Deficit control and fiscal austerity in the EU: time to consider the local impact

Abstract

The recent public and academic debate in Europe about the extent to which fiscal austerity can successfully reduce deficits and public debt, while not inhibiting economic growth, has primarily taken place at the level of national governments. In contrast, differences in the implementation of EU debt and deficit rules at the local level and their social and political consequences within member states have received much less attention. In this paper, we use the case of Italy to reveal the potential impact of EU fiscal austerity at the local level. To achieve this goal, the resource dependence theory is helpful both to understand intergovernmental relations and to explain much of the local impact of fiscal austerity. Our analysis shows that balancing the budget at the central level cannot neglect how a balanced budget affects local governments' financial management. In Italy, this process has led to a severe reduction in public investments at the local level and to a lack of political accountability. In terms of policy implications, this paper suggests that the EU's policy makers should consider local issues within the domestic settings more seriously and that they should not neglect critical situations.