Crashed: How a Decade of Financial Crises Changed the World

by Adam Tooze

At the G20 in London, Merkel and Sarkozy had taken a public stance on the need for financial consolidation. In large measure this was political theater. Given the shock to Germany’s export sector, Merkel’s government could not ignore calls for a stimulus package. Unemployment was surging, and in the coming autumn the CDU and SPD had an election to fight. Early in 2009 Angela Merkel’s grand coalition brokered a deal. Finance Minister Steinbrück reluctantly agreed to a modest emergency package of extra spending and tax cuts.31 Automatic stabilizers would take care of the rest. But the question of fiscal consolidation that had preoccupied Merkel’s grand coalition since 2005 could no longer be dodged. The SPD and CDU agreed that even as they administered the stimulus, budget balance at both the national and regional levels of government would be enshrined in a constitutional amendment. This was not a resolution forced on Germany by panic in the bond markets or immediate financial necessity. German government bonds (Bunds) were for the eurozone what US Treasurys were for the dollar world, the safe asset of choice.32 Despite its gaping deficit in 2009, Germany had no difficulty selling debt. It was not markets but the cross-party consensus on fiscal consolidation that had emerged before the crisis that dictated a decisive and irrevocable turn toward austerity. It was a decision driven by a long-term vision of competitiveness and retrenchment, the lobbying of taxpayer and busines...

Blargh