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Intermunicipal Cooperation and Austerity Policies: Obstacles or Opportunities?
Ringa Raudla
Ragnar Nurkse School of Innovation and
Governance
Tallinn University of Technology
Tallinn 12618, Estonia
ringa.raudla@ttu.ee
António F. Tavares
Research Center in Political Science
School of Economics and Management
University of Minho
4710-057 Braga, Portugal
atavares@eeg.uminho.pt
Abstract
The profound challenges experienced by European countries as a consequence of the fiscal
crisis, combined with the increase in the scope, size and diversity of IMC justify a closer look at
whether and how austerity policies have shaped the developments of IMC across different
countries."Has IMC become more prevalent in countries affected by the fiscal crisis? Have
austerity policies presented obstacles or opportunities for IMC initiatives? We conducted a
survey of experts in 11 selected countries,"including both countries that were hit hard by the
fiscal crisis and implemented extensive austerity policies and countries where IMC is known to
be or becoming prevalent. The results of this exploratory analysis indicate that in five of the
countries included in our sample (Italy, Portugal, Iceland, the Netherlands, and the UK), IMC
has emerged as a solution to deal better with fiscal stress.
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Introduction
The literature addressing the rationale for intermunicipal cooperation (IMC) has grown
significantly in recent years, with studies pointing out the benefits associated with IMC,
including the economies of scale and scope, enhanced negotiation of outsourcing deals,
and improvement of credit ratings to attract external funds (Council of Europe 2010;
Swianiewicz 2010; de Sousa 2013; Bel et al. 2013). In contrast to the extensive
discussion of these motivations, the role played by austerity policies as possible drivers
or obstacles to IMC has been conspicuously absent from the debate.
Different countries have responded to the crises unfolding since 2008 in
different ways (e.g. Pollitt 2010; Raudla et al. 2016). The scope and content of the
austerity measures adopted in response to the fiscal crisis have also varied considerably
from country to country. Hence, we would expect that the austerity pressures have led to
different developments in intergovernmental relationships as well. While there are many
studies that have looked at whether IMC reduces LG expenditures, there has been less
focus on the question of whether increased financial constraints lead to more extensive
use of IMC by municipalities, especially in the European context (Bel and Warner
2015a; Homsy and Warner 2014). Furthermore, the paucity of comparative research on
IMC identified in recent research (Teles 2016), justifies a closer look at the variation in
the IMC solutions resulting from austerity policies in European countries. Given that the
connection between fiscal austerity and public sector reforms is a complex one (Pollitt
2010) no linear effects of austerity measures on IMC can be expected.
IMC is frequently described as a tool to increase local government capacity
(Teles 2016) without resorting to blunter policy instruments such as forced
amalgamations. Some authors have also argued that the fiscal crisis and the ensuing
need to adopt austerity measures pressure local governments (LGs) to find alternatives
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for delivering services in more effective and efficient ways, with IMC being a possible
response (Bel and Warner 2015). The profound challenges experienced by European
countries as a consequence of the fiscal crisis, combined with the increase in the scope,
size and diversity of IMC justify a closer look at whether and how austerity policies
have shaped the developments of IMC across different countries. In particular, we are
interested in the following questions: Has IMC become more prevalent in countries
affected by the fiscal crisis? Has IMC been a primary tool employed by local
governments to respond to austerity policies? Or has IMC been part of a broader set of
reforms directed at the local government, which also includes territorial amalgamations
and local finance reforms? Have austerity policies presented obstacles or opportunities
for IMC initiatives? Are there variations across countries?
We conducted a survey of experts in 11 selected countries to investigate these
questions: Portugal, Spain, Italy, Greece, Poland, the Netherlands, the United Kingdom,
Finland, Iceland, Croatia, and Estonia1. The rationale for this choice is to include both
countries that were hit hard by the fiscal crisis and implemented extensive austerity
policies (primarily Southern European countries) and countries where IMC is known to
be or becoming prevalent (the Netherlands, Finland, and Iceland).
