Bruno Deletré Executive Vice-President Public Finance, Dexia

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

2. 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 DEXIA DEXIA Organised around 4 business lines Public & Project Finance & Credit Enhancement Asset management & insurance services Treasury & Financial Markets Personal Financial Services Public/Project Public/Project Investment Investment Treasury Treasury Personal Personal Finance and Finance and Management Management and and Financial Financial Credit Credit and Insurance and Insurance Financial Financial Services

3. Research activities on the European territorial public sector Periodical… the annual Economic Outlook on sub-national public finance in the European Union and the set of factsheets Synoptical tables… LPC, hospitals… • Paper and electronic publications : • The newcomer : local government staff • Books planned for 2007-2008 : Hospitals, local and regional finance in the EU27, social housing in Europe

4. 2006 new publications • The Economic Outlook on "Sub-national public finance in the EU – Trends 2000 – 2005" : • An annual survey (6th edition) • Institutional and financial situation of the sub-national 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 • Detailed statistics for each country • Sub-national governments, economic weight and financial aspects of the sub-national public sector, structural funds 2007-2013, town twining.

5. Presentation • Territorial organisation in Europe • The economic weight of the regional and local governments*: • Territorial public expenditure • Territorial public capital expenditure • 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

6. 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: • 8 countries with 1 level • 8 countries with 2 levels • 6 countries with 3 levels 89,250 sub-national governments with the Federated States

7. 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.

8. Institutional and territorial trends More regionalisation Further decentralisation Creation of regions: • 1999 : 16 regions in Poland • 2001 : 14 regions in Czech Republic • 2002 : 8 regions in Slovakia • 2007 : 5 regions operational in Denmark • 2009 : 14 regions operational in Slovenia Mergers of municipalities Inter-municipal cooperation

9. 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

10. In volume, base year 2000 = 100 1,374 bn€ 120 Territorial sector public expenditure + 3.6% 116 Total public sector expenditure +2.4% 112 GDP +1.7% 108 104 100 2000 2001 2002 2003 2004 2005 Evolution of the territorial public expenditure 2000-2005

11. Average yearly territorial expenditure growth 2000-2005: +3.6%

12. In volume, base year 2000 = 100 120 169 bn€ Territorial sector public investment +3% 116 Total public sector investment +2.9% 112 +1.7% GDP 108 104 100 2000 2001 2002 2003 2004 2005 Evolution of the territorial public investment 2000-2005

13. 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% The importance of the territorial public sector as a public investor

14. 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 Latvia

15. 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.

16. Ireland • PPP Act of 2002 • Transportation, • Water/Sewage • Education UK • PFI initiative since 1992 • Transportation • Education • Healthcare France • LOPSI, LOPJ specific legislation since 2004 • Transportation • Prisons • Education • Homeland security Portugal • PPP legislation since 2003 • Infrastructure • Prisons • Healthcare The regulatory framework in Europe Netherlands Finland • PPP Task Force 1999 • Transportation • Water • Ports Belgium • Transportation • Education • PPP legislation for the Flemish region • Transportation • Water/Sewage • Education • Healthcare Germany • PPP Task Force since July 2004 • Homeland security • Education • Infrastructure   Greece • PPP legislation since 2005 • Transportation • Education • Healthcare    Spain Italy Luxembourg • PPP legislation since 2002 • Transportation • Healthcare • Transportation • Education • Healthcare • 2003 law on concessions • Transportation • Infrastructure • Healthcare : countries with a strong PPP culture • 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)

17. In volume, base year 2000= 100 130 510 bn€ Territorial public sector 125 +4.5% 120 115 +1.7% GDP 110 +0.9% Public sector 105 100 95 2000 2001 2002 2003 2004 2005 Evolution of territorial tax revenues 2000-2005

18. Territorial tax revenues in 2005: 4.7% of GDP Highest growth in GDP between 2000 and 2005

19. In % of GDP 1,0 0,5 0,0 Local and regional budget balance - 25 bn€ -0,5 -1,0 -1,5 -2,0 - 252 bn€ Total public budget balance -2,5 -3,0 -3,5 2000 2001 2002 2003 2004 2005 The territorial public deficit is under control: 0.23% of GDP in 2005

20. The territorial public debt remains stable over 2000-2005 % of GDP 8 7 633 bn€ 6 5 4 3 2 1 0 2000 2001 2002 2003 2004 2005

21. The territorial public debt in 2005: 5.8% of GDP Highest growth in GDP between 2000 and 2005* * Including Federated States

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

23. Conclusion • The decentralisation process is continuing in Europe • Local and regional governments have become major actors in the European economies : their expenditure account for 12.7% of GDP • 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