GENERAL ASSESSMENT
Federalism Reform I
There was and still is, of course, a considerable amount of controversy concerning many of the provisions of the 2006 federalism reform that amended the Basic Law.
Some of the objections are based on principle or ideology, while other critics have expressed skepticism concerning the extent to which the reforms can really change or even have much effect on particular aspects of the federal system and, in particular, the “constitutional space” of the Länder.47One reason for skepticism concerned the important issues that were left out of the 2006 reform. This reform was called Federalism Reform I because it did not deal with the important issues of public finance. As suggested above, a real reform of public finance would have to attack some very controversial issues, in particular fiscal equalization transfers from richer to poorer Länder and taxation powers (autonomy) for the Länder, which were ignored in 2006. The success of Federalism Reform I depends to a considerable extent on the tax revenues the Länder have at their disposal. So long as own-source revenues are inadequate to provide a level of services and infrastructure that would be acceptable to the general population, there will be opposition, especially in the Bundesrat, to reducing significantly the dependency of the poorer Länder on federal grants and fiscal equalization transfers.48
Some observers would argue further that the ability of the Länder to secure more own-source revenues and therefore to become less dependent financially on federal aid and transfers from the richer Länder (and to take advantage of their new rights to deviate from federal laws) cannot be separated from the question of territorial or boundary reform. They argue that the population or geographical area of some Länder is simply too small to secure financial independence and that the only rational solution is to redraw the boundaries and consolidate the Länder.
Not surprisingly, there is fierce opposition to such suggestions by most of the smaller Länder, which insist on retaining their autonomous existence. Skeptics add that it is not clear that consolidation would necessarily bring about more fiscal capacity and suggest that putting together two or even three poor Länder would not create something equal to one rich Land. They also suggest that the provisions of Article 29 of the Basic Law that regulate the redrawing of boundaries are, in fact, barriers to any territorial changes.49 In any case, the discussions that began in early 2007 concerning Federalism Reform II soon made clear that territorial reform was off the table.All three of these basic issues – more legislative competences, more financial independence, and a consolidation of the smallest and weakest Länder into larger and stronger units – are closely interconnected.50 One very general goal of the 2006 reforms was to promote more “competitive federalism” by giving the Länder greater law-making authority. This goal suggests that the Länder are not only willing but also financially able to assume more responsibility for a variety of tasks. The southern Länder, especially Bavaria and Baden-Württemberg, now the richest of the Länder, have been pushing for more “competitive federalism.” But some other Länder, such as the new Länder or Bremen and the Saarland, argue that they cannot compete, given their own weak revenue potentials and that they do not have the same chances to start with. Needless to say, they emphasize the strongly entrenched German value of solidarity, which is not easily reconciled with a more competitive federalism or constitutional space for the Länder.51
Gerhard Lehmbruch suggests that an understanding of German federalism rests on a path analysis of historical developments during the past 160 years and argues that any reform must take place within the framework of the traditional form of German federalism (Verbundfoderalismus).
Any radical form of competitive federalism, which presumably would be modelled on the American and Swiss federal systems, would have no serious chance of being accepted. German executive federalism, which Lehmbruch characterizes as involving primacy for the federation in law-making and the implementation of federal laws by the Länder, has its roots in the Frankfurter Assembly’s proposed constitution of 1849. While this constitution did not become the legal foundation of a German state, it did serve as a general model for the German states formed in 1867 and 1871. The only major reforms of German federalism that have taken place since 1849 have been associated with the consequences of war, as in 1867, 1871, 1919, and 1945.52The fact remains, however, that the major purpose of Federalism Reform I was to increase the legislative competences or constitutional space of the Länder, reduce the “unitarizing” effects of the interconnections and intermingling of federal-Land relations, and create the conditions for a federalism at least more competitive than before, even if not going as far perhaps as some Länder – for example, Bavaria and Baden-Württemberg – would have liked. An important part of the reform related to these considerations was reducing the potential for gridlock in the Bundesrat. I have already noted that in the 1970s Gerhard Lehmbruch pointed out the contradiction between the competitive party system, on the one hand, and the legislative process in the Bundesrat based on co-operation, on the other. This contradiction becomes most apparent under conditions of “divided government, ” conditions that have become more common since unification in 1990 owing to changes in voting behavior and the rise of a new party system based now on five parties that make less likely the traditional cohesive majorities common to both chambers. In this case the reform goal was to reduce the proportion of legislation requiring the consent of a majority in the Bundesrat.
The question, of course, is whether and to what extent these goals were achieved.Federalism Reform II
From the beginning there were, of course, criticisms of the finance reform of 2009.53 Some of them concerned the manner in which the reform commission was formed, the lack of influence of certain groups, limited publicity, or other rather technical issues. The real problem, according to some, was the focus on budgets, deficits, and debt and the failure to address the basic issues of the public finance system.54 The reason public finance was ignored, however, is clear: no one was eager to tackle the issues of taxation powers, tax distribution, fiscal equalization, and federal supplementary grants, especially when Solidarity Pact II provides for the continuation of the current system until the end of 2019. It was also clear that even before the recession of 2008–9 there was growing concern about public debt, the apparent inability or unwillingness to deal with it in a serious manner, and the obligations under the EU’s Stability and Growth Pact to limit deficits and debt.
Some experts have noted that while exceptions to the strict prohibition against borrowing were necessary, they raise questions about the extent to which they might weaken the fiscal discipline that Articles 109 and 115 seek to impose. They note that the 0.35 percent deficit allowed the federation in normal times is likely to become standard practice and thus contribute automatically to rising debt. The prohibition of deficit spending for the Länder except in various emergency situations may lead to more dependence on the federation, since there has been no expansion of taxing powers for the Länder. A basic problem is maintaining the commitment to solidarity while promoting more fiscal discipline. Another problem may be that the imposition of Keynesian anti-cyclical budgetary policies assumes an ability to predict and plan in uncertain economic conditions.55
Another line of criticism is that the finance reform focuses on the single goal of stopping new indebtedness without dealing with the huge existing debt.
One might have expected that sanctions would have been provided on the model of the EU’s Growth and Stability Pact (although in fact these were not imposed in the past, perhaps because it was the larger, more influential states, such as Germany and France, that were the first to violate the 3 percent deficit limit). It can also be argued that sanctions do not help the government that has violated the rule. Furthermore, some have questioned the necessity of creating the Stability Council and raised some concern about the weakening of budgetary autonomy that it implies. That may, of course, depend on whether the Council has a primarily consultative and supportive role or can require acceptance of its plans.56In their analysis of the finance reform, Waldhoff and Dieterich conclude that Federalism Reform II attempts to provide constitutional restraints in an area in which parliaments have not exercised sufficient oversight.57 The seriousness of the recession of 2008–9 is reflected in the reform proposals that consist of compromises that will require the goodwill of participants. But in spite of certain weaknesses, the new incomplete rules are better than the earlier ones. The criticism that there was no real comprehensive reform raises questions about the ability of federal systems (or perhaps any system?) to enact reforms that create “winners” and “losers” among “strong” and “weak” political units. Federalism Reform I was concerned mostly with the goal of increasing Land autonomy, while Federalism Reform II establishes more centralizing provisions to control deficit spending and debts.58