Article by Professor Dr Jur Ulrich Karpen (Hamburg) published in Amicus Curiae - Journal of the Society for Advanced Legal Studies. The Journal is produced by the Society for Advanced Legal Studies at the Institute of Advanced Legal Studies, University of London

Karpen, Ulrich

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13Amicus Curiae Issue 70 Summer 2007I. THE STATUS OF ARTS IN FEDERALISM –REFORM IN GERMANY1. The trend to unitary federationGerman federalism is changing rapidly. It has neverbeen a “dual federalism”, like for example in theUnited States of America, except during the timesof monarchy from 1871-1919. Instead, it has always been– more or less – a “functional federalism.” The legislativepower rests predominantly with the federal level, thegreater portion of administrative functions with the Länder(states). In this sense it is an “executive federalism.” TheLänder participate in federal legislation by a “FederalCouncil” (Bundesrat). Soon after the Basic Law, theConstitution of the Federal Republic, was adopted in1949, Germany became increasingly a “unitaryfederalism” in the sense that the federal level gainedconsiderably more weight, even excess weight, in settingpolitical directives, shaping the format of living conditions,and in formal and informal coordination of the states.Identity of the people was more a national one rather thanLänder-based. The next step was “cooperative federalism.”This term might be considered a pleonasm, because afederation always and anywhere forces federal level andstate level into cooperative action. In Germany it means,however, that the Federal Government and Länderdeveloped “joint tasks” with joint planning and ﬁnancing,and moved more and more towards a “network of politics”which was lacking transparency and very often led to a“joint decision trap.” Using the “power of the purse”Federal Government guided the Länder with the “goldenharness.”2. Reasons for centralization – need for diversityOne may well detect three main reasons for the drift tothe centre:• Firstly, the improvement of economy and livingconditions led to the current social- and welfare state,which was and is in favour of equality, measured againsta nation-wide yardstick.• Secondly, the accelerated development of the EuropeanCommon Market (and later the European Union) ledto transformation of the Länder as states into mereregions of an enlarged area. The Länder, in the processof integration, clearly lost competences and authorityto the national and European levels.• Finally, the uniﬁcation of Germany after 1990 causedthe urgent need to equalize, or at least approximate,economy and social conditions in all parts of thecountry, east and west. This huge and very costly taskcould be managed by the centre only.On the other hand, many politicians and economistshave agreed for a long time that more competition,pluralism and diversity are needed in the country and thatfederalism does provide all instruments for achieving this.Since public budgets dry up, no Land is really willing to payfor equalization subsidies for federal partners who fall backin competition. Finally it is true that the midwifes of theFederal Republic, the Allies – namely the United Statesand the United Kingdom – in designing the new federationin 1947/48 wanted primarily decentralization. Ethnicaldifferentiation, creativeness and ﬂexibility of theconstituent parts of the nation in social, economic andcultural matters were preferable; centralism was to beavoided.3. Amendments to the constitution – a historyThere have been some 50 amendments to the GermanConstitution. Three of the major ones – 1968, 1969, 1994– dealt, among other issues, with federalism. In 2003 aJoint Commission of the Federal Diet and the FederalCouncil was established to design a major reform offederalism, both in the political and ﬁnancial segments ofthe Basic Law. In 2004 – at the dawn of the Socialist-Ecologist Coalition of Chancellor Schroeder – theCompetition versuscooperation: Germanfederalism in need ofconstitutional amendmentsby Ulrich KarpenCommission failed to ﬁnd a ﬁnal consensus on a minorquestion of Higher Education Competences of theFederation. Some say: a voluntary breakage! TheCommission resumed its work after the Great Coalition ofConservatives and Socialists was formed in 2005 and hasnow ﬁnished one part of the work: the federalism reformexcluding ﬁnancial matters. Parliament approved theamendments in 2006. By the end of this year anotherCommission of Diet