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EUROPEAN GOVERNANCE AND PUBLIC ADMINISTRATION REFORM

IN THE BALKAN STATES

Prof. Dr. Margarita SHIVERGUEVA Jean Monnet Professor of European Economic Integration New Bulgarian University Sofia, July, 2010

The term "governance" is a very versatile one. It is used in connection with

several contemporary social sciences, especially economics and political

science.

It originates from the need of economics (as regards corporate

governance) and political science (as regards State governance) for an all-

embracing concept capable of conveying diverse meanings not covered by

the traditional term "government".

Referring to the exercise of power overall, the term "governance", in both

corporate and State contexts, embraces action by executive bodies,

assemblies (e.g. national parliaments) and judicial bodies (e.g. national

courts and tribunals).

The term "governance" corresponds to the so-called post-modern form of

economic and political organizations.

According to the political scientist Roderick Rhodes, the concept of

governance is currently used in contemporary social sciences with at least

six different meanings: the minimal State, corporate governance, new

public management, good governance, social-cybernetic systems and self-

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organized networks 1( R. Rhodes, “The new governance: governing without

government” (1996), in Political Studies, Vol. 44, page 652).

The European Commission established its own concept of governance in

the White Paper on European Governance, in which the term "European

governance" refers to the rules, processes and behaviour that affect the

way in which powers are exercised at European level, particularly as

regards openness, participation, accountability, effectiveness and

coherence. These five "principles of good governance" reinforce those of

subsidiarity and proportionality.

European governance is about the principles and tools for decision-making

within the context of the multiple layers of players and decision-makers in

Europe — from the European Community, through the Member States, to

regional and local authorities and private parties. The coexistence and

intertwining of several governance levels clearly constitute unprecedented

challenges.

Five principles underpin Good European Governance. They underpin

democracy and the rule of law in the Member States, but they apply to all

levels of government – global, European, national, regional and local.

�� Openness. The Institutions should work in a more open manner. Together

with the Member States, they should actively communicate about what the EU

does and the decisions it takes. They should use language that is accessible and

understandable for the general public. This is of particular importance in order to

improve the confidence in complex institutions.

� �Participation. The quality, relevance and effectiveness of EU policies

depend on ensuring wide participation throughout the policy chain – from

conception to implementation. Improved participation is likely to create more

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confidence in the end result and in the Institutions who deliver policies.

Participation crucially depends on central governments following an inclusive

approach when developing and implementing EU policies.

� �Accountability. Roles in the legislative and executive processes need to be

clearer. Each of the EU Institutions must explain and take responsibility for what

it does in Europe. But there is also a need for greater clarity and responsibility

from Member States and all those involved in developing and implementing EU

policy at whatever level.

�� Effectiveness. Policies must be effective and timely, delivering what is

needed on the basis of clear objectives, an evaluation of future impact and,

where available, of past experience. Effectiveness also depends on

implementing EU policies in a proportionate manner and on taking decisions at

the most appropriate level.

� Coherence. Policies and action must be coherent and easily understood. The

need for coherence in the Union is increasing: the range of tasks has grown;

enlargement increased diversity; challenges such as climate and demographic

change cross the boundaries of the sectoral policies on which the Union has

been built; regional and local authorities are increasingly involved in EU policies.

Coherence requires political leadership and a strong responsibility on the part of

the Institutions to ensure a consistent approach within a complex system.

Each principle is important by itself. But they cannot be achieved through

separate actions. Policies can no longer be effective unless they are prepared,

implemented and enforced in a more inclusive way.

The application of these five principles reinforces those of

�� proportionality and subsidiarity. From the conception of policy to its

implementation, the choice of the level at which action is taken (from EU to local)

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and the selection of the instruments used must be in proportion to the objectives

pursued. This means that before launching an initiative, it is essential to check

systematically:

(a) if public action is really necessary,

(b) if the European level is the most appropriate one, and

(c) if the measures chosen are proportionate to those objectives.