The first section of this chapter describes the impacts of austerity policies on
local government, addressing the different policy tools employed to cope with fiscal
stress and improve local resilience. The section outlines theoretical predictions about
how austerity policies are likely to affect IMC and reviews the existing empirical
literature examining that question. The second section reports the results of our survey
and discusses the effects of austerity policies on local governments in a comparative
perspective. Section three concludes.
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1"One to three experts per country were contacted, 18 in total.
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Theoretical Discussion
The goal of is section is to discuss theoretically, drawing on the existing literature, how
the context of austerity may influence the constraints and opportunities local
governments face and what kind of shifts in incentives are likely to take place – and
how these, in turn, can influence IMC?
Generally speaking, the era of austerity is likely to create an environment for the
LGs where they have to operate with increasing constraints.
The existing literature exploring fiscal crises and governance often argues that
the need to undertake large-scale cutbacks leads to changes in governmental decision-
making processes. In particular, it is expected that the need to undertake fiscal
retrenchment would give rise to increased centralization of decision-making in the
public sector (e.g. Levine and Posner 1981; Peters et al. 2011; Raudla et al. 2015).
Increased centralization is likely to occur when governments attempt to deal with
common-pool problems involved in budgeting (Hallerberg et al. 2009; Raudla 2010;
Raudla et al. 2015). In the case of budgetary cutbacks (analogously to “maintaining” the
commons) the costs of undertaking the expenditure cuts are concentrated within
individual organizations, whereas the potential benefits (if any) of successful fiscal
consolidation are diffused. Thus, it is very unlikely that the “spenders” would
voluntarily propose cuts on themselves (Behn 1985; Dunsire and Hood 1989; Levine
1979). As a result, in order to adopt and implement austerity measures, top-down
decisions would be needed (Levine 1979; Tang et al. 2014). Having a central actor that
is able to monitor the behavior of others and impose sanctions (if necessary) can help
achieve coordination on the budgetary commons (Hallerberg et al. 2009; Raudla et al.
2015).
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Thus, given the likely resistance of the subnational units to voluntarily adopt
fiscal discipline measures, we can predict that austerity is likely to lead to increased
centralization in the relationships between the central government and local
governments (Levine and Posner 1981). The central government can (re)exert its
authority vis-à-vis the local governments via directly influencing their revenues (e.g. by
changing tax laws, reducing local government grants or changing the nature of the
intergovernmental grants), redefining the division of tasks between the central and local
government, reducing the decision-making discretion of the local authorities, and
imposing constraints on their budgetary decision-making via fiscal rules (e.g. in the
form of expenditure limits, deficit ceilings or borrowing restrictions) (Bolgherini 2016;
Clark and Ferguson, 1983; Levine and Posner 1981; Mouritzen 1992; Overmans and
Timm-Arnold 2016; Sørensen and Underdal 1993). The degree of severity of the crisis
is likely to influence the extent to which austerity would lead to such forms of increased
centralization (Bolgherini 2016; Kristinsson and Matthíasson 2016).
The size and scope of national-level austerity plans affect the scope of austerity
management needs and tasks at the local level (Overmans and Timm-Arnold 2016).
Drawing on the theoretical perspectives of blame-avoidance (Hood 2011; Peters et al.
2011), it is likely that in response to fiscal crisis, central government actors may attempt
to diffuse the blame for cutback measures and shift at least some of the burden of
painful austerity policies on local governments. Thus, in the context of fiscal crisis and
austerity, the LGs are likely to face a “scissors-effect” whereby they have to deal with
an increasing demand for services while having to meet them with lower levels of
revenues (Raudla, Savi and Randma-Liiv 2015; Tarschys 1983).
