Robust or Rigid? Federal Dynamics during the Economic Crisis in Germany's Federal System

In contrast to many EU countries struggling in the wake of the economic crisis, Germany has been in a relatively comfortable  position, in some ways even gaining from the crisis (e.g. low interest rates on public debts and a decrease in value of the Euro help the export-oriented German economy). Yet Germany had to respond to the crisis as a member of the EU where the federal government pushed for measures to stabilize the Euro. Decisions determined to manage the crisis affected Germany in many respects, including relations between the federal and Länder governments. Moreover, the crisis influenced the process to reform fiscal federalism, which is necessary to replace the existing law after 2020.

Based on the framework of “dynamic institutionalism” (Benz & Broschek, 2013), the paper discusses the effects of economic changes, changes in general support for governments and changes in the party system triggered by the crisis. Following a society-centered approach to federalism, we should expect these developments to drive institutional reform in German federalism. However, as we will show in the paper, quite the contrary occurred. So far the structure of the federal system has persisted, fiscal federalism has hardly changed and institutional rigidity seems to prevail despite the pressures of the crisis. The case study sheds light in the interplay of society-driven change and institutional change in federal systems. We argue that cooperative federalism in Germany tends towards rigidity during crisis situations, although it allows for incremental adjustments and proves to be “robust” under other conditions.