International Conference - “How civil society and local governments are fighting the global crisis”

Skopje, 28-29 May 2010

Speech by Dobrica Milovanovic, Congress of Local and Regional Authorities of the Council of Europe

Ladies and Gentlemen,

It is a great pleasure for me to speak to you today. The theme of this Conference is of paramount importance, because, even though the way out of the crisis will be global, the economic revival urges us to relocalise our societies. Paradoxically, the era of the globalisation is also the era of the local community, and the response to the global crisis must come indeed from the local level.

This is being increasingly recognised at the state level – the Ministers responsible for local and regional governments of the Council of Europe member states, for instance, at their Conference in Utrecht last November, adopted the Utrecht Declaration, which highlights the leading role to be played by local and regional authorities in order to find a way out the economic and financial crisis. In this connection, the Ministers stressed the responsibility of central governments for guaranteeing the resources of local authorities.

Indeed, local authorities are at the heart of economic revival policies, as public investment in many of our countries today is largely carried out by local authorities. However, this Conference is also very timely because, according to some expert indications, the consequences of the financial crisis for local and regional authorities may reach their peak exactly this year, in 2010. Evidently, the repercussions of the economic downturn may be felt much longer.

This is why I wish to thank our partners, the Association of Local Democracy Agencies, for this excellent initiative, and for giving me an opportunity to present the position and action of the Congress of Local and Regional Authorities of the Council of Europe – an assembly of people’s representatives across 47 European countries.

In March 2009, the Congress held a debate on the consequences of the economic and financial crisis for European local and regional authorities. It was a first attempt to gauge the degree of its impact on local communities, and compare the experiences of various municipalities and regions in coping with the crisis. Only two months ago, in March this year, we had a follow-up debate on this subject.

During these debates, a major concern voiced by members was the danger for the financial crisis to become a social crisis, and the need to prevent it from happening. On the other hand, it was also pointed out that the crisis was not just a source of difficulties but also a source of opportunity for new initiatives, including training and sustainable energy.

We saw this approach in particular during our monitoring mission to Iceland in June last year, to assess the consequences of the crisis for local communities. Our delegation found that the crisis had no paralysing effects on political representatives in that country but, on the contrary, drove an innovative spirit and mutual understanding which activated processes of participation among the various political players at the state and municipal levels. In fact, national authorities undertook steps to strengthen further local self-government, acknowledging the contribution of local communities to offsetting the crisis.

These two converging trends are increasingly taking shape today: action by national governments which can and must help local communities, and the input from local authorities to national policy-making in handling the crisis which, we hope, will lead to their greater involvement and inclusion in the financial management system at national level.

Another feature of the situation is diminished resources and revenues. For local authorities, the consequences of the decline in business activity are automatically reflected in a reduction in their tax income.  In such circumstances, it is difficult to avoid raising local taxes. At the same time, the authorities are also suffering from the banks’ reluctance to grant new loans.

As a result, the current crisis gives rise to doubt and pessimism at all levels of governance. It has affected all European countries and their local and regional authorities, who in particular are bound to suffer from the prevailing economic situation, while, at the same time, they have a key role to play in implementing economic stimulus and recovery programmes. At a time when people are worried about the future, local and regional authorities have to re-establish their citizens’ confidence and hope, and perspectives on how we can find ways and means to create a coherent framework for action.

The following are what we believe should constitute some of the elements of such a framework.

First, the Congress is convinced that decentralisation is a key to economic success. In this time of the crisis, national governments must avoid the knee-jerk reaction to re-centralise, and focus instead on revising the framework of government finance in order to provide greater budgetary autonomy and delegate resource management to the local level.

A recent study by the Assembly of European Regions showed several reasons why decentralisation and the application of the subsidiarity principle should have a positive impact on economic performance. The main argument is effectiveness: local and regional authorities know best the preferences of their citizens and the needs of their companies. In most aspects, a higher level of decentralisation is linked to stronger economic growth.

Indeed, one way out of the crisis is increased public investment supported at national level, necessary to revive economic activity and provide companies with work. Here is when the new framework of government finance comes into play. Local and regional authorities are well placed to launch investment initiatives and identify projects to create employment, thus playing their part in the economic revival.  Thus, joint investment policies and cooperation between national and local levels are needed, and are already in place in some countries. In France, for example, 70% of public investment is now underpinned by the local, département and regional authorities. In Spain, a State Fund for Local Investment totalling 8 billion euros was set up to carry out urgent actions, particularly for job creation.

