One of the most important principles is that the state in fiscal stress has to prevent a fiscal crisis to or to
make sufficient efforts to get out of the fiscal crisis in order to receive support.
In the past specific expenditure rules were designed for certain cases of States in fiscal stress (Bremen
and Saarland) which go beyond the regular expenditure lines. It was agreed that the increase of the
consumption expenditures has to be 0.5 percentage points below the regular expenditure line. This
particular expenditure line has clear quality features as it distinguishes productive and unproductive
categories in a traditional sense (consumption vs. investment).
In addition, rules concerning the usage of the so-called grants for financial reorganisation and reporting
obligations were implemented under the surveillance by the FPC. The experience with the German cases
of States in fiscal stress reveals that the prime target of fiscal policy should be to reduce the deficit and
the debt burden, and only with that room for manoeuvre a growth oriented policy strategy can be
pursued.
Rules for the usage of investment grants in the new Länder
Another example relevant for the case of Germany is the system of investment promotion in the new
Länder. The aim is to coordinate the individual promotional instruments better to prevent frictional losses
and thus support the structurally weak regions of East Germany more precisely than before.
There was a clear need to restructure the spending priorities of the state and local governments in East
Germany in favour of projects which reduce bottlenecks to GDP growth, notably in the area of transport.
Against that background, in the Solidarity Pact II, the grants given to the new states for investment
purposes were changed from extremely conditioned to nearly unconditioned.
The main stipulations are Progress Reports, which are required to support the efficient allocation of
resources in a macroeconomic perspective and which will be assessed in the FPC. The experiences in
Germany led to the conclusion to prescribe the measures of efficiency of public investment in a more
general way than done by outcome-related, legally binding project evaluations as currently proposed by
the OECD.
Other institutions - Independent scientific advisory bodies
Furthermore, Germany has a pronounced system of independent, scientific policy counselling with
various thematic priorities and profiles. Important examples include the Council of Economic Experts,
non-university research institutes, and the Advisory Boards to some ministries.
The Council of Economic Experts was set up by law in 1963 to appraise macroeconomic development in
the Federal Republic of Germany and to support decision-making by all levels of government
responsible for economic policy – and opinion formation among the public. The Council's task is to
analyse the macroeconomic situation and its foreseeable development. It examines how price stability, a
high level of employment, equilibrium in the balance of payments, and constant and appropriate
economic growth can be simultaneously guaranteed in the context of the free-market system. In
accordance with its statutory commission, the Council writes and publishes an annual report (in mid-
November), as well as special reports on current issues – either in special problem situations or by order
by the federal government.
The tasks of the six mainly publicly financed non-university economic research institutes include
observing and analysing economic processes at home and abroad and developing the scientific
foundations for financial- and economic-policy decisions. Twice a year (in the spring and autumn) the
institutes submit a joint report with predictions and policy recommendations on national and international
economic developments; their special value lies in the empirically founded analyses and the fact that they
consider different priorities and reflect the different approaches of the research institutes involved.
Furthermore, for more than 50 years the Federal Ministry of Finance has benefited from the services of a
Advisory Board made up of economists and legal exerts, which advises the Ministry on all question of
financial policy. This advice has a more medium-term focus and looks at fundamental issues.