and Council – the same shape as theﬁrst one – received the mandate to prepare a draft of theﬁnancial reform. Whether the coalition will work until2009, and develop sufﬁcient strength to ﬁnalise its task,remains uncertain. Certainly the ﬁnancial issues are evenmore tricky than the portion which has beenaccomplished.II. WHAT HAS BEEN ACCOMPLISHED?4. The main issues of the 2006 AmendmentThe main issues of the ﬁrst phase of the federalismreform, which became law in July 2005, are the followingones:• redistributing the legislative powers of both levels:federal and Länder;• reducing the number of legislative areas where theFederal Diet needs the consent of the Federal Councilto pass a law;• reducing the number of “joint tasks” of Federal andLänder levels;• empowering the Federal Republic to act in EuropeanUnion matters.Bringing the ﬁrst three issues into focus, the main ideaof the reform was to improve transparency ofresponsibilities in federal and Länder matters, in otherwords: to make clear cuts and avoid mergers of authority.This task has been sufﬁciently accomplished. There is nolonger – as critics said – a system of “organized lack ofresponsibilities.”5. Opposition from the Federal Council benchesPrior to the amendments of 2006 far more than 50 percent of draft laws, which had passed the Federal Diet tobecome law, required the consent of the Federal Council,which is the representation of the Länder governments.The reason was, in most cases, that the Federal Lawcontained provisions for administrative procedures.Administering laws, be they federal or Länder laws, are inmost areas within the responsibility of Länderadministration (“executive federalism”). Fewer and fewerdraft laws, as enacted by the Federal Diet (as the “FirstHouse”), remained subject to objection by the FederalCouncil (the “Second House”), which can be rejected oroverruled by the Diet with a qualiﬁed majority. If themajority of Länder governments – as being represented inthe Council – were of a different colour to the majority ofthe Diet – in “opposition” so to speak – it was easy toobstruct Diet majority and Federal Government from theCouncil bench by simply not consenting to drafts. This isexactly what happened, often enough to be regarded as astandard strategy.This knot was untied by redistributing legislativecompetences between federal and Länder levels, mostly infavour of the latter. For compensation purposes, theconsent areas have been reduced signiﬁcantly. In addition,a new mechanism was introduced: Länder who disagreewith the draft, but cannot stop it any longer by notconsenting, are entitled to deviate from the federal law, asenacted, by Länder legislation.6. Joint Federal/Länder responsibilitiesFurthermore – and equally important – the amendmentreduced the number of joint Federal/Länderresponsibilities (“joint tasks”). Joint tasks cover jointplanning and ﬁnancing (50/50), and apply for examplewhen building higher education facilities, improvingregional economic structures, and undertaking coastalpreservation. Introduced by the amendment of 1969, theywere the result of a lascivious offer by the (then) richFederal level to assist and support the Länder in doing theirjob. In the meantime, the climate and the power of thepurse have changed, and the Länder competences withrespect to Higher Education and culture were returned tothe Länder by the reform.7. Federal and Länder level in European UnionmattersA third and vital objective of the reform was tostrengthen the interstate Federal and Länder organizationand procedures for acting in European Union affairs. TheLänder wanted to have a say in supranational regulationdealing with matters which, according to the nationalconstitution, fall into their authority. They wanted toparticipate in the European decision-making process,which is negotiated mainly by national governments, in thecase of Germany consequently by Federal Ministers.Nowadays, in the European Council of Ministers, thehighest European body in Brussels, the Federal Republiccan be represented by a member of the government of oneLand, as designated by the Federal Council. This applies tomatters which traditionally fall into Länder responsibility,such as (higher) education, science, culture andbroadcasting. Whether this marks the ﬁnal development ofthe process is open to discussion. It means, however, usingthe emergency brake versus Federal Government and Diet,which – in the course of integration – transferred Länderresponsibilities to