Decentralisation trends in Europe
After the 2008-2009 economic crisis, subnational governments increasingly became a focal point of economic and fiscal policies. They were often regarded as sources of inefficiencies in public spending while also being viewed as opportunities for public revenue-raising. Although subnational government borrowing was less significant, it was targeted as a potential area for limiting overall government debt. The primary reason behind these attitudes and fiscal policies was the complex nature of multi-tier government structures faced with fragmented local entities of various sizes. Using an economies-of-scale approach, these reform policies tended to reflexively promote larger municipalities (or inter-municipal cooperation), partly to lower service unit costs as well as to create a network of sizable local governments, more manageable from the centre.
Given the very diverse nature of local government structures in the CEMR member countries, options for amalgamation reforms come in many forms as well. Decentralisation trends and subnational government patterns can be categorised using the following critical attributes: (i) constitutional form of the region (federal or unitary); (ii) number of elected government tiers and (iii) population size of subnational governments. All these factors influence national policies and reform options.
Figure 4 Country population and municipality (first tier government) population size, 2020
- (i) There are three federal countries among CEMR’s members (Austria, Belgium, Germany), where the regions/states are constituent entities of the national State. From a fiscal point of view, Spain should also be considered part of this group of countries since the Autonomous Communities, as regional entities, have extended powers.
- (ii) Number of elected subnational government tiers further modifies these basic constitutional structures. In most countries with a smaller population size, there is only one government tier below the national one, as is the case with Estonia, Iceland, Lithuania, Luxembourg, Malta and Slovenia. In two of the federal countries, Austria and Spain, only one first-tier government exists within the Länder/regions. The vast majority of the other countries have a municipal and an intermediate level of subnational government. In certain countries, a special status has been conferred upon some local governments (e.g. capital cities, cities with county rights). The middle tiers are more fragmented, for example: France (departments and regions), Italy (provinces and regions), Poland (counties and regions), Ukraine (districts and regions) (see also CEMR, 2022).
- (iii) Population size of the very first tier of subnational governments also varies widely in the CEMR member countries. Four major types of municipal government structures can be identified (Figure 4). In countries with a population below the CEMR average of 16.8 million, municipalities too tend to be relatively small in number and below the average of 25 600. The countries found in the lower left cells of Figure 4 are almost all from Central and Eastern Europe, with a few from the Balkans. Two of the federal countries also belong to this group (Austria, Belgium).
Among these smaller countries, there is a subgroup with larger size municipalities (upper left cells of Figure 4). This rather heterogeneous group is made up of countries with amalgamated municipalities comprising several settlements and includes: two Scandinavian countries (Denmark, Sweden), transition countries from different regions (Georgia, Latvia, Serbia) and countries from the South (Greece, Israel).
Several large countries have fragmented municipal systems (lower right cells). They include Mediterranean countries (France, Italy), two countries with federal structures (Germany, Spain) and transition countries (Poland, Romania, Ukraine). Among these larger countries, only three have amalgamated first tier subnational governments (upper right cells): Turkey, the UK and the Netherlands.
|Table 2 Municipal merges and territorial consolidation|
|Change in number of municipalities, 2012-2020|
Over the past decade, several CEMR countries have implemented administrative territorial reforms. They were able to decrease the number of first tier governments to improve service efficiency through greater economies-of-scale. They either promoted mergers of municipalities or implemented comprehensive local territorial reforms (Table 2). Three of the transition countries reversed the extreme territorial decentralisation of the early 1990s by creating large-size municipalities (Albania, Estonia, Latvia). In Ukraine, a comprehensive local government reform was carried out to create larger territorial units. In Austria, the Styrian territorial reform was carried out as both a mandatory and voluntary process from 2010 to 2015. Other countries promoted voluntary administrative mergers (Portugal, Norway, Serbia, the Netherlands). In these cases, the number of government units at the lowest level declined by at least one-tenth over the past decade. Box 3 summarises territorial reforms in seven countries; Box 4 presents the recent territorial-institutional reforms in France; Box 5 outlines the decentralisation process in Portugal following its amalgamation of parishes.
Economic growth over the past decade has occurred alongside a growing regional differentiation. The distance between the basic (NUTS2) regions with the highest and the lowest value of GDP per capita increased. In the 36 countries where disaggregated regional data is available, this ratio went up, from 2.37 (2010) to 2.46 (2020) on average.
However, the number of countries with declining regional differentiation outnumbered those where this ratio of richest-poorest regions increased (see Figure 5). There is a total of eight rather diverse countries with increased differentiation. Setting aside Montenegro as an outlier (its ratio of GDP per capita in the richest and poorest regions doubled), this group includes the countries from southern Europe that inherited large regional disparities, e.g. Italy, Greece and Turkey. The other countries showing greater economic differentiation are usually ones with more equal regional structures: two Scandinavian countries (Denmark, Sweden), the Netherlands, Czech Republic and Lithuania.
Figure 5 Regional differences: ratio of GDP per capita in richest and poorest NUTS2 region, 2019, change between 2010-2019
In the past decade, the population weight of capital cities has slightly increased (by 1%) on average in the CEMR countries. In the smaller countries, the network of cities is often dominated by the capital. For one-quarter of CEMR member countries, where data was available, the capital city’s share of the total population accounted for more than 20%. Predictably, the national capitals in countries with more concentrated urban networks – the ones dominated by capital cities – increased their share further: Estonia, North Macedonia, Portugal, Finland. Declining urban concentration characterised the countries with a more diverse share of capital-city population: Cyprus, Moldova, Slovenia.