Ordoliberalism in the German Financial System and the Financial Crisis: A Comparison to the U.S.
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The systematic risks have risen in the global financial system since the 1990s and bursted in 2007. Germany has been able to maintain the stability of its financial system relatively well compared to other European countries and the U.S. The recent resurgence of interest on the ordoliberal ideas of the German economic institutions drives from the incidences of the global financial crisis in 2007 and the subsequent eurozone crisis in 2009. Praises and criticisms of ordoliberalism are based on the resilience of the German financial system during and after the crises and the reluctance of Germany in coming to rescue some of the troubled members of the EU, respectively. This study uses some financial resources from the IMF’s financial development data to visualize differences of the German and the U.S. financial systems in comparative perspective. This study shows that the German financial system can be labeled as a high-liability, low-profitability, and high-regulation position while the U.S. system can be posited as being a low-liability, high-profitability, and low-regulation one. The authors postulate that these differences reveal the ordoliberal attributes of the German financial system vis-a-vis the U.S. financial system, the former with more emphasis on the principles of liability (Haftungsprinzip) and common good (Gemeinwohl) of the ordoliberal ideas. The German financial system faces tremendous challenges and tasks to reform and change its profound bank-based financial system. Somehow, it has to assimilate to the global financial order of the market-based institutions. However, Germany would not hasten to forsake its traditional use of finance and adapt itself to the new financial market order that the global economy demands only with time.
Abstract
The systematic risks have risen in the global financial system since the 1990s and bursted in 2007. Germany has been able to maintain the stability of its financial system relatively well compared to other European countries and the U.S. The recent resurgence of interest on the ordoliberal ideas of the German economic institutions drives from the incidences of the global financial crisis in 2007 and the subsequent eurozone crisis in 2009. Praises and criticisms of ordoliberalism are based on the resilience of the German financial system during and after the crises and the reluctance of Germany in coming to rescue some of the troubled members of the EU, respectively. This study uses some financial resources from the IMF’s financial development data to visualize differences of the German and the U.S. financial systems in comparative perspective. This study shows that the German financial system can be labeled as a high-liability, low-profitability, and high-regulation position while the U.S. system can be posited as being a low-liability, high-profitability, and low-regulation one. The authors postulate that these differences reveal the ordoliberal attributes of the German financial system vis-a-vis the U.S. financial system, the former with more emphasis on the principles of liability (Haftungsprinzip) and common good (Gemeinwohl) of the ordoliberal ideas. The German financial system faces tremendous challenges and tasks to reform and change its profound bank-based financial system. Somehow, it has to assimilate to the global financial order of the market-based institutions. However, Germany would not hasten to forsake its traditional use of finance and adapt itself to the new financial market order that the global economy demands only with time.
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