At the Prime Ministers’ Conference this Thursday, the federal government and the states agreed to restructure the flow of funds between themselves and with local municipalities.
Chancellor Friedrich Merz (CDU) announced that starting September 1st, the principle of “who orders, pays” would be enforced more strictly, describing this as a “new chapter of federal, collegial, and cooperative cooperation.”
A key part of the agreement, known as the “demand-driven fiscal responsibility,” mandates that if the federal government introduces legislative changes that place significant financial burdens on states and municipalities-specifically exceeding a threshold of 200 million Euros annually-the federal government must assume 80% of those costs. This establishes a cost-coverage rule between the federal and state levels for major legislative projects for the first time. This new financial agreement is projected to provide municipalities with around three billion Euros in relief next year, a figure expected to increase in subsequent years.
Merz also highlighted the “Infrastructure Future Law.” Following anticipated approval by the Bundesrat, the law aims to significantly accelerate permit processes for major infrastructure projects. The Chancellor stated that they now possess not only the funding but also the practical means to translate this money into quality infrastructure quickly.
Furthermore, the Prime Ministers’ Conference launched the “Pact for the Rule of Law.” This initiative plans for additional investments in digitalization, accelerating judicial processes, and staffing. A nationwide deployment of 2,000 additional positions for judges and prosecutors is planned, with resources also designated for IT infrastructure and supporting personnel.
Turning to pension reform, the Chancellor advocated treating the recommendations put forth by the Age Security Commission as a comprehensive package, cautioning that individual measures should not be publicly disputed prematurely. The commission presented its recommendations early in the week, and the implementation of these policies is set to be solidified during political discussions over the coming weeks.
