Bavaria seeks to trump Merkel with anti-bailout card

Reuters News
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Posted: Jul 17, 2012 12:28 PM
Bavaria seeks to trump Merkel with anti-bailout card

By Christian Kraemer

MUNICH, Germany (Reuters) - Solidarity seems in short supply in Germany these days.

Just as Chancellor Angela Merkel insists Berlin cannot keep bailing out Europe's weaker economies, wealthy Bavaria now wants to stop bankrolling poorer German states under a federal system of financial transfers it says is unfair and wasteful.

Bavaria's state government in Munich, run by center-right parties that are part of Merkel's federal coalition in Berlin, said on Tuesday it would ask Germany's highest court to back its call for an overhaul of the system.

The decision to file a lawsuit in the constitutional court - which already has a ruling pending on whether Germany can legally ratify Europe's permanent rescue fund for struggling euro zone countries - drew swift criticism from the opposition Social Democrats (SDP).

They accused the Munich administration of lacking a spirit of solidarity and of bidding for votes ahead of a 2013 regional election in Bavaria.

"This system of transfers has nothing to do any more with a just sharing of the burden," said Martin Zeil, Bavaria's economy minister and a member of the pro-business, low-tax Free Democrats (FDP) who at the national level have been very critical of Greece's failure to clean up its public finances.

Only four of Germany's 16 regions or 'Laender' are net contributors to the federal transfer fund - the southern states of Bavaria, Baden-Wuerttemberg and Hesse and the northern city state of Hamburg.

Mirroring federal Germany's role as paymaster on the European stage, Bavaria contributed 3.66 billion euros last year, more than half of the total fund.

For the two-year financial period 2013-14 Bavaria will have to set aside 8.2 billion euros, almost 10 percent of all spending, to help out poorer regions of Germany, officials said.

The system of transfers has long fostered a sense of resentment in western Germany, which has forked out an estimated 2 trillion euros over the past two decades to rebuild the former East Germany after the collapse of communism.

Tellingly, the capital Berlin - located in the old east, though the western half of the city used to be part of capitalist West Germany - is the biggest current beneficiary of the federal transfer system.

Eastern Germany's painful, patchy recovery - which has still to take hold in parts of the region - has also contributed to Germans' reluctance to keep pouring their hard-earned cash into heavily indebted euro zone countries like Greece or Portugal.

TOUGH STANCE

Merkel's tough stance in the euro zone crisis, including her opposition to transnational sovereign 'euro bonds' - which would amount to transfers from the wealthy north of Europe to the poorer south - enjoys strong support in Germany and could help her win a third term of office in next year's federal election.

Echoing Merkel's comments on the euro zone crisis, Bavaria's Finance Minister Markus Soeder said his taxpayers were running out of patience too.

"Enough is enough. This issue has to be tackled now... The system is fundamentally wrong," said Soeder, who hails from the Christian Social Union, the regional sister party of Merkel's Christian Democrats.

Opposition politicians were unimpressed.

"The attacks against the transfer system are a transparent maneuver in the Bavarian pre-election battle," said Frank-Walter Steinmeier, SDP parliamentary leader in the Bundestag, the lower house of Germany's federal parliament in Berlin.

Baden-Wuerttemberg, another donor state which is run by the Greens and the SPD, said it would not back Bavaria's lawsuit and instead urged reform via negotiations between all the states.

"I believe a negotiated solution is the right way," said state premier Winfried Kretschmann, a Green, adding that further talks would in any case be required if the Constitutional Court eventually ruled in Bavaria's favor.

Bavarian politicians said a court verdict was unlikely until at least 2014, after both the state and federal elections.

Under the transfer system, Bavaria was itself a recipient state until 1988, receiving around 3.5 billion euros from 1950 until 1988. But Soeder said Bavaria had repaid those monies many times over since then by contributing some 38 billion euros to federal coffers in transfer payments.

(Writing by Gareth Jones; Editing by John Stonestreet)