Andy Storey – The Myths of Ordoliberalism

As this article demonstrates, EU financial policy is neither determined by law, nor through democratic process, but by its hegemon German led capital.

Andy Storey is a lecturer in political economy at University College Dublin and a board member of human rights group Action from Ireland (Afri).




Ordoliberalism, Germany’s allegedly distinctive and dominant economic philosophy, has been cited by a large number of influential writers – including Mark Blyth, Wolfgang Streeck and Vivien Schmidt – as a major, even determining, influence over German and European economic policy in recent years.  The claim is often an exaggeration and, more importantly, misleading.  Ordoliberalism has been, and is, much less influential than is often assumed to be the case.

And yet the importance attributed to it is itself significant because it serves to distract attention from the real forces driving policy.  In particular, to focus on European (especially German) leaders’ claimed commitment to ordoliberalism suggests that they are (partially at least) prisoners of rigid belief systems, victims of forces that are almost beyond their conscious control.  This is not the case.

The essence of ordoliberalism

Ordoliberalism constitutes a partially distinct strand of thought within a broader neoliberal canon; in fact, Pierre Dardot and Cristian Laval describe ordoliberalism as simply “the German form of neoliberalism.”  In line with the overall neoliberal outlook, competition within the framework of the market economy lies at the core of the ordoliberal philosophy.  For ordoliberals, enterprise and competition need to be fostered and protected, at the level of both the individual and the firm, they do not occur ‘naturally’.  Anti-competitive corporate or state practices (such as cartels or state monopolies) must be legally prohibited, while individuals must be obliged (and pushed where necessary) to take responsibility for their own economic welfare through the market

The competitive order has to be built and maintained by an Ordnungspolitik, an active and ‘ordering’ form of politics.   Absent this state-imposed legal ordo, market forces will not, left to their own devices, operate freely.  Crucially, the legal order underpinning ordoliberalism has to be based on agreed rules that are consistently followed and equally consistently enforced – inconsistency in the application of the rules (such as discretionary exemptions applied to certain actors) undermines the entire construction.

Another, closely related, feature of ordoliberalism is what David Woodruff describes as the “proper assignment of liability to market actors.”  A competitive market economy depends on entrepreneurs receiving their due rewards for their innovation and efforts, but also on those who fail the tests of the market being punished for their mistakes. In this sense, the ordoliberal outlook is underpinned not only by a legal order but also by certain moral principles. That, for example, the state would make good the losses that should be borne by failed businesses is, in principle, anathema to ordoliberalism.

Was EMU built along ordoliberal lines?

The Maastricht Treaty of 1992 – the blueprint for European Monetary Union (EMU) –stipulated that member states had to implement policy in “accordance with the principle of an open market economy with free competition.”  Maastricht thus appeared to institutionalise  the already pro-competition ethos of the EU, and the 1997 Amsterdam Treaty placed limits on states’ deficit spending and debt levels – through the Stability and Growth Pact (SGP) – and thus on the extent to which governments could economically intervene other than to promote the competitive market economy. In similar vein, the mandate and structure of the European Central Bank (ECB) sought to remove the scope for discretionary monetary policy from most national governments and even, ostensibly, from political influence of any sort.

But even in the 1990s, leading latter-day ordoliberals in Germany criticised Maastricht and the SGP on the grounds that they allowed, in practice, for political bargaining around the conduct of fiscal policy rather than constituting a strict rules-based and justiciable framework.  These criticisms would be borne out by subsequent flouting of the SGP rules by member states including France and Germany, neither of which was fined for its rule-breaking behaviour.  For genuine ordoliberals, this fiscal governance framework paved the way not for the rules-based, depoliticised economic decision-making they craved, but rather for ‘rules’ that could be ignored or bent according to the vagaries of political horse-trading.

Is the post-crisis EU now more of an ordoliberal construct?

Germany’s response to the European debt crisis involved expansionary policies that were more Keynesian than ordoliberal and a determined (largely successful) attempt to ensure that the debts of German banks were redeemed by public hand-outs misleadingly labelled ‘bail outs’ to peripheral countries. At the same time, however, the EU’s economic governance regime has been extended and expanded in ways that some see as conforming to a more ordoliberal blueprint.  It is thus possible to argue (albeit, in my view, unconvincingly) that, the longer-term model now unfolding involves a Europe-wide restoration and institutionalisation of ordoliberal principles.

