PIIGS problems spreading to Germany?
It seems some German states are running into problems, and need support from the otjer “loyal” states. Somehow this is a deja vú feeling again. Below from Barclays;
For the first time in recent German history, and reflecting the implementation of a debt brake also for German states, the newly found stability committee(Stabilitaetsrat), comprising representatives of the federal government and the German states, concluded yesterday that four German states would be on special budget watch for the next five years. The states of Bremen, Berlin, Schleswig Holstein and Saarland will need to present a five-year budget plan to the committee by mid-October, indicating how the state governments will aim at overcoming the emergency budget situation over this time period.
Underlying the special budget watch pronounced by the stability committee are considerable differences in opinion between the better-off and relatively poor states with respect to the scope of the financial transfer system that is in place between German states – the so-called Laenderfinanzausgleich. While the special budget watch does not come with immediate sanctions, continous non-compliance could result in the withdrawal of budgetary transfers from the federal government and the better-off states, which are aimed at facilitating the budget consolidation process in the more critical states. Several newspapers, including Handelsblatt, FTD and FAZ, report that this financial support would account for up to EUR800mn. In this sense, the situation resembles the problems faced at the country level within the euro area where the periphery countries are dependent on financial support from other member countries and the financial support is provided on the back of conditionality.