Given the increasing constraints described above, what kind of shifts in
incentives can we expect among LGs with regard to IMC? First, from the critical
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juncture perspective, fiscal crises are often presented as opening up opportunities for
reforms, both in terms of policy but also administrative structures. In response to a
crisis, it easier for policy actors to discredit the status quo, argue for change, and
overcome resistance (Keeler 1993; Kingdon 1984; Pollitt 2010). Indeed, a critical
juncture generated by a crisis can loosen constraints that allow for more radical reforms
than would be possible during times of normalcy (Soifer 2012). The experience of a
crisis can create a sense of urgency among policy-makers, motivating them to depart
from the incremental reform path and push for swifter change (Keeler 1993). It is also
argued that the deeper the crisis – i.e. the more severe the fiscal pressures in a country –
the bigger the “window of opportunity” for more comprehensive reforms (Keeler 1993;
Cepiku et al. 2016; Raudla, Savi and Randma-Liiv 2015). On the other hand, as Pollitt
(2010, p. 18) notes, in the context of reduced resources, reforms cannot be “lubricated”
with more money and compensating the objectors to the reform becomes more
challenging, which may, in turn, undermine reform efforts. As Peters et al. (2011) have
emphasized, structural reforms, in particular, may be rather costly and hence face
challenges in the context of austerity.
In light of these arguments, we can make diverging predictions about the effects
of austerity on IMC. Our first theoretical proposition is:
Proposition 1: Austerity is likely to facilitate intermunicipal cooperation.
There are several mechanisms through which austerity can facilitate IMC. First, the
dissatisfaction with the status quo and the perception of a “crisis” may motivate LGs
that have not engaged in IMC before to seek out more opportunities for it. It may also
encourage the national governments to promote IMC more extensively than before. The
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main rationale for developing IMC under austerity is that the decrease in revenues
associated with diminished transfers from upper levels of government and lower tax
revenues requires cost saving measures. Municipal amalgamations, IMC or both are
prime candidates to cope with this revenue squeeze. Indeed, when faced with increasing
resource scarcity, administrative reforms that might benefit from savings generated by
economies of scale – like IMC but also amalgamations (Bel et al. 2013) – are likely to
look even more appealing than during times of “normalcy”. Hence, both fostering IMC
and amalgamation reforms might enter the reform agenda since they help to address the
perceived costs and inefficiencies related to fragmentation (Bel et al. 2013). Increased
size associated with mergers and IMC can potentially increase the capacity of local
governments to tackle additional functions passed on to them by national governments
as a consequence of cutback measures (Zafra-Gómez et al. 2013).
Second, based on the existing literature, we can expect that in addition to
increased centralization in the intergovernmental relations, the decision-making at the
LG level can also become more centralized (Behn 1985; Tang et al. 2014). When few
actors are involved in decision-making, the number of veto points is reduced, and hence
the adoption of IMC solutions may be facilitated.
On the other hand, the increased scarcity of resources may prevent LGs from
advancing their efforts directed at IMC (or voluntary mergers). Thus, our second
theoretical proposition is:
Proposition 2: Austerity is likely to inhibit intermunicipal cooperation.
First, fiscal stress reduces the amount of “slack” resources available for LGs
(Sørensen and Underdahl 1993; Pollitt 2010; Raudla and Savi 2015; Wolman 1986);
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hence, they might have more limited means available for conducting the relevant
analysis and preparatory works that are necessary for various types of IMC. Given the
fiscal stress faced by national governments, they may lack the necessary resources to
“lubricate” the voluntary mergers and IMCs with additional insertions of funds from the
central government budget, undermining the incentives to undertake them. At the same
time, in light of the increased centralization argument developed above, from the
perspective of the national government, imposing mandated amalgamation reforms may
start looking more attractive than the slower (and potentially more expensive) reforms
geared at fostering voluntary cooperation between the LGs.
