EU regional development policy in the accession countries : opportunistic decentralization, fiscal risks, and the premature death of multi-level governance

Abstract

The EU's view of decentralization in regional development policy has made a sharp U-turn since the 1990s. The earlier emphasis on the strengthening of local developmental agency in the accession countries has been replaced by renewed enthusiasim for centralization. One justification for this turn is that decentralization amplifies fiscal imbalances, encouraging excessive borrowing at the local level, thus undermining the overall fiscal stability. Drawing on the in-depth study of one such case - the rapid accumulation of municipal debt in Montenegro - this paper makes several arguments against such a simplistic view. First, the fiscal opportunism and soft budget constraints that fuelled the debt crisis have been spurred on not by decentralization, but by partial decentralization, i.e. the ambiguous division of powers between levels of government. Second, while most corrective measures proposed by international advisors focus on the behaviour of local authorities, fiscal imbalances at the subnational level are just as likely to be fomented by the opportunism of the central government. This suggests that re-centralization is unlikely to ensure fiscal consolidation, and may even be counterproductive. A more promising strategy would be to strengthen the competencies and competences of local authorities, clearly delineating their developmental responsibilities and improving their capacity to exercise them.