The second crucial element of the framework for action must be the recognition by central authorities of the local governments’ role as fully-fledged partners in building the way out of the crisis, not as mere beneficiaries of the government largesse and executors of national policies and measures. Local and regional authorities must be fully involved in decision-making and consulted on policy decisions. After all, not only they know what is best for their communities, but they also show better economic performance than national governments – by all accounts – and generate an increasingly larger proportion of national wealth.

Indeed, whereas people have little control over the national government’s borrowing and spending, they can certainly hold their municipal or regional councils, mayors or governors accountable for managing local resources. It comes as no surprise that local and regional authorities have shown over the years a far better management of assets than their national counterparts.

This requires a targeted, trickle-down approach involving all levels of governance, while ensuring the accessibility and feasibility of public borrowing for local actors, in order for them to invest in sustainable economic development projects, such as infrastructure investments.   

This is also a necessary solution because we must avoid a social crisis as a consequence of the economic downturn, which should be the third element of the framework for action. If we want to safeguard social cohesion, it is indispensable to preserve the social component of local and regional action, and to avoid the decrease of local and regional resources which have an immediate and direct impact on the citizens. Here, too, the role of local and regional governments is crucial as they are best placed, due to their proximity to the citizens, to improve targeting of social benefits, against the background of reduced budgets, and to make sure that social expenditures do not fall victim to austerity measures. Also, local and regional associations of civil society and service providers, who are facing increasing public demands addressed to social services, must be backed by local and regional authorities both financially and politically, through a coordinated approach.

The fourth element is the action by local governments themselves. They must take up the initiative and show not only budgetary restraint but also innovation in dealing with the crisis, not least through increased participation and involvement of local populations in community management, and communicating pro-actively with the citizens.

There are different ways in which central and local governments could intensify their dialogue and co-operation. This could be achieved through, for example, joint programming of counter-cyclical spending to increase public investments as a way to boost economic activity, or through timely identification of emerging problems in specific territories or industries (to avoid dismissals of staff if possible).

I could give you some examples of good practices. In Germany, for instance, measures have been taken to provide support though national government funds to short-term workers at risk of immediate dismissal. In several countries, local authorities are benefiting from the economies of scale, achieved through increased inter-municipal co-operation, as larger municipalities spend a smaller proportion of their resources on administrative overheads. In Hungary, for example, the number of municipal landfills has shrunk by 90 per cent through the creation of joint utility companies.

Measures are also being taken to simplify procedures and reduce bureaucratic hurdles at local level, to allow for a speedier revival of business activity and to soften the crisis impact on citizens.

Another solution is the greater involvement of civil society in the provision of welfare. Partnership between local government and NGOs can yield substantial benefits in terms of reducing both the impact of the crisis on citizens and the cost of government action. However, there are still countries where NGOs are seen as a threat to authority rather than allies.

Ladies and Gentlemen,

Last but not least, the fifth element of our framework for action must be measures taken both at national and local level and in the financial sector to improve borrowing and debt management. They could include, for example, the introduction of debt ceilings in order to keep debt within the manageable scope. They could also include the elaboration of codes of conduct for financial institutions to highlight their responsibility for not perpetuating so-called “toxic” loans, and for pursuing credit policies at manageable interest rates, in order to enable investment.

For its part, the Congress has put forward the idea of devising a European model for a code of good practice under the aegis of the Council of Europe in order to make all the players in the credit chain aware of their responsibilities. We are convinced that there must be a coordinated European approach to counterbalance current tendencies, which would involve a political follow-up to and control over lending practices, rates and loan conditions, in order to contain usury and speculation through legal provisions.

It is important now to carry out appropriate debt-securitisation policies at local level in order to preserve investment capacity and protect future generations from potentially significant costs. In other words, local authorities need to reassess their debts and loans and put their finances on a sounder footing, while also preparing for the recovery.

Ladies and Gentlemen,

To sum up, the Congress is convinced that our response to the crisis must be based on these elements: greater local autonomy and delegation of resource management through decentralisation; recognition of local authorities as fully-fledged partners of national governments, and the revision of government financing to allow for greater investment at local level; coordinated national/local approach to improve targeting of social benefits and avoid a social crisis; innovative action by local authorities themselves, involving local populations, civil society and inter-municipal co-operation; and measures to control debt and lending.

We are convinced that action taken along these axes will not only provide a proper response to the global crisis, but also lay down a model for post-crisis local government – government which will be stronger, more democratic and efficient, and more citizen-oriented.

Thank you.