German Federalism Under the Grundgesetz

German federalism is a fundamental structural principle of the Grundgesetz, established by Article 20(1) declaring the Federal Republic a democratic and social federal state. The federal structure divides authority between the Federation (Bund) and the sixteen Länder, each with its own constitution, government, parliament, and administration. German federalism is characterised by cooperative and interlocking federalism in which the Bund and the Länder share legislative, executive, and financial responsibilities. The distribution of competences and the financial constitution have been the subject of extensive constitutional reform, most notably the Federalism Reforms of 2006 and 2009.

The Distribution of Legislative Competences

The Grundgesetz distributes legislative competences through a system of enumerated powers, with residual legislative authority residing with the Länder under Article 70. Federal legislative competence is exercised in three categories. The exclusive legislative power of the Bund under Articles 71 and 73 covers matters requiring uniform federal regulation: foreign affairs, defence, citizenship, currency, and postal services. In these areas, Länder may legislate only if expressly authorised by federal statute. The concurrent legislative power under Articles 72 to 74 covers civil and criminal law, company law, labour law, social welfare, economic regulation, nuclear energy, environmental protection, and higher education. Under Article 72(1), Länder may legislate as long as the Bund has not exercised its competence. The 2006 reform amended Article 72(2) to permit federal legislation in concurrent areas only if equivalent living conditions or legal or economic unity necessitates federal regulation, and returned legislative authority to the Länder in areas including the prison system, assembly law, and retail trade opening hours. The framework legislative power, under which the Bund issued framework provisions for Länder implementation, was abolished by the 2006 reform.

The Principle of Federal Loyalty

The principle of federal loyalty (Bundestreue) is an unwritten constitutional principle requiring the Bund and the Länder to exercise their powers respecting the legitimate interests of the other level of government. Developed by the Federal Constitutional Court in a series of decisions, it applies to legislative, executive, and financial competences and requires mutual consideration, prohibiting either level from using its powers to undermine the constitutional position of the other. The principle is particularly relevant in Bundesrat proceedings and in Länder implementation of federal laws.

The Bundesrat and Länder Participation in Federal Legislation

The Bundesrat (Federal Council) is the constitutional organ through which the Länder participate in federal legislation and administration under Article 50. It is composed of members of Land governments, with each Land entitled to between three and six votes depending on population, voting as a bloc. Approval statutes (Zustimmungsgesetze) require express Bundesrat consent, giving the Länder an effective veto over federal legislation. Objection statutes (Einspruchsgesetze) may be enacted over a Bundesrat objection by a qualified majority of the Bundestag. Prior to the 2006 reform, approximately sixty per cent of federal statutes required Bundesrat approval. The reform substantially reduced this proportion by removing the Bundesrat’s veto in areas where Länder interests are less directly affected.

The Financial Constitution

The financial constitution (Finanzverfassung) under Articles 104a to 115 governs tax revenue distribution, fiscal responsibilities, and fiscal equalisation. Each level of government bears expenditure associated with its tasks under Article 104a(1). The tax system divides principal taxes: income tax and corporate tax are shared between the Bund and Länder, with municipalities receiving a share of income tax; value-added tax is shared between Bund and Länder by federal statute requiring Bundesrat approval; trade tax accrues principally to municipalities; Länder receive inheritance, property, and motor vehicle taxes; and the Bund receives mineral oil, tobacco, and other excise duties.

The horizontal fiscal equalisation (Länderfinanzausgleich), operating from 1969 until 2019, redistributed revenues from wealthier to poorer Länder. The system was subject to repeated constitutional challenges from net-payer Länder, particularly Bavaria and Hesse. In 2017, the Bundestag replaced it with vertical supplementary payments from the federal budget to structurally weaker Länder, effective from 2020.

The Federalism Reform I (2006)

The Federalism Reform I (Föderalismusreform I), adopted in 2006, was the most comprehensive reform of the federal structure since the Grundgesetz entered into force. Its objectives were to reduce concurrent legislative powers requiring federal law, abolish framework legislation, reduce the proportion of federal statutes requiring Bundesrat approval, and grant the Länder additional legislative competences. The reform transferred legislative authority to the Länder in the prison system, assembly law, public service law, retail and restaurant opening hours, gambling establishments, and professional association law. It reclassified numerous approval statutes as objection statutes, reducing the approval requirement from approximately sixty to approximately forty per cent of federal laws.

The Federalism Reform II (2009) and the Debt Brake

The Federalism Reform II (Föderalismusreform II), adopted in 2009 in response to the financial crisis, reformed public borrowing provisions. The centrepiece is the debt brake (Schuldenbremse) under Article 109(3) and Article 115(2), providing that the federal structural deficit may not exceed 0.35 per cent of nominal GDP. The Länder are prohibited from incurring any structural deficit from 2020 onward, with exceptions for natural disasters and severe economic downturns subject to repayment requirements. The debt brake fundamentally shifted fiscal policy from the previous system permitting borrowing up to the level of public investment.

Cooperative Federalism and Joint Tasks

German federalism incorporates cooperative federalism through the Joint Tasks (Gemeinschaftsaufgaben) under Articles 91a to 91e, involving Bund participation in Länder tasks where cooperation is necessary for the common good. The original Joint Tasks covered higher education, regional economic development, and agricultural structural improvement. The 2006 reform abolished the Joint Task for higher education, subsequently relaxed by a 2014 amendment permitting federal funding of scientific research. Article 91c provides for information technology cooperation, Article 91d for performance benchmarking, and Article 91e for cooperation in basic social security administration. These provisions reflect the pragmatic reality that policy challenges transcend the strict division of competences, while generating ongoing debate about the balance between federal leadership and Länder autonomy.