The Recession in Germany


Germany exited recession quicker than the United States, but only after an even worse first quarter:


Krugman comments:

Yes, Germany grew in the second quarter — but this was after suffering a much deeper slump than the US, despite the fact that Germany didn’t have a housing bubble.

So you don’t want to jump to the conclusion that Germany responded well to the crisis.

That sounds right; the correct criteria isn’t “number of recessionary quarters” but “depth of contraction” and we’re doing better than they are. But what’s interesting about this is that the Germany path—harder fall, faster turnaround—seems to me to be what we would expect from the more flexible American business model. In continental Europe, it’s generally harder to fire workers, which ought to protect the economy during recessions at the expense of slowing down recovery since firms are more cautious to expand their workforce. In general, a big part of the point of the more expansive routine state involvement in the economy is supposed to be to moderate the business cycle. Germany seems to be doing the reverse.