Boris Rhein: Closing in on Fair Financial Deal for States
Federal-state negotiations showing signs of advancement, as reported by Boris Rhein. - Discourse advancement observed in negotiations among the regional states (Länder), as surveyed by Boris Rhein.
Hesse's Minister President, Boris Rhein (CDU), is pumped about the progress in talks between the federal and state governments regarding financial reform. Post the Minister Presidents' conference and a sit-down with Federal Chancellor Friedrich Merz (CDU), Rhein expressed that states and municipalities need a decent amount of financial breathing room to tackle their responsibilities. This is an essential aspect of keeping the federal system up and running.
This powwow with the Chancellor was a "solid opening act," but there's still a long road ahead for all players. "Let's slice through the Gordian knot and lay the groundwork for a new financial foundation," Rhein stated in a press release.
Two accords are urgent: A team consisting of Saxony and Lower Saxony should draft a compensation plan for the anticipated loss of earnings due to the proposed "growth booster" scheme. A reasonable solution is crucial for the law to pass the Bundesrat on July 11.
Secondly, another squad should cook up a mechanism that swings into action whenever new federal laws saddles states and municipalities with additional costs or revenue loss. The old "who orders, pays" rule needs to make a comeback. A fair mechanism can expedite things and simplify processes between the levels of government. Besides, the federal and state governments want to streamline administration and improve citizen services through a joint state modernization. As Rhein put it, "Good governance is the best antidote to extremism and populism."
- Boris Rhein
- Rhein
- CDU
- Friedrich Merz
- Progress
- Financial relationship
- Wiesbaden
- Growth booster
- Structured dialogue
- Fair financial foundation
- "Who orders, pays" mechanism
- Efficient governance
The current situation of financial relationship reform discussions between the federal and state governments in Germany revolves around the principal "who orders, pays." The federal government under Chancellor Merz and the states have agreed to engage in a structured dialogue to create a fair financial relationship. This dialogue tackles how financial obligations are divided, which aligns with the "who orders, pays" principle, but the specific detailed reforms on this principle are yet to be finalized as of June 2025[1].
Significant points of context include:
- Dialogue Initiated: Chancellor Merz has launched a structured dialogue between the federal government and states to ensure fairness in their financial relations, indicating a political willingness to reform how costs and responsibilities are shared[1].
- Debt Brake Reform and Fiscal Flexibility: The longstanding constitutional debt brake, which limits structural deficits to 0.35% of GDP, has recently been revamped, allowing states more borrowing capacity and the federal government to form larger investment funds (including a €500 billion special fund spread over 12 years). These changes reflect a growing openness to adjust fiscal rules to accommodate investment needs and financial realities, which matters as it could impact the division of funding responsibilities[3][4][5].
- Investment and Funding Challenges: There's awareness of substantial investment backlogs (ranging from €100 billion to €600 billion), driving the reform discussions. The federal government has pledged to sponsor measures such as state contributions via special funds, indicating that negotiations on financial responsibility sharing continue in depth[4].
- No Final Reform on "Who Orders, Pays" Yet: While the principle "who orders, pays" is a hot topic in fiscal federalism, especially to avoid unfunded mandates, the sources don't report a concrete reform outcome or legal changes explicitly formalizing this principle in the current period. The focus remains on dialogue and preliminary reforms to the broader fiscal framework[1].
- Boris Rhein and Friedrich Merz have initiated a structured dialogue aimed at crafting a fair financial relationship between the federal and state governments, following the principle of "who orders, pays."
- In light of the ongoing dialogue, Rhein emphasized the urgency of establishing a "who orders, pays" mechanism and a compensation plan for the loss of earnings due to the proposed "growth booster" scheme, as efficient governance is instrumental in combating extremism and populism.
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