Second, although a crisis can be seen as an opportunity for reforms, the context
of a crisis and austerity measures are likely to increase the sense of uncertainty among
the LG officials and shorten their time-horizons of decisions (Caiden 1981; Jimenez
2009; Morgan and Pammer 1990), which, in turn, can undermine trust and reciprocity
between different LGs. Since trust and reciprocity are considered to be conducive for
solving collective action dilemmas (Ostrom 1990; Tang et al. 2014), the necessity to
deal with fiscal stress and implement austerity measures may reduce the willingness and
ability of LG officials to pursue IMC efforts. In addition, severe economic downturns
may increase the heterogeneity of population within the communities and but also
between communities and this may complicate any efforts at cooperation. Uncertainty
caused by heterogeneity and decreased trust in local communities increases the
transaction costs of IMC, which can only be overcome through more formalized types
of IMC agreements (Feiock 2013). Local government officials may be forced to accept
top-down decisions valuing more formalized IMC options such as new entities (e.g.,
intermunicipal companies) to the detriment of other, more organic and informal IMC
solutions.
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Finally, the borrowing needs of LGs in the context of austerity may further
influence their incentives vis-à-vis IMC. Various forms of IMC may increase
monitoring costs since an additional hierarchical layer might be needed to oversee the
body in charge of the cooperation (Allers and Ommeren 2016; Bel et al. 2013). Because
of the increased inefficiency arising from additional monitoring costs, interest rates at
which inter-municipal organizations can borrow might be higher than the rates available
to individual municipalities (Allers and Ommeren 2016). Thus, in the context of
austerity when the price of credit might become a weightier consideration in LG
decision-making, the creation of additional inter-municipal organizations might look
less attractive. On the other hand, because of the scale effects and a greater distance
from “political” decision-making (which may involve more extensive rent-seeking), the
borrowing costs for inter-municipal organizations might be lower than those for the
individual LGs (Allers and Ommeren 2016). Similar arguments apply to amalgamated
municipalities.
So far, we have outlined the general predictions about how austerity might
influence the incentives to pursue IMC (and also amalgamation reforms, as an
alternative). There are, however, a number of contextual and country-specific factors
that are likely to shape the motives to undertake IMC.
First, the existing level of financial autonomy of LGs is likely to play a role in
the austerity management strategies available (Ladner and Soguel 2015). If LGs have
more financial autonomy in raising revenues, they can put more weight on that, in
response to reduced transfers from the central government. Those with lower financial
autonomy in terms of own revenues have to be more oriented to cutting expenditures.
(Overmans and Timm-Arnold 2016). This, in turn, is likely to influence the incentives
to undertake IMC as well.
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Second, the situation at departure (before the crisis) is likely to play a role in the
impact of austerity on IMC. More territorial fragmentation among local governments is
likely to result in a bigger push for mergers and IMC reforms as a result of top-down
pressures (Bolgherini 2016; Kristinsson and Matthíasson 2016). On the other hand,
densely clustered networks of local governments with prior experience in multiple
cross-service cooperation endeavors are more likely to maintain the degree of credible
commitment required to adopt and sustain IMC during economic and fiscal hardship
(Shrestha and Feiock 2009; Lee, Lee, and Feiock 2012).
Third, the austerity management responses of LGs are likely to depend on the
institutional features of the LGs, including the relationships between elected officials
and civil service (Overmans and Timm-Arnold 2016). Depending on the political
system (for example, strong mayor or weak mayor, mayor-council or council-manager,
among many other possible configurations) the profile of the mayor, in particular, may
be especially relevant for the overall attitude of the local government towards IMC.
Some of the countries hard hit by the global crisis and austerity policies fit the strong
mayor model, including Portugal, Greece, Spain, and Italy (Heinelt and Hlepas 2006;
Magre and Bertrana 2007). The mayor represents the interests of the community in face
of higher levels of government (Heinelt and Hlepas 2006) and other governments in the
region. The combination of a strong mayor system and conditions of austerity is likely
to entail further increase in centralized decision-making and a reduction in the number
of veto points at the local level. As a result, it may be easier for mayors to push for the
adoption of the IMC solutions of their preference. Political leadership, a key trait of
strong mayor systems, is even more decisive in fiscal crisis situations.
