PRESS RELEASE. 1,374 billion euros in expenditure, or 12.7% of European GDP. 170 billion euros in investment, or 2/3 of public investments

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1 PRESS RELEASE Brussels, 20 December ,374 billion euros in expenditure, or 12.7% of European GDP 170 billion euros in investment, or 2/3 of public investments 25 billion euros in finance requirements, or only 0.2% of GDP: local and regional authorities are ensuring the management and development of European territories and strengthening their financial balances. As the prime public investor with almost 170 billion euros of expenditure in 2005, local and regional authorities in the 25 Member States have seen the scope of their activities as well as their economic and social weight increase over recent years, as a consequence in particular of the processes of decentralisation and regionalisation. Nevertheless, this dynamism and this evolution have not affected the financial health of the European local and regional sector, the deficit and debt levels of which remain low compared to the public sector as a whole. Because they provide a major proportion of services to the population and to companies, and because they establish the great majority of infrastructures and public facilities, local and regional authorities play a leading role in the daily life of European citizens. Studies carried out by Dexia and the Council of European Municipalities and Regions (CEMR) throw light on this often underrated sector. The two new publications presented

2 today provide an overview of the institutional and financial situation of the local and regional authorities of Member States of the European Union between 2000 and 2005: - The new edition of the annual economic outlook "Sub-National Public Finance in the European Union"; - A set of information sheets containing detailed data by country and also key data on structural and cohesion funds as well as twinning in Europe. Although situations vary considerably, some significant general trends can emerge on a European scale: 1. The strengthening of decentralisation, regionalisation and municipality grouping Offering a great diversity in terms of territorial and institutional organisation, the Europe of 89,200 local and regional authorities is constantly evolving. Three major fundamental trends are emerging from this: an increase in decentralisation, a strengthening of the regional level and encouragement to inter-municipality cooperation and municipality mergers. 2 which in part explains the regular increase in local and regional expenditure. Local and regional public expenditure increased in volume by + 3.6% per annum on average between 2000 and 2005 and by + 3% in With a spending amount of 1,374 billion euros or 12.7% of European GDP (against 11.5% in 2000) and 26.8% of total public expenditure (against 25.4% in 2000), local and regional authorities occupy an increasingly important position in the European economy.

3 This dynamism can be explained by two important phenomena: - the increased scope of activities and therefore charges on local and regional authorities in line with the process of decentralisation in play in many European countries, in particular the new Member States but also in countries like Spain and Italy; - the increased weight of operational and social expenditure in local and regional budgets considering the increasing needs of populations for local public services (health, education, social aid, and so on). 3. Local and regional authorities are confirming their role as drivers of public investment In 2005, the investment expenditure of local and regional authorities amounted to 170 billion euros, or 1.6% of GDP, 12.3% of local and regional budgets and above all 63.9% of total public investment. Over the years, local and regional authorities have consolidated their role as prime public investors. In fact their investment expenditure increased in volume by + 3% per annum on average between 2000 and 2005, especially in the new Member States where they were given added momentum by the implementation of community programmes. The electoral cycle has also had a severe influence on investments: in almost all countries with local and/or regional elections planned in 2006, investment expenditure increased sharply in 2005 (Belgium, Slovakia, Poland, Greece, Slovenia). In other countries, the limits imposed on spending and on debt by the rules of budget discipline as well as the increasing weight in budgets of certain operating charges had the effect of contracting investments (Italy, Austria, Portugal, Finland, and so on).

4 by putting new and innovative forms of financing in place, like public private partnerships (PPP) Already widely in use in some States of the European Union of 15, various forms of Public Private Partnership (PPP) are arousing increasing interest, in particular in the new Member States. Some of them recently gained specific legislation and centres of PPP expertise. 4. The strengthening of local and regional autonomy has also been reflected by an increased fiscal decentralisation. Transfers of competences have been accompanied by transfers of State taxation and/or by the creation of specific new local and regional taxes. The fiscal receipts of local and regional authorities were particularly dynamic between 2000 and 2005, rising by + 4.5% in volume per annum on average. In 2005, their growth was more moderate (+ 3.1%). Taxation now represents 4.7% of European GDP and 37.8% of the revenues of local and regional authorities. 5. These developments have not compromised the sound budget health of the local and regional sector. This dynamism has not affected the major financial balances of the local and regional public sector: - The public deficit of local and regional authorities, of approximately 25 billion euros, increased slightly in 2005 but it is still modest, at 0.23% of European GDP, compared to that of the public sector as a whole, at 2.3% of GDP;

5 - Local and regional public debt also increased in 2005 (+4.9% in volume) to reach 633 billion euros. But this debt (5.8% of GDP in 2005), allocated solely to investment finance, remains low compared to the total public sector debt which was 63.2% of GDP in These indicators have been kept under control with the help of budget and prudential rules which provide a framework for local management and, for some years now, by an increased association of the local and regional sector with the control and governance of public finances, for example through internal stability pacts. Contacts: Patrizio Fiorilli Head of Press and Communication Council of European Municipalities and Regions Ulrike Pommée Head of Press Dexia Group Tel: pressdexia@dexia.com Tel patrizio.fiorilli@ccre-cemr.org