“Who’s Picking Up This Bill?”

Just as the EU struggles to navigate its own immediate financial challenges, there is another reminder from Germany this week that the battle over fiscal governance also represents a continuing one at the national level over institutions, rules, and procedures. The relationship between the Union on the one hand and the member states on the other remains at the core of the EU debate. Yet it is interesting to note that Germany’s fiscal federalism, often cited as an example of how to cope with the complications of federal and state relations, is now the subject of political battles in Berlin between the rich and the poor in Germany.

This week the government of Bavaria is considering a challenge over the constitutional command to “safeguard equivalency of living conditions throughout the Republic.” The sixty year old practice of revenue sharing among the states has become a problem for Bavaria, a state which used to be a recipient of such revenue but is now the lead supplier of same to the rest of the country. Today, the majority of the sixteen German states are recipients of financial aid due to their weak tax revenues, low incomes, and high unemployment. The city of Berlin is at the top of that list, receiving €3 billion ($4 billion) yearly in subsidies from the other fifteen states. Only four states are sources of subsidies, whereas the remaining twelve are recipients, receiving in excess of €7 billion per year. Bavaria claims the system of revenue sharing is unfair, and it is suggesting that the recipient states are wasting their subsidies. So, Bavaria wants to take its case to Karlsruhe where the Federal Constitutional Court is already weighed down with its deliberations over the euro crisis and the constitutionality of the fiscal policies proposed, in large part, by Germany. Just as there is a north-south divide in Europe when it comes to economic strength and weakness in Europe, Germany’s equation has a similar profile.  The southern states of Bavaria, Baden Württemberg, and Hesse are stronger than those in the north and east, and they have increasingly complained about the imbalance of the subsidies

This domestic squabble does not help Chancellor Angela Merkel much, particularly after she has repeatedly warned other euro zone nations that Germany’s ability to help them is constrained by the Court’s decisions, apart from the blow-back she is getting from her own citizens.  However, there is no denying that the dispute reminds everyone of the enmity between poor Greeks and rich Germans during the ongoing euro zone crisis.

For Merkel, the fact that Bavaria’s government is made up of the conservative Christian Social Union (CSU) and the pro-business Free Democratic Party (FDP) − her two partners in the coalition government in Berlin − adds to her dilemma. Bavaria wants the Federal Constitutional Court later this year to declare that the current agreement on sharing tax revenues is illegal. This would come after the Court decides on the constitutionality of the EU proposals.

Horst Seehofer, the Bavarian minister-president, argues that Bavaria is not showing a lack of solidarity. “It’s the transfer system which lacks solidarity.” Along similar lines, the chancellor has been arguing that transfers are also not the answer to Europe’s problems. She argues that there is a need for a “fiscal compact” for the euro area that includes the adoption of a new rule, restricting deficits by member states in their constitutions. Seehofer wants to argue that his counterparts in Germany need a similar dose of stronger fiscal discipline.

Two weeks ago, German lawmakers in Berlin approved the new EU budget discipline pact as well as the euro zone’s permanent €500 billion ($623 billion) rescue fund.  Two-thirds of all lawmakers in the parliament’s lower house endorsed the two sets of legislation in a late night session. Merkel put herself on the line by arguing that the fiscal pact and rescue fund send “a signal of unity and determination, domestically and abroad; a signal toward overcoming the European government debt crisis sustainably, and a signal that for us Europe means our future.”  Merkel won that vote, but she still got political blow-back from Minister-President Seehofer, who has threatened to let the coalition in Berlin collapse if the chancellor were to ask for further compromises to help the troubled euro member states. This new attack on the domestic subsidies issue has left some speculating that the Bavarian leader is exploiting both these issues a year before both his state elections, as well as the federal elections in September of 2013.

Yet there can be no doubt that Germans, in Bavaria or throughout the rest of Germany, are agitated by the unpredictability of the economic situation and by the solutions proposed to solve it − whether it be within the national borders or within Europe as a whole. As the old German song goes − “wer soll das bezahlen?” − remains an unanswered question.

The views expressed are those of the author(s) alone. They do not necessarily reflect the views of the American Institute for Contemporary German Studies.

Jackson Janes

President of AICGS

Jackson Janes is the President of the American Institute for Contemporary German Studies at the Johns Hopkins University in Washington, DC, where he has been affiliated since 1989.

Dr. Janes has been engaged in German-American affairs in numerous capacities over many years. He has studied and taught in German universities in Freiburg, Giessen and Tübingen. He was the Director of the German-American Institute in Tübingen (1977-1980) and then directed the European office of The German Marshall Fund of the United States in Bonn (1980-1985). Before joining AICGS, he served as Director of Program Development at the University Center for International Studies at the University of Pittsburgh (1986-1988). He was also Chair of the German Speaking Areas in Europe Program at the Foreign Service Institute in Washington, DC, from 1999-2000 and President of the International Association for the Study of German Politics from 2005-2010.

Dr. Janes is a member of the Council on Foreign Relations, the International Institute for Strategic Studies, and the Atlantic Council of the United States. He serves on the advisory boards of the Berlin office of the American Jewish Committee , Beirat der Zeitschrift für Außen- und Sicherheitspolitik (ZfAS), the Robert Bosch Foundation Alumni Association, and the American Bundestag Intern Network (ABIN) in Washington, DC. He is a member of the Board of the German American Fulbright Commission and serves on the Selection Committee for the Bundeskanzler Fellowships for the Alexander von Humboldt Foundation. He is a member of the Cosmos Club in Washington DC.

Dr. Janes has lectured throughout Europe and the United States and has published extensively on issues dealing with Germany, German-American relations, and transatlantic affairs. In addition to regular commentary given to European and American news radio, he has appeared on CBS, CNN, C-SPAN, PBS, CBC, and is a frequent commentator on German television. Dr. Janes is listed in Who’s Who in America and Who’s Who in Education.

In 2005, Dr. Janes was awarded the Officer’s Cross of the Order of Merit of the Federal Republic of Germany, Germany’s highest civilian award.

Ph.D., International Relations, Claremont Graduate School, Claremont, California
M.A., Divinity School, University of Chicago
B.A., Sociology, Colgate University

Transatlantic relations, German-American relations, domestic German politics, German-EU relations, transatlantic affairs.