It is not flattering for Germany when the mayor of a city with a population of 40,000 says something like Markus Zwick: "The required standard of schools and kindergartens can no longer be maintained, we have put the lever on wear and tear." Actually, two new ones should be built Daycare centers are planned and built, but that's just not possible anymore.
CDU politician Zwick has been the mayor of Pirmasens since 2019. The heart of the German shoe industry once beat in the Palatinate, today the per capita debt is higher in no other municipality nationwide. "The debts don't go away, we carry them on and on," says Zwick.
What's more, the debt is getting more and more expensive. The interest on the approximately 355 million euros in cash advances has increased to one percent per annum. "At four percent, nothing works at all," says Zwick.
It is not certain that interest rates will rise to four percent. But the mere possibility that this could happen as part of the interest rate turnaround is causing unrest among mayors and chamberlains - not only in the Palatinate. Around 2000 municipalities are considered over-indebted. For years they have lacked money for schools, swimming pools and the removal of potholes.
The rising interest rates on the capital markets bring an issue to the fore that has been the subject of debate for years: freeing highly indebted municipalities from their old debts. It is now three years since the then Minister of Finance and current Chancellor Olaf Scholz (SPD) announced that the federal government would take over half of the cash advances. The other half should be borne by the respective federal states, so the idea. It is also about the fundamental question of which expenses the federal government has to pay for and which the federal states.
Time is running out. "In my 24 years as treasurer of the city of Wuppertal, I have never had a situation as stressful as it is now," says Johannes Slawig and lists what is happening right now: a pandemic for more than two years, a year ago a flood that caused the Wupper Among other things, parts of the suspension railway were damaged, now the energy crisis and concerns about rising unemployment and falling trade tax revenues for the city.
For years, Slawig has been involved in the action alliance "For the dignity of our cities", in which 65 heavily indebted municipalities from seven federal states have joined forces. According to their own statements, all of them have above-average social spending with below-average tax revenues.
This also applies to Mülheim an der Ruhr, where people made a good living from coal mining and steel production up until the 1960s. Today it sounds like resignation when treasurer Frank Mendack speaks of the "calm before the storm". Mülheim alone holds 1.1 billion euros in the so-called cash advances, a kind of overdraft facility for municipalities. "The calculation is simple, every percentage point more interest on the old debt costs the city eleven million euros," says Mendack. Money that cannot be spent elsewhere.
This is where you can see the real problem at the German Association of Cities. "The interest rate risk is immense, and it blocks the affected municipalities' opportunity for future investments," says Managing Director Helmut Dedy. Concerns are particularly great at the moment where old municipal debts are highest and are financed with short-term cash advances. "Now the federal government and the affected states have to find a solution quickly before interest rates continue to rise," says Dedy.
It is about debts of 31 billion euros. The total is very unevenly distributed. In North Rhine-Westphalia alone, the cash advances add up to 19 billion euros, in Rhineland-Palatinate to five billion euros. The agglomeration in the two countries is not only due to the fact that the past structural change was particularly strong here, but also because the state governments there have so far paid little attention to it.
Other federal states have already freed their municipalities from debt. In Lower Saxony and Saarland, the number of municipal cash advances has halved since the beginning of 2016. In Hesse, the problem has almost completely disappeared, where the "Hessenkasse" took over almost five billion euros from over-indebted municipalities in 2019 and 2020.
According to the German constitution, the states and not the federal government are responsible for adequate financial resources for their municipalities. The fact that Scholz once made the proposal for the federal government to take over old debts and that the coalition agreement of the traffic light government still speaks of a "joint, one-time effort by the federal government and the federal states" goes back to the self-commitment of the federal government made in 2019 for equal living conditions to care.
Officially, the current government still feels obliged to do so. "The federal government is still ready to tackle the issue of old debts," says Federal Finance Minister Christian Lindner (FDP). The prerequisite for the “corresponding amendment to the Basic Law, however, is the approval of the CDU/CSU and the willingness of states like Bavaria to support a model from which they themselves do not benefit financially,” he says.
A two-thirds majority in the Bundestag and Bundesrat is required for the amendment to the Basic Law put forward by Lindner. It doesn't look like that at the moment. "Bavaria is already paying more than half of the federal financial power equalization, we are certainly not paying for the debts of the municipalities of other countries," says Albert Füracker (CSU), the Bavarian Minister of Finance. Baden-Württemberg's Prime Minister Winfried Kretschmann (Greens) had expressed a similar negative view.
In Lower Saxony, too, people don't want to know anything about taking over old debts without corresponding compensation payments for other countries. Prime Minister Stephan Weil (SPD) points out that his state has had extremely positive experiences with its own debt relief program. "If the federal government, together with the federal states and local authorities, is now also embarking on such a path, such advance payments must of course be taken into account," says Weil.
His Minister of Finance, Reinhold Hilbers (CDU), is even clearer: "Every level of government must solve its tasks and manage the budgetary framework responsibly," he says. Hilbers considers the assumption of the debt by the federal government to be the "completely wrong signal".
In North Rhine-Westphalia, the new state government is already preparing for the fact that it will have to help its municipalities on its own. "Should the federal government not meet its responsibility, we are committed to finding a solution ourselves in the coming year and setting up an old debt fund for this purpose," says the coalition agreement of the black-green government of Prime Minister Hendrik Wüst (CDU). The mayors and chamberlains in Pirmasens, Wuppertal and Mülheim an der Ruhr will not care who takes over their old debts. From their point of view, it would be much more important that things happen quickly.
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