August 3, 2012
Bavaria Mulls an End to Solidarity
Daryl LindseySpiegel Online International, July 18, 2012
In these days of euro crisis, one can often hear politicians lamenting in Germany that they don't want the European Union to become an expensive transfer union, with richer Northern European countries making payments to their Southern European neighbors to cover budget shortfalls created by nations that have lived beyond their means for decades. But what often gets lost in this conversation is that such transfers already take place within Germany -- and are a major source of conflict between the country's rich states and their poorer brethren. When it comes to solidarity, it turns out, Germans often don't feel much of it towards neighbors inside their own borders.
Residents of the country's industrial and financial powerhouse states, particularly Bavaria, resent having to make payments to poorer regions like the city-state of Berlin, which tops the list of transfer recipients, with annual help from its neighbors of €3 billion ($4 billion).
Bavaria, where the moniker "laptops and lederhosen" is synonymous with the state's flourishing economic success, is now mounting a revolt against the system. At a cabinet meeting of the state government on Tuesday in Munich, officials decided to launch a legal challenge against the transfer system -- known as the Länderfinanzausgleich, or fiscal equalization among the 16 German federal states -- at the nation's highest court in Karlsruhe. The system, which is anchored in the constitution, guarantees people in all German states uniformity in living standards, even if the industrial base, labor market and tax receipts are weak in those regions.
Bavarian Governor Horst Seehofer of the conservative Christian Social Union (CSU), the state sister party to Chancellor Angela Merkel's Christian Democratic Union, has said he will ask Germany's Federal Constitutional Court to examine the legal basis of the solidarity payments. He said it was "unfair" that his state is required to pay half of the €7.3 billion ($8.9 billion) that is transferred to 12 of Germany's 16 states.
Using language that mirrors what Germany has been saying to countries like Greece in the euro crisis, Seehofer said there was an "imbalance in the system" if only four states had to be donors and that the other states still got the money regardless of the scope of their efforts towards fiscal restraint. "We are in solidarity (with the other states), but the equalization system is not," he said.
The system also sheds light on Germany's north-south divide. Industry has given a strong boost to the southern states, along with financial capital Frankfurt, whereas those to the north -- and particularly in the states that belonged to the former East Germany -- are plagued by low incomes and chronic unemployment.
The issue dominates the editorial pages in Germany on Wednesday, although most editorialists are mixed over whether Seehofer is stooping to populism one year before a major state and federal elections or if he has a legitimate multibillion-euro gripe.
The center-right Frankfurter Allgemeine Zeitung writes:
"Bavaria is tired of being paymaster in Germany and it is now taking its case to court. Finally, some might be saying. But the step is premature, because the state is alone in its initiative. The other two large donor states aren't playing along. Baden-Württemburg and Hesse have threatened to take the step in the past, but they have always been frightened off in the end -- and they know very well why. It's an open secret that fiscal equalization needs to be restructured. But that's already planned for the end of the decade. And a few things will change by that time, anyway. For one, additional aid for the eastern states (more than a trillion euros in aid implemented since reunification) will be phased out. And, in non-crisis times, all German states will be required to balance their budgets by then. The same year, the (fiscal) relationship between the states will also be reregulated. Thus, it makes little sense now to try to break out one element."
"As simple as the headline 'Bavaria pays, Berlin cashes in,' may be to write, the rules around fiscal equalization are far more complicated -- as is a redefining of those regulations. There are political, economic and social reasons for that too. Any radical change to the system would violate the constitutional imperative of making equal living conditions possible all across Germany. Besides, there are four donor states compared to 12 aid recipients. Experience has shown that it will be hard to push through an easing of burdens against a phalanx of recipient states that large."
Left-leaning daily Die Tageszeitung writes:
"The transfer union is a good campaign topic, at least in Bavaria where voters will head to the polls in the autumn of 2013. For those who must contribute a lot, it is easy to find the system unfair. And when the state government seeks to reduce the burden, it is sure to be popular: Bavarian money should stay in Bavaria. What opposition party in Bavaria would object, particularly when everyone is against the alleged freeloaders in Berlin and eastern Germany?"
"But loud complaints about fairness and being overburdened are not enough to claim that something violates the constitution. Bavaria must now clearly explain to court justices why the arrangement, that they helped negotiate in 2001, is suddenly unconstitutional. They didn't offer much in this regard on Tuesday. That too proves that their complaint is merely a show."
The conservative Die Welt writes:
"Seehofer is not inventing the fact that Bavaria, with its budget discipline and economic success, is being forced to pay for benefits in other states that it doesn't even believe it can afford for its own people. Those who go to university in Bavaria, for example, have to shell out money for the privilege, whereas students in every single aid recipient state pay no fees. Bavaria is also more conservative than those states when it comes to paying for childcare benefits. Fiscal skepticism like that could also be called budget discipline."
"That the CSU party boss is bringing the case one year before a fateful state election is by no means a coincidence. But it's not a scandal, either. Because aren't election years precisely the right times to address political imbalances? And there clearly is an imbalance if four donor states are being forced, in the long term, to pick up the tab for 12 recipient states that are hardly making an effort to free themselves from their mire of debt."
The left-leaning Berliner Zeitung writes:
"Seehofer wouldn't be Seehofer if he let the chance for this populist gesture go by unused. ... But what Seehofer is doing is highly dangerous. That is because every state, particularly the poor ones, need planning security in the coming years. After all, the debt brake dictates that they must balance their budgets without new borrowing by 2020. Of course, fiscal equalization must continue to be adjusted. But that will happen anyhow when the current agreements expire in 2019. That leaves plenty of time to negotiate on a political level."
The mass-circulation Bild writes.
"For decades, 'poor' states have been reaching into the pockets of the 'rich'. But that practice needs to end. The 'rich' Bavarians want to overturn these land-of-milk-and-honey provisions in court. And it's right to do so. A revision of the fiscal equalization policy is long overdue. For some time now, the opposite of the law's goal of creating equal living standards has occurred. Thanks to fiscal equalization, 'poor' states can often afford more than the 'rich'. In 'poor' Rhineland-Palatinate, for example, parents get free day care for their children starting at the age of two. But parents in Bavaria are forced to pay the full kindergarten fees. That is far removed from the idea of solidarity. That's taking advantage of the system. And it wasn't what fiscal equalization was intended for."
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