German universities have once again come under increased public scrutiny. The reform proposals aim to reshape the relationship between the state and the universities. The aim is to increase the universities’ scope for action, whilst restricting ministerial powers. In 1998, the Framework Act on Higher Education was amended once again. However, the promised increase in university autonomy has fallen short of expectations. Furthermore, the performance indicators developed for the internal allocation of funds within universities have given rise to criticism. Nevertheless, the path taken towards greater university autonomy is to be welcomed. However, the associated scope for universities to shape their own policies should also extend to human resources and internal university governance structures. The aim of the reform should be to encourage universities to compete in all areas. This special report highlights weaknesses and perverse incentives in the existing system and sets out guidelines for a competition-oriented higher education reform. Key recommendations include enabling universities to introduce tuition fees and deregulating the design of degree programmes and the labour markets for academic staff.