The Union is changing. Its agenda extends to foreign policy and defence

migration and the fight against crime. It expanded to include new members. It will

no longer be judged solely by its ability to remove barriers to trade or to complete

an internal market; its legitimacy today depends on involvement and

participation. This means that the linear model of dispensing policies from above

must be replaced by a virtuous circle, based on feedback, networks and

involvement from policy creation to implementation at all levels.

Five political principles - openness, participation, accountability,

effectiveness and coherence underpin the European governance. They should

guide the Union in organizing the way it works and in pushing reforms forward

within the current Treaty, but they also provide markers for the debate on the

future of Europe. Together they allow better use of the principles of

proportionality and subsidiarity.

Building on these principles:

• · Structure the EU’s relationship with civil society. A code of conduct

for consultation will identify responsibilities and improve accountability of

all partners. It will enhance dialogue, and contribute to the openness of

organized civil society.

• · Make greater use of the skills and practical experience of regional

and local actors. In the first place, this is an issue for national authorities

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according to their national constitutional and administrative arrangements.

At the same time the Union should make fuller use of the existing potential

for flexibility to the ways European policies are applied on the ground.

• ·Build public confidence in the way policy makers use expert advice.

The EU’s multi-disciplinary expert system will be opened up to greater

public scrutiny and debate. This is needed to manage the challenges,

risks and ethical questions thrown up by science and technology.

• · Support the clearer definition of EU policy objectives and improve

the effectiveness of EU policies by combining formal legislation with

non-legislative and self-regulatory solutions to better achieve those

objectives.

By adapting governance at home, the Union will be better placed to

contribute to new forms of global governance. Policies and global

institutions must respond to popular concerns.

Main lessons of the European governance:

• Improving bottom-up involvement in EU policy shaping and

implementation. The response confirms that more openness and better

consultation are in both the immediate and the long-term interest of the EU, not

only for providing better policies but also for more efficient implementation.

Efficient transparency requires a proactive approach and cannot be limited to

access to documents. Involvement in policy- shaping should include national and

sub-national authorities as well as a broad range of non-governmental interested

third parties. The public response also confirms the need to review the role of the

Committee of the Regions and the European Economic and Social Committee in

terms of earlier involvement in Commission deliberations, better representation of

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sub-national authorities and civil society, and a broader proactive dialogue with

constituencies beyond specific consultations.

• Widening the choice of instruments to respond to new governance

challenges. The Commission enjoys support in its belief that there is a need for

a wider choice and more flexible policy tools within, and in addition to, traditional

legislation. The instruments available to the Community should be more

conducive to better implementation.

A better policy and regulatory framework thus establishes the conditions under

which legislative, as well as alternative approaches such as co-regulation or the

open method of coordination can be most appropriately and most effectively

used.

The choice of instruments should also build on a stronger factual base with ex-

ante impact assessments incorporating the evaluation of economic,

environmental and social consequences, a structured approach to the collection

and use of expertise, as well as consultation of the public and stakeholders, all

subject to transparency to allow public scrutiny.

• More focused European institutions with clearer responsibilities. This calls

for a clearer distinction between legislative and executive functions, and for

clarification and confirmation of the Commission’s executive functions vis-à-vis

Member States.

WHAT FORMS SHOULD MULTI - LEVEL

GOVERNANCE HAVE ?

Over recent decades, political authority and powers have become increasingly

dispersed in the European Union. European integration has deepened

considerably since the Single European Act in 1987. Simultaneously, there has

been devolution and a strengthening of local and regional democracy in a

number of Member States and candidate countries.

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Furthermore, many countries have liberalized service delivery and established

specific agencies to provide public services or contribute to policy

implementation. The complexity of the demands made on the public sector

underlies this trend of increased fragmentation.

The growing importance of “multi-level governance” and of the sub-national level

does not herald the decline of the nation-state. Important powers in redistribution

(welfare state) and macro-economic policy have remained firmly at national level

in all Member States. Fiscal policy, too, remains mostly a national matter.

While leading to complexity for the public sector, the fragmentation of powers

also offers new opportunities. The growing numbers of elected leaders at

regional and local level offer a source of democratic legitimacy. Regionalization

has often also enhanced political/administrative power at the intermediate level of

administrations.

