Debt Management Strategies of Local Governments in the EU

Abstract

A considerable part of public debt originates from the budgetary practices of local governments: this amounted to nearly 850 billion euros, which was 6.7% of the EU-28’s general government gross debt in 2018. This paper briefly presents the magnitude and relevance of local government debt at a national level, then it outlines the effective debt management strategies taking a multi-level governance approach. Four debt management categories can be classified: changing the conditions, repayment strategies, additional resources and, finally, state intervention. Unfortunately, there are no good/best practices for the first two methods. For additional resources, in some Mediterranean and Scandinavian countries, state or local government-owned specialised financial institutions were established, while in other European countries, the state pays the bailout or consolidation by overtaking the unsustainable local debts. In most cases, only the direct and/or indirect state intervention methods were proven to be successful solutions.