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Research Announcement:

Moody's - Fiscal resilience of Europe’s regional and local governments varies widely amid Coronavirus crisis

26 August 2020

London, August 26, 2020 --

  • The fiscal impact of the pandemic on regional and local governments will vary between and within countries
  • The strong pre-pandemic fiscal positions of German Laender will act as a buffer, whereas Spanish regions and UK local authorities will be more exposed

The fiscal pressures on Europe's regional and local governments (RLGs) will increase because of the coronavirus crisis, but the effects will be uneven, both between and within countries, Moody's Investors Service said in a report today.

Spending pressures will be particularly high for RLGs in Germany, given responsibilities for economic development, and in Spain and the UK, given significant spending on health and social care. In addition, significant regional inequalities across the UK, combined with the disproportionate impact of the virus on more deprived areas, are likely to lead to more acute fiscal pressures on poorer UK local authorities.

"RLGs will be hit harder if they are responsible for key pandemic-related spending such as health and social care, and if they depend on locally generated revenues and vulnerable sectors such as international tourism," said Zoe Jankel, VP-Senior Analyst at Moody's. "Although national governments are giving RLGs extra cash in the current fiscal year, the main drivers of RLGs' fiscal resilience in the longer term will be their pre-pandemic fiscal strength and the flexibility of fiscal frameworks."

RLGs in the UK, Italy, and Spain have the greatest exposure to sectors vulnerable to the coronavirus-related economic contraction. These include construction, wholesale and retail trades, transport, accommodation and food services, and leisure and entertainment. We estimate an overall revenue shortfall of €77 billion for RLGs across the big five European economies in 2020-21.

We expect pandemic-related fiscal pressures to be greatest for German Laender, Spanish regions and UK local authorities. However, the strong pre-pandemic fiscal positions of Laender will act as a buffer, whereas Spanish regions and UK local authorities will be more exposed.

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Zoe Jankel
VP-Senior Analyst
Sub-Sovereign Group
Moody's Investors Service Ltd.
JOURNALISTS : 44 20 7772 5456
Client Service : 44 20 7772 5454

Sebastien Hay
Senior Vice President/Manager
Sub-Sovereign Group
Moody's Investors Service Espana, S.A.
JOURNALISTS : 44 20 7772 5456
Client Service : 44 20 7772 5454

Releasing Office :
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JOURNALISTS : 44 20 7772 5456
Client Service : 44 20 7772 5454

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