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Finanzausgleich. 1. HISTORICAL BACKGROUND AND SETTING The present state of German federalism can only be understood against its historical background. During most the 19th
century, Germany consisted of a patchwork of mini-states subject to hegemonial interests of both German-speaking
superpowers (such as Prussia and Austria) and centrally controlled European nation states (such as France, Russia,
and the United Kingdom). The German ambition at that time was the creation of a strong nation state to match
competing European interests both politically and economically. The unifying force was clearly German language and
culture as well as economic motives, notably the creation of a common market without barriers among German states.
The language criterion was so decisive that unification was impossible under Austrian rule, a monarchy that, at that time,
had different aspirations in the Balkans and Southern Europe. When the German Reich was finally established in 1871,
the Prussian hegemon controlled about two thirds of economic resources in Germany, truly a highly asymmetric
construct which would render the federation vulnerable to centripetal tendencies and abuse of power.
Although formally a federation, with representatives of the constituent German states cooperating in a similar way as
today’s Council of the European Union, the system had all characteristics of a monarchy with the Emperor and his
nominated cabinet exerting the sovereign power of the Reich. True, there was an elected parliament, which became a
source of continuing political quarrels, especially after the opposition to the ruling parties had won a significant majority,
but it remained virtually powerless and without significant political influence.
After World War I, the Weimar constitution aspired to establish the accountability of government to an elected
parliament, but failed to render the latter politically viable. A highly fragmented party system—representing a rickety
society at a time of major social and political upheavals—and the national parliament fell prey, at last, to the ploys and
threats of the Nazis, which ended the short-lived democracy between the two wars. Hitler’s ascending to command had
proceeded via Berlin and through Prussian institutions, the other states of the federation being impotent or unwilling to
counterbalance his usurping of power. This is why the Allies would abolish the state of Prussia immediately after the War
thus eliminating one important asymmetry and source of political instability.
The newly created zones (later Länder or states) did not necessarily respect historic boundaries, and—after the Nazi
experience—regional balance and symmetry became guiding principles for the reconstruction of post-war Germany—at
least in the West at that moment. A concession to German history was, however, the creation of so-called city-states,
Hamburg and Bremen—the “Hanse” cities—and after unification Berlin, which introduced a minor asymmetric element
into intergovernmental fiscal relations that has more recently found the attention of...
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