Is Germany's Model Best?

German Unity Day underscores country's history and progress

05/10/2012 Barcelona

2010 Argandoña_04_MEI2_IESE_056692

This week, German citizens observed German Unity Day, an event that commemorates the anniversary of German reunification in 1990. Since then, Germany has become a key economic player in Europe, due to an economic model based on budget austerity and labor market flexibility. This approach has softened the blow of the global crisis on Germany's own economy.

In a recent paper featured by IESE Insight, Prof. Antonio Argandoña examines how Germany's model might be applied to other Eurozone countries.

Germany's policies have evolved over the last 60 years, gradually gaining acceptance and becoming an integral part of the culture, he says. Switching to a German model could be problematic for weaker European economies, which are now seeking new ways to strengthen their economies. Countries such as Spain might benefit from certain reforms that could make the society more efficient and thrifty, he argues, as well as the introduction of more labor flexibility. Yet any policies modeled after those of Germany have to be adapted to the needs and preferences of other countries, he says.

Germany has issued warnings to weaker countries since the onset of the crisis, urging greater austerity. Since Germany's financial institutions were among those that invested so heavily in public and private debt of today's struggling nations, Germany should be willing to help identify a wider range of solutions to a problem that affects all its E.U. partners, he says.

Read the paper.