Thomas Biebricher takes up this argument: “the central tenets of the political philosophy of ordoliberalism, which amounts to an authoritarian, undemocratic and technocratic view of politics, are currently being put into practice with the various reforms of European economic governance.”  Under the terms of new EU-level mechanisms such as the Fiscal Treaty (including seemingly stronger limits on deficits and debt than were contained in the SGP), the Macroeconomic Imbalance Procedure (MIP) and the Excessive Deficit Procedure, countries that do not abide by fiscal rules can be punished accordingly – by fines and/or by the withholding of support (including liquidity support from the ECB).

Biebricher concludes as follows:

“it [post-crisis EU economic regime] offers everything in terms of economic governance that the ordoliberals ever dreamed of.  With the MIP there is an actor/institution insulated from popular/democratic pressures that is capable of pushing through reforms even against the resistance of elected governments.  In all this the Commission relies on the advice of economic experts and thus switches to a [supposedly] depoliticized and technocratic mode of policymaking.”

A la carte legalism

But is this really the fulfilment of an ordoliberal dream? Those new powers are still applied asymmetrically: for example, Andrew Watt points out that a 2013 Commission review of countries’ macroeconomic imbalances typically accused Belgium and France of having excessive wage growth on the arbitrary basis that wage-suppressing Germany constituted the appropriate benchmark for comparison.  Likewise, the review criticized supposed labour market rigidities in France despite that fact that labour productivity was actually higher in France than in Germany.

This scope for arbitrariness is reflected also in the deployment of the macroeconomic targets to be aimed for, especially the ‘structural deficit’ – a concept that defies precise specification and measurement, let alone can be subject to proper judicial enforcement.  In practice, deficit fines were not automatically imposed on Spain and Portugal in 2016 despite their breach of Fiscal Treaty rules – realpolitik (in the probable sense on this occasion of not wishing to boost the electoral prospects of radical Left opposition parties in Iberia) can still trump the rigorous application of the supposedly set-in-stone regulations.  Ordoliberal misgivings about the Maastricht Treaty and the SGP laying the basis for discretionary horse-trading rather than even-handed rule-imposition have hardly, therefore, been assuaged.

And this is even before one takes into account the practices of the ECB in the context of the crisis and its aftermath, which are clearly deeply discretionary and political rather than rules-based and (notionally) depoliticised.  Wolfgang Streeck summarises ECB operations as follows:

“Today the ECB can at its discretion withhold liquidity from the banking systems of states that refuse to follow its precepts as to their public finances, the size and composition of their public sectors, and even the structure of their wage setting systems.  States and governments that do not ‘reform’ themselves in line with capitalist rectitude, and thereby fail to earn the confidence of international haute finance, can be punished in a broad variety of ways – while states that carry out institutional reforms as promoted by the Bank can be rewarded, even by the ECB printing fresh money for them, in violation or circumvention of EMU treaties.”

What Streeck here (accurately) describes is the exercise of unrestrained executive power and the more or less complete abandonment of strict, rules-based frameworks.  Whatever it is, it is certainly not ordoliberal.

Some of these actions have met with opposition within Germany, including the resignation of prominent German economists from the ECB and apparent opposition from the German Bundesbank president to the ECB’s decision to, essentially, supply money to compliant member states, the follow-through on the ECB president’s promise that he would do “whatever it takes” to preserve the euro.

But while Alternative für Deutschland, the German political party that initially most made an issue of those ordoliberal fears, registered dramatic electoral gains in September 2017, this was mainly due to its opposition to immigration, not its early commitment to ordoliberalism.  Meanwhile Merkel’s governments, in part under US pressure, have been prepared to go along with whatever slippery interpretation of, or disregard for, the rules is required to maintain the profitability of German (and other) banks, German hegemony within the Eurozone, or even the survival of the Eurozone itself.

