State Consolidation

Time to Reform German Federalism

Bremen's 'Town Muscians' could also symbolize the financially strapped city-state riding on the back of other states.
  • Why it matters

    Why it matters

    • Momentum is building to reform German federalism and possibly reduce the number of states to overcome growing debt loads.
  • Facts


    • Germany is debating new federal state financial equalization scheme.
    • The country currently has 16 states, of which only three are so-called “donor states.”
    • The federal state system is anchored in the German constitution.
  • Audio


  • Pdf


Annegret Kramp-Karrenbauer, premier of one of Germany’s smallest states, Saarland, wanted to get something for her state but ended up shooting herself in the foot.

Instead of reaching a settlement on past debts as part of Germany’s new federal state financial equalization scheme – Saarland is among the states with huge financial problems – Ms. Kramp-Karrenbauer ignited a national debate on reorganizing German states. [Under the financial equalization scheme, wealthier states support economically weaker ones. Eds.]

“A failure (to reach a settlement on debt) would ultimately question the current federal arrangement” and whether, for instance, there should be only six or eight states in the future, she said in an interview with German daily Süddeutsche Zeitung.

My advice: Go ahead and make changes. An opportunity will rise in 2019, when policymakers plan to reform the financial relations between the federal government and the states, including the expiring Solidarity Pact II and the financial equalization scheme.

Of the 16 states, only Bavaria, Baden-Württemberg and Hesse have remained “donor states.” All the others are more or less strapped for cash and incapable of meeting their  responsibilities in kindergartens and schools, science and research that have remained under their jurisdiction to the extent required in international comparison.

Want to keep reading?

Subscribe now or log in to read our coverage of Europe’s leading economy.