ECONOMIC OUTLOOK Local and regional public finance in

ECONOMIC OUTLOOK Local and regional public finance in the European Union Trends 2000 -2005 Bruno Deletré Executive Vice-President Public Finance, Dexia 20 December 2006, Brussels

A European bank with an international dimension Australia Austria Belgium Bulgaria Canada Czech Rep. France Germany Hong-Kong Italy Ireland Israel Japan Luxembourg Mexico The Netherlands Poland Portugal Romania Singapore Slovakia Spain Sweden Switzerland United Kingdom United-States 24 000 people in 26 countries Organised around DEXIA 4 business lines Public & Project Finance Public/Project & Credit and Finance Enhancement Credit Personal Financial Personal Services Financial Services Asset management Investment & insurance Management services and Insurance Treasury & Treasury Financial Markets and Financial 2006 Economic Outlook : Local and Regional Public Finance in the European Union

Research activities on the European territorial public sector Periodical… the annual Economic Outlook on subnational public finance in the European Union and the set of factsheets Paper and electronic publications : • The newcomer : local government staff Synoptical tables… LPC, hospitals… • Books planned for 20072008 : Hospitals, local and regional finance in the EU 27, social housing in Europe 2006 Economic Outlook : Local and Regional Public Finance in the European Union

2006 new publications • The Economic Outlook on "Sub-national public finance in the EU – Trends 2000 – 2005" : q An annual survey (6 th edition) q Institutional and financial situation of the subnational public sector in the 25 EU Member States • A set of fact sheets detailing key data on the EU Member States’ local and regional public sector q Detailed statistics for each country q Sub-national governments, economic weight and financial aspects of the sub-national public sector, structural funds 2007 -2013, town twining. 2006 Economic Outlook : Local and Regional Public Finance in the European Union

Presentation • Territorial organisation in Europe • The economic weight of the regional and local governments*: q Territorial public expenditure q Territorial public capital expenditure q Territorial public fiscal revenues • Local and regional public deficit and debt * In the following presentation, financial data relates mainly to the "local and regional public sector ("territorial") as opposed to the "sub-national public sector" which includes the Federated States 2006 Economic Outlook : Local and Regional Public Finance in the European Union

A great variety of territorial organisation in Europe • Around 89, 200 territorial governments in Europe • Three federal countries • 22 unitary countries organised in 1, 2 or 3 tiers: q 8 countries with 1 level q 8 countries with 2 levels q 6 countries with 3 levels 89, 250 sub-national governments with the Federated States 2006 Economic Outlook : Local and Regional Public Finance in the European Union

88, 000 municipalities in the EU ¾ of the total number of European municipalities are located in 4 countries Municipality average size in the EU: 5, 180 inh. 2006 Economic Outlook : Local and Regional Public Finance in the European Union

Institutional and territorial trends More regionalisation Further decentralisation Creation of regions: 1999 : 16 regions in Poland 2001 2002 2007 2009 Inter-municipal cooperation : : 14 regions in Czech Republic 8 regions in Slovakia 5 regions operational in Denmark 14 regions operational in Slovenia Mergers of municipalities 2006 Economic Outlook : Local and Regional Public Finance in the European Union

Territorial public expenditure in 2005: 12. 7 % of GDP In % of GDP Denmark Sweden Spain Finland Netherlands Italy Poland UK Hungary Czech Rep. France Latvia Slovenia Estonia Lithuania Austria Germany Belgium Slovakia Ireland Portugal Luxembourg Greece Cyprus Malta 0 5 10 15 20 25 30 35 2006 Economic Outlook : Local and Regional Public Finance in the European Union

Evolution of the territorial public expenditure 2000 -2005 In volume, base year 2000 = 100 1, 374 bn€ 120 Territorial sector public expenditure + 3. 6% 116 +2. 4% 112 Total public sector expenditure +1. 7% GDP 108 104 100 2001 2002 2003 2004 2005 2006 Economic Outlook : Local and Regional Public Finance in the European Union

Average yearly territorial expenditure growth 2000 -2005: +3. 6% 2006 Economic Outlook : Local and Regional Public Finance in the European Union

Evolution of the territorial public investment 2000 -2005 In volume, base year 2000 = 100 120 169 bn€ +3% 116 Territorial sector public investment Total public +2. 9% sector investment 112 +1. 7% 108 GDP 104 100 2001 2002 2003 2004 2005 2006 Economic Outlook : Local and Regional Public Finance in the European Union

