ABSTRACT
This chapter focuses on the German political economy and argues that Europe and the Eurozone in particular have a tendency towards secular stagnation. It explains how the North American and Chinese growth mitigates the tendency to secular stagnation in northern Europe. The chapter describes intra-European imbalances to show why losses by the European banks in the United States housing market disrupted the flow of capital from north to south, triggering the European crisis. Europe has also historically presented lower female labour force participation on average, though again with big regional differences favouring Northern Europe, and with some rapid catch-up in the 2000s. The German political economy is characterized by collectively bargained wage repression and a reliance on capital goods exports to other, more rapidly growing economies. Short-term policy changes to the welfare state also diminished German consumption overall while shifting consumption away from imports.