The widely accepted view that decision-making processes in the Union should be

organized hierarchically must be dramatically revised. There must be a shift

away from the idea that only the European Commission and the State propose,

and the regional and local authorities dispose.

The sub-national, national and European levels must therefore be brought

together on an equal footing before decisions are taken, and not after. It is

therefore necessary to organize a permanent, and not just occasional, debate.

Cooperation is therefore needed as the working method for promoting links

between the various actors and establishing multi-level governance. The political

preconditions are: political will, information, the capacity and hence appropriate

training of regional and local administrations, and culture.

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Local and regional authorities are public authorities elected by universal

suffrage and democratically accountable for their political decisions and acts to

the citizens, by whom they are held to account, particularly at election time.

As the Council of European Municipalities and Regions (CEMR) rightly

indicated in its contribution to the White Paper, “European governance concerns

the European Union, but is not confined to the relationship between this body

and governmental and nongovernmental actors. It includes the whole network of

relationships between spheres of government, within and between the Member

States”.

But the term “governance” is somewhat vague. It implies, for all state or

other players, an overall framework of relationships and roles based on

precise rules, which may not, in any circumstances, lead to the only

legitimate procedures – i.e. democratic procedures – being circumvented.

Therefore, any system for creating a network of local and regional players with

the aim of better interlinking their actions for reasons of effectiveness,

transparency and legibility, bases this multi-level governance on democratic

forms of government.

At the same time, account should be taken of the fact that hierarchical, clear-cut

decision-making processes no longer work in complex, constantly changing

societies like ours.

Article 1 of the Treaty on European Union states that “this Treaty marks a

new state in the process of creating an ever closer union among the peoples of

Europe, in which decisions are taken as openly as possible and as closely as

possible to the citizen”. This is reflected in the preamble, which refers to a

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Europe in which “decisions are taken as closely as possible to the citizen in

accordance with the principle of subsidiarity”.

Paradoxically, however, in the Treaty, which de facto covers local and regional

authorities’ more specific competences, there is no reference to the principle of

proximity, and the principle of subsidiarity is limited, in Article 5, to relations

between the Community and the Member States.

Moreover, there is no detailed definition of subsidiarity in the Treaties, nor in the

protocol on subsidiarity and proportionality, the texts providing simply for the

application of the principle between the Community and the Member States.

There is thus clearly a contradiction:

–the European Union considers that decisions have to be taken at the closest

possible level to the citizen;

–but it makes no provision for resources to implement this principle, thus doing

nothing to facilitate transparency.

Consequently, the debate on multi-level governance is becoming difficult and

skewed in the sense that the participants choose the interpretation of subsidiarity

which favours them, often leading to a dialogue of the deaf.

Similarly, it must be noted that the decentralisation processes now being

carried out in the majority of Member States, the introduction of the principle

of subsidiarity at Union level and the influence of European regional policy with

partnership as a method of decision-making and management, are some of the

changes responding to increasing demands on public policies, from both sub-

state-level public players and civil society.

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Greater accessibility, effectiveness, transparency and democracy of the

Community project and European issues in general can therefore be achieved

through a greater involvement of regional and local authorities in Community

policies with a strong territorial impact. This would improve their perception by

the citizens.

As the need grows for transnational and interregional development along

with the European cooperation which must support it, many of the practical

difficulties encountered arise from the diversity of the administrative systems, the

differences in competences of the regions and a lack of clarity on the role of the

regions and local authorities in implementing European policies with an impact

on the development of local and regional areas. These blockages and confusions

will not simply fade away as the Union and its policies become increasingly

integrated.

What place does the regional level occupy in European systems

of government?

Incorporation of the regional level in the various national systems

UNITARY STATES DECENTRALISED

UNITARY STATES

REGIONALISED

UNITARY STATES

FEDERAL STATES

Only local level

infranational

hierarchy.

