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How Germany Won the Euro Crisis

And Why Its Gains Could Be Fleeting

German Chancellor Angela Merkel, May 15, 2013. Michaela Rehle / Courtesy Reuters

German Chancellor Angela Merkel must be in a mood to celebrate. Not only has the German economy bounced back from the 2008–9 financial crisis -- with revitalized export industries and record-low unemployment -- it has done so while most other European economies are still reeling. Where other countries see only economic hardship in their future, Germany sees an influx of skilled immigrants, low borrowing costs, a balanced budget, and a growing housing market. All of that is a boon for the German economy -- and for Merkel, who is up for reelection in September.

The common wisdom is that Germany’s success is the hard-won reward for strict economic management. Yet fiscal conservatism and structural reforms alone do not account for Germany’s export-led growth, which in fact is largely the product of adjustments in business and labor relations that reinvigorated German industries. The country also owes much of its economic

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