With regard to existing empirical evidence on the relationship between austerity
and IMC, there are only few studies that have examined this question explicitly. In their
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meta-analysis of the determinants of IMC, Bel and Warner (2015) find that among the
existing empirical studies, more than half have found that fiscal constraints have a
significant effect on cooperation (and a large majority finds a positive effect). Homsy
and Warner (2014) find that in the US context, cooperation between municipalities has
increased since the Great Recession. None of the 6 case studies of Italian municipalities
described in Cepiku et al. (2016) identify IMC as a strategic approach to cope with
austerity.
Intermunicipal Cooperation and Austerity: Expert Survey Analysis
This section presents the results of our survey conducted with experts from 11
countries. The findings are summarized in three subsections: 1) The consequences of
the financial crisis for local governments in terms of fiscal stress and changes in
revenues, tasks and fiscal rules as a result of austerity policies; 2) The impact of
austerity policies on IMC initiatives; and 3) Was IMC adopted as part of a larger set of
local government reforms instigated by the financial crisis and ensuing austerity
policies.
Fiscal Stress in Local Governments after the Financial Crisis
In most of the countries covered in our study, local governments have faced increased
fiscal stress as a result of the austerity measures. As can be seen from Table 1, in nine
out of the eleven countries, local governments have experienced a fall in revenues
(resulting either from lower tax revenues, reductions in central government grants or a
combination of both). Revenue drops have been particularly dramatic in the United
Kingdom (where central government funding to LGs dropped by 37% between 2010
and 2016) and Greece (where the central government grants have been reduced by 60%
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between 2009-2015). Only in two countries – Poland and Iceland – have LGs been
spared from revenue reductions. In parallel with falling revenues, in more than half of
the countries included in our study, LGs have been entrusted with additional tasks
(especially in the area of social welfare). In none of the cases has the range of functions
that LGs have been reduced. The only exception is Finland, where the recent reform
plans entail the possibility of re-allocating social welfare and health functions from the
local to the regional level. Thus, in most of the countries included in our analysis, LGs
have faced the “scissors-crisis”: having to deal with additional tasks while facing falling
revenues.
[Table 1 about here]
Alongside the combination of falling revenues and increasing (or unchanged)
tasks, LGs in most countries have faced additional constraints in the form of new fiscal
rules imposed on them by the central government. Indeed, only in Finland and the
Netherlands have the LGs been spared from additional fiscal rules. In half of the cases,
the new fiscal rules include limits on debt and deficit. In addition, in Croatia, caps have
been imposed on LG salaries and in the UK, LGs have to hold a referendum for
increasing the council tax beyond a certain threshold. In at least half of the countries,
LGs also need a permission from the central government to incur a loan (either always
or in specific circumstances).
In sum, we can see that the LGs in the countries covered in our study have had
to deal with fiscal stress resulting from falling revenues and increasing (or unchanged)
tasks in the face of additional top-down constraints imposed on them by central
government in the form of stricter borrowing and deficit rules. While in some of the
countries, the central government has opted to bear the brunt of the austerity burden
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(Croatia, Iceland, and Finland), in a majority of our cases, austerity has also spilled over
to the local level, forcing LGs to operate in increasingly challenging environments.
Has IMC become more prevalent as a result of austerity policies?
The majority of the countries covered in our survey did not experience any increase in
IMC as a direct result of austerity policies. In five countries, austerity measures have led
to more extensive use of IMC: Italy, Portugal, the UK, the Netherlands, and Iceland. In
Italy, the national government has led the efforts to use IMC more extensively in order
to cope with fiscal stress at the local level. Municipal Unions (i.e. multipurpose formal
entities) have been the preferred format of IMC. They are voluntary, but strong financial
incentives have been put forth by the national and regional governments. Other forms
such as conventions – looser and time-limited formal agreements – are still allowed, but
not openly promoted. Two reasons were put forth by Italian authorities as the main
motivators. First, the goal to increase size and reap economies of scale in times of
austeritywas regarded as quite relevant for small-sized municipalities (more than 70%
of Italian municipalities) to cope with their basic tasks assigned by national legislation.
