AS THEY do about once a decade, the Germans are again fighting over their domestic “transfer union,” in which tax revenues are redistributed among the 16 federal Länder (states). But this time the euro crisis provides a new twist, for the currency zone’s southern countries are of late demanding “solidarity” from Germany in a form that sounds suspiciously like an even bigger transfer union. Hence the parallel in German minds: some states are makers, others are takers. The dynamic and fiscally responsible Bavaria, in this analogy, plays the role of Germany, backed by other good budgeters such as Hesse and Baden-Württemberg (Finland and the Netherlands, say). The city state of Berlin (“poor but sexy”, as its mayor has described it) becomes a “German Greece”, alongside other weaklings such as Thuringia or Bremen (Portugal or Spain).Germany’s system of financial equalisation is “socialism among states”, says Christian Kelders of the economics ministry of Bavaria, which pays half of the total transfers of €7.3 billion ($9.5 billion) a year. It leads to “perverse incentives” by punishing Länder that raise more tax revenues and rewarding those that collect less, agrees Luise Hölscher of the finance ministry of Hesse, which gives the most per person. On October 23rd the centre-right Christian Democratic Union (CDU) and its Bavarian...
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