The Eurocrisis comes through the backdoor for Finland, the Netherlands and Germany

At the end of September I had already a post on restructuring, budget cuts and redundancies in Finnish counties. All of these, directly or indirectly relate to the budget cuts implemented by the Finnish government and decisions to reduce some tasks of the local government.

You can read my post here on the budget cuts and why the Finnish government thinks it is so important that Finland sticks to the Maastricht criteria (hint: most of it relates to ‘we have lived beyond our means’). The same post also reflects on the Dutch politics of budget cuts, and how the Netherlands somehow is able to bend the rules somewhat despite rapidly worsening economic indicators (or maybe especially because of those).

I just want to make a short point here. In Finland, the Netherlands and Germany local governments (Gemeinde, kunnat, gemeente) are the governmental units largely responsible for the costs of infrastructure, schools/education, healthcare, sports facilities etc. Very roughly said, these local governments fulfill in practice many of the duties of the state, through delegation. For this, local government gets supported by the state through (tax/wealth) transfers. Now, with these Northern European countries firmly stuck in austerity mode, you see the inevitable: budget cuts implemented by the government trickle down to the local level where many of these funds are used in the end. And remember that budgets at the local level have to be balanced by law, hence the dependence on loans (I don’t want to think of the effects of interest rate hikes for local government borrowing costs).

So what do you see?

Dutch local governments have an aggregated budget gap of 6,1 billion euros because of the governments’ budget cuts.

– German local governments need at least 50 billion euros to execute necessary investments in e.g. infrastructure, schools, various social policy services and waste management. Because of the ‘debt brake’ of German local government the only way forward is to increase taxes – there is no other way to pay for investments.

– Finnish local governments have to find ways to replace the 1,1 billion euros in cuts of the funds that the government transfers to the local governments. This means local tax increases, budget cuts and cuts in personnel and/or services.

Thus, in this broad picture it is possible to see that local governments cannot in any way function as a counter-balance to budget cuts at the national level, i.e. investments decline. In many cases also jobs disappear and services become poorer. In the context of the tasks of local governments, this is something people feel directly – through tax increases and a decline in the level of services (think lay-offs of teachers, reduced health care services).

This way the Finnish, German and Dutch preferred policy of dealing with the Eurocrisis (“fiscal discipline”, otherwise known as “austerity”) comes in through the backdoor to worsen the economies of these supposed core countries. And this is beyond the woes of rising unemployment and bad news about Finnish and Dutch companies laying off people.

6 responses to “The Eurocrisis comes through the backdoor for Finland, the Netherlands and Germany

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