Bavaria to Challenge Germany’s Postwar System of State Finances

Bavaria, home to Siemens AG and Bayerische Motoren Werke AG, plans to dispute the legality of Germany’s post-World War II system of financial redistribution among the country’s 16 states.

In a challenge to Chancellor Angela Merkel, Bavarian state Cabinet ministers meeting in Munich today decided to seek changes to the system at Germany’s highest court. Bavaria, the program’s biggest net contributor, will press for more incentives for weaker states to cut debt and spending and a greater balance of “solidarity and responsibility,” the state government said in an e-mailed statement.

Germany’s 1949 constitution calls for an “adequate equalization” of the states’ financial strength in a system that helped spread then West Germany’s wealth as the economy recovered in the postwar years. Bavaria, a beneficiary of the system until 1988, paid more in last year than it got out in the 40 years it was a net recipient, according to the state government.

“Abraham Lincoln once said: ‘You can’t strengthen the weak by weakening the strong’,” state Prime Minister Horst Seehofer, who heads the CSU sister party to Merkel’s Christian Democratic Union, said June 24 at a meeting of Bavaria’s baking trade. “We in Bavaria show solidarity, we provide help for self-help, but we’re not facilitating bankruptcy.”

Bavaria, which has a balanced budget and plans to pay back all its debt by 2030, is one of four net-contributor states together with Hesse, home to the financial hub of Frankfurt; Baden-Wuerttemberg, where carmakers Porsche AG and Daimler AG are based; and Hamburg, Germany’s richest state per capita. The Munich government said that it paid 3.7 billion euros ($4.6 billion) last year to help the 12 weakest states, more than half the total aid amount.

Election Gambit

Frank-Walter Steinmeier, head of the main opposition Social Democratic Party’s parliamentary group, said that Seehofer’s move is an attempt to raise the profile of his Christian Social Union party before state elections in September 2013. Seehofer’s predecessor, Edmund Stoiber, was happy to keep the redistribution system in place at least until 2019, Steinmeier said.

“This isn’t charity, it’s something that states have a legal right to,” Karoline Linnert, finance minister of the city-state of Bremen, said in an interview with public broadcaster Deutschlandradio today. Bavaria is forgetting how “rich and privileged” it is, she said.

Bremen Debt

Bremen’s jobless rate of 11 percent in June is the highest of any western German region and nearly double the national average of 6.6 percent, according to the Federal Labor Agency. Bremen also has the most debt per person of any German state, 27,994 euros, compared with 2,314 euros in Bavaria, the nation’s second-lowest after Saxony, according to a federal Finance Ministry report on May 11.

“The inter-state financial redistribution inhibits efforts to save and shifts responsibility to other states, the federal government and future generations,” Marie-Christine Ostermann, chairwoman of the young entrepreneurs lobby, said in an e-mailed statement. “Sound policies get punished through compensation payments, unsound policies get rewarded.”

Bavaria will go to the Karlsruhe-based Federal Constitutional Court alone “in an emergency” if the other net payers decline to join, CSU General Secretary Alexander Dobrindt said today on N24 television. “We know the other contributor states are unhappy with the situation,” he said.

Seehofer’s government will prepare documents in the coming months and plans to lodge the complaint before the end of the year, the newspaper Die Welt said.

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