Financial devolution: postponed again due to economic crisis?


By URBACT, on March 30th, 2010

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As stated last year by Peter Mehlbye, Director of the ESPON Coordination Unit, “when addressing the global economic recession it is crucial to underline that the crisis is in progress and not over yet, despite first encouraging signs of recovery”. Unfortunately, in the first months of 2010 early impressions of recovery are being altered by gloomy news and prospects from Greece and in a lesser extent from Ireland, Portugal or Spain. In addition, some countries in Eastern Europe are also facing high uncertainty.

The way in which cities are facing short-term impacts by economic downturn has dramatically raised yet again the question of financial devolution. The lack of devolution explains the scarcity of local packages of anti-crisis measures, including formal recovery plans. And in the few cases where there are such initiatives, they are limited to soft support measures, based on little public funding. Nowadays, local governments have no say in neokeynesian strategies.

According to the Centre for Cities, the British think-tank on urban issues, “the recession is a time for more devolution, not less; the downturn is affecting places differently, and cities need to be better able to respond with tailored solutions” []. Sadly this demand has not yet been realised; and it is far from what is actually happening these days.

Thus, the strong increase of social expenditure and Keynesian measures and the huge flow of resources to rescue of the financial system have made the public deficit in the EU skyrocket. In the Euro zone, it is forecast to reach 7% of GDP by 2010. In Ireland, the public budget balance is estimated to turn from a surplus of 0.5% of GDP in 2007 to a deficit of 15% in 2010. In the same period, Spain will move from a surplus in national budget of roughly 3% of GDP to a deficit of 11%. Such strong deterioration of public accounts will not create the propitious ground needed for the issue of devolution to be included in national and regional public agendas.

And this is worrying. City governments have suffered from a lack of relevant tools to respond locally to the impacts of crisis. These kinds of local responses, when properly combined with those from broader scales, could act as a contribution in the fight against economic downturns. Over all, now the main challenge to be addressed by political personnel is to make sure that things will not remain unchanged after this juncture.

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Miguel Rivas. URBACT Lead Expert for Creative Clusters

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