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Unformatted text preview: new states compared to the old. True, large
transfers have evened out regional income differentials, but failed to spur significant productivity increase and growth in
the East. These transfers are even suspected to eternalize existing gaps by preserving outdated economic structures, by
discouraging entrepreneurial spirit, and by inducing moral hazard.
Irrespective of the asymmetries in favor of the East—which no German politician would dare to censure—, interregional
solidarity had already come under attack before unification. In particular the equalizing effects of Finanzausgleich had
been criticized not only because of questionable distribution criteria, but also because of entailing economic
inefficiencies. Unification has rendered this issue only more pressing. Excessive solidarity is seen to entail absence of
accountability, dearth of regional growth initiatives, lack of interest to develop own resources, and even moral hazard
and waste at the state level. Economists and public finance experts have increasingly taken the view that the
“corporatist” German approach to federalism is outdated and constitutes even a risk in the age of globalization.
According to this view, modern government is expected to meet the challenge of markets—in the same way as the
private sector—, and it should agree to competition among public entities and institutions.
It is obvious that German federalism must also be contemplated in the context of European integration. It is true that the
European Union (EU), in her quest for an intergovernmental decision-making machinery among sovereign national
states, has greatly benefited from German experience with its cooperative approach. The impact of German institution is
clearly noticeable at the European level: the European Council (shaped according to the Bundesrat); ECOFIN (a
derivative from the German planning councils); “guidelines” set by Brussels (according to German “framework
legislation”); the European Central Bank (whose statutes follow the law on the Bundesbank); and so forth. But the
German model has one important constituent that is absent at the supranational level: solidarity. This limits its
usefulness for supranational integration where interregional cohesion is much weaker indeed. A “corporatist” model of
federalism is therefore not acceptable for Europe—neither now, nor in the foreseeable future. Moreover, the pace of
institution building at the European level has to look for new paradigms given the fact that Agenda 2000 aims at
extending the EU toward Central and Eastern Europe. How could this affect German federalism?
It is interesting to note that European integration has already induced the strengthening of regions—both economically
and politically; that it has fostered a process of decentralization even in unitary states; and that elements of “competitive
federalism” are now increasingly being discussed throughout Europe, and in Germany in particular, not only by
6 7 It is difficult to establish an...
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