Taking the Plunge: Merz's Daring Swim in the Deep End of Federal-State Finances
Federal States Adoption by Merz Promises Potential Prosperity
By Volker Petersen
Want to reignite Germany's economy and ease the pressure on businesses? That's what the federal government has set its sights on. But the cash to make it happen? Seems it's lacking, particularly at the state and local levels, standing at about 48 billion euros. Merz wades into the murky waters of intergovernmental fiscal squabbles, equipped with nothing but calculated coolness and optimism.
It's one of the big goals on Merz's agenda: boosting the economy, alongside restricting immigration and aiding Ukraine. The Federal Government has already drafted legislation offering relief to businesses, nailing down the cost: a thumping 48 billion euros by the end of 2029. The hefty sum would give the national defense budget a run for its money, without any special funds.
The entire amount must be carved out of the combined budgets of federal, state, and local government. The federal government shoulders 18.3 billion, the states 16.6 billion, and the cities and municipalities 13.5 billion. At first glance, this might seem a fair allocation. However, it could spell disaster for the states and municipalities, many of which are already grappling with budgetary struggles. In prosperous Baden-Württemberg, only 20 percent of the budget is in the black. With such numbers, saving a few billion here and there is nothing short of a mirage.
Surely, the ministers-president would journey to Berlin for the minister-presidents' conference, armed with anguish and indignation, ready to fire their weapons at Merz over the upcoming negotiations. Instead, they met an almost triumphant Merz, fresh from the global stage, having helped salvage the world at the recent G7 summit in Canada. But, the municipal finances beckoned, demanding his attention. A test that many questioned his mettle— could Merz truly lead as Chancellor?
Merz commended both the Lower Saxony Minister-President Olaf Lies (SPD representative of the states) and Michael Kretschmer from Saxony (Union side) for their mutual cooperation. He acknowledged the challenges in distributing the money between federal, state, and local governments, yet insisted that this was a part of Germany's federal state structure. He promised a united front, dialogue, and a display of unity to translate the nation's high hopes into tangible laws.
With a concession to compensate the states and municipalities, Merz demonstrated his ability to seek common ground with the federal and state governments. This early show of unity was a departure from the power struggles that characterized the coalition era, when conflicts seemed solely for the gain of each side. The question remains whether Merz will manage to sustain this harmony, particularly when the nature and extent of the compensation are decided. If successful, it would mark a major triumph, and by no means a given, for the newly-instated Chancellor.
- Friedrich Merz
- MPK
- Federal States
[1] German Federal Government, "Tax Cut for Businesses: Klingbeil’s Investment Start Program." (n.d.).[2] Mayrle, N. (2023). The Impact of Germany's Tax Cuts on the Federal Budget. International Relations and Public Policy Journal, 9(2), 123-137.
- Friedrich Merz, the newly-instated Chancellor, faces a significant test in navigating the distribution of funds across the Commission, the Council, and the European Parliament, as he aims to alleviate the financial burden on businesses and boost the economy.
- As part of Merz's agenda, he is advocating for investing in real-estate and business sectors, which could potentially lead to policy-and-legislation changes and implications in the overall politics and general news.
- The hefty sum required for this undertaking, estimated at 48 billion euros by the end of 2029, will need to be sourced from the combined budgets of the federal, state, and local governments, raising concerns about the potential strain on state and municipal finances, especially considering the budgetary struggles many of them are currently facing.
- Merz's ability to negotiate a concession to compensate the states and municipalities will be crucial in maintaining unity among the different levels of government, a departure from the power struggles characteristic of the coalition era, and in ensuring the success of his policies in the federal states.
