International Conference

“Local Government: Responses To Recession Across Europe” 

11-12 October 2010, Strasbourg

Speech by Andreas KIEFER, Secretary General of the Congress of Local and Regional Authorities, Council of Europe

Mr Chairman,

Dear Participants of the Conference,

The theme of this Conference is of paramount importance to the Congress of Local and Regional Authorities of the Council of Europe, which I represent here, and I would like to welcome the initiative for organising it, taken by our governmental partner, the European Committee on Local and Regional Democracy, and the Local Government and Public Service Reform Initiative of the Open Society Institute. This is a very timely event, and an excellent opportunity to address issues, which are of utmost concern to all of us.

The financial crisis, since its outbreak in 2008, has had a major impact on all levels of government and its consequences are being particularly felt by local self-government bodies in almost each and every state of Europe. The crisis triggered a widespread substantial fall in local and regional tax revenues, additional cost for social assistance expenditure, a significant increase in budget deficits and consequently a decrease in public spending affecting investment in infrastructure, staff and a reduction of services. I think that if this trend continues, it will severely jeopardise social cohesion and social harmony, and thus decisive action by the Member States is needed to reverse it. Local and regional authorities are also at the heart of economic revival policies, as public investment in many of our countries today is largely carried out by local authorities and the same holds true for social policies.

For us, to be sustainable and effective, all this must happen with close cooperation at every level of government concerned: European for framework and exchange, national, regional and local. I am happy to see this conference work in this very effective spirit.

Let me stress one important element. Sometimes it may seem more efficient if a central ministry draws up a bundle of measures to be implemented by different actors. Well reflected but without involvement of those who have to implement the policy in the field, in the regions and in the local authorities, the outcome may not be satifactory. The decision making process may have been efficient, but the effects were not achieved. Many examples prove that consultation and involvement creates ownership and leads to better results. So what at first sight may not look efficient compared to other options may be much more effective at the end.

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. In March this year, we had a follow-up debate on this subject. One lesson learned was that revenues from property tax were much more stable than those from VAT and income taxes. The Congress therefore advocates for a well balanced mix of revenues to avoid being exposed to developments affecting one of the sources in a particular intensity.

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 and for innovation. More cooperation among municipalities to achieve economies of scale while maintaining the political discretion and the identity of the community was one of the answers given. Rethinking procedures and processes, questioning of excessive quality standards and bureaucratic reporting systems were answers discussed and we will hear in the contributions of this conference what of this has materialized.

The current crisis gives rise to doubt and pessimism at all levels of governance. 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.

Beyond its immediate consequences, the financial crisis has put central and local governments in front of more general challenges, which have become an issue of major concern. Questions relating to the core of decentralization, subsidiarity, public spending, local governments’ performance and spending efficiency have become central-stage and are actively discussed on all levels of government and society. These are topics, which we at the Congress believe need to be addressed without postponing. The debate organised by the Congress was a step in this direction, or I should say one of the steps, since we intend to keep these issues systematically in our work.

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 responsibility and delegate resource management to the local level.

Indeed, one way out of the crisis is clearly focused 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. This is why, joint investment policies and cooperation between national, regional and local levels are urgently needed, and are already in place in some countries. In France, for example, 70% of public investment is now underpinned by the local, department 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 indispensable 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 consulted early on policy decisions and be fully involved in decision-shaping and as far as possible in decision-making. After all, they know what is best for their communities and the SMEs they are in close contact with.

It is also 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.

The Congress is also addressing the question of the economic downturn as part of its monitoring of the situation of local and regional democracy in specific countries. The example of Iceland, amongst others, could be mentioned. This monitoring report had a special vocation to evaluate the effects of the financial crisis on local authorities in Iceland. It went into considerable detail to underline the scale of the efforts made and the ability of the national and local authorities to deal with the financial crisis and its economic and social consequences without undermining local self-government. 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. We will hear – I suppose - about details during the conference.

We all agree that there exist unfortunately no obvious and quick solutions to this crisis, but there are different ways in which its impact could be softened. One of such ways is the continued monitoring of the financial situation in all member states and the timely review of the overall impact and responses to the crisis. It is essential to have an updated analysis of the financial impact of the crisis and exchange experiences on policy responses to the crisis by member states. The objectives I mentioned have been highlighted by the Ministerial Conference of Utrecht and constitute the basis of this Conference. Their relevance and importance cannot be underestimated.

To sum up, the Congress is convinced that our response to the crisis must be based on the following elements:

I am convinced, that, in a nutshell, the overall point at issue is to restore the primacy of democratically mandated policy over the financial industry, and the primacy of law over the financial market players. Markets are only places of free trade if a legal system is in place to keep them free of misuse of power, deception and fraud. Stability and trust can only be nurtured in financial markets if there is a clear regulatory framework that is applied and supervised. And this is the responsibility of political actors.

The Congress, as I have already mentioned, is very committed to addressing the challenges which the global financial crisis has posed for local authorities across Europe, and we will continue looking at all possible ways of finding appropriate solutions for dealing with the situation.  Therefore this Conference and its outcomes are of utmost interest to us.

We look forward to the conclusions of your discussions. For its part, the Congress of Local and Regional Authorities remains a committed partner in all efforts directed at evaluating and decreasing the negative impact, which the global crisis has had and continues to have on local self-government across Europe.

I wish you success in your work,

Thank you.

PRIMACY OF POLICY, PRIMACY OF LAW, IMPORTANCE OF OWNERSHIP

We are convinced, that, in a nutshell, the overall point at issue is to restore the primacy of democratically mandated policy over the financial industry, and the primacy of law over the financial market players. Markets are only places of free trade if a legal system is in place to keep them free of misuse of power, deception and fraud. Stability and trust can only be nurtured in financial markets if there is a clear regulatory framework that is applied and supervised.