Regional levels may

exist

for administrative

reasons but are

subordinate to the

central state

States which have

undertaken a

process of

reform to establish

elected regional

authorities above

the

local level

Characterised by

the

existence of elected

regional

governments

with constitutional

status, legislative

powers

and a high degree

of autonomy

Power-sharing

guaranteed by the

constitution

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Greece

Ireland

Luxembourg

Portugal (2

autonomous

regions),

Bulgaria

France (26 regions)

Finland (1

autonomous

region)

the Netherlands

Sweden (4

experimental

regions)

Denmark

United Kingdom

(devolution)

Italy (20 regions)

Spain (17

autonomous

communities)

Germany (16

Länder)

Austria (10 Länder)

Belgium(3 regions,

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communities)

Increasing interdependence and Europeanization of public players

The economic crisis at the beginning of the 1970s revealed a state regulatory

function in crisis:

– on the one hand, the national/central level had very often become

too large-scale to ensure the differentiated, appropriate regulation

of societal problems. New multisectoral problems had increasingly

transgressed the functional specialization that had been

established within the political/administrative system;

– on the other hand, the state had become too small-scale a

regulator, less and less able on its own to deal with the increased

socio-economic interdependence connected with globalization and

the liberalization of world trade. Public intervention was increasingly

inadequate to deal with the real origins of many problems

(environment, research, the world market, communications,

macroeconomic convergence, conditions of employment,

conditions of competition, regional rebalancing, etc.).

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Faced with this dilemma, the European States embarked on a simultaneous

“double differentiation” of political systems:

– a process of increased territorialisation of public intervention (decentralization,

delegation of operational responsibility and clearer division of governmental

functions between the different organizations and/or administrative levels);

- a process of increased Europeanization of national policies.

The result of these major trends has been that all public action is now conceived

and implemented in the context of polycentric, highly complex networks of actors

that are characterized by considerable interorganisational dependency and

consequently create a growing need for coordination between the players

involved.

In practice, governments underestimate the resources needed to manage

international coordination – especially European coordination – of policies, and

its impact on all levels of territorial actors – a paradoxical situation in view of the

broad concerns about national sovereignty.

Growing Europeanization of national public policies

The gradual increase in the number of areas covered by Community Law over

the last fifteen years has meant increasing cooperation between the Community

administration and the national administrations at various levels.

However, one of the European Union’s specific characteristics is that its policy

formulation process is not a simple matter of negotiations leading to a definitive,

once-and-for-all decision. Rather, the formulation and revision of European

policies is an ongoing process.

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European integration has thus led to an increasing “Europeanization” of national

public policies:

– on the one hand, there is an inherent European dimension in practically every

national policy, which also enlarges the range of players who have an influence

on policy definition and implementation;

– on the other hand, the implementation of Community policies depends largely

on the management activity of national administrations, particularly as a result of

the Community administration’s lack of executive functions.

While the intensification of interinstitutional relations between Community bodies

and the Member States has become increasingly specialized and hence sector-

specific, other factors have led to greater account being taken of local and

regional aspects.

Indeed, faced with the scarcity of available resources (space, environment,

funding, administrative staff) and increased competition between regions, we are

witnessing a fundamental reorientation of regional and local development

strategies towards diversification, a better use of synergies to develop local

potential, and more sustainable development.

That is why the challenge, which has already been taken up in the form of the

development of the ESDP and the recommendations for its implementation,

consists of putting a coherent regional and local dimension back into the complex

procedures and processes caused by the Europeanization of public policies.

Implementation of Community policies: multi-level governance

The way the European political/administrative system works is particularly

complex because it incorporates not only the institutions of the European Union,

but also all the political/administrative systems of the Member States.

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All the phases (formulation, implementation, monitoring) are characterized by

continuous dialogue between the representatives of the Community institutions

and those of the Member States, marked by the trade-off between national and

Community interests.

In spite of the vertical sharing of responsibilities in implementing Union policies,

observers note an increasingly glaring “management deficit” at Community

administration level.

The origin of this deficit is often the fact that the States make symbolic

undertakings and grant new legal powers to the Community without providing for

the management capacity necessary to implement them.

