Abstract
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The amount of local government debts is not a major problem, the average ratio in the European countries is approximately 3.8 % of the GDP and 7.7 % of the public debt. It is not a significant macroeconomic obstacle for most of the EU member states to meet the Maastricht criteria. Only a few countries are faced with difficulties, the local government debt in Estonia 36 %, in Sweden 26 % or in Denmark 18,8 % of the public debt, while in Finland and in France it is close to 9 % of the GDP. The total local debt worth € 847.4 billion, which four-fifth belongs to six countries (France, Germany, Italy, the United Kingdom, the Netherlands and Sweden). An overwhelming proportion (64.8 %) of it is denominated in loans, since it is simpler and easier for municipalities to borrow money from the financial intermediaries, and they are able to provide suitable coverages. It can be observed, that according to the structure of the LAU 2 level, in countries with larger and more populous local governments (the United Kingdom, Denmark, the Netherlands or Sweden) the sum of the local government debt is not so high, but for a single municipality or for a local citizen, it still means a higher burden.
The purpose of the debt management is the redemption, which has many different ways, and for it is difficult to generate a satisfactory general theory. The golden principle states, that the consequences of the loss-making management of the local government are borne by the local government, and the central budget is not responsible for its obligations. Four debt management categories can be classified: changing the conditions (debt conversion, advance refunding, debt consolidation, compromise); repayment strategies (terminal annuity, snowball or stacking method, debt management agency); additional resources (surplus, sinking fund, specialised financial institutions); and finally state intervention (bailout – consolidation, limitations, financial guardian – insolvency administrator). Unfortunately, there are no good/best practices for the first two methods. For additional resources, in some Mediterranean (France, Portugal, Spain) and Scandinavian (Sweden, Denmark) countries, state or local government-owned specialised financial institutions were established. While in other European countries, unsustainable local government debt has emerged as a problem, and finally, the state pays the bailout or consolidation by overtaking the debt. Another form of state intervention, the legislator – upon the initiative of the central government – defines limitations. These restrict the fiscal autonomy of local governments, but as an ultima ratio, they can prove to be useful to gain the sustainability of the general government debt. The limitations focus on two main areas: a balanced local budget and as a well-defined reduction goal, or prescribe authorisation of the borrowing from the central government. In five countries, both of them are applied simultaneously. Finally, in most cases, only the direct and/or indirect state intervention methods were proven to be successful solutions.
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