German Reform Aims To Speed Infrastructure Investment

By Andrea Thomas Features Dow Jones Newswires

Germany agreed Thursday to a new division of labor between the national and state governments in a bid to make the country more efficient and allow faster investment into its crumbling infrastructure.

Continue Reading Below

Low investment is a sore spot in a country, which is awash with cash but slow in modernizing autobahns and schools.

International organizations such as the International Monetary Fund and the European Central Bank as well as the U.S. and neighboring European countries have repeatedly called on Germany to use its budget surplus to boost infrastructure spending and help spur growth.

Critics such as DIW economics institute's President Marcel Fratzscher say Germany's record current account surplus last year was partly a result of its low public-investment rate.

The overhaul of financial ties between the national and state governments from 2020 is one of Chancellor Angela Merkel's ruling coalition government's key reforms. It gives Berlin more power in exchange for providing extra funds for the states.

The government has said the overhaul was needed because the country's complicated division between federal and state responsibilities enshrined in its constitution often slows down investment.

Continue Reading Below

"We know that jobs, growth and prosperity in this country depend strongly on whether we have a good infrastructure," said German Transport Minister Alexander Dobrindt in the lower house of parliament ahead of the vote on the overhaul.

"With this reform, we increase efficiency and ensure that we get faster and better and can build more."

The plan needed changes in the country's constitution and was approved by the necessary two-third majority in the lower house.

It also needs to pass the upper house on Friday, which represents the country's 16 states. An approval is expected.

Germany isn't organized as a centralized country but as a federal nation where the states and not the national government are in charge of many infrastructure projects and education.

As part of the overhaul of relations between the national and state levels, the federal government will pay roughly 10 billion euros ($11.2 billion) annually to the country's 16 states in exchange for getting more say on infrastructure projects, tax administration and investment in schools.

The government hopes that being in charge of planning, building and operating motorways will make it easier for it to tackle the country's decaying infrastructure and speed up urgently needed repairs to schools.

At present, often cash-strapped municipalities are in charge of school repairs, meaning that pupils from poor neighborhoods such as the city of Gelsenkirchen face worse conditions than those in rich districts, such as Munich.

"We can't explain to our citizens that some schools are in an unacceptable condition...and that the German finance minister is able to restore schools in Burundi but not in Gelsenkirchen," German Finance Minister Wolfgang Schauble told the house ahead of the vote. "We must find better solutions on a national level."

Germany is in a comfortable position to fund more investment given its budget surplus of 0.8% of gross domestic product last year.

-Write to Andrea Thomas at andrea.thomas@wsj.com

(END) Dow Jones Newswires

June 01, 2017 08:44 ET (12:44 GMT)