Wednesday, March 27, 2013

Bavaria and Hesse no Longer Willing to "Bailout" Other German States

Germany has a system of several mechanisms to ensure that similar standards of living can be achieved in all states. One of these is the "Länderfinanzausgleich". The system is rather simple at first glance: stronger states have to pay, weaker ones receive money. Bavaria and Hesse believe, that the current system is unconstitutional and therefore this week decided to file a suit before the Constitutional Court (Bundesverfassungsgericht BVerfG). Some believe, that this is just a maneuver before the election, so it might matter for European rescues, also.

Bavaria(CSU-FDP government) and Hesse(CDU-FDP government) were two of the three contributors in 2012, with Baden-Württemberg (Green Party-SPD) being the other out of 16 states. The system exists since 1950. and until 1986 Bavaria received money each year. How the system works? Easy: sum up all the state taxes plus money made through gas an oil production divide it by all citizens and compare that to the actual state taxes per citizen. But that would not be German, so some states get citizens that are worth more. City states have citizens worth 1.35 as much as other citizens, .64 township taxes get thrown in, there is an incentive system, a progression system and ... I guess you get the the picture. It is a mess.

In fact it is such a mess, that no one knows how this will end. Some even think that in the end Bavaria and Hesse could have to pay more. So why try? Baden-Württemberg's finance minister  among others suggests the main reason is that there are elections not only for Germany as a whole but also for Bavarian and Hesse state parliaments, hinting that this might be a maneuver just to get more votes. Another reasons seems to be, well... see above the "system - isn't". And while Bavaria (population 12.6 million) payed €3.9 billion, Berlin(population 3,5 million), which is also a state, received €3.3 billion. A lot of that money was spent for federal expenditures and for the new airport, which might some day also see air craft landing, well perhaps. (I have to write about that some day, because IMO it broke Murphy's law, since things went wrong that just couldn't)

So why does it matter? It is still a while and nobody knows what the BVerfG will decide. It shows a strong belief in the three Merkel coalition partners, that at least their voters have become rather sick of helping others. So, in my opinion Cyprus will not be an exception as long as another "rescue" happens before the election in Spetember. If the parties are willing to take a harsh stand towards other Germans to gain some votes there is no reason to believe that any softening in European matters will occur.

PS:For all those who just love to use their Hitler in arguments, Bavaria's finance minister Söder announced the suit thusly: "Seit heute Morgen um 9 Uhr wird geklagt." which is not only strange German it also reminded me and others of the announcement of the Poland invasion by Hitler. "Seit 5.45 Uhr wird jetzt zurückgeschossen". So the start did not really go as planned, as nobody really talked about the law suit any more. It also did not help to call it an "act of political self defense."

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