and o c e-
a e a jus dis ibu ion.
23
The Social Democ a s also acknowledged he c ucial ole o a s able cu ency o p oduc i -
i y inc eases and weal h.
24
The Ahlen p og am o he CDU (1947) s ill aimed a o e coming capi alism and socialism, s a ing ha he
capi alis economic sys em had ailed o mee he social i al in e es s o he Ge man people. Only in 1949, he
CDU u ned o he ma ke economy in he Düsseldo Guidelines (Düsseldo e Lei sä ze), which we e he i s
sel -con ained d a economic o de in he p og am his o y o he CDU. I combined o dolibe al ideas wi h he
e hical demands o Ch is ian social eaching unde he label o Social Ma ke Economy (Blank, 1967). As unem-
ploymen s ongly declined (Figu e 2) and he ising p oduc i i y allowed o he c ea ion o an inc easingly gene -
ous social secu i y sys em, he Ge man people suppo ed E ha d, and he CDU emained in go e nmen un il
1969.
25
The libe al economic hinking in he Fede al Republic o Ge many in luenced he Eu opean in eg a ion p o-
cess, wi h F ance and Ge many pu suing di e en app oaches (Bundesa chi Koblenz, 2015). In F ance, a mo e
in e en ionis economic policy p e ailed in line wi h i s plani ica ion. Labo ma ke s we e igid. This was
e lec ed in a emp s o push o wa d a cen alized economic policy making in he EU by common ins i u ions.
F ance, ha aimed o con ol he economically s eng hening Ge many, pu sued an ins i u ional in eg a ion based
on common no ms, ules, and ins i u ions o uni y economic policy making as a p e equisi e o ma ke
in eg a ion.
26
E ha d (1958, p. 211) was a decisi e p oponen o he Eu opean in eg a ion p ocess, bu aimed o emo e ma ke
ba ie s o allow o compe i ion, which would make p e ail ce ain ules, legal p o isions and economic en i ies
( unc ional in eg a ion). Inspi ed by he P inciples o he Gene al Ag eemen o Ta i s and T ade, he IMF and he
Eu opean Paymen s Union E ha d aimed a libe alizing ade, educing disc imina ion and p e en ing compe i i e dep e-
cia ions by ge ing accep ed a le el playing ield a he in e na ional le el (Bundesa chi Koblenz, 2015,pp.4–5).
27
The
22
“I is w ong o h ow he sick man in o cold wa e and expec him o swim,” a ed SPD poli ician K eyßig (ci ed by E ha d, 1958, p. 85).
23
“Ziel sozialdemok a ische Wi scha spoli ik is s e ig wachsende Wohls and und eine ge ech e Be eiligung alle am E ag de Volkswi scha , ein
Leben in F eihei ohne unwü dige Abhängigkei und ohne Ausbeu ung.”(The goal o social democ a ic economic policy is s eadily g owing p ospe i y and a
ai sha e o all in he yield o he economy, a li e in eedom wi hou undigni ied dependence and wi hou exploi a ion.) (Social Democ a ic Pa y, 1959).
24
“Die Wi scha spoli ik muß au de G undlage eine s abilen Wäh ung die Vollbeschä igung siche n, die olkswi scha liche P oduk i i ä s eige n und
den allgemeinen Wohls and e höhen.”(The economic policy mus sa egua d ull employmen on he basis o a s able cu ency, inc ease economic
p oduc i i y and aise gene al p ospe i y.)
25
Be ween 1966 and 1969 in coali ion wi h he SPD.
26
The pa h o he ins i u ional in eg a ion p ocess was aken by he Eu opean Coal and S eel Communi y in 1951, which was ini ia ed by he F ench
o eign minis e Robe Schumann, who decla ed ha “The solida i y in p oduc ion hus es ablished will make i plain ha any wa be ween F ance and
Ge many becomes no me ely un hinkable, bu ma e ially impossible”Eu opean Union (n.d.). A High Au ho i y c ea ed he bluep in o o he common
Eu opean ins i u ions.
27
“The bes kind o in eg a ion (…) does no depend on he es ablishmen o new o ices and adminis a i e p ocedu es o a g owing bu eauc acy; i
depends in he i s ins ance on he econs uc ion o a ee ins i u ional o de , as bes and mos comple ely exp essed in a ee con e ibili y o he
cu ency. Con e ibili y o he cu ency, o cou se, includes comple e eedom o mo emen o goods se ices and capi al”E ha d (1958, p. 211).
