The German Doctrine of Ordoliberalism

OrdoliberalismOrdoliberalism is an branch of classical liberalism that developed during the time of the Nazi party. They didn’t agree with the planned economies of Nazi Germany and the Soviet Union. Furthermore, the free market and Keynesian beliefs were also rejected. They did follow the work of Austrian economist Friedrich Hayek and both agreed that deficit spending for to stimulate demand (demand management) was ill-advised. Where they differed was ordoliberalism believed in strong government control to create a framework of rules that provide order to assist the free market. There were three main features of ordoliberalism:

– An antitrust policy to cope with cartels
– Strict monetary policy focusing on price stability
– Tough insolvency laws

With the onset of the global financial crisis Keynesian fiscal stimulus economics was back in vogue. Although Germany endorsed this policy the euro crisis led them to argue for the anti-Keynesian idea of spending cuts at a time of declining demand. The German constitution requires states to balance their budgets by 2020 and limit borrowing from the Federal government. Germany has also forced similar rules on other EU countries through the 2012 fiscal-compact treaty, partly to limit its own liability to them. The German culture of adhering to rules is very prevalent in Ordoliberalism and they stress the euro zone’s no bailout rule. Mario Monti, a former Italian prime minister, likes to claim that in Germany economics is seen as a branch of moral philosophy.

Source: The Economist

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