As for the Community approach in matters of coordination, especially by the

Commission, it is extremely weak and has no practical effect, because the

political/administrative culture of the Community bodies is essentially sectoral

rather than having overall coherence.

INSTRUMENTS AND PROCEDURES FOR COORDINATING

THE MEMBER STATES’ TERRITORIAL DEVELOPMENT

POLICIES

In practice, the Member States have put in place formal coordination structures

and procedures in line with their institutional and territorial organization or their

administrative tradition. The aim of these structures is better spatial coherence of

public policies.

· At national level, certain countries have formally set up interministerial

committees or other specific administrative structures within the government with

the task of promoting intersectoral coordination. Examples of such structures

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are the “Rijksplanologische Commissie” in the Netherlands, the “DIRECCÃO-

GERAL DO ORDENAMENTO DO TERRITÓRIO E DESENVOLVIMENTO

URBANO” (DGOTDU) in Portugal, and the “Comité interministériel

d’aménagement et de développement du territoire” (CIADT) and “Comité

interministériel à la ville et au développement social urbain” (CIV) in France. In

theory, the Member States which draw up spatial plans at national level or have

an explicit territorial policy should also be able to achieve a high degree of

intersectoral coordination. One of the main reasons for this is that these

documents, which are generally subject to a formal adoption procedure, normally

contain an integrated development perspective for the whole of the country and

priorities for public investment (infrastructures and other public investment). In

this context, a number of countries have thematic territorial plans which are, in

fact, the translation into spatial terms of certain sectoral policies and are drawn

up jointly by the spatial planning authorities and the authorities responsible for

the sectoral policy concerned. Examples of these are the “Structuurschemas” of

the Netherlands, the “Schémas de services collectifs” in France or the

“Fachpläne” in Germany.

· At regional level, many Member States have bodies or procedures which

attempt to coordinate territorial development both, horizontally or vertically. It is at

the regional level that there has been an increase and/or significant modification

of the intersectoral mechanisms and coordination procedures over the last few

years. However, an important condition for this is the existence of a sufficient

degree of decentralization of responsibilities, which is the case for many member

countries. In a number of countries, this task is the responsibility of devolved

state bodies: in Portugal the task is carried out (in part) by the Regional

Coordination Committees (CCRs) and in Greece by the Secretaries-General of

the regions. In France, the regional prefectures play a non-negligible role in the

territorial coordination of state policies in the region concerned, but the Regional

Councils coordinate their own policies. The problem is thus more a problem of

coordination between the policies of the State and those of the region applying to

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the same territory. Strategic plans at regional level may play an important role in

vertical coordination within the regions, because they have the function of

“guiding” the activities of the lower administrative echelons such as provinces,

departements, cities and municipalities.

· At local level the mechanisms of intersectoral coordination of policies are less

formalized. Local planning instruments must be in conformity with the plans of a

higher administrative level and often depend, in their implementation, on other

specialized agencies.

The various national examples suggest that the success of any attempt to ensure

spatial consistency between public policies is mainly dependent on the following

factors:

– the existence of a basic agreement established at the political level on the

major objectives;

- the institutional system of territorial policy within the political/administrative

system and the quality of procedures set up to settle conflicts or establish a

consensus;

– the availability of political and financial resources to organize communication

and put in place processes to seek consensus and compromise.

This shows that major progress is still to be achieved in many Member States in

the territorial coherence of public policies. In some, the political position of the

central bodies for spatial planning is relatively weak compared to that of other

sectoral ministries. However, vertical relations between the various levels are not

always very harmonious, so that the principle of “reciprocity” (bottom-up and top-

down), understood as a process allowing policy priorities and their territorial

impact to be gradually and continually harmonized, is not generally a friction-free

process.

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COOPERATION AND COORDINATION OF NATIONAL POLICIES

As the Union embarks on a phase of “active” integration, the practical need for

convergence between the Member States is making itself felt afresh. And this

calls for closer harmonization of legislation or new forms of collective action on

top of the “passive” integration, focused on eliminating internal barriers in the

Community that has long been the mainstay of its success.