82 SCHNABL
subsidia i y p inciple in he Wes Ge man Basic Law ensu ed as much independence as possible in na ional economic
policy making.
28
The pa h o he Eu opean in eg a ion p ocess can be seen as a comp omise be ween he ins i u ional and he
unc ional app oach. The ins i u ional in eg a ion p ocess culmina ed in he c ea ion o common Eu opean ins i u-
ions such as he Common Ag icul u al Policy, he Eu opean Commission, he Eu opean Pa liamen , he Eu opean
Cou o Jus ice, and inally, he Eu opean Cen al Bank (ECB). The unc ional app oach led o he cons i u ion o he
common ma ke
29
wi h he Eu opean Single Ac (1986), which achie ed he ee mo emen o goods, se ices, labo ,
and capi al ac oss he bo de s by 1993.
The la ge p oduc i i y gains esul ing om he ma ke economy in Wes Ge many no only allowed o inc ease
wages and o ex end he social secu i y sys em. I also allowed o edis ibu ion in a o o he sou he n Eu opean
pa ne coun ies ia he common ag icul u al and he egional policy o he Eu opean Communi y. In addi ion, by
dep ecia ing hei cu encies agains he DM, he sou he n Eu opean coun ies could shi pa s o he p oduc i i y
gains o Ge many o he sou he n Eu opean coun ies. Wes Ge many did no engage in compe i i e dep ecia ions,
because he Deu sche Bundesbank emained commi ed o p ice s abili y.
Because he g adual app ecia ion o he Ge man ma k o ced he Ge man indus y o con inuously push p oduc-
i i y gains o wa d, he cu ency compe i ion wi hin he Eu opean Communi y deli e ed wel a e gains o all coun-
ies pa icipa ing in he Eu opean in eg a ion p ocess. The sou he n coun ies p o i ed om he no he n
p oduc i i y gains by ans e s ia he common Eu opean ins i u ions. The open ma ke s in he Eu opean Communi y
c ea ed addi ional demand o Ge man goods. Ne e heless, he pe sis en dep ecia ion p essu e on he F ench
F anc cons i u ed a sou ce o poli ical discon en in F ance, as Wes Ge many domina ed he Eu opean mone a y
in eg a ion p ocess. Wi h he DM becoming he leading in e na ional cu ency in Eu ope, he seignio age gains
28
“Wi h a iew o es ablishing a uni ed Eu ope, he Fede al Republic o Ge many shall pa icipa e in he de elopmen o he Eu opean Union ha is
commi ed o democ a ic, social and ede al p inciples, o he ule o law and o he p inciple o subsidia i y and ha gua an ees a le el o p o ec ion o
basic igh s essen ially compa able o ha a o ded by his Basic Law. To his end he Fede a ion may ans e so e eign powe s by a law wi h he consen
o he Bundes a .”“The Bundes ag and he Bundes a shall ha e he igh o b ing an ac ion be o e he Cou o Jus ice o he Eu opean Union o
challenge a legisla i e ac o he Eu opean Union o in inging he p inciple o subsidia i y. The Bundes ag is obliged o ini ia e such an ac ion a he
eques o one qua e o i s Membe s.”(A . 23 Basic Law)
29
Ini ia ed by he Uni ed Kingdom unde Ma g e Tha che .
FIGURE 2 Unemploymen a e in Ge many 1950–2022. Sou ce: Ge many, Des a is, S a is isches Bundesam .
F om 1950 o 1990 Wes Ge many, since 1991 uni ied Ge many.
SCHNABL 83
esul ing om he ising demand o DM acc ued o Ge many (and no o F ance) (He z & Röge , 1992).
30
The
“in e io i y”o he F anc agains he Ma k was ep esen ed by subs an ially highe in la ion in F ance han in
Ge many (Figu e 3).
3|CRISES AS CATALYST FOR THE EROSION OF THE ORDER
While he ising weal h in Ge many cons i u ed he basis o mo e edis ibu ion, he independence o he Deu sche
Bundesbank was a con ol mechanism agains p oli e a ing go e nmen expendi u e, as e e y addi ional expendi u e
obliga ion had o be inanced by ax inc eases o deb . The e o e, iscal aus e i y was a main pilla o low in la ion. In
con as , he cen al banks o mos o he Eu opean coun ies such as F ance and I aly we e subo dina ed o he min-
is ies o inance and con ibu ed o he inancing o go e nmen expendi u e. This no only esul ed in highe in la-
ion a es and pe sis en dep ecia ions o he sou he n Eu opean cu encies bu also in he ascen o he Ge man
ma k o he leading in e na ional cu ency in Eu ope.
