Financial stress test: 100 billion for Bremen, Saxony and BW – risk or opportunity?

Financial stress test: 100 billion for Bremen, Saxony and BW – risk or opportunity?

In the context of the newly introduced regulations for the federal states, an amendment to the Basic Law was passed in the spring that allows them to take out regular loans again. This is happening against the background that the countries can receive a total of 100 billion euros from the special infrastructure and climate neutrality fund. Unlike the federal government, however, the states do not have to follow any requirements regarding the additionality of funds. This is causing discussions among experts, such as Sebastian Dullien from the IMK, who criticizes the lack of entitlement to additional funds provided.

The fear is that without clear rules, the funds provided could be used to stabilize existing structures instead of for necessary investments. Bremen is particularly affected, as it is considered the financially weakest federal state and is struggling with the highest level of debt. In the future, Bremen will be allowed to take out 140 million euros in new loans annually, in addition to 400 million euros for restructuring aid. Despite these simplifications, the requirements for the use of these new funds are stricter.

Challenges in the federal states

Saxony, long known for a positive budget image, is facing problems such as a shortage of teachers and dilapidated infrastructure. Under Prime Minister Michael Kretschmer, more money is being invested in education and security, but austerity pressure continues to weigh on the country. There is a risk that the 100 billion euros from the special fund will not serve as financing for new investments, but will instead be used to replace your own expenses.

Baden-Württemberg, on the other hand, has a high tax capacity, but is faced with increasing personnel and investment burdens. The expected change in interest rates could double the financial burden by 2029 and therefore represents a further challenge. The IMK calculations indicate that the special fund's 500 billion euros can only cover around three quarters of the actual investment needs.

Opportunities and risks of using funds

The federal government's 100 billion euros can represent both an opportunity and a risk for the three federal states: the possibility of making urgently needed investments is offset by the danger that the funds will not be used in a targeted manner. The different challenges faced by the states - from Bremen's acute need for renovation to Saxony's structural problems to Baden-Württemberg's financial pressure - illustrate the urgency of using the funds in a targeted manner.

The Basic Law allows the establishment of special funds for specific purposes that do not appear in the federal budget and are therefore not subject to the debt brake. According to the Federal Audit Office, there are currently 29 special funds with a total volume of around 869 billion euros. The best-known special funds include the Corona Economic Stability Fund and the Climate and Transformation Fund, which will make a total of 211.8 billion euros available for climate-friendly measures from 2024 to 2027. These funds are financed, among other things, by proceeds from European emissions trading and CO2 pricing.

The discussion about the use of the 100 billion euros from the special fund for the states remains tense and will certainly continue to play a central role in political debates in the future. It remains to be seen how the individual federal states will use the new opportunities and what long-term effects this will have on their economic situation.