Council of European Municipalities and Regions (CEMR)
European section of United Cities and Local Governments


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Local finances - 06.07.2005

Local finances seminar: Europe's local government demands better financing
European municipalities and towns have agreed to launch a campaign to improve their financing. At a seminar organized by the Council of European Municipalities and Regions (CEMR), in Stuttgart, on 4 July 2005, representatives from local government from 12 countries agreed that the current situation is untenable.
 
Local self-government and the principle of subsidiarity without proper financing do not mean much, said the host of the meeting, Wolfgang Schuster, mayor of Stuttgart. Europe's municipalities rely too much on funds allocated by central government, they need greater financial autonomy. There is a strong link between local democracy and taxation.
 
CEMR's first vice president, mayor of The Hague Wim Deetman stated that all over Europe, national governments devolve competences to municipalities without proper funding. This is due to national budgetary problems. National governments find they haven't got the financial means to carry out certain tasks, so they ask the local level to do it for them”¦ without giving them the resources to do it. Without sufficient means of their own, municipal administrators are not in a position to take decisions independently. Wim Deetman also strongly criticized the Dutch government for putting forward a bill that drastically curbs the freedom of Dutch municipalities.
 
UK representative, Keith Whitmore, from Manchester City Council, and French representative, Philippe Laurent, mayor of Sceaux added that this situation suits national governments: Giving local authorities more competences without the financial means to fulfill them enables the national governments to blame us for not managing our tasks efficiently!
 
One of the key speakers was the vice-president of Dexia bank, Philippe Valletoux. He provided pan European data on income and expenditures at national and local levels in the 25 EU member states: European local capital expenditure represents some 2/3 of government capital expenditure. Within the 25 states, there are wide discrepancies; in some states (Ireland, the Czech Republic, Poland, France”¦) local public capital expenditure represent well over 2% of the GDP; in others (Greece, Austria, Cyprus, Malta”¦) it amounts to less than 1% of GDP.
 
CEMR secretary general, Jeremy Smith explained that in some European states, 80% of local income comes from the national government. This means that if a municipality wants to increase its budget by 1% through its own resources, it must increase local tax by 5%, which will give the inhabitants the impression that their local government is greedy. He also summed up the situation in three key issues: in some states, the local level has far too few competences; in other states, far too high a percentage of local government budget comes from the central government; in yet others, the sources of finances have in recent years fallen far behind the true cost of delivering services.
 
A charter of European local finances

The participants to the seminar agreed on the following conclusions:

- Though systems of local government vary greatly from country to country, all European municipalities face similar financial problems
- European local governments must have sufficient financial resources of their own in order to rely less on funding from central government
- At the same time, municipalities must share part of their resources to help poorer municipalities provide the same standards of services
- CEMR, with the help of its association members could produce a publication on the different systems of local and regional financing in Europe
- The CEMR general assembly in Innsbruck (May 2006) will include the adoption of a formal 'Charter of European local finances" to be addressed to Europe's national governments.
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