What is known as the “open method of coordination” is one such new form of

collective action to foster compatibility, consistency or convergence between

Member States’ public policies. Covering a variety of arrangements, it stands half

way between pure legislative integration and straightforward cooperation.

Recent experience has shown that the instruments it offers can be effective in

furthering European integration.

European integration involves a complex mix of policy-making methods,

instruments and institutions. Its development, however, is dictated not by a

ready-made blueprint but by a dynamic process of competition between tools for

integration all tending towards the Community method. This method, with the

underlying interplay between the institutions, is what makes the European model

of integration unique.

The competition between the various tools is reflected in the sharp distinction

between “regulatory” policies, which are typically rather technical and highly

efficient (e.g. market regulation), and “distributive” policies, which are traditionally

the preserve of national and subnational authorities. It is also reflected in the shift

from “passive integration” (Scharpf, 1996), where the principal aim is to eliminate

barriers to the establishment of the single market, to “active integration”, where a

combination of different instruments is deployed, harmonization of national

legislation being but one of many. This shift signals the Community’s entry into

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fields of activity that are far more political and go closer to the heart of national

sovereignty.

Here the place of common rules may be taken by other, more flexible

instruments that give precedence to cooperation or coordination (depending on

the objectives, the nature of the area in question and its “European maturity”).

The aim is to secure a desired degree of convergence or compatibility between

national policies to implement agreed objectives on matters of common concern.

In other words, “[the] success [of the political construction of Europe] has been

dependent on the ability to combine coherence with respect for diversity and

efficiency with democratic legitimacy. This entails using different political

methods depending on policies and the various institutional processes. For good

reasons, various methods have been worked out which are placed somewhere

between pure integration and straightforward cooperation (Council of the

European Union, The ongoing experience of the open coordination method, Note

of the Portuguese Presidency of the Union, 9088/00, 13 June 2000, p. 4.).

The coordination of national policies, now known as the “open coordination

method”, occupies an intermediate place between intergovernmental cooperation

and the adoption of common rules. Recent experience shows that it can offer

valuable instruments for integration.

The current forms of cooperation and policy coordination among the EU Member

States comprise a variety of instruments designed to foster compatibility,

consistency or convergence of national choices with a view to deeper

European integration.

Compatibility means making sure that Member States’ own policy decisions do

not seriously harm other Member States or jeopardise the achievement of other

European goals. To take tax and social security, for instance, the balance

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between the requirements of the single market (freedom of movement of goods,

services, capital and persons) and the diversity of national public revenue

systems is very delicate. It can be upset by “harmful” tax competition, which

therefore has to be curbed. In areas where unanimity is required, it can be

difficult to secure the adoption of Community directives. Here, cooperation

between the Member States can help to ensure compatibility between national

choices by using other tools besides legal instruments. These combinations

reflect the wide range of objectives and legal bases available.

Consistency involves the additional dimension of strengthening and mutually

boosting the effectiveness of the national policies concerned, going beyond a

simple striving for compatibility. Economic policy is one example. Here,

consistency between national systems is a corollary of monetary union and has

to be ensured because of the impact that national economic policies can have on

the rest of the Union when there is a single monetary policy (See: Pedro Solbes,

“Euro: coordonnons nos politiques économiques”, in Les Echoes, 18.03.01).

The goal of consistency is enshrined in the Treaty in the formula: “Member

States shall regard their economic policies as a matter of common concern”

(Article 99 Treaty establishing the European Community). It is pursued in

particular through the adoption of an economic coordination system, the broad

economic policy guidelines (BEPG), based primarily on the principle of

periodic definition of objectives and “peer review”.

The concept of consistency of national policies therefore includes their

coordination at Community level towards objectives defined by mutual

agreement. Closer national policy coordination can thus set in motion

convergence towards those objectives. The countries taking part do not

necessarily converge towards a single model or to common methods: rather,

they are striving towards identical goals, but are free use by different procedures

and means to achieve them.