European authorities without taking careof proper Länder participation.14Amicus Curiae Issue 70 Summer 200715Amicus Curiae Issue 70 Summer 20078. Other amendmentsMinor amendments made by the reform of 2006address the role of Berlin as the capital of the FederalRepublic and smaller issues of ﬁnancial harmonizationbetween Federal and Länder levels. Long desired is the fairprovision that, according to the principle of connectivity oftasks and ﬁnancial burden sharing, the Federal governmentcannot transfer public tasks to municipalities and countrieswithout offering sufﬁcient budgets.9. First evaluationIf one wants to balance the accounts of the ﬁrst phase ofthe reform, one may ﬁnd positive results:• There is a good deal more transparency ofresponsibilities; the proﬁles of Federal and Länderauthorities are drawn more sharply;• Länder are less tempted to obstruct FederalGovernment politics from Federal Council benches:• The old truism that the music is chosen by him whopays has been underlined.III. WHAT REMAINS TO BE DONE?10. A basket of open topicsThis positive balance reﬂects the completion of only halfthe task – if not less. The reform of the ﬁnancial part of theBasic Law is missing. By the end of 2006 the coalitionsucceeded in installing a (second) Joint Commission ofDiet and Council to prepare the ground. The guideline fornegotiations is an annex to the amendment of July 2006.This “open collection of topics” covers some nine pointswhich are very general and even vague, and do not provideguidelines for the decision-making process.The Financial Constitution is, by nature, an accessoryadjunct constitution to the political part. In otherwords, its purpose is to stabilise the division ofcompetences from a funding perspective. The guidelinefor solving this problem is easy. Paragraph 104a of theBasic Law says: “The Federation and the Länder shallseparately ﬁnance the expenditures resulting from thedischarge of their respective responsibilities, insofar asthis Basic Law does not otherwise provide.” But when itcomes to detail, one has to admit that the ﬁnancialconstitution of the Land, including the tax-related parts,is deﬁnitely one of the most complicated in the world offederations, probably the most complicated. Expertshave confessed that they are unable to comprehend thesystem in its entirety. One could assume that some 25per cent of legal literature worldwide is written in theGerman language. However, when it comes to ﬁnanceand tax law related material, about 60 per cent of allliterature is in German. The 1994 Commission to draftconstitutional amendments stopped short of designing anew ﬁnancial section, and so did the commission of2003. Nevertheless, the main issues facing theCommission can be brieﬂy summarized, namely therevenue system, equalization and public debt.11. Raising and spending taxesCurrently, the country has a mixed system of revenuecollection and distribution. Fiscal law is predominantlyFederal law. The Federal level collects most of the money.The Länder receive most of their budgets as part of thecentrally collected money according to constitutional andstatutory provisions. The Länder want – and, one has toadmit, need –more autonomy on the tax-income side.They want to raise their own taxes, and to have structuraloptions for their budget. They want, for example, theconstitutional right to introduce a surcharge or a discounton a tax. They require the right to set the tax rate on theincome-tax share accruing to them. It is obvious thatremodelling the revenue system in this form wouldencourage competition.12. EqualizationBut this would have – on the other hand – seriousconsequences for the current system of ﬁnancialequalization. Germany is – next to Switzerland – the onlyfederation in the world where equalization of the economicand ﬁnancial capacity of the federal units is made byhorizontal distribution, not by allocation of funds from thecentre. Currently, the yardstick of equalization is to providefor equivalent – if not homogenous – living conditions forcitizens in all Länder. Well-to-do Länder – like Bavaria andHessen – have to support the other ones, some of whichare close to bankruptcy. In some cases everybody wouldaccept this fact voluntarily. This is true, for example, forthe ﬁve Länder, which formerly comprised the GermanDemocratic Republic and have to shoulder tremendousﬁscal burdens. In other cases, the “giving” Länder do notfully agree with the philosophy, practice and budget-discipline which the “taking” Länder apply in doing theirjob. The current system of equalization, in other words,does not favour competitive federalism.13. Public debtA third problem is the deplorable situation of publicbudgets, namely the increase of debt. For some years thedebt-ratio of the Federal budget far exceeded theEuropean ceiling of 3 per cent of GNP – which isbinding on the Member States! And neither the Federalnor most Länder budgets observe Paragraph 115 BasicLaw which states that “revenue obtained by borrowingshall not exceed the total of investment expendituresprovided for in the budget.” I shall use the ﬁnancialsituation of Berlin as an example. The capital city – aCity State – is ﬁscally in a critical situation after theamalgamation of two former capital cities: Berlin-Westand Berlin-East. This everybody will admit. Berlin’sannual budget consists of roughly €20 billion. The total16Amicus Curiae Issue 70 Summer 2007debt of Berlin amounts to €55 billion. Interest consumes14 per cent of the budget – €25 billion per year, €11million per day. Berlin ﬁled a suit before the FederalConstitutional court for subsidies from the Federationand the Länder according to the federal solidarityprinciple, but the court held in 2006 that there is noconstitutional basis for this claim and that every Land, inprinciple, is responsible for its ﬁscal policy.14. New Länder borders?Many difﬁculties which contribute to the current ﬁscalsituation point to the need for a new delineation of Länderborders. Why does the country need 16 Länder – some ofthem (like Bremen and Saarland) with a population of lessthan one million? Why does one need 16 Länderparliaments and governments? The idea is to amalgamate,from 16 down to six or so. There have been – and are –several expert opinions. Some years ago the attempt tomerge Berlin and the belt-Land Brandenburg failed in aplebiscite. Needless to say, Germany shares this problemwith other federations.15. Perspectives of the fiscal reformFor approaching competitive federalismThe next steps of constitutional reform are crucial forthe approaching competitive federalism. On March 8,2007 the work of Hercules began. The Second JointCommission of the federal Diet and the Federal Council –under a fresh double chair – held its constituent session todeal with the main issues of the ﬁnancial reform of theFederal System. Hopefully this timely start will encouragepoliticians to carry on, as the reform process has lost somedrive. The government is getting close to the ﬁrst half of itsterm and other urgent reforms (the health system,unemployment, education) take priority.The Commission will need – even more than the ﬁrst one– support, advice and comparison from outside sources, withother federations providing the beneﬁt of their history andpractice. For, as the Founding Fathers of the United States,in drafting the constitution, said: “Let us be guided byexperience, because reason might mislead us!”Professor Dr Jur Ulrich KarpenHamburgSaturday 2 – Sunday 9 SeptemberJesus College, University of CambridgeTwenty-fifth International Symposium on EconomicCrimeThe wealth of nations – at riskOrganising institutions include CIDOEC (Centre forInternational Documentation on Organised and EconomicCrime), the IAACA (International Association of Anti-Corruption Authorities) and the IALSFurther details from Mrs Angela Futter, SymposiumManager (tel: 01223 872160; email:symposium@jesus.cam.ac.uk)Friday & Saturday, 26–27 OctoberSpeakers include: LESLA ABDELA, LORIECHARLESWORTH, JUDGE ZAKIA HAKKI (Iraq),PAUL WEINDLINGWar crimes – retrospectives and prospectsThis conference is an initiative between SOLON, theInstitute of Advanced Legal Studies, and the Centre forContemporary British History to examine the issue of warcrimes, exploring ways in which, it has been argued bythose concerned with the issue (whether as victims,perpetrators, witnesses, adjudicators or commentators)that identifying war crimes and the perpetrators of thesecrimes are essential to the management of globilisation inthe modern age, as a key part of post-conﬂict resolution.(SOLON is a partnership between Nottingham Trent,Oxford Brookes, Manchester Metropolitan and PlymouthUniversities promoting the interdisciplinary study of crimeand bad behaviour).Further details from Belinda Crothers at the IALS (email:Belinda.Crothers@sas.ac.uk)IALS Events

Competition versus cooperation: German federalism in need of constitutional amendments

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