The all o he i on cu ain a he end o he 1980s cons i u ed a u ning poin , as he leading ole o he DM in
he Eu opean mone a y in eg a ion p ocess had c ea ed an incen i e o F ance o subs i u e he DM by a common
Eu opean cu ency (Be nholz, 1998). Among o he s, Ma sh (2009) has a gued ha he F ench go e nmen made he
consen o he Ge man uni ica ion con ingen on Ge many's consen o a common Eu opean cu ency, la e
called eu o.
30
The F ench p esiden Gisca d d'Es aing had dubbed he seignio age gains esul ing om he leading ole o he dolla in he wo ld mone a y sys em as
“exo bi an p i ilege.”F om he F ench pe spec i e he c ea ion o a common Eu opean cu ency should challenge he global exo bi an p i ilege o he
dolla .
FIGURE 3 Consume p ice in la ion Ge many and F ance 1950–2022. Sou ce: IMF, In e na ional Financial
S a is ics.
84 SCHNABL
income o small- and medium-sized egional banks (Schnabl & Sonnenbe g, 2021). In con as , la ge banks could be -
e p o i om luc a i e in es men banking. In he co po a e sec o , co po a e bond pu chases, eu o dep ecia ion,
public subsidies, and p oli e a ing egula ion ha e con ibu ed o concen a ion by a o ing la ge en i ies.
Rising p ices, i s in he eal es a e sec o and hen o consume goods and se ices, ha e dis u bed he unc-
ioning o he p ice sys em. P ice con ols in he ene gy, housing, and labo ma ke s, ha aim o con ain he loss o
pu chasing powe , u he dis u b he signaling unc ion o p ices.
I low-in e es a e policies con ibu e o as ising eal es a e p ices, cons uc ion booms a e induced, which
des abilize a e hei end he banking sec o due o non-pe o ming loans and igh e egula ion, as obse ed ollow-
ing he Eu opean inancial and deb c isis. Wi h he capi al alloca ion unc ion o banks unde mined, p i a e c edi
ends o be subs i u ed by public c edi , wi h he la e one being delinked om p o i abili y. The inc easingly expan-
siona y mone a y policy o he ECB has been unde mining g ow h ia less eedom o con ac , as i a o ed g owing
egula ion, o ins ance, in o m o mo e social secu i y, en i onmen and clima e p o ec ion guidelines
(Schnabl, 2023).
55
G owing egula ion shi s he labo o ce om p oduc i e pa s o he p oduc ion p ocess o unp oduc i e pa s.
A g owing sha e o he labo o ce in banks and co po a ions is abso bed by a p oli e a ing bu eauc acy linked o
da a collec ion and epo ing. The public sec o g ows because new egula ions ha e o be made, implemen ed, mon-
i o ed, and e ised. The bu eauc acy will be u he compounded by he mo e om decen alized o cen alized capi-
al alloca ion ia he axonomy, which will u he slowdown g ow h as subs an ial pa s o he capi al s ock a e
likely o be de alued.
The ising scale o mone a y and iscal in e en ions, which a e bes e lec ed by he size o he balance shee o
he Eu osys em (Figu e 5) and g owing go e nmen expendi u e ha e come in o con lic wi h he cons ancy in eco-
nomic policy making. Whe eas in c ises employmen could be s abilized, unin ended side e ec s o cen al bank and
go e nmen in e en ions in o m o e-eme ging bubbles, excessi e isk- aking, and mo al haza d ha e been he
consequence. Meanwhile, mac oeconomic in e en ions ha e caused o e hea ed labo ma ke s, which ha e become
an addi ional d i ing o ce o in la ion. As he unce ain y is g owing, in es men and g ow h decline, wi h co po a-
ions sa ing ins ead o in es ing (Schnabl, 2019b).
