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2.3. Fiscal consolidation assistance to the Länder
The budgetary position of the 
Länder
has been quite heterogeneous over the years, and
by 2010 the divergences had become quite stark (see Figure 2 below).
Notwithstanding the constitutional autonomy of the 
Länder
in their budgetary affairs,
Germany’s budgetary system is strongly influenced by the principle of solidarity and
mutual support 
(Bundesstaatliche Solidarität)
among the government entities. The shared
responsibility for bearing the financial cost of EU financial penalties, as provided for under
Article [104a][109(5)] of the Basic Law, is one example of this; other examples are the
provision under Article 104b for financial assistance from the federation to the 
Länder
for
“particularly important investments” necessary for balanced regional development,
including also natural disasters and emergencies, and the provision under Article 107 for
Figure 2.
Länder
 debt as a share of their revenues (2000, 2012)
500
450
400
350
300
250
200
150
100
50
0
%
2012
2000
Br
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en
Saa
rla
nd
Sch
les
wig-Hols
tei
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Be
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Rheinl
and-P
fal
z
No
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W
es
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Ni
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chs
en
Mean
Sa
ch
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An
ha
lt
Hesse
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Ha
m
bu
rg
Th
ür
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Br
anden
bu
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bu
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BUDGET REVIEW: GERMANY
OECD JOURNAL ON BUDGETING – VOLUME 2014/2 © OECD 2015
34
supplementary grants from the Federation to financially weak 
Länder
, to make up for any
remaining regional disparities in income arising from the operation of the complex scheme
of tax redistribution provided for under that Article. 
In particular, the Consolidation Assistance Act of 2009 provides for fiscal consolidation
assistance amounting to EUR 800 million a year for five of the sixteen 
Länder
(Berlin,
Bremen, Saarland, Saxony-Anhalt and Schleswig-Holstein) for the period 2010-19. The
financial aid is to assist these 
Länder
in their budgetary correction path, during the
transitional period before the debt-brake prohibition on non-cyclical borrowing becomes
fully applicable to them in 2020. The rationale is that these 
Lände
r, which have a relatively
small share of overall population, will face particularly severe adjustment efforts,
particularly in light of the scale of debt accumulated over the decades; for their part, the
Länder
involved must commit to progressive elimination of their structural deficits in equal
annual decrements in order to qualify for assistance. The law assigns the Stability Council
a particular role in monitoring compliance with the deficit reduction programmes, and
entitlement to financial assistance lapses for any 
Land
that fails to comply with its
budgetary objectives. 
While the principle of solidarity is far from unqualified,
6
 in practical terms the
Federation and the 
Länder
stand together on budgetary matters and there is a degree of 
de
facto
joint liability for debts incurred by the 
Länder
. At present, as the 
Länder
remain on a
path towards elimination of structural deficits by 2020, the longer-term risks inherent in
such a situation may not be readily apparent. Into the future, compliance with the fiscal
rules, and the continued fiscal sustainability of the general government, will depend on
sustained fiscal discipline from all levels of government. This will mark a divergence from
the pattern of past decades, and it remains to be seen whether the new budgetary
framework can effectively underpin such a heightened level of fiscal rectitude.