Germany and the Euro-Zone Crisis: Between Hegemony and Domestic Politics
This paper explores Germany’s centrality to the outcome of the euro-zone crisis. It situates the current crisis in a longer-term review of German centrality to economic and monetary integration in the EU as well as to integration more widely. The principles of German political economy have influenced past policy debates, the design of monetary union itself and are once again prominent in the current crisis. In the past Germany has managed to reconcile its twin postwar objectives of sound money and European integration. However, the euro-zone crisis makes that very difficult. On the one hand, the austerity policies required by the principle of sound money have created divisions within the euro-zone and could potentially contribute to its break-up. On the other, the domestic consensus behind European integration has gradually been eroded, making internal politics as well as litigation much more salient than at any previous stage of monetary integration. In order to analyze German centrality, its emergence as a hegemon is explored empirically and analytically to identify the expectations it is confronted with in helping find a solution to the crisis. These expectations are then contrasted with the domestic capabilities of the German federal government in finding such a solution, given the greater politicization of European policy, the interventions of the Federal Constitutional Court and other actors.