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Solidarity Pact for Eastern Germany Comes Under Fire: Should Economic Support for the East Be Withdrawn?

Author

Listed:
  • Reiner Haseloff
  • Thomas Lenk
  • Philipp Glinka
  • Berthold U. Wigger
  • Michael Thöne

Abstract

The Solidarity Pact II is due to expire at the end of 2019. As part of the restructuring of financial relations between the German federal government and the Länder, should economic support for the East be withdrawn and integrated into a comprehensive support system for structurally weak regions in eastern and western Germany? According to Reiner Haseloff, Minister President of Saxony-Anhalt, the Solidarity Pact has not failed, even if all of its goals will not be reached by 2020. It has emerged that the fiscal equalisation scheme among Germany’s Länder alone is not in a position to counterbalance regional differences in Germany. That is why special funding like the Solidarity Pact is required. For Thomas Lenk and Philipp Glinka, University of Leipzig, the special needs covered in Basket I of the Solidarity Pact can no longer be said to come from eastern Germany as a general rule. Special funding measures, by contrast, like those that are currently being implemented thanks to Basket II of the Solidarity Pact, remain absolutely necessary in eastern German Länder, to put them in a long-term economic position to improve their allocation results. However, these measures do not need to be implemented in the context of a solidarity pact. Berthold U. Wigger, Karlsruher Institut für Technologie (KIT), sees the remaining differences in the economic and financial power of eastern and western Germany as no reason for special transfers to eastern German Länder. There should therefore be no successor to Solidarity Pact II when it expires. Instead, the differences between eastern and western Germany should be offset with regional policy instruments. Michael Thöne, University of Cologne, suggests “Solidarity 4.0 instead of a Solidarity Pact III”. The best successor to the Solidarity Pact II would be a financial equalisation scheme for the German federal government and Länder based on solidarity 4.0, which would be more demand-oriented and would be in a position to adjust the distribution of funding so as to achieve the equal funding of public services according to objective differences.

Suggested Citation

  • Reiner Haseloff & Thomas Lenk & Philipp Glinka & Berthold U. Wigger & Michael Thöne, 2015. "Solidarity Pact for Eastern Germany Comes Under Fire: Should Economic Support for the East Be Withdrawn?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 68(23), pages 03-14, December.
    • Handle: RePEc:ces:ifosdt:v:68:y:2015:i:23:p:03-14
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    References listed on IDEAS

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    1. Alexander Eck & Carolin Fritzsche & Jan Kluge & Joachim Ragnitz & Felix Rösel, 2015. "Fiscal Capacity and Determining Structural Characteristics of the Eastern German Laender," ifo Dresden Studien, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 76.
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    Cited by:

    1. Korzhenevych, Artem & Langer, Sebastian, 2016. "The Flypaper Effect in Germany: An East-West Comparison," CEPIE Working Papers 10/16, Technische Universität Dresden, Center of Public and International Economics (CEPIE).
    2. Anna‐Maria Kindt & Matthias Geissler & Kilian Bühling, 2022. "Be my (little) partner?!—Universities' role in regional innovation systems when large firms are rare," Journal of Regional Science, Wiley Blackwell, vol. 62(5), pages 1274-1295, November.

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    More about this item

    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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