Al hough he eal GDP o Ge many seems s ill a a his o ically eco d le el, al e na i e measu es o weal h poin
in o a di e en di ec ion. Real GDP has con inued o g ow, bu eal in e es a es a e nega i e since many yea s, and
since he yea 2021, he eal wage le el is alling. The public pe cep ion o weal h s ongly hinges on he measu e-
men o consume p ices, which may be biased downwa ds due o he adjus men o quali y and o weigh s as well
as due o he exclusion o asse p ices and owne -occupied housing in in la ion measu emen (Is ael &
Schnabl, 2023).
56
4.2 |Nega i e dis ibu ion e ec s and poli ical s abili y
Al ed Mülle -A mack (1956) had a gued ha he ee ma ke i sel had social consequences, because i gene a ed
weal h and aligned he p oduc ion s uc u e wi h he p e e ences o consume s. As in la ion has nega i e dis ibu ion
e ec s a he cos o people wi h low incomes, he ega ded p ice s abili y and compe i ion as ha ing posi i e social
consequences. I he mone a y policy o he ECB leads o in la ion and eal wage ep ession, he eu o has unsocial
consequences. Whe eas in pos -wa Wes Ge many a la ge middle class eme ged, he e osion o he ma ke o de
isks sh inking he middle class ia he nega i e dis ibu ion e ec s o inc easingly expansiona y mone a y, iscal, and
egula ion policies.
55
As egula ion usually inc eases he cos s o co po a ions, i is poli ically easie o implemen , i inancial compensa ion p o ided. Financial compensa ion
was o a long ime acili a ed by mone a y expansion.
56
Pe cei ed in la ion as measu ed by he Eu opean Commission is much highe han o icially measu ed in la ion.
SCHNABL 91

The inc easingly expansiona y mone a y policy has dis ibu ion e ec s because he go e nmen bond pu chases
o he cen al bank dep ess in e es a es, while ising in la ion de alues cash holdings and bank deposi s. I he low-
isk asse s a e o e -p opo ionally held by he middle class and social secu i y expendi u e o he low-income class
has been inc easing bo h in nominal e ms and a sha e o GDP (as shown in Figu e 7), he bu den is mos ly bo n by
he middle class. The e is a edis ibu ion om he middle- o he high-income classes, i he inc easingly expansion-
a y mone a y policy d i es up he p ices o s ocks and eal es a e, which end o be o e -p opo ionally held by high-
income classes.
57
In con as , in e es a es on bank deposi s ha a e in speci ic held by he middle class a e
dep essed in nominal and eal e ms.
58
This also in ol es a edis ibu ion om he younge o he olde gene a ion, because asse s a e mos ly held by
he olde gene a ion. Young people ha e o wo k longe han ea lie gene a ions o build up weal h. This is e en
mo e he case, when declining p oduc i i y g ow h due o zombi ica ion dep esses wages o young people when
en e ing he labo ma ke compa ed wi h p e ious gene a ions. Social ad ancemen has become di icul , and hous-
ing has become una o dable. The concen a ion wi hin he inancial and he co po a e sec o implies g owing
income inequali y, because he Ge man middle class has been s ongly in e wined wi h he small and medium banks
and co po a ions.
The ECB has ex ended he scale o go e nmen expendi u e by pu chasing go e nmen bonds, dep essing in e -
es obliga ions, and inc easing ax e enues by s imula ing he business cycle. Recipien s o social secu i y con ibu-
ions and people being employed in he public sec o ha e p o i ed om g owing—cen al bank-backed—social
secu i y and ela ed expendi u e. La ge co po a ions, which a e well-o ganized in lobbying, could bene i a he cos
o less o ganized business g oups om subsidies.
Regula ion can co ec ma ke ailu es (Bonb igh , 1961) bu can also gene a e en s by edi ec ing demand o
poli ically in luen ial g oups (Posne , 1974; S igle , 1971). G owing egula ion mo e han p opo ionally inc eased he
bu den o he small and medium banks ela i e o la ge banks in an en i onmen o dep essed in e es ma gins.
FIGURE 7 Ge many social secu i y spending as pe cen o GDP. Sou ce: Ge many, Bundesminis e ium ü A bei
und Soziales.
57
As desc ibed by Can illon (2010), i , o ins ance, newly issued money, is used o buy eal es a e o o he asse s, hese asse s can be bough s ill a a low
p ice. I he newly issued money sp eads a ound in he economy, he p ices ha e al eady inc eased.
58
Real deposi a es a e s ongly nega i e.
