The pandemic is a threat to municipal and regional finances in Europe, a joint CoR-OECD survey warns

86% of cities and regions forecast rising expenditures, while 90% expect revenues to fall putting public investments at risk

The COVID-19 crisis is strongly affecting regions and cities in Europe. According to a joint CoR-OECD survey presented today during the ECON commission meeting, most local and regional authorities expect the socio-economic crisis to severely affect their finances. Over the short and medium-term horizons, they fear a "scissors effect" of increasing expenditure and falling revenues that could undermine their capacity to carry out public investments. Regions and cities have been on the front-line of addressing the pandemic and its socio-economic consequences.

Beyond the health and human tragedy, COVID-19 is having a profound effect on local and regional authorities (LRAs). To better understand it, the European Committee of the Regions (CoR) and the Organisation for Economic Cooperation and Development (OECD) carried out an online survey in June and July 2020 on The impact of COVID-19 on regional and local governments. The results were presented today during the CoR's commission for Economic policy (ECON) meeting, with the participation of Dorothée Allain-Dupré, Head of OECD Decentralisation, Subnational Finance and Public Investment Unit.

The survey confirms the severe effect of the COVID-19 crisis on regions and cities in the European Union. For 63% of respondents, the overall impact is "strong" or "very strong". Nearly half of LRAs (46%) reported that the main challenge in dealing with the crisis has been the lack of technical means and equipment, while 39% indicated the lack of financial resources. At the time of the survey, only around half of the respondents stated that coordination within LRAs or with national governments had been effective.

Some of the survey's key findings fed into the first EU-wide Annual Regional and Local Barometer, presented on the 12 October by the CoR's president Apostolos Tzitzikostas, during the 18th European Week of Regions and Cities.

Michael Murphy (IE/EPP), chair of the ECON commission and member of Tipperary County Council, said: "I welcome the publication today of the joint CoR-OECD survey. Its timely results will help to make informed policy choices to support local and regional governments with tackling the results of the pandemic on their finances. We have been at the forefront fight to tackle the effects that this unprecedented crisis has brought in front of us and as a result many local and regional governments suffered extreme financial pressures. All levels of government need to work together at this time to ensure that our recovery is sustainable, smooth and does not leave anyone behindc.

Lamia Kamal-Chaoui, Director of the OECD Centre for Entrepreneurship, SMEs, Regions and Cities said: “Local and regional authorities are at the forefront of responding to this crisis and are now acutely feeling the financial effects of their enormous efforts. They cannot continue to tackle this disjointedly and all recognised (90%) that crisis response coordination amongst all levels of government is of the utmost importance for a successful exit strategy. Governments must make a concerted effort to coordinate effectively and implement meaningful policies that will help these local and regional areas emerge from the crisis more resilient and sustainable”.

The crisis is affecting sub-national authorities' revenues, with a dangerous "scissors effect" of increasing expenditure and falling revenues. 86% of regions and cities expect a high or moderate negative impact on their expenditures, particularly in social services (64%) and social benefits (59%). Meanwhile, on the other hand, 90% forecast a revenue decrease. Tax revenue is anticipated to be the most likely affected revenue source: 83% of respondents foresee a large or moderate decrease.

At the time of the survey, about 24% of subnational governments planned to ask for new borrowing to cope with the crisis. 13% of respondents had already applied for additional EU funds and 49% were considering doing so.

The survey also shows that the COVID-19 crisis may reshape priorities in regional development policy. LRAs are calling for more focus on affordable and accessible quality basic services including health to all territories (76%), regional resilience (69%) and reducing digital divides across regions (68%).

During today's meeting, members of the ECON commission also had a first discussion on the draft opinion Action Plan on Critical Raw Materials, prepared by Isolde Ries (DE/PES), first Vice-President of the Saarland Regional Parliament, and adopted the draft opinion on the Trade Policy Review, undertaken by Willy Borsus (BE/Renew Europe), Vice-President and minister for the Economy and Trade of the Government of Wallonia.

"The EU has been a global leader in trade, but major shifts in other EU policies call for a thorough reform of our commercial policy. Furthermore, the last couple of years took a heavy toll on the international multilateralism. Today, there is a broad consensus in the ECON Commission about the need to better align the EU Trade policy with our other policies, particularly with agriculture. Trade policy review should contribute, together with the agricultural policy to the overall maintenance of employment, to securing the agricultural sector by guaranteeing its fair remuneration. Through our trade instruments we need to ensure a level playing field with our trading partners, protect our high social and environmental standards. We can only do this by actively engaging in a reform of WTO, which today looks much more possible than even a month ago", said the rapporteur Borsus. The opinion is scheduled to be adopted by the CoR's Plenary on 3-4 February 2021.

The ECON members appointed Rodi Krasta (EL/EPP), Governor of Ionian Islands Region, as rapporteur of an upcoming opinion on the Digital Services Act package.

The joint CoR-OECD online survey was carried out in June and July 2020. It received 300 responses from representatives of regional, intermediate and municipal governments in 24 Member States of the European Union (out of 480 respondents in total when adding stakeholders like business, academia, NGO, etc). Most respondents are from municipalities (59%) or from regions (26%). Some 18% come from Spain, 15% from Italy, 6% from the Slovak Republic, and 6% from Poland. There were no LRAs respondents from Denmark, Ireland and Luxembourg.

The brief note with an overview of the main findings can be consulted here in all EU languages.

The full results are available here in a more detailed OECD policy brief.

The first Regional and local Barometer of the EU can be consulted here. 

Main findings are collected in a short teaser. Data on the regional economic impact are available here.

For media enquiries on the OECD-CoR joint survey: