Ordoliberalism vs Pragmatism Merkel Keeps Her Distance from Economist Advisors

Angela Merkel is to deliver the keynote speech at the Eucken Institute in Freiburg, to commemorate the 125th birthday of Walter Eucken, the founder of ordoliberalism. Yet the pragmatic chancellor is more likely to follow the public mood than the advice of Germany's economists.
Merkel is on her way to Freiburg.

On Wednesday, Angela Merkel travels to Freiburg to give a keynote speech that will honor the 125th anniversary of the birth of Walter Eucken, the founder of ordoliberalism.

In some ways she is marching into the lions' den.

Ordoliberalism is a German variant of social market liberalism. It emphasizes the need for state oversight and intervention to ensure the order that free markets need to function most efficiently.

In the Anglo-Saxon world, Germany's ordoliberalism has been closely linked to the country's approach to the euro crisis and has been criticized for Berlin's push of austerity measures.

Yet, while Ms. Merkel is likely to touch on the merits of ordoliberalism in her speech, she has not always strictly adhered to its tenets.

Economists should not expect that politicians will implement their proposals word for word. Jörg Rocholl, President of the European School of Management and Technology

Back in 2003, a fiercely pro free-market Ms. Merkel, then opposition leader, celebrated her greatest triumph as a reformer at the Leipzig party congress, to the applause of Germany's economists. But in 2005, the same political course almost lost her the federal election.

Since then, the former physicist has employed scientific precision to analyze how much economics her politics can withstand. The longer she governs, the further apart she drifts from the country's economists. Unlike the economic theorists in universities, “democratic politicians always have to win necessary majorities to implement their decisions,” she said on August 20, 2014, at the Economic Nobel Prize winners meeting in Lindau.

At that meeting she also revealed that since the global financial crisis in 2008, she has regarded economic models skeptically. She reprimanded the attending representatives, among them 17 Nobel Prize winners, saying that the economic forecasts had not matched the hard reality. For one thing, the theories were obviously not comprehensive enough, she said.

“In any case, you did not get the impression that the majority has made the right predictions,” she badgered the assembled economic elite.

She followed that up with a lecture on the scientific method as she had learnt it as a physicist, and advice to apply stronger tests to the results of their economic modeling.

 

 

As far back as 2011 Ms. Merkel reacted coolly to Lüder Gerkens, the director of the Centre for European Policy, a German think tank which assesses the E.U.'s draft legislation in accordance with ordoliberal principles.

Mr. Gerkens openly asked Ms. Merkel to deliver a keynote speech on regulatory policy in the euro crisis based on the principles of ordoliberalism.

Mr. Feld recalls that Ms. Merkel rejected the request and explained her political pragmatism.

“In cooperation with the German Council of Economic Experts she takes our opinions very seriously,” Mr. Feld says, referring to the group of five economists that advises the government, “but she points out that more needs to be taken into account than purely economic aspects.”

Four of the five experts are regarded as adherents to ordoliberalism. Only one, Peter Bofinger, identifies as a Keynesian.

In general, the mood of the population is more important to Ms. Merkel than the advice of economists - whether that be on the minimum wage or energy policy.

Ms. Merkel's keeps her distance from the economist advisors. By contrast, during Gerhard Schröder's time, the then head of the Council of Economic Experts, Bert Rürup, could simply call the SPD chancellor and the deal was done that day. The five members of the council have the privilege to be able to meet the chancellor once or twice a year in person, when she holds a one-and-a-half hour lunch meeting with them. Otherwise, the economists have to make do with access to Ms. Merkel's economic adviser Lars-Hendrik Röller.

Relations reached their lowest point on November 12, 2014. In response to a critical report by the council, Chancellor Angela Merkel and her grand coalition argued that the economists had got it all wrong.

The report by the economic advisors basically said that government policies were scaring off investors, and thus hampering growth.

The council offered an economic reckoning with government policy, including newly introduced pensions for mothers and the reduction of the retirement age to 63, as well as the new minimum wage of €8.50 ($9.20), which was to come into force at the beginning of 2015. In thanking the economics professors for their efforts, Ms. Merkel remarked, “It is not particularly easy to understand how a decision which is not yet in force can be the cause of economic slow down.”

The chairman of the council, Christoph Schmidt, promptly fired back in calling Ms. Merkel's economic policy a “step backwards.” The governing coalition of Ms. Merkel's Christian Democrats and the center-left Social Democrats closed ranks in an uncharacteristic solidarity and decided that it was the Council of Experts who were behind the times.

Jörg Rocholl, economics professor and president of the European School of Management and Technology (ESMT), says politicians often need to decide in real time, whereas economists base their review and predictions on the long-term analysis of data.

“There have been, right from the start, different approaches that have often resulted in different assessments,” he said.

Politicians are exposed to different stakeholders with their own interests, Mr. Rocholl said.

“Economists can contribute to clarification here,” he said, “but they should not expect that politicians will implement their proposals word for word.”

Mr. Rocholl's predecessor as head of ESMT was Lars-Hendrik Röller, who now heads the finance and economic policy division at the chancellor's office.

But he too has changed, from a university professor to a political advisor who follows the reactions of the public or of the parliamentary groups equally. As does Uwe Corsepius,  Ms. Merkel's Europe adviser. In the euro crisis, even he has been led more by what is feasible than by down-the-line regulatory principles.

These are the practitioners who Ms. Merkel appreciates. In the last year, in dealing with the Greek bailout, she'd also telephoned frequently with her former economic adviser, Jens Weidmann, who today is president of the Bundesbank.

Two years ago it was Mr. Weidmann who gave the Walter Eucken lecture in Freiburg. His talk, titled “Crisis management and governance,” tried to bridge the gap between the world of Angela Merkel and the economists.

 

Jan Hildebrand leads Handelsblatt's financial policy coverage from Berlin, Donata Riedel covers economic policy, Thomas Sigmund is the Berlin bureau chief and leads the paper's politics coverage. To contact the authors: [email protected], [email protected], [email protected]