Finances: Fratzscher warns of dramatic consequences if the municipalities are overburdened

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Fratzscher warns of dramatic consequences if the municipalities are overburdened

Marcel Fratzscher, President of the German Institute for Economic Research

Source: Bernd von Jutrczenka/dpa

“The discrepancy between the responsibility and the financial resources of the municipalities has never been greater than it is today,” says the economist and warns of the dramatic consequences for prosperity if the municipalities do not receive enough money for tasks such as housing refugees.

Dhe economic researcher Marcel Fratzscher warns of dramatic consequences for German prosperity if the municipalities do not receive enough money for their tasks, such as housing refugees. “Never in the past 70 years has the discrepancy between the responsibility and the financial resources of the municipalities been greater than today,” wrote the head of the German Institute for Economic Research (DIW) in the “Augsburger Allgemeine” (Saturday).

This endangers economic prosperity. Because the municipalities are the basis for economic success in Germany “Nearly 30 percent of all municipalities are indebted and can no longer make decisions independently,” writes Fratzscher in the guest article. Municipalities have been complaining for a long time that there is not enough money for them accommodation of refugees and get other assignments.

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“Almost half of all public investments in Germany are made by local authorities. They provide a large part of the infrastructure for schools, for traffic, for energy and water networks, for hospitals and care facilities,” explained Fratzscher.

Without this basic supply, no company can build up its production, be innovative and create jobs. “The municipalities are perhaps the most important reason why Germany always manages crises better than many other comparable countries – be it in the reception and integration of refugees, in the energy crisis or in the pandemic.”

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Fratzscher therefore proposed three reforms in his guest article: “Firstly, municipalities must be given more equal financing conditions, which requires a reform of the federal-state financial equalization and a more effective limitation of tax competition. Second, municipalities need more autonomy in their financial decisions. The third reform is greater efficiency in the municipalities.”

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