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Regions & Cities 2012: Economic Crisis & Austerity

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The 2012 edition of EUobserver's Regions & Cities magazine looks at the impact of the economic crisis on Europe.


EUOBSERVER MAGAZINE REGIONS & CITIES OCTOBER 2012 For one week every year European regions are in the spotlight. It’s called Open Days, lasts a week, and is dedicated to all issues regional and local. From every corner of the continent, thousands of local leaders and administrators come to Brussels to talk directly to EU officials and lawmakers. It is a time of networking, exchanging ideas and passing on information. Lest we forget, it is also about celebrating the best of what Europe can produce! A vast array of local products – foods, wines, regional specialities – will fill the Belgian capital from 8 -11 October. But this year’s regional get-together will be more political than usual. The same economic crisis that has led to austerity in local governance is also directly affecting the EU’s negotiations on its next longterm budget. Meanwhile, regional calls for more influence or even outright independence are getting stronger. It is against this complex backdrop that EUobserver Magazine takes Europe’s regional temperature. Other news and analysis on regions and cities can be found on EDITORIAL ADDRESS EUobserver Magazine Rue Belliard 203, bté 5 1040 Bruxelles Belgium Editor: Lisbeth Kirk Editorial contributors: Honor Mahony & Philip Ebels Design: Tobias Andreasen Cover photo: © European Union, 2012 ADVERTISING EUobserver Magazine Rue Montoyer 18B 1000 Brussels Belgium Filip Lugovic PRINT PMR DISTRIBUTION EUobserver Magazine Rue Montoyer 18B 1000 Brussels Belgium Meg Chang Price per copy €4,75 + postage, excl vat / discounts on larger purchases Publisher ASBL EUobserver is an English language online newspaper covering European Union affairs. It is constituted as a non-profit organisation under Belgian law raising revenue on a commercial basis through a variety of income streams including advertising, fundraising, conferences, magazines and book sales. BERLIN / KEY FACTS Population 3.501.872, about 6 million in the Capital region Berlin-Brandenburg Joint Innovation Strategy of the Capital Region of Berlin and Brandenburg (innoBB) The “Joint Innovation Strategy of the States of Berlin and Brandenburg (innoBB)” was adopted by the Berlin Senate and the Brandenburg Cabinet on 21 June 2011. The following cross-border clusters are an important employment factor for the region: • Life Sciences & Healthcare 350.000 employees • Energy, Transport and Logistics 47.000 employees • ICT, Media, Creative Industries 158.000 employees • Photonics (including Microsystems Technology) 16.000 employees Scientific Landscape of the Capital Region: • 7 Universities • 21 Universities of Applied Science • 70 Research Institutes • 42 Technology Centres Read more at 2 OCTOBER 2012 REGIONS & CITIES

REGIONS FEEl the pINCh Central governments are hoping to cut costs even further by reducing the number of municipalities and telling them to cooperate more. By: Philip Ebels L ooking to save a buck in every corner of the budget, EU countries are now pointing their arrows at subnational governments, a new study has found. The study, carried out by Dexia Credit Local and presented in September this year, shows that after two years of pumping money into regions, central governments are now tightening their belts. In 2011, the amount of grants and subsidies to federated states, regions, provinces, and municipalities fell by 4.9 percent, according to the study, following a 0.6 percent drop in 2010. Grants and subsidies account for almost half the total income of subnational governments. Other sources of income include local taxes and user charges - the fees people pay to make use of services like parking and public transport. As a result, subnational governments, too, are cutting down on spending. In 2011, the study says, local direct investment fell by 6.6 percent, following a 7 percent drop in 2010. Today’s level is back at where it was in 2006. Public direct investment is money that goes into things like schools, hospitals or waste management, two thirds of which comes from subnational governments, according to the study, commissioned by the Council of European Municipalities and Regions. “The subnational public sector [is] an engine for public investment,” it says. In bigger countries like France, Germany or Italy, it accounts for almost three quarters of public direct investment. The two-year drop is a first after a decade of “robust” growth, the study says. Subnational governments have only been able to balance the books by cutting down on staff costs - the first time in a decade - and because in some countries, the economy has begun to pick up. Local tax revenues rose by 5.5 percent, after a slump in recent years. “It is a stability in disguise,” said Isabelle Chatrie, author of the study. Meanwhile, central governments are hoping to cut costs even further by reducing the number of municipalities and telling them to cooperate more. It is a trend of the past few decades but gained in speed over the last couple of years. “Municipal mergers have picked up with the crisis and austerity plans,” she says. In Greece and Portugal, who both agreed to reforms in return of a bail-out, reducing the number of subnational governments is even part of the deal with the so-called troika of international lenders - the International Monetary Fund, the European Central Bank, and the European Commission. Greece, who in 1997 had already gone from 5,825 to 1,034 municipalities, went to 325 in 2010. Portugal boasted 278 municipalities in 2011. In May of the same year it agreed to reduce “the number of municipal offices by at least 20% per year in 2012 and 2013.” Overall, the number of municipalities in the EU, according to Dexia, dropped from 92,735 in 2004 to 89,149 in 2011. For their part, subnational governments themselves are not celebrating the relative decline of their own species. “The troika thinks that budget control is better on the central level, but they are wrong,” Frédéric Vallier, secretary general of the Council of European Municipalities and Regions, told EUobserver. “For us, it is about responsibility. Everything that gives us more responsibility is good,” he added. OCTOBER 2012 REGIONS & CITIES 3

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