‘The Mother of all Reforms’ - federalism reform in Germany

Australia’s federal order has been under strain in recent years. It has been suggested that many crucial yet politically controversial issues such as water, health and education cannot be regulated by the Commonwealth alone and agreements between the Commonwealth and the States could not be reached or failed.

Co-operative regimes established between the Commonwealth and the States appeared to be under threat when certain aspects of these regimes were struck down by the High Court. It has also been argued that the expansive reading of federal constitutional powers combined with a so-called “ratchet effect” continuously increased the power base of the Commonwealth.

There are now calls for an evaluation of the state of the federation focusing on the distribution of powers and fiscal arrangements. Most recently, several streams at the 2020 Summit noted their discontent with the federal order in Australia and made suggestion how to improve it. These suggestions were echoed and further explored at the subsequent round table Inquiry into Constitutional reform, convened by the House of Representative’s Standing Committee on Legal and Constitutional Affairs.

There are similar issues elsewhere where federalism defines constitutional arrangements. A particularly good example is the reform efforts in the Federal Republic of Germany. Labelled by the Bavarian Ministerpräsident (Premier) Edmund Stoiber “the mother of all reforms”, Germany tackled the mammoth task of re-shaping its federal order.

Background

Formed under the impression of a highly centralistic national-socialist regime featuring systematic power abuses, the western allied forces conceived (the Federal Republic of) Germany as a federal nation. Characterised by a complex web of horizontal and vertical divisions of power, the federal order was shaped to avoid power abuses - like those seen between 1933 and 1945 - in the future.

The German Constitution, or Grundgesetz (Basic Law), provides for a horizontal division of power that establishes the traditional tripartite of legislative, executive and judicial power.

The vertical division of power is achieved by assigning legislative powers to the Bund and the Länder respectively. Based on the understanding that the Länder are given legislative powers unless the Constitution otherwise provides (Article 70), the German Constitution confers on the Bund certain exclusive legislative powers, including, for example, the subject matters foreign affairs, citizenship law and postal and telecommunications laws (Article 73).

A second catalogue of powers provides for concurrent legislative powers (Arts 74). This catalogue includes subject matters such as civil and criminal law, the courts, procedural laws, employment law and nuclear energy. The Länder may legislate with respect to concurrent subject matters to the extent the Bund has not exercised the legislative power (Art 72).

Problems: political entanglement

This complex web of horizontal and vertical divisions of power has lead to the development of strong political and institutional interdependencies (sometimes also referred to as “political entanglement”).

The ultimate result, it has been observed, was the development of a so-called “consensus democracy”, i.e. a democracy in which a uniform national consensus dictated outcomes and in which the lowest common denominator prevailed.

To achieve such uniform solutions beneficial to the whole of the nation, Germany began to “flatten” its federal order, accumulating legislative power in the Bund and increasingly focusing on nationally applicable uniform rules and regulations. Against the background of a federal distribution of legislative powers between the Bund and the Länder, this could only be achieved by agreement and references of legislative power from the Länder to the Bund.

The Bund desired this development as well as its outcomes as it continuously strengthened its power base; the Länder at least accepted them, not only because it was convenient, but also because post-war Germany prospered economically.

Realisations: the need for reforms

However, leading German federalism experts have long argued that this trend resulted in the “unitarisierung” of the federal order, i.e. the turning of the federal state into a unitary one. Further, the accumulation of legislative power in the Bund, it was noted, emasculated the character of the Länder to a degree where they were at risk of ceasing to be independent political units within the federation.

This problem was further compounded by a significant fiscal imbalance, not only between the Bund and the Länder, but also among the Länder (where the “rich” have to provide support for the “poor” in accordance with certain fiscal equalisation requirements).

Finally, experts argued that the form of unitary co-operative governance prevalent in Germany was inefficient and masked the real advantages that could be derived from a federal system in which diversity is fostered and utilised to the advantage of the nation.

A variety of factors attributable to globalisation and the opening and internationalisation of markets were identified as substantial contributors to rising costs for the public purse, the slowing down of Germany’s economic development and the increasing unattractiveness of many regions for investors.

According to one of the most eminent German federalism experts, Professor Fritz Scharpf, this trend was, to a significant extent, due to Germany’s aim for “uniformity of regulation”, stifling the Länder and their regions’ ability to promote and exploit any specific advantages and benefits of their respective locations. Also, there was evidence that the development into a “consensus democracy” dictated by the lowest common denominator had thwarted attempts by the Länder and their regions to be more innovative and modern, in turn making them attractive to investors.

Still, it was not until fairly recently that Germany embarked on the journey to re-organise its federal order to better adapt to new the economic challenges that confront all nations at the beginning of the 21st century.

A slow process …

The Commission comprised of Bundestag and Bundesrat to Modernise the Federal Order was set up in 2003 but was unable to reach agreements in a number of crucial areas and finally failed in December 2004.

The process was rekindled after the last federal elections: the re-organisation of the federal order became part of the Grand Coalition’s coalition agreement. In June 2006, a first tranche of amendments to the German Constitution were passed by the Bundestag and the Bundesrat (changes to the German Constitution require two-thirds majorities in both chambers), transferring powers back to the Länder with the view to reviving or strengthening key features of “competitive federalism” or, at least, to promoting a healthy competition of ideas.

For example, and as an interesting aside in light of the ongoing debates in Australia, the constitutional amendments resulted in the Bund’s retreat from the subject matter education (Art 75, which gave the Bund a framework competency over this subject matter, was repealed). However, and this has been identified as the major flaw of Germany’s reform efforts to date, no reform proposals concerning federal fiscal arrangements were considered as part of this first tranche of constitutional changes.

It transpires that the process of re-organising Germany’s federal order is a difficult and often frustrating task, regularly hampered by political strategies and stifled by party tactics before state and federal elections.

Conclusion

Currently, we observe federating processes at work in the emergence of regional confederal systems and international legal regimes on trade and commerce and human rights. The recent changes in Nepal or federating processes in the EU are only two examples. Further, federal orders are capable of providing stability for nations that are marked by considerable diversity. India seems to be an example for which federalism offers prospects of constitutional settlement between states and regions otherwise threatened by ethnic and other divisions.

Germany has long been perceived as a successful federation - and, like Australia, it is. However, it has been recognised that reform processes are necessary to invigorate and modernise the federal order by strengthening the independence of the Länder and the flexibility of regions. It is argued that this can be an antidote to the effects of globalisation and market liberalisation. While slow and often frustrating, progress is being made.

The German experience has many lessons for Australia as it reconsiders its own federal arrangements. The forthcoming conference on the Future of Federalism is a forum designed to discuss current and emergent issues of federalism locally and internationally. It draws together a group of eminent scholars from Australia, Europe, North America and South Africa in what promises to be the most intellectually challenging discussion of federalism to occur in Australia in recent times. For details of this conference visit: www.fedcon2008.net.