Germany in the Euro Area Crisis

Abstract

This article examines Germany’s move to centre stage in the management of the sovereign debt crisis that has ravaged the euro area since the beginning of 2010. The German government has been influential in deciding the pace and design of rescue packages, and also in the ongoing reform of governance in the euro area. Germany’s dominance can be explained by its large contribution to the rescue packages, by its relative economic strength and by the role of potential veto players such as the German Parliament and the German Constitutional Court. Germany’s positions on crisis management and on governance reform reflect its approach during the Maastricht negotiations: to minimise risk-sharing and joint liabilities so as to avoid moral hazard, to increase control and the credibility of rule-based coordination, to enable European control of national policies, and to strengthen the market mechanism to discipline national policy choices.