Federal Reform II in Germany

Abstract

Recently Germany experienced yet another federal reform shortly after a previous modification to the German federal system. This paper explains agenda setting, negotiations and ratification of this recent federal reform. With regards to the case of the most recent federal reform in Germany the issue of debt limits had been effectively agreed upon as a package deal between political parties and Bund and Länder alike. The Grand Coalition of CDU/CSU and SPD managed to quickly gather a qualified majority in the Bundestag, making the qualified majority of Länder the crucial negotiating point. At the end, stronger Länder forced weaker Länder either to accept the new debt regime suggested primarily by the federal government, forcing Bund and Länder to uphold balanced budgets until 2020 or to be responsible for a failed reform. In this situation weaker Länder saw the new constitutional debt regime as more acceptable than rejecting a reform.

Keywords: Federalism, reform, Germany, financial crisis, balanced budget

JEL Classification: H6, H70, H72, H77, H81