92 SCHNABL
The same is he case o small co po a ions in compa ison wi h la ge co po a ions, as in gene al, he adminis a i e
bu den is mo e di icul o handle o small en i ies.
The dis ibu ion e ec s be ween he p i a e and public sec o as well as be ween banks and co po a ions
o di e en sizes ha e come along wi h di e en egional g ow h dynamics. Regions, whe e he public adminis-
a ion is clus e ed, pa icula ly in Be lin and he capi als o he Lände , ha e con inued o g ow. The egions
wi h p oduc ion si es o la ge co po a ions ha e exhibi ed g owing weal h. In con as , egions wi h only small
and medium co po a ions ha e ended o su e om weak economic ac i i y. Young people ha e ended o
mig a e om emo e egions wi h weak economic ac i i y o adminis a i e and economic cen e s wi h buoyan
economic ac i i y, mos ly la ge and medium ci ies. Gi en low bi h a es, he popula ion in he coun yside
sh inks.
The upsho is ha g owing inequali y o incomes and weal h has led o g owing poli ical dissa is ac ion as
e lec ed in he declining suppo o he leading pa ies CDU/CSU und SPD, o me ly dubbed “Volkspa eien”
(people's pa ies).
5|THE FUTURE OF PRIVATE PROPERTY AND POLITICAL STABILITY IN
GERMANY AND EUROPE
Wi h he ising po en ial o dis ibu ion con lic s, p i a e p ope y as embedded in he Ge man Basic Law is pu
inc easingly in o ques ion. Hiking eal es a e p ices and en s ha e igge ed demands o exp op ia e la ge housing
co po a ions. The land ans e ax has isen. As he public spending obliga ions o he social secu i y sys em ha e
expanded as , a subs an ial inc ease o inhe i ance and gi ax has been b ough in o discussion.
Nega i e in e es a es, which we e o many yea s cha ged by he ECB on he deposi s o banks a he ECB and
which we e inc easingly shi ed by he comme cial banks o he deposi o s, can be seen as an exp op ia ion o banks
and sa e s (Ki chho , 2021). They may come back, once he digi al eu o will be in oduced, as en isaged by he
ECB. While Ge many anks high among he OECD coun ies wi h espec o he bu den o axes and social secu i y
con ibu ions, high in la ion is added, which is missing democ a ic legi imiza ion.
In he ace o ising en s, en con ols can be seen—gi en ising in e es a es and ising in la ion—as c eeping
exp op ia ion o landlo ds. In he ace o he clima e policy, he planned o ced eplacemen o oil- and gas-based
hea ing de ices is seen as exp op ia ion as well (Ki chho , 2023). Fa me s complain abou g owing es ic ions on
land use linked o en i onmen al policy.
This implies ha as p edic ed by Eucken (1952), he e osion o p ice s abili y has come along wi h he e osion o
all o he cons i u i e p inciples o a ma ke economy. Ge many has ceased o be he g ow h engine o Eu ope, wi h
wel a e declining all o e Eu ope due o he ising in la ion. The poli ical ins abili y is g owing.
The e o e, he ecen mone a y igh ening o he ECB is an app op ia e policy measu e o econs i u e p ice s a-
bili y and o eanima e g ow h. As in la ion is caused no only by undue mone a y expansion bu also by iscal expan-
sion and p oli e a ing egula ion, he e u n o a low in la ion en i onmen in he EU would also necessi a e a
decisi e educ ion o go e nmen expendi u e and comp ehensi e de egula ion.
Fo such e o ms, he 1948 cu ency and economic e o ms o Wes Ge many p o ide an impo an blue-
p in , bo h wi h espec o he implemen a ion and he esul ing bene i s. As he necessa y es uc u ing o he
Ge man economy would come along wi h a nega i e impac on g ow h in he sho e m, i cons i u es a poli ical
challenge.
As s uc u al e o ms a e likely o be e en mo e di icul in a highly he e ogenous EU han in occupied pos -wa
Wes Ge many, u u e esea ch should explo e he ways how o implemen e o ms in he EU.
ACKNOWLEDGEMENTS
Open Access unding enabled and o ganized by P ojek DEAL.
SCHNABL 93
DATA AVAILABILITY STATEMENT
Da a sha ing is no applicable o his a icle as no da ase s we e gene a ed o analyzed du ing he cu en s udy.
ORCID
Gun he Schnabl h ps://o cid.o g/0000-0001-5119-0682
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