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Further supplementary memorandum from the Department for Communities and Local Government (LAI 27B)
EUROPEAN LOCAL GOVERNMENT INVESTMENT
1. At the Committee's hearing on 9 February 2009, the Minister for Local Government gave evidence. As requested by the Committee on that occasion (Question 350), the Department has prepared this memorandum on the current investment practices and problems of other European countries.
2. The Department does not monitor the financial regimes in other countries and has no regular or systematic source of data on such matters. However, in January this year the Council of Europe's Bureau of the European Committee on Local and Regional Democracy (CDLR) undertook an informal broad-brush survey on the theme of "The financial crisis and its impact on local and regional authorities".
3. The responses, which were published on 20 February, provide the only current information on the position. Results from all 16 countries which contributed to the survey are therefore summarised in the annex below.
4. Overall, the picture is mixed. Authorities in some countries are not affected, while in others problems have been experienced on varying scales. Measures adopted in some of the countries are related to themes raised by the Committee (eg. improving treasury management practice).
5. There are no technical details of the regimes governing
investments in any of these countries. It is believed that none of the systems
is exactly on the lines of that operated in
6. There seem to be no obvious lessons to be drawn from material at this level of generality.
ANNEX
Authorities have suffered the adverse effects of making investments with banks that may not meet their commitments, but not to the extent that they were unable to solve problems by themselves. There have been discussions between central government and authorities.
The French-speaking area has not been seriously affected but the regional government has decided to make exceptional financial assistance available to local authorities to help them cope better with the financial situation. In the Flemish-speaking area, the overall financial-economic crisis is expected to have an impact in the coming years, with falling local government revenues and more expensive debt financing. The Flemish Government is examining whether local government will need more financial support. But the financial crisis has not led to any changes in the autonomy of local authorities.
The general financial crisis has led to cuts in local revenues and increased unemployment rates. The Government has adopted various forms of financial assistance and given authorities some protection against bank insolvency.
Generally no adverse impact is reported. But it is planned to impose some restrictions on investment options.
No adverse effects are reported but the position is being monitored.
Local authorities have not been affected and there has been no need for the Government to offer emergency financial aid. There have however been talks between central and local government about the potential difficulties faced by the latter in accessing credit.
Authorities have not suffered any direct adverse effects of the financial crisis. The Government has however made regulations to increase the percentage of general, rather than earmarked, grants to local authorities.
No adverse effects are reported.
LUXEMBURG No adverse effects are reported.
No adverse effects are reported.
Some authorities have
suffered adverse effects, because of investments with banks that will no longer
be able to meet their commitments, but have not been unable to solve the
problems by themselves. As in the
A few local authorities have suffered losses due to difficulties in realising financial investments. Some authorities will have to recognise deficits in their annual accounts due to lower values on their financial investments. A few of the municipalities have had temporary problems raising loans. No authorities are unable to solve the problems by themselves.
Authorities have suffered adverse effects from the financial crisis, some being placed in a situation where they were unable to solve problems by themselves. Central government has acted to increase local authorities' access to credit, to promote productive public investment and stimulate the economy.
Generally the position is being monitored. The Government is in the process of drafting anti-crisis legislative measures.
The direct adverse effects from the financial markets are limited. More important are the effects from the impact of the financial crises on GDP growth and employment, since 70 per cent of local government revenues are income tax, levied mainly on salaries and wages. Local authorities may have made losses in terms of lower values on financial assets, but as long as such assets are not sold this effect does not have to be taken into account when assessing if a local authority has fulfilled the balanced budget requirement as stipulated in legislation. Authorities which have borrowed short-term may face problems when negotiating new terms, but there are few signs of such effects. No authorities are unable to solve the problems by themselves.
Some adverse effects are reported but no authorities are unable to solve the problems by themselves.
March 2009 |