German reforms: The federal knot

Gloom over economic reform revives talk of changes to federalism

POLITICAL reality rarely lives up to media hype, but in Germany the gap is unusually wide. Witness the “ jobs summit” on March 17th, when the government and opposition met to discuss economic reforms. Before the meeting there was speculation of a magic potion to cure the ill of over 5m unemployed. Yet the two sides came up with little new beyond a cut in corporate-tax rates and minor changes in unemployment benefits.

The two sides did, however, agree to make another effort to reform Germany's federal structure. That may prove the most important outcome of the summit. Overhauling federalism is arguably the most needed of all reforms in Germany, enabling the country to respond faster to change. At present the federal government and the states are so intertwined that they often block any conceivable reforms.

The jobs summit was a prime example of what is wrong. Why should Chancellor Gerhard Schroder, whose centre-left coalition has a clear majority in the Bundestag, have to negotiate with the opposition? The answer is that he cannot get big legislation through without it, as the Bundesrat, the upper house, is made up of delegates from the states, mostly run by the Christian Democrats (CDU). This also explains why the summit was overshadowed by an otherwise marginally interesting case of political treason in Schleswig-Holstein. After a tight election there in February, the state's Social Democratic (SPD) premier, Heide Simonis, needed every vote in her camp in parliament to stay in office. But despite several rounds of voting, a single, anonymous member refused to support Ms Simonis, forcing her to resign.

The obvious answer to this would be a new state election. But the SPD is likely to look instead for a “grand coalition” with the CDU, rather than risk a new vote. If Mr Schroder's party were to lose Schleswig-Holstein completely and, just as likely, North Rhine-Westphalia, where elections will be held on May 22nd, the CDU would gain a two-thirds majority in the Bundesrat, enabling it to block virtually all legislation, including even the budget.

It had been hoped that a high-level commission would come up with a plan to reform federalism shortly after Easter. Late last year, a deal seemed within reach: the states were willing to cede much of their veto power, in return for wresting several regulatory powers from the federal government. In the end, however, neither side could agree how to divvy up their responsibilities, in particular for higher education. If the commission again fails to reach an agreement, the institutional blockages will persist - unless and until the government changes. One possibility favoured by some in the media is a formal “grand coalition” of CDU and SPD at federal level. Berlin rumours suggest this may happen sooner rather than later, since the coalition of SPD and Greens may not have much future. But there is always more talk of grand coalitions than action: the only one tried, in 1966-69, is deemed a failure.

What still seems more likely is that the CDU will win the next federal election in 2006 and then, for a while, have a majority in both houses. But this will not permanently cut Germany's federal knot. Instead of waiting for more summits and commissions, Germany might yet need a full-scale constitutional convention.

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