Germany is reshaping the European economy in its own image. It is using its position as the largest economy and dominant creditor country to turn members of the eurozone into small replicas of itself – and the eurozone as a whole into a bigger one. This strategy will fail.

The Berlin consensus is in favour of stability-oriented policies: monetary policy should aim at price stability in the medium term; fiscal policy should aim at a balanced budget and low public debt. No whiff of Keynesian macroeconomic stabilisation should be admitted: that is the way to perdition.

To make this approach work, Germany has, historically, used shifts in its external balance to stabilise the economy: a rising surplus when domestic demand is weak, and the reverse. Germany’s economy may seem too big to rely on a mechanism characteristic of small and open economies. It has managed to do so, however, by relying upon its superb export-oriented manufacturing and ability to curb real wages. In the 2000s, this combination allowed the country to regenerate the current account surplus lost during the post-unification boom of the 1990s. This, in turn, helped bring modest growth, despite feeble domestic demand.