Germany's current crisis offers it a chance to break its gridlock

Institutional settings that worked well for it in the past have outlived their utility and demand wholesale reconsideration now

- BARRY EICHENGREEN

Germany is the poster child for everything that is wrong with the European economy. GDP is on track to fall for a second straight year. Energy-intensive industries like chemicals and metalwork are in the tank. National champions such as Volkswagen and ThyssenKrupp have announced unprecedented job cuts and factory closures.

I have long argued that the best way to understand these problems is as a negative consequence of Germany's own prior economic success and of the institutional underpinnings of those earlier achievements. The German economy's current malaise is further evidence of this.

In the aftermath of World War II, a period of upheaval and crisis but also of renovation and opportunity, what was then West Germany developed a set of economic and political institutions ideally suited to the conditions of the time. To capitalize on its existing prowess in quality manufacturing, policymakers put in place successful vocational training and apprenticeship programmes that expanded the supply of skilled mechanics and technicians. To exploit rapidly growing world trade and penetrate global export markets, German industry doubled down on the auto production and capital goods, fields where it had a pronounced comparative advantage. West Germany also built a bank-based financial system to channel funds to dominant firms in these sectors. To ensure harmony in its large companies and limit workplace disruptions, it developed a system of management co-determination that meant C-suite decisions had workers' inputs.