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5th Feb 2023

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German cities criticise Merkel's fiscal rules

In December 2012, leaders from 25 EU countries all signed up to a pact championed by German Chancellor Angela Merkel.

The so-called fiscal compact is supposed to discipline countries into spending within their means and reducing their budget deficits and overall debt.

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  • No money for roads: Oberhausen is Germany's most indebted city (Photo: cosmo flash)

In Germany, the "debt brake" will fully come into force in 2019, when the federal state and the regions (laender) are legally bound to stop making new debt.

Germany is in a much better position when it comes to deficits and debts than its southern neighbours. But still the federal government currently has a debt running at 75 percent of the gross domestic product - above the 60 percent threshold enshrined in EU rules.

But in the multi-layered German state, cities fear it will be they who will ultimately foot the bill for Germany's exemplary balance sheet.

Ulrich Maly, the mayor of Nuremberg, told journalists in Berlin on Tueday (1 October) that more and more tasks are being moved from federal and regional to the local level, but without any extra funding.

"The federal government is under immense pressure from the outside. Imagine if the German state does not uphold the debt brake it has insisted for others to have. How will then Spain or others stick to it?" Maly said.

As head of the association representing 3,400 German towns and cities, Maly tabled a series of requests to the upcoming German government, warning of the unfair burden being placed on townhalls in reducing the country's budget deficit and debt.

With social expenditure - such as for the integration of disabled people or kindergardens - taking up over half of cities' budgets, the question will be "what kind of country do we want," the Social Democrat said.

"The debt brake will put political choices in the spotlight. It will be a question of what we can still afford if we're supposed to make no new debt. Do we want inclusion of disabled people - which will cost several billion euros - or do we abandon this human right?"

Meanwhile, Eva Lohse, a member of Merkel's Christian Democratic Union and mayor of Ludwigshafen, shared her colleague's concerns about the 2019 deadline.

"We may have good streams of revenue from taxes, but over 50 percent of our expenditure goes on social programmes which were decided at federal level," she said.

Ludwigshafen is among the top ten most indebted cities in Germany. Its mayor warned that the townhall has virtually no money left for infrastructure projects.

"Reducing deficits and debt actually means that somebody else is doing it, not that the task is gone. So whoever does it also needs to have the proper funding for it. We have bridges crumbling down in the middle of our towns - this is unacceptable," Lohse said.

Preliminary coalition talks between Merkel's Christian Democrats and the Social Democrats are scheduled for Friday, with tax hikes one of the thorniest issues between them.

Merkel is also keeping her options open with the Greens. She is due to meet them next week.

Negotiations are set to drag on for several weeks, with Social Democrat secretary general Andrea Nahles on Monday suggesting the new government may be formed as late as January.

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