Fitch Ratings: Budgetary Stability May Limit the Principle of Self-Government 

Link to Fitch Ratings' Report(s): What Investors Want to Know: Budgetary Stability May Limit the Principle of Self-Government for LRGs

https://www.fitchratings.com/site/re/10050623

EU central governments have increased their control over local and regional governments' (LRGs) financial trajectories in recent years and this may limit the principle of self-government, Fitch Ratings says in a new report. In France, the 2018-2022 Finance Programming Bill aims at capping LRGs' current spending growth. This new legislative framework follows rules that have already been implemented in Germany ("Debt Brake"), Italy ("Balanced Budget" rule) and Spain ("Budgetary Stability Law").

This increased control for central governments mainly results from the EU fiscal consolidation rules as they take into account the general government debt or deficit, and make central governments responsible for LRGs' public finances in their respective countries. However, it contradicts the idea of self-government, which theoretically limits the state's intervention in and control over LRGs, and has constitutional protection in France, Germany, Italy and Spain.

Fitch notes that these countries revised their own constitutions between 2008 and 2012 to introduce provisions relative to the EU fiscal consolidation rules, or the objective of balanced accounts. As a result, budgetary stability became a constitutional principle, legitimising a reinforcement of the central government's control over LRGs.

The report "What Investors Want to Know: Budgetary Stability May Limit the Principle of Self-Government" is available on www.fitchratings.com or by clicking the link above.