Perhaps most remarkably, this a la carte legalism (or the lack of it) has been endorsed by Germany’s highest legal body, the German Constitutional Court (GCC). In 2012, the European Court of Justice (ECJ) declared that Europe’s economic governance was “legal per se” if it could be justified on the basis of defending “the financial stability of the euro area as a whole.” In 2012 and again in 2014, the GCC endorsed this extraordinary judgement – the German government, it was deemed, could legally do whatever it judged necessary to safeguard the stability of the eurozone: these judgements drive a coach and horses through any ordoliberal conception of neutral, objective, rules-based government.

It is not just the ECB, the ECJ, and the GCC that have adopted a flexible approach to economic ‘law’ in the context of the crisis. The Commission broke with its previous pattern by approving state aid of €82.5 billion to sectors such as car manufacturing between 2008 and 2010, though continuing to insist that governments could not use such aid to force companies to locate production solely within their own borders.  That this (limited) emergency aid might be seen as the exception that proved the general pro-competition rule could be argued on the basis of the Commission’s continued vigorous prosecution of cartels and other alleged corporate abuses of dominant market positions (such as by Google). Meanwhile, other forms of state aid – such as the Irish government’s claimed conferral of special tax concessions on the Apple corporation – remain subject to strong legal challenges from the Commission.

So is a version of ordoliberalism alive and well when it comes to EU competition policy? The claim would be stronger were it not for one glaring counter-example: the Commission Competition Directorate invoked, in 2008, a legal waiver based on Article 107(3b) of the treaties, allowing state aid where there was “serious disturbance in the economy of a Member State.”  It was this waiver that greenlighted governments to launch massive rescue and subsidy packages of their financial sectors, amounting ultimately to €4.5 trillion, the equivalent of over a third of EU GDP.  Nor did this aid come with swingeing conditionalities – the financial sector has been subjected to relatively limited reform despite the largesse it has been granted by the authorities.

Defending the economy from democracy

Europe has certainly taken growing steps to try and insulate economic decision-making from democratic influence. For example, during the 2012 debates on the Fiscal Treaty, German chancellor Merkel proclaimed that “the debt brakes will be binding forever. Never will you be able to change them through a parliamentary majority.”  However, this trend, while in line with the long-standing distaste for democracy of EU elites and with their preference for technocratic/expert decision-making, and also with the foundation charters of ordoliberalism, is by no means confined to Europe or to ordoliberalism. Significant and ongoing attempts to preclude the population from influencing economic policy are global in nature and are characteristic of all forms of neoliberalism and of capitalist governance more generally.

When the Syriza government in Greece sought to renegotiate austerity, German finance minister Schäuble said “Elections change nothing..[, t]here are rules,” while European Commission President Jean-Claude Juncker stated “there can be no democratic choice against the European treaties.”  What this article has above all else sought to demonstrate is that such unyielding rhetoric conceals a consistent willingness on the part of powerful forces in Europe to bend the rules and defy the treaties when it is in the interests of certain actors (including themselves) for them to do so.

Schäuble may boast that he comes from Freiburg (the home base of academic ordoliberalism) and espouse a nominally ordoliberal agenda.  But how does the strict rules-based regime of (ideal) ordoliberalism square with the massive bail out of European (including German) banks that the European ‘austerity’ (for some) regime demanded and that he personally championed?  Schäuble has the chutzpah to talk of the need for risk-takers to bear losses as well as to reap gains, but he has helped ensure that few such disciplines applied to German finance.

The new economic governance regime adopted by the EU since the crisis broke allows, in practice, for arbitrary judgements and inconsistent applications that are equally at odds with the ordoliberal notion of a legally adjudicated ‘level playing field’ for all.  The ECB, meanwhile, has dealt with the crisis by grossly overreaching its legal mandate (and has been supported in so doing by the German and European courts), while supposed prohibitions on state aid interfering with the workings of the ‘free’ market have not prevented an historically unprecedented public rescue of the private financial sector across Europe, once again subverting the ordoliberal commitment to the “proper assignment of liability to market actors.”

Ordoliberalism is largely an ideology (a mythology even) that is invoked to legitimise the exercise of a particular form of capitalist power. It is not, for the most part, a set of instructions that the wielders of that power are themselves prepared to live by.  Laws, like taxes, are only for the little people.


This is a summary version of Storey, A. (2017) ‘The Myths of Ordoliberalism’, Working Paper 17-02, ERC Project ‘European Unions’, University College Dublin, available (with full references) at:


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