Is the Left taking over Germany? Is Germany becoming more isolationist? Is the country returning to the 18th Century provincialism? According to Jacob Heilbrunn’s article in the National Interest, the answer is affirmative to all these questions. However, I find this beautifully written characterization of modern-day Germany puzzling. This perspective seems to be suggesting that Germany is almost about to become another Italy – except with better mass market car production. Let me point out some points about the beauty of Germany capitalism.

Free market supporting Free Democrats gained seats in the 2009 parliamentary elections. Center-right Christian democrats did much better than their former coalition partner Social Democratic Party. The results of last elections show a strong support the center-right political agenda despite of the financial crisis. The success of the extreme left party Die Linke stems from the weakness of Social Democrats and populism of Die Linke’s leaders such as Oscar Lafontaine (who retired in January).

Opinion polls suggest that more Germans see capitalism as the best possible system than Americans, Brits, Australians, Canadians and of course, French, Italians and Spanish do. The Economist (February 13) issue shows that less than 10 % of Germans agree that capitalism is fatally flawed and a different economic system is needed. Roughly 13 % of Americans and 42 % of French agree with this statement.

The recent Economist survey suggests that Germany has become more Anglo-Saxon in its economic policy reforms. In this context, Rammstein’s song “Amerika ist Wunderbar” should be seen as a sincere statement – not sarcastic one. The government has reformed some elements social welfare system and it looks in much better shape than other continental European countries. Germany has been much more successful than the US and UK in implementing conservative fiscal policy and is a strong supporter at European Central Bank of sound monetary policies.

As far as isolationism is concerned, German politicians have sent troops to Balkans and Afghanistan despite of wide-spread pacifism at home. They may be reluctant to commit more troops (they are already third largest contributor) to Afghanistan and making more straightforward contribution by lifting the limits for engagement. Similarly, German politicians may be reluctant to bailout Greece but it is not clear why this reluctance to help other countries in the middle of debt-crisis has to be seen as a sign of isolationism. If we factor in historical, constitutional and political economy factors for the limited military engagement and the reluctance for bailout, then it is hardly a sign of German isolationism.

Most importantly, Germany is more engaged with the world through international trade than almost any other country. Even if the country is no longer the largest exporter in the world (the place was recently taken by China), it is the second largest exporter. Germany has managed to bring down real wages which has boosted the competiveness. As many small and medium sized firms are becoming more and more involved in international markets, it is difficult to argue that the country is moving towards greater isolationism.

The success of export-driven model has led to another type of criticism that Germany is not increasing its consumer spending and investments. Higher consumer spending and investments would increase demand in Germany for imports. This would allow Germany to export more as markets in its partner countries would expand. This criticism is offered from a particular macroeconomic perspective and it may have merit in the world of stylized economic models. As a matter of political economy, it is difficult to see how politicians could pull it off in the country that relies on the principles of fiscal conservatism and social equality. Lowering taxes requires cuts in government budget which would decrease social spending. Tax cuts without spending cuts would increase budget deficit.

All of this is not to say that Germany does not have any problems – certainly there are many such as rigid educational system, high unemployment in some regions and among some groups, too generous welfare state and so on. However, there is certainly more hope for Germany’s future than some commentators suggest. Fiat lux!