The 1948 German Currency and Economic Reform: Lessons for European Monetary Policy

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The European Monetary Union (EMU) is at a crossroads. Following the outbreak of the European financial and debt crisis in 2008, the European Central Bank (ECB) took unconventional measures to stabilize the common currency, cutting interest rates below zero and inflating its balance sheet via several asset purchase programs. While the ECB terminated these programs at the end of 2018, a new era of financial turmoil is on the horizon. Political instability and distrust are mounting in the face of economic unrest, and the proper policy regime for economic recovery remains murky.

This article explains the different views on European central bank policymaking from a historical perspective. It begins by describing the economic principles and monetary regime that constituted ordoliberalism, the political-economic theory credited for stabilizing postwar Germany and advancing European economic competition and integration. It then explains how the rise of the EMU and its recent crisis-era policies negated several of Germany’s primary economic principles and initiated a dramatic turnaround of the nation’s economic order. It concludes by offering a new set of economic policy recommendations for the EMU that will help reverse this new round of fiscal and political uncertainty.

Gunther Schnabl