ABSTRACT
From 1948 to 1949, Germany revamped its institutions and policies and, in the process, established a new political-economic model that deeply influenced European developments to this day. The director of the economy was the Allied-appointed Ludwig Erhard, who used exceptional powers to introduce trade and price liberalisation. His efforts were supported by the occupiers’ reform of the German currency (i.e. the creation of the deutschmark) and by tight credit policies from the new Bank deutscher Länder, an independent body supervised by the Allies. The new Federal Republic came to be characterised by political decision-making legitimised by expertise that promoted a social market programme. By relying on expert authority, Germany featured innovations for Continental Europe that significantly increased state capacity. There was initially wide opposition to radical reforms, but early price stabilisation and fast growth led public opinion to endorse the new republic. This helped a Christian-Democrat-led coalition to gain power. As Erhard joined the party, the new social market programme crystallised around elements of the ordoliberal school, notably low inflation, free trade, and a commitment to broad social welfare.
