A Panacea for all Times? The German Stability Culture as Strategic Political Resource

Abstract

The German Stability Culture is frequently pointed to in the literature as the source of the country’s low inflation policies and, at the European Union level, the design of Economic and Monetary Union (EMU). In Germany, the term was regularly wielded by central bankers and Christian Democrat (CDU–CSU) politicians to legitimise the move to EMU in the face of a large majority of public opinion opposed – and subsequent EU-level policy developments – particularly in the context of the eurozone debt crisis that erupted in 2009. An ordered probit analysis is used to demonstrate the depth of the German Stability Culture, showing support for low inflation cuts across all party and ideological lines. Despite this ubiquity, the term has been wielded with regularity only by the centre-right Christian Democrats and is strongly associated with this party. A strategic constructivist analysis is employed to explain this uneven but persistent usage in German domestic politics.

Notes

1. This research is based on qualitative analysis of primary and secondary documents, especially a systematic review of plenary minutes of the German Bundestag (Lower House) from 1998 to 2011 and research interviews with Bundestag parliamentarians who served at some point in the period from 1980 to 2011, and EU economic and financial affairs officials in both the European Commission and the Council. The original quoted material from the German is translated by the authors into English.

2. There are two Christian Democratic parties: the Christlich Soziale Union (CSU), which is restricted to the Land of Bavaria, and the larger Christlich Demokratische Union (CDU), which runs candidates in all other Länder. Since the two parties do not compete and have always formed a common delegation in the federal parliament, they are treated as one single party to which we refer as the CDU for brevity’s sake. However, we note that that the CSU and CDU do have distinctive positions on the EU and EMU (the CSU has been consistently more sceptical on both).

3. Although at its core a paradigm pertaining to monetary policy, Stability Culture has a distinct fiscal component. At the heart of the construction of the pan-European Stability Culture was the claim that high deficits would cause inflation (EMI 1996; González-Páramo 2005). It is by now established that the link between deficits and inflation is tentative at best and does not seem to apply to low-inflation advanced economies (Cato and Terrones 2005). Nonetheless, the ‘fiscal view’ of inflation has been important for the strategic construction and acceptance of the economic content of Stability Culture encompassing both monetary and fiscal policy.

4. We are furthermore aware of the shortcomings of proxying Stability Culture on the basis of its monetary – albeit central – component only. Lack of data for measuring ‘deficit aversion’ prevented us from sizing its fiscal dimension. However, working solely on inflation aversion should not present a problem as the two components are likely to be highly correlated.

5. Two other related surveys by the International Social Survey Progamme (ISSP) and the Eurobarometer cover a much shorter time-span and their limited scope does not supply suitable control variables.

6. Recoding the dependent variable to a binary variable (1 = ‘fight against inflation as first policy priority’ and 0 otherwise) and employing a simple probit model does not substantially alter the conclusions to be drawn.

7. It is worth noting that evidence in the form of a Chow test for structural change across time indicates that the sets of coefficients for all the specifications are not significantly different for the periods before and after the introduction of the euro.

8. A far left party partisan dummy (taking the value 1 if a respondent would vote for the far left party) has not been included in the main model, as the German far left party (die Linke, also PDS and WASG) has only been included in the survey since 1991. To further test for a partisan effect on Stability Culture we ran the main model including this far left party dummy for the 1991–2008 period. The coefficient for far left party voters (0.15, significant at the 1 per cent level) suggests that they are even more inflation averse than CDU/SPD voters, further demonstrating how stability culture transcends the traditional left–right divide.

9. Leitsatz zum Beschluss des Zweiten Senats vom 31. März 1998, available at http://www.bverfg.de/entscheidungen/rs19980331_2bvr187797.html

10. For a critical analysis of public opinion polling on German support for the single currency, see Gros and Roth (2011).

11. Deutscher Bundestag – 178. Sitzung. Berlin, Mittwoch, den 26. November 2003.

12. Deutsche Bundestag – 217. Sitzung. Berlin, Mittwoch, den 20. Februar 2002.

13. Ibid.

14. 51 per cent of the German population thought that the euro did not ease the economic and financial crisis, whereas the European average was at 45 per cent (Commission 2009).

15. Interestingly, while Weidemann made reference to Stability Culture on four occasions, Axel Weber did not use this term in his inaugural address in 2003.

16. Author interview with two parliamentarians, one CDU and SPD, involved in the federalism reform, 4 April 2010, Berlin.

17. Steinbrück was described by one of the negotiators as the ‘saviour of the debt brake’ (author interview, 4 May 2010, Berlin).