Fact Sheet – background paper

International financial crisis: consequences for European territorial authorties

Event: The Congress of Local and Regional Authorities of the Council of Europe is responding to the current economic downturn by organising a debate on territorial consequences of the international financial crisis in the framework of its Spring Plenary Session.

Date: Wednesday, 4 March 2009 as from 10h15 (Hemicycle of the Council of Europe, Strasbourg)

Background: “Financial crisis shakes Moscow City”….”Munich Mayor Ude warns about severe financial crisis of local and regional bodies”…”Financial crisis ensures London 2012 facing chilly review” – newspaper headlines make us aware of the territorial consequences brought on by the global economic downturn. The big crash of 2008 – which started with the bursting of the housing bubble in the United states and is frequently claimed to be the worst crisis since the Great Depression – has begun to affect European cities and regions, although national governments keep adopting multi-billion rescue plans and the financial base of the sub-national public sector is, in principle, a solid one.

Participants in the Congress debate:

Marucie VINCENT, Mayor of Saint-Etienne, President of “Saint-Etienne Métropole” (France)

Vladmir MOSKOV, Mayor of Goce Delcev (Bulgaria)

Vice-President of NALAS (Network of National Associations of Local Authorities of South East Europe)

Michèle SABBAN, President of AER (Assembly of European Regions), Vice-President of the “Région Ile-de-France” (France)

Svetlana ORLOVA, Vice-Chair of the Council of the Federation (Russian Federation)

Head of the Russian delegation to the Congress

Yevgen KARTASHOV (Ukraine), member of the Ukrainian delegation to the Congress

Elements for the debate:

-       Local and regional authorities in Europe play a major role in respect of public investments (2/3 of public investments within the European Union are made by territorial bodies; since 2000 territorial investments have increased by 3,2%)  – at the same time, debt has increased (3,9% since 2000) but represents only 5,7 % of GDP (in comparison to 65% total public debt in EU member states);

-       in 2007, when the economic environment was still favourable, the sub-national public sector (municipalities, departments, provinces, regions etc) was able to consolidate its good financial health, recording a budget surplus for the first time since 2002 – thus inverting the trend observed over the period between 2002 to 2007 during which debt increased by an average of + 2,2% in volume per year;

-       the collapse of financial products and transactions (e.g. since the 1990s, Cross-Border-Leasing has been widely used by territorial bodies to exploit the difference in the tax laws between Europe and the United States) triggered a chain reaction – from the loss of value to the loss of confidence between banks and finally, the breakdown of consumer confidence; local and regional authorities are part of this financial circuit and hence seriously affected by this systematic crisis – a lack of economic activity (e.g. granting of private and public-sector loans) and investments result in a decrease in tax revenues;

-       there is no obvious solution to this crisis, but there are different ways in which central and local governments could intensify their dialogue and cooperation, e.g.:

o    by joint programming of counter-cyclical spending to increase public investments as a way to boost economic activity,

o    by timely identification of emerging problems in specific territories or industries (to avoid dismissals of staff if possible);

o    by helping local governments to reduce their debt burden (in cases where old municipal debt is still dragging);

o    by encouraging local authorities to make prudent budget provisions for 2010 and 2011;

o    by preparing a catalogue of investments projects that could be implemented rapidly (e.g. energy saving programmes);

o    by monitoring employers, public and private enterprises that may be at risk of lay-offs or plant closures and engage in proactive measures;

o    by communicating pro-actively with the citizens.