Germany’s Reunification - The Political Geography of Inequality - page 153

received by their Western counterparts. This proportion would increase yearly
until reaching 70% of the Western l ander by 1994.
Given the nature of the initial reaction, it soon became clear that the German
Unity Fund and the partial integration of Eastern l ander in the Verbundsys-
tem were insufficient from a fiscal point of view. Additional changes were
necessary to increase the financial capacity of the Eastern l ander. They were
fully integrated in the VAT revenue allocation. The 15% share of the German
Unity Fund to be spent by the federal government was delivered to the East-
ern l ander (Renzsch 1998 : 127-146). And, funds for several additional work
and investment programs were established (Upswing East Program, worth 24
DM billion), upgrading the effort to cope with the shock affecting the former
Federal Republic. Incidentally, by December 1991 the Bund raised income tax
by 6.5 points and VAT from 14%to15%, while at the same time increasing
the l ander share from 35%to37%. 14 These developments consolidated the
pattern of transfers from the Bund to the Eastern l ander displayed in Table 6.4 .
Political Preferences and the Costs of Reunification: Interpersonal
and Interregional Redistribution and the Solidarity Pact
Shortly after Reunification the economic context had changed: by early 1992,
the need to keep the deficit under control returned to the political agenda,
shaping the negotiations over the Solidarity Pact. The Solidarity Pact, publicly
presented on March 16, 1993, was a government initiative to get all major
sectors, levels of government, and social actors to share the skyrocketing costs
of Reunification. With an eye on the electoral horizon of 1994, Kohl's chief
concern was how to keep the deficit under control without sacrificing transfers
to the East (Sally and Webber 1994 ). The allocation of Reunification's cost
dominated the negotiations between the federal government, the state govern-
ments, and the main political parties. Actors' preferences during this process
concerned both interpersonal and interregional redistribution. Table 6.5 sum-
marizes the preferences and goals of the main actors involved in the process.
Given the complexity of actors' preferences over two dimensions, the final
outcome was uncertain. Ultimately, to understand the outcome it is necessary
to revisit the central role of the Bundesrat and its interplay with the negotiations
over the allocation of the cost of Reunification.
The rich l ander were concerned about their relative contribution from the
very beginning of the process. Given the rules of seat allocation in the Bundesrat
described above, since 1989 any coalition among the Bund, the Eastern l ander,
the financially weak Western l ander and the affluent ones, was a possibility.
14 This particular decision shows how regional preferences can overcome partisan loyalties within
the federation. When the SPD threatened to use its majority in the Bundesrat to block the
proposal of an increase in the l ander share of VAT, Brandemburg departed from the party
decision and supported the Bund's proposal (Gunlicks 1994 : 81-99; Lehmbruch 1996 : 169-
204; Renzsch 1994 : 116-138).