The importance of the territorial public sector as a public investor Breakdown of investment between public actors in 2005 Rest of the public sector 33. 2% Local and regional sector 63. 9% Federated States 2. 9% 2006 Economic Outlook : Local and Regional Public Finance in the European Union

Territorial public investment / public investment in 2005: 63. 9% Highest growth in volume in 2005 (%) 60% 50% 40% EU local and regional average in 2005 : +1. 4% 30% 20% 10% 0% Spain Slovenia Poland Greece Cyprus Belgium Slovakia 2006 Economic Outlook : Local and Regional Public Finance in the European Union Latvia

PPP, an alternative to purely public or privately financed projects A global contract between a public entity and a private one to design, build, finance, operate and maintain an asset in order to provide a service to the public sector in return of an ongoing fee based on avaibility or demand. 2006 Economic Outlook : Local and Regional Public Finance in the European Union

The regulatory framework in Europe Netherlands Ireland n n Belgium PPP Act of 2002 Transportation, Water/Sewage Education n n PPP legislation for the Flemish region n Transportation n Water/Sewage n Education n Healthcare n UK n n PFI initiative since 1992 Transportation Education Healthcare n n Finland PPP Task Force 1999 Transportation Water Ports n n Transportation Education Germany n n PPP Task Force since July 2004 Homeland security Education Infrastructure Greece France LOPSI, LOPJ specific legislation since 2004 n Transportation n Prisons n Education n Homeland security n n since 2003 n Infrastructure n Prisons n Healthcare Ø Ø 2003 law on concessions n Transportation n Infrastructure n Healthcare n n n Italy Spain Portugal n PPP legislation since 2002 n Transportation n Healthcare n PPP legislation since 2005 Transportation Education Healthcare Luxembourg n n n Transportation Education Healthcare Green paper of the European Commission (April 2004) Eurostat rules on the accounting status of PPP (February 2004) Non legislative resolution of the European Parliament (October 2006) European PPP Expertise Centre (EIB) 2006 Economic Outlook : Local and Regional Public Finance in the European Union : countries with a strong PPP culture

Evolution of territorial tax revenues 2000 -2005 In volume, base year 2000= 100 130 510 bn€ 125 +4. 5% Territorial public sector 120 115 +1. 7% 110 +0. 9% 105 GDP Public sector 100 95 2000 2001 2002 2003 2004 2006 Economic Outlook : Local and Regional Public Finance in the European Union 2005

Territorial tax revenues in 2005: 4. 7% of GDP Highest growth in GDP between 2000 and 2005 2006 Economic Outlook : Local and Regional Public Finance in the European Union

The territorial public deficit is under control: 0. 23% of GDP in 2005 In % of GDP 1, 0 0, 5 0, 0 - 25 bn€ -0, 5 Local and regional budget balance -1, 0 -1, 5 -2, 0 - 252 bn€ -2, 5 -3, 0 -3, 5 2000 2001 2002 2003 2004 2005 2006 Economic Outlook : Local and Regional Public Finance in the European Union Total public budget balance

The territorial public debt remains stable over 2000 -2005 % of GDP 8 7 633 bn€ 6 5 4 3 2 1 0 2001 2002 2003 2004 2006 Economic Outlook : Local and Regional Public Finance in the European Union 2005

The territorial public debt in 2005: 5. 8% of GDP Highest growth in GDP between 2000 and 2005* * Including Federated States 2006 Economic Outlook : Local and Regional Public Finance in the European Union

Debt breakdown by public actors in the GDP Greece Italy Belgium Malta Cyprus Germany France Portugal Austria Territorial public sector Federated States Rest of public sector Hungary Netherlands Sweden Spain United Kingdom Poland Finland Denmark Slovakia Czech Rep. Slovenia Ireland Lithuania Latvia Luxembourg Estonia 0 20 40 60 80 100 2006 Economic Outlook : Local and Regional Public Finance in the European Union

Conclusion • • The decentralisation process is continuing in Europe • The local and regional public sector is the leading public investor : it ensures 63. 9% of all public investment • Local and regional fiscal ressources are growing, mostly to compensate the financial costs of the new responsibilities: +4. 5% per year in volume over 2000 -2005 • Local and regional public deficit and debt remain limited: respectively 0. 2% and 5. 8% of GDP. • Important cross-national variations Local and regional governments have become major actors in the European economies : their expenditure account for 12. 7% of GDP 2006 Economic Outlook : Local and Regional Public Finance in the European Union