Despite the existence of strict budgetary frameworks and fiscal equalisation systems, municipal budget crisis has been a phenomenon in Germany for decades. As an institutional response, most German states implemented bailouts to restore local public finances. This chapter gives a brief...

Over 2010-2016, municipal debt in Germany crowded out private investment worth 1 percent of GDP. Forced to lend to municipalities by their statutes, local public banks compensated for declining municipal-debt yields by charging higher rates to firms in Germany's locally segmented credit markets....