Markus Söder Proposes Reducing Germany's Federal States to Boost Efficiency

Bavarian Minister-President Markus Söder has called for a significant restructuring of Germany's federal system by reducing the number of federal states to create larger, more economically viable entities. Speaking at a CSU faction retreat in Kloster Banz, Söder emphasized that larger states are generally more successful than smaller ones and argued for a more efficient state structure to promote economic strength and sustainability.

Söder highlighted Bavaria's position as the largest contributor to the federal financial equalization system and criticized the current distribution where financially weaker states, such as Berlin, receive substantial federal funds. He suggested that without restructuring, funding cuts might be inevitable. The proposal does not include specific state mergers yet but sets economic performance as a key criterion for any future mergers. Any such restructuring would require a federal law and approval via referendums in the affected states, as mandated by the German constitution.

Historically, the only successful state merger occurred in 1952, when Baden-Württemberg was formed. More recent attempts, like the proposed union of Berlin and Brandenburg in 1996, failed. Söder acknowledged the difficulty of achieving these reforms, noting they would not happen overnight but expressed confidence in CSU influence over decisions made in Berlin.

Beyond merging states, Söder also advocates for enhanced fiscal federalism by increasing state tax autonomy. He proposes regionalizing inheritance tax and granting states the ability to adjust income tax rates to foster healthier tax competition. This proposal aims to strengthen states' financial independence and accountability within the federal system.

Söder’s initiative, presented in early 2026, signals a push for modernizing Germany’s federal structure to better meet economic realities and governance challenges. While constitutional and political hurdles remain, his remarks place state reform and fiscal autonomy firmly on the political agenda for the coming years.