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DOI: 10.1007/s10272-006-0191-6
FEDERALISM
Thomas Dring* and Stefan Voigt**
Reforming Federalism German Style
A First Step in the Right Direction
The German version of federalism, often called cooperative federalism, has been identied by many as one of the root causes of Germanys becoming Europes new sick man. Now, a number of changes in the institutions dening the relationship between the federal, the state and the local level have been passed. This contribution describes the most important changes and evaluates them from the point of view of scal federalism. It concludes that the changes are only a rst step in the right direction, but a number of important steps have yet to follow.
For a number of decades after World War II, Germany was a sort of European wunderkind. It enjoyed virtually full employment and high growth rates, and scal policy was sound. This has substantially changed: unemployment has been around ten per cent for a number of years, Germanys growth rates have been consistently the lowest among all members of the euro area, and Germany has not complied with the decit criteria of the Maastricht Treaty for four consecutive years. At least as alarming: its medium and long-term prospects seem to be pretty dim if one accepts the evaluation of the PISA studies concerning the quality of Germanys education system. Although all this is common knowledge in Germany, very few of the necessary reforms have been brought about and the question is: why?
Many argue that Germanys particular form of federalism, often called cooperative federalism is one of the root causes of the German disease. In practice, cooperative federalism means that reforms can only be brought about if the relevant actors at both federal and state level agree on reforms. This has been coined the joint-decision trap1 and explains the incapacity to pass necessary reforms. Many of the current eco-
nomic and political problems in Germany can be interpreted as a consequence of a less than satisfactory allocation of competences among the various levels of the federal system. The system as a whole contains numerous faulty provisions which distort both (political as well as economic) competition and decision-making, and hence cause lasting damage to the operation of federalism and democracy in Germany. Often, the benets...