German Federalism: A reform that misses its mark

Early in the present decade, political actors at the national and regional levels finally seemed to agree: if government at both levels was to remain effective, Germany‘s system of federalism needed to be reformed. Their objective was to reduce the number of federal laws requiring approval by the upper house of the federal parliament, and to increase the range of issues to be decided autonomously by state parliaments. But by the end of the first reform stage, not much had been achieved. And according to the viewpoint of Fritz W. Scharpf, Emeritus Director at the Max Planck Institute for the Study of Societies, nor will the second stage, which involves restructuring the financial affairs of the Bund (the federation) and the Länder (the states), deliver the desired “disentanglement.” Here, he analyzes the faulty approach that defeated the objectives of the first stage of reforms.

 by Fritz W. Scharpf; in: MaxPlanckResearch 2/2007

The Federal Reform Commission – on which all of the prime ministers of the federal states and an equal number of high-ranking representatives of the political parties in the Bundestag, or lower house of the federal parliament, had both seats and votes – met from October 2003 until December 2004, when it failed to reach ultimate agreement. However, after the change in the national government, the results of their near-agreement were – with some important amendments – rescued by the new Grand Coalition and adopted by both houses of the federal parliament.

The declared aim of the reform process was to free German politics from the “joint decision trap” – in other words, from a situation in which national policies may be blocked by a veto of the Länder in the Bundesrat, or upper house of the federal parliament, while the Länder individually have little or no legislative or tax-raising powers of their own. Measured against this objective, the present result is not impressive. The Bundesrat’s veto over issues of political importance has been increased rather than reduced, and the extent to which powers of the Länder have been widened lags far behind what was both necessary and possible.

Why is this so? There are, in principle, three possible explanations: First, the need for joint decisions arises from the fundamental architecture of German federalism, where the Bund and the Länder are not assigned specific policy areas, but specific functions of government. Second, the approach adopted by the Commission of clearly segregating the responsibilities of the Bund and the Länder ignored both the multi-level nature of policy areas and existing differences in the capabilities of individual Länder. And third, deliberations in the Commission were constrained by the dominance of exactly those veto players whose vote was ultimately required to achieve two-thirds majorities in the Bundesrat and Bundestag.

Both the first and third of these potential explanations effectively ruled out the desired reduction in the Bundesrat’s veto. From an objective point of view, functional interdependence in German federalism justifies the participation of the Bundesrat in federal legislation. Given that almost all federal laws must be executed by the Länder in their own right and at their own expense, and that the tax revenues accruing to the Länder are almost entirely dependent on federal laws, Länder governments simply could not abandon their influence over national legislation.