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Multi-level Finance and the Euro Crisis

Multi-level Finance and the Euro Crisis

Causes and Effects

Studies in Fiscal Federalism and State-local Finance series

Edited by Ehtisham Ahmad, Massimo Bordignon and Giorgio Brosio

Representing a unique contribution to the analysis and discussion of the unfolding Eurozone crisis in terms of the relationship between central and local government, this book addresses a number of important fiscal and political economy questions. To what extent have local and regional governments contributed to the crisis? To what degree have subnational services and investments borne the brunt of the adjustments? How have multi-level fissures affected tensions between different levels of government from the supranational to the local? This volume covers these and many other critical issues that have been largely ignored despite their relevance.

Chapter 5: French sub-national public finances: on the difficulty of being a decentralized unitary state

Pierre Garello

Subjects: economics and finance, public finance


Two facts can hardly be missed when studying French public finances. Firstly, the country has one of the highest reported ratios of general government public spending to GDP (57.1 per cent in 2013 according to INSEE – the French National Institute for Statistics, second only to Denmark among OECD countries); a high public-sector deficit (4.3 per cent of GDP in 2013 and probably slightly more in 2014), and a rapidly increasing national debt that could reach 100 per cent of GDP in the coming years. Secondly, France has followed a systematic policy of decentralization for the past 30 years, the first law for decentralization dating back to 1982. This chapter looks into a potential link of causality between those two observations, focusing more specifically on the impact of the recent crisis on the budgets of the various layers of government. Indeed the crisis provides us with a good test for assessing the quality of our institutions. Did the decentralization, as it is designed and operated in France, soften the impact of the crisis? Or did it make things worse due to, for instance, the inability of sub-national governments to control their expenditures? Did the crisis lead to a rolling back of decentralization, making the various levels of government less accountable, or did it, on the contrary, help improve the French model of decentralization?

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