Second, the comprehensive reform of 2014 and the change in the constitutional law in
2016, which advocated the elimination of the provinces (second-tier level), required an
“intermediate level”/supramunicipal alternative. In the United Kingdom, increasing
fiscal stress of local governments has led to an increase in LG partnerships and
agreements on administrative services and in local authority companies. Financial
savings and cost reduction were the most frequently stated goals, but, for many LGs,
IMC is also seen as an alternative to mergers. In the Netherlands and Iceland as well
increased fiscal stress of local governments has motivated them to make more extensive
use of IMC. In the Netherlands, in particular, our experts suggest that IMC continues to
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serve as a strategy to reduce (share) transaction costs resulting from new tasks assigned
to the municipal level. Unlike in Italy, however, increased IMC in the UK, the
Netherlands and Iceland have resulted from the bottom-up efforts of LGs (struggling
with fiscal strain) rather than being directed by the central government.
[Table 2 about here]
In Portugal, IMC reform was undertaken in 2008, prior to the crisis and resulted
in the top-down creation of Intermunicipal Communities (CIM) with compulsory
geographical borders. The newly created CIM had as one of their major goals to apply
for regional funds from the European Union. Austerity, and particularly the bailout
agreement, was seen as an opportunity to enhance the set of competencies and tasks
assigned to the CIM. IMC was not regarded as an explicit policy to address specific
austerity issues, but rather as one of the strategies included in a broader set of reforms
affecting LGs.
Spain is the only country that appears to have adopted legislation tightening the
use of IMC. All municipalities under 20,000 residents (over 95% of the 8117
municipalities) were subjected to coordination of public service provision either directly
by the province or indirectly through an intermunicipal arrangement
(Mancomunidades). However, all Mancomunidades are now forced to submit their
budgets and financial reports to the central auditing authorities (Bolgherini 2016).
Noncompliance resulted in either massive adjustments or extinction, affecting primarily
Mancomunidades addressing issues of economic and social development.
In the remaining countries, our panel of experts did not identify major changes
as a result of the financial crisis of 2008. In Finland, IMC was already a widespread
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endeavor and the most recent financial crisis did not affect these efforts. In Poland,
internal fiscal stress and the lack of expertise and capacity in smaller municipalities are
stated as key motivators for the continuing trend of IMC. In Poland, there has been an
increase in the number of Integrated Territorial Investments since 2014, but these are
justified as a new EU structural funds instrument and are unrelated to austerity policies.
Studies undertaken in Poland indicate that EU funds have been one of the most
important motivations for IMC since the 1990s (Swianiewicz et al. 2016). Finally, in
Croatia, Estonia, and Greece, austerity policies did not have significant impacts on
IMC.
Has IMC been a part of a broader set of reforms directed at the LG?
In several countries, IMC is part of a broader set of reforms on the political agenda, but
in most cases these reforms are unrelated to the financial crisis or austerity policies. The
exceptions seem to be Italy and Portugal. In Italy, a major LG reform took place in
2014. Overall, the Italian case seems to be the one where the link between austerity
policies and IMC is the most evident (Bolgherini 2016). Besides the cuts to public
expenditures to increase budgetary discipline and comply with EU requirements, Italy
has also focused on territorial reforms aiming to rationalize local government
architecture (Bolgherini 2016). The reforms conducted in 2007-2013 point to an
increase in the number of municipal unions (MUs), a form of IMC clearly favored by
the national government to the detriment of other forms. Municipalities under 5,000
residents were forced to manage the mandatory tasks assigned by legislation through
MUs and those with less than 1,000 residents also have to do the same for all
administrative functions and public services (Bolgherini 2014). These compulsory
changes were accompanied by the complete defunding of mountain communities
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(MCs), an older form of IMC involving the smallest municipalities in remote areas. A
reduction in the number of provinces was also clearly signaled by their removal from
Constitutional status and an increasing transfer of some of their functions to regions,
metropolitan cities, and MUs (Bolgherini, 2014). In the Italian context, perhaps more
than anywhere else, IMC is not only openly promoted but often imposed in a specific
format (MUs) to the detriment of others (MCs), resulting in effective reduction of
municipal autonomy and an increase in the deficit of democratic legitimacy as MUs'
officials are not directly elected (Bolgherini 2014). Municipal amalgamations are also
included as a goal in this reform but they are still voluntary, even if encouraged (and
financed) as never before.
