Germany’s federal constitution: Untangling the system

Date: 08/11/03

Efforts to cut through the knotty German federal system may not get far

CONSTITUTIONS are like computer-operating systems: the older they get, the clunkier they are - and the more often they crash. Germany's 54-year-old Grundgesetz, or Basic Law, is, say critics, ripe for a rewrite. This week a commission comprising members from both legislative chambers, the elected Bundestag and the upper-house Bundesrat, which represents the states or Lander, started discussion on “modernising the federal structure”.

The commission's deliberations come, fittingly, just as the Bundesrat takes up debate on the government's package of tax and welfare reforms known as Agenda 2010. For the critics say that the biggest problem with German federalism is that levels of government are so intertwined that they often block each other, making any reform exceedingly hard.

The federalism commission is not the first to try to cut the Gordian knot that some call Politikverflechtungsfalle, or joint decision-making trap. But never before has there been such demand, right across the political spectrum, for something to be done. Some of the country's leading think-tanks have called for a sweeping reform. Many free-market businessmen are calling for a more competitive federalism.

When Germany first tried (and failed) to give itself a national constitution in 1849, at a convention in Frankfurt, federalists faced a similar challenge to those confronting Europe's constitution-builders today: how to integrate already fully developed states, meaning not just Prussia but also such places as Bavaria and Wurttemberg. Short of starting another war, getting these states together meant accommodating entrenched political interests.

This initial set-up has put Germany on a unique constitutional path, argues Gerhard Lehmbruch, a political scientist. The Frankfurt convention came up with a concept now called executive federalism: the federal government makes most of the laws, but it leaves their implementation to the states. In 1867 Bismarck established the Bundesrat, a powerful representative body for the states, one function of which was to serve as a negotiating forum.

A similar federal structure was reinstated after the second world war, though this was largely thanks to the allies, who did not want a powerful central government. But they did not impose American-style federalism, which would have meant a directly elected Senate instead of a Bundesrat, partly because the Lander had already re-established themselves.

Given that Germany's federalism is more a product of history than of the vision of framers, the system has worked well. But in recent years, it has often come to a grinding halt. One problem is that the Bundesrat now has a say in over 60% of federal legislation, instead of the 10% or so intended when the Basic Law was written. This is partly the result of financial changes in the late 1960s. But it is also because the federal government has extensively exercised its right to legislate, taking power away from states and instead giving them more say at federal level.

Plenty of countries have two powerful chambers, often designed to make legislation harder. But in Germany it can cause near-constipation when combined with Germany's elections. Sixteen Lander means as many elections: an average of one every three months. This has had two effects. One is that opposition parties often gain control of the Bundesrat, making change harder. The other is that governments are inhibited from radical reform for fear of an approaching state election.

What is more, the Basic Law ordains a “uniformity of living standards” throughout the country. This explains the complicated redistribution system among the Lander, which ensures that tax revenues per head never fall far below the national average. This system of redistribution is increasingly a disincentive to reform and job creation, since the so-called Finanzausgleich acts as a tax on success.

Because this slows Germany down just when the need for reform is at its greatest, members of the “Convention for Germany”, a new lobby group, favour radical surgery. The poorer Lander should be merged into economically more viable entities, says Hans-Olaf Henkel, one of the group's founders and a former IBM executive. If the states were given more areas of responsibility and the right to levy taxes of their own, they could compete with and learn from each other, creating conditions conducive to faster growth.

Such competitive federalism would certainly be an elegant solution, but it stands little chance of being implemented in the foreseeable future. Things would have to get much worse before the poorer Lander, especially, agree. Voters dislike mergers, as was shown in 1996 when they rejected one between Brandenburg and Berlin. Less radical adjustments could help, though: holding all state elections on one day of the year only, as in America; giving Lander the right to opt out of some federal laws; or disentangling the finances to give Lander more power.

The commission is expected to sit for about a year. Any proposed changes it comes up with will require two-thirds majority support in both the Bundestag and the Bundesrat. That points to a timid outcome in which the federal government cedes a few regulatory areas to the Lander and they shed some of the Bundesrat's veto power. But so far the federal government has listed only a few insignificant areas in which it is willing to relinquish its legislative rights. An additional complication is that the European Union has taken over many powers, giving rise to fears that it may ultimately supplant one level of government in Germany altogether.

Even if the commission fails to come up with radical changes, it may help to stoke up debates in other countries about the balance between centre and regions, including Spain, France, Austria, Italy and even Britain. Above all, though, it should feed into thinking over the EU's new constitution. If responsibilities between Brussels and national governments are not clearly separated, if subsidiarity - the notion that things are best done at the lowest possible level of government - is not strongly spelt out, and if financial interlinkages are not clarified, the EU could find that it too heads for a system crash.

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