1. Impact of financial and debt crisis on local and regional authorities. Frank Lierman, Chief Economist Belfius Bank ECOS, Committee of the Regions Brussels, April 26, 2012

2. The financial and debt crisis. Investments in danger. How to restore the self-financing capacities ? Limited financing capabilities of banks. Alternatives for financing public facilities. Impact of financial and debt crisis on local and regional authorities 2

3. The financial and debt crisis. 3 The sequence of events. Financial, economic, social, public finance & sovereign debt

4. 4 Subnational revenues has been affected by the economic and public finance crisis. Subnational revenue in the EU27 from 2000 to 2010 Subnational revenue by category in 2010 (% of total revenue) The financial and debt crisis.

5. 5 Subnational expenditure : a global cost control combined whit higher level of social costs. Subnational expenditure in the EU27 from 2000 to 2011 Subnational expenditure by category in 2010 (% of total expenditure) The financial and debt crisis.

6. 6 Budget balance in danger. Public budget balance in EU27 from 2000 to 2010 (% of GDP) Subnational public budget balance in the EU27 from 2000 to 2010 (% of GDP) The financial and debt crisis.

7. 7 Public debt increased sharply. The financial and debt crisis. Public debt by sector in the EU27 from 2000 tot 2010 - % change

8. 8 Public debt increased sharply. (2) The financial and debt crisis. Public debt by sector in the EU27 from 2000 tot 2010 - % of GDP

9. The financial and debt crisis. Investments in danger. How to restore the self-financing capacities ? Limited financing capabilities of banks. Alternatives for financing public facilities. 9 Impact of financial and debt crisis on local and regional authorities

10. A freezing or a reduction in central government transfers. Stricter rules for borrowing. Spending restrictions. Reduced capacity to increase the tax burden … Investments in danger. 10 Austerity plans are not neutral.

11. Employer, service provider, economic agent, investor and national solidarity player Expenditure : 17% of GDP and 34% of public spending Direct investment : 65% of public sector Investments in danger. 11 Essential services. Subnational expenditure by economic function in the EU27 (% of total expenditure)

12. Replacement investments for renewing existing infrastructure and equipment (68% of all investments in EU) Catch-up investments responding to demand/needs for : public infrastructure renovation of buildings innovation in transport deployment of new technologies More cyclical or one-off needs : local elections 2007 – 2013 Structural Funds envelopes special events : cultural, sports, natural catastrophes, … Major longer term issues ageing sustainable environnement Traditional counter-cyclical role Investments in danger. 12 But essential services/investments cannot be reduced.

13. The financial and debt crisis. Investments in danger. How to restore the self-financing capacities ? Limited financing capabilities of banks. Alternatives for financing public facilities. 132/20/2014 Impact of financial and debt crisis on local and regional authorities

14. How to restore the self-financing capacities ? 14 Structure of revenues and expenditures in EU27 in 2010. Staff costs 34% Social current spending 16% Subsidies & other current transfers 12% Intermediate consumption 22% Financial charges 2% Direct capital exp. : 10% Capital transfers : 4% Assets revenue : 1,5% Taxation 40% Grants 46% User charges : 10% Others : 2,5% (in % of total)

15. Revenues maintaining or enlarging tax revenues boosting tariffs and fees optimising assets revenues optimising grants and subsidies captation Expenditures reducing staff costs better control on financial costs improving control on social spending costs reinforced cost control on purchases implementing investment policies How to restore the self-financing capacities ? 15 Actions which can be undertaken.

16. How to restore the self-financing capacities ? 16 The assets and liabilities composition as of December 2010 in EU27. Deposits 210 Other accounts receivable 93 Insurance technical reserves 4 Shares 327 Loans 99 Securities 32 Other accounts payable 207 Loans 721 Securities 103 Insurance technical reserves 8 Deposits : 2 Net financial liabilities : - 278 bn (in bn euro)

17. The financial and debt crisis. Investments in danger. How to restore the self-financing capacities ? Limited financing capabilities of banks. Alternatives for financing public facilities. 17 Impact of financial and debt crisis on local and regional authorities

18. Reduction of number of actors Withdrawal of foreign banks Increase of margins Constraints of Basel III less volumes, more expensive Danger of credit crunch Limited financing capabilities of banks. 18

19. The financial and debt crisis. Investments in danger. How to restore the self-financing capacities ? Limited financing capabilities of banks. Alternatives for financing public facilities. 19 Impact of financial and debt crisis on local and regional authorities

20. Alternatives for financing public facilities 20 Which financing models ? Maintain of demandDecrease of supplyForeseeable Credit Crunch += TOWARDS A NEW FINANCING MODEL FOR SUBNATIONAL PUBLIC SECTOR

21. Alternatives for financing public facilities 21 Products and clients diversification in order to maintain funding capacities. Subnational governments Public satellites Other satellites Energy Social Services Waste Management Healthcare Social Housing Water Education Public Transportation Financing Cash Management Debt Management Financial Advisory Operational Car leasing HR Organisation Means of Payment Electronic Banking Asset Management Leasing Real Estate Corporate Finance Capital Markets Solutions Structured Finance Insurance Hedge Solutions