In Portugal, the 2011 bailout agreement was the main catalyst for LG reforms.
The merger of municipal and sub-municipal units projected in the Memorandum of
Understanding (MoU) signed in 2011 by the Portuguese Government, the International
Monetary Fund, the European Commission, and the European Central Bank was never
fully enacted. Since the MoU was ambiguous in terms of which units should be merged
as a conditionality of financial aid, the Portuguese Government opted for the merger of
sub-municipal units, leaving municipal boundaries intact. The Portuguese territorial
reform stands as an example of how austerity policies have generated an unbalanced
outcome for the local level. Sub-municipal mergers were enacted without concomitant
changes to municipal boundaries, the allocation of functions between municipal and
sub-municipal governments, local finances or local election rules (Tavares 2015). The
urgency to cut costs (required in the MoU) and the imposed deadlines gave an incentive
for central government to produce ad hoc and fragmented changes. These external
demands, which sanctioned the argument for rushed measures, together with the
political costs of significant territorial changes, can explain the absence of a coherent
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reform strategy and the missed opportunity to facilitate IMC. The main policy set by
this reform affecting IMC was the enhancement of responsibilities, resources, and
political deliberative powers of the CIMs.
Finland went through an important reform which started before the financial
crisis and was unrelated to it (2007-2011). LGs were asked to reorganize their social
and health care services to serve a minimum of 20,000 citizens. Many LGs decided to
amalgamate, but others solved this upper-level mandate using IMC, resulting in a
significant increase in IMC in the last ten years. In other areas, such as garbage
collection, IMC is also growing because using garbage as energy requires large
investments. The current reform effort, however, is directed at creating the second tier
of local government (in the form of self-governing regions) that would be responsible
for several tasks (e.g. in social and health care) that have traditionally belonged to
municipalities. As a result, IMC is likely to decrease dramatically.
In Estonia, a law prescribing compulsory amalgamations was adopted in 2016
but this was a result a longer-term reform effort rather than having been triggered by
austerity measures.
Other countries have not experienced comprehensive LG reforms. In Poland, for
example, no territorial amalgamation reform has been implemented or seriously
considered. The experts we surveyed identified a few minor reforms aiming to support
IMC, but with minimal reference to austerity. A reform of metropolitan areas is also
being considered, but no final decision has been reached. Croatia has not seen any
significant local government reform since 2009, when the direct election of mayors
came into law. The territorial organization of Croatian local government has remained
the same and the national legal framework for IMC was also unchanged during the
financial crisis years. Strategic policy documents (Strategy of Public Administration
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Development 2015-2020, National Reform Programme 2016) include IMC as a part of
local government consolidation, in order to provide technical and financial support to
cooperating municipalities, but no IMC legislation has been implemented yet.
Interestingly, in these documents IMC is primarily regarded as a step towards possible
territorial amalgamations, not a reform in itself. In contrast, LGs see IMC policy tools
and linkages as an instrument to avoid mergers. Greece also faced an attempt to
implement IMC as a testing ground for future voluntary amalgamations, but this was
not successful in either the first (1998) and second (2011) wave of amalgamations,
although both financial and political incentives were offered.
