To the German radio presenter, the real news about the measures announced by Washington on Tuesday to jolt banks into lending again was not so much the astronomical costs, but a little-noticed comment in Hank Paulson's statement.

"Millions of Americans," croaked the US Treasury secretary, were being denied credit or facing rising credit card rates, "making it more expensive for families to finance everyday purchases". The notion that families should finance everyday purchases on credit, the anchor commented, "suggests Washington has still to understand what brought us there in the first place".

Washington does not understand; the German anchor does not understand why Washington does not understand. Indeed, the defining feature of Germany's relations with its western allies since Lehman Brothers vaporised two months ago is that nobody understands anyone any more.

US, French and British officials puzzle over Germany's refusal to tackle the recession head-on. German leaders, meanwhile, cannot see why their taxpayers' money should go into encouraging precisely the kind of behaviour - reckless lending, careless borrowing and overconsumption - that precipitated the financial crisis.

What is happening is a classic clash of cultures, and anyone puzzling to grasp Germany's anaemic reaction to the financial crisis and its economic fallout could do worse than take a stroll through its inhabitants' mental landscape. Much of the economic thinking taking place in German political circles is guided by what Otto Friedrich Bollnow, a mathematician-cum-philosopher, once described as "economic virtues" - frugality, diligence, industry and so on. One widespread notion is that one should not borrow without being in a position to pay back. This is not just a silly cliché about thrifty Germans. Consumer credits, for example, only started to become widely available five years ago. Banks have never offered 100 per cent financing on mortgages other than in exceptional circumstances. Since Germany never had a property bubble, remortgaging is unknown. Most restaurants, supermarkets and the two main consumer electronics chains do not take credit cards. Few people even own one and online purchases are typically done via bank transfers.

Partly as a result of this, and partly because disposable incomes have remained basically flat over the last five years while profits have soared, German consumers and companies are far less leveraged than their British or US counterparts. The saving rate of households, now 12 per cent of disposable income and rising, the net saving position of German companies (the current account surplus) expected to reach 6 per cent of gross domestic product this year and public finances that have returned close to balance, all tell of a country managed in the good old protestant way.

With this in mind, it becomes easier to understand Chancellor Angela Merkel's warning to the US this week that its efforts to keep money cheap and people borrowing could plant "the seeds of a similar crisis in five years' time". Ms Merkel's speech, defending her cool-tempered crisis management in the face of foreign criticism, was overflowing with economic virtue. Germany's economic health and solid finances would allow it to weather the storm, she said. Some governmental action would be needed, but the goal of balancing the budget remained. To French, British and American pyrotechnics, she opposed "a policy of measure, moderation and practical common sense". Interestingly, she stressed the need for Maß und Mitte - literally measure and centrism - no less than four times. The expression was coined by Wilhelm Röpke, an economist, wartime anti-Nazi activist and inventor of "economic humanism".

Like Ms Merkel, Röpke was a free-marketeer who nonetheless ascribed a central role to governments and central banks, guided by moral values, in protecting the weak, policing competition and preventing excessive accumulations of power. His thinking provided the intellectual cornerstone to the creation of Germany's "social market economy" after the war, with its combination of entrepreneurship and social responsibility. With morals, values, moderation and solid common sense looming so large in Ms Merkel's economic thinking, it is no surprise she would see overindulgence and irresponsibility in the way the UK and, above all, the US are treating their own recessions. If you think of borrowing as akin to smoking - a minor sin that carries heavy risks - then the notion that one should tackle a slowing economy by encouraging over-indebted people who stand a good chance of losing their jobs to draw new credits and splash out comes across as sheer madness.

Incidentally, this exploration of Ms Merkel's frame of references also helps solve an apparent paradox: the fact that an electorate that had drifted leftward in recent years has not gravitated closer to Oskar Lafontaine's anti-capitalist Left Party following the financial crisis, as opinion polls show. One reason may be that with his calls for state intervention, massive fiscal spending, lower interest rates, demand-boosting incentives and nationalisation, Mr Lafontaine is preaching precisely the scary kind of policies now being produced in Washington.

Things may get a lot worse for the German economy and it could eventually require tougher medicine. To most Germans, however, Ms Merkel's compassionate orthodoxy still sounds like a safer bet for now.

The writer is FT Berlin bureau chief