Discussion
The main goal of this chapter was to conduct an exploratory analysis of the overall
effects of austerity policies enacted following the financial crisis of 2008 and the
possible effects of these policies on the use of IMC by local governments in selected
European countries. Is there a relationship between austerity policies and IMC
initiatives? We outlined two competing theoretical propositions. We found more
support for the first proposition – that austerity facilitates IMC – than for the second –
that austerity inhibits IMC. This appears to be the case in at least five countries out of
eleven. Although in most of the countries covered in this chapter, LGs have experienced
increased fiscal stress as a result of austerity measures, only in few countries – Italy,
Portugal, Iceland, the UK, and the Netherlands – has IMC emerged as a solution to deal
better with fiscal stress. In Italy, the comprehensive reform of IMC has been a top-down
initiative, pushed by the central government, whereas in the UK and the Netherlands,
more extensive IMC has resulted from the bottom-up decisions of the LGs to better deal
with increasing financial strain. Other countries covered in our survey have also
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experienced changes in the IMC landscape (e.g. Croatia, Poland) but these have been
unrelated to austerity policies.
There does not seem to be a direct connection between the severity of fiscal
stress/crisis and IMC. While some of the countries where austerity measures triggered
more extensive IMC have been experiencing severe fiscal strain (e.g. Italy), others have
experienced it more mildly (e.g. the Netherlands). Furthermore, in some other countries
most affected by austerity (e.g. Spain and Greece), it has not triggered any noteworthy
changes in IMC (if, then perhaps in the opposite direction). Thus, although based on the
theoretical discussion in section two, IMC could be viewed as a potential solution to
deal with increased fiscal stress by the local governments due to the economies of scale
and cost savings it could deliver, in practice, LGs appear to prefer other ways for coping
with increasing scarcity of financial resources.
Other questions deserve more detailed research in the future. How exactly are
austerity policies and IMC connected? Which factors influence the choice of national
governments to adopt enabling/inhibiting legislation? What are the motivations for
voluntary adoption by LG’s affected by austerity policies? Explaining the dynamics of
this association requires an in-depth analysis of country cases. Although we did not
explore it more closely in our survey, the obstacles to IMC in the context of austerity
could lie in the theoretical arguments outlined in section two: increased transaction
costs of engaging in IMC, decreased trust in the context of crisis and austerity, and the
lack of (historical) traditions and experiences of utilizing IMC.
In addition to an in-depth investigation of the relationship between austerity
policies and IMC, future work should also focus on the countries that have implemented
IMC initiatives as a direct or indirect consequences of fiscal stress. IMC has been
shown to generate efficiency gains for specific services, such as solid waste collection.
20"
"
Several empirical studies confirm the possibility of capturing economies of scale and
cost savings through IMC solutions for waste collection (Bel et al. 2010; Bel and
Fageda 2010; Bel et al. 2013; Dijkgraaf and Gradus 2013; Zafra-Gómez et al. 2013).
However, cost savings accruing from IMC are contingent on service characteristics, the
size of the population to be served, and the transaction costs entailed by the IMC
solution (Bel and Warner 2015). Most studies have focused on solid waste management,
a service for which costs are usually available. There is far less information about the
effects of IMC for other types of services, but anecdotal evidence suggests that IMC
arrangements for the delivery of social and cultural services are frequently sacrificed by
local governments facing austerity (Bolgherini 2016), therefore implying that these
alternatives may be costlier. Finally, there is also controversy over whether scale
economies are achievable using multi-purpose organizations for IMC. These and other
implications of IMC arrangements implemented in the aftermath of the financial crisis
should be explored in future research to determine their effectiveness in addressing the
challenges faced by local governments in a context of austerity.
Acknowledgements
The authors would like to thank the country experts for answering the survey questions
and Pawel Swianiewicz and Filipe Teles for the careful review and suggestions. This
research received funding from the project “SmartEGOV: Harnessing EGOV for Smart
Governance (Foundations, methods, Tools) / NORTE-01-0145-FEDER-000037”,
supported by Norte Portugal Regional Operational Programme (NORTE 2020), under
the PORTUGAL 2020 Partnership Agreement, through the European Regional
Development Fund (EFDR), from the Portuguese Science and Technology Foundation
21"
"
(Fundação para a Ciência e Tecnologia) [Grant n.º PEst-OE/CJP/UI0758/2014], and
from the Estonian Research Council Grant PUT-1142.
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