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In principle, some subject areas require a single rule implemented uniformly

throughout the Community: here, national policy convergence is not an accurate

description, since separate national policies disappear and are fused under a

single rule. Examples are the prohibition of national customs duties and the

adoption of a Common Customs Tariff, or monetary policy, which is decided

solely by the European Central Bank (ECB). The same is true in areas where the

Community enjoys exclusive competence and has exercised those powers. The

common rules adopted by the Community under the common commercial policy

(goods) or the common policies on transport, agriculture and fisheries deprive the

Member States of the right to legislate and make agreements with non-member

countries on matters governed by such rules.

When we speak of new forms of policy coordination, we are thinking, then, of the

fields covered by the open coordination method (OCM) defined by the Lisbon

European Council.

Closely modelled on employment policy coordination, the new method offers “a

means of spreading best practice and achieving greater convergence towards

the main EU goals. This method, which is designed to help Member States

progressively develop their own policies, involves: fixing guidelines for the Union

combined with specific timetables for achieving the goals which they set in the

short, medium and long terms; establishing, where appropriate, quantitative and

qualitative indicators and benchmarks against the best in the world and tailored

to the needs of different Member States and sectors as a means of comparing

good practice; translating these European guidelines into national and regional

policies by setting specific targets and adopting measures, taking into account

national and regional differences; periodic monitoring, evaluation and peer

review” (Articles 126 and 128 EC). The OCM is a flexible instrument, leaving it to

the Member States to implement coordination defined at European level and so

respecting the diversity of national systems while introducing some degree of

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continuity between Community and national arrangements. That is why it is

termed the “open” method. Moreover, it is implemented differently in different

fields: hence the tendency to speak of open coordination methods, in the plural.

The administration cannot function effectively without a clear vision on the

institutional building of the administrative structures in the Balkan States. At this

stage the main priority of the reform in the administration is its optimization at

central, regional and municipal levels through modernization and organizational

development. The creation of new administrations, the restructuring of existing

ones, the closing down of ineffective structures and units, their optimization, as

well as their organizational development are not aimed at achieving a larger, but

a better organized, more effective and politically neutral administration.

Reforming the public sector in the Balkan States is a complex matter. EU

member and non-member countries are facing increasing challenges to

make change happen. Adopting innovative reforms to respond to social

demands is no longer enough; governments need to accompany their

reform proposals with strategies to manage change. Managing change

determines, to a large extent, the success or failure of a reform initiative.

The principal focus of change is the administrative culture as the traditional

values, priorities, routines, and above all mindsets in public organizations are

under pressure. The extent of change, however, remains unclear.

The present paper concludes that although the notion of receptivity provides an

approach to analyze and explain change in government, it lacks explanatory

power to determine whether change has actually happened. Furthermore, it

states that the European Union countries are underestimating the importance of

managing change when designing and implementing policy reforms in the Balkan

States.

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That is because the instruments used to manage change are more a casuistic

characteristic of policy formulation than a conscious strategy to deal with the

effects produced by the implementation of reform proposals. There is no

evidence of a coherent strategy to manage change that accompanies the reform

efforts.

Introducing change into the public sector is highly controversial and complex as it

affects, directly or indirectly, the interests and way of living of members of

society. Public and private organizations cannot avoid changing, if they are to

survive in a more globalised, highly interdependent and fast changing world.

Public sector reforms are complex, in many cases unpopular, contested, fraught

with risk, and require long time to produce results and prove their benefits. This

fact begs the question of how to maintain legitimacy, increase support, sustain

the impetus for reform and avoid continuing losing people’s trust while

introducing controversial but necessary reform initiatives. Effective management-

of-change techniques should contribute to keep up the momentum for reform

while overcoming any opposition to change.

Factors leading to resistance to change

� Lack of coherence of the reform and consistency with other reform initiatives

may produce confusion and generate opposition.

� Fear and uncertainty of new work environment generate opposition to a reform

initiative.

�The negative implications perceived by individuals and groups may trigger

resistance to change.

23

�The complexity of a reform initiative may result in opposition, if it is not clearly

explained by leaders and managers and understood by all.

� Imposition of change may generate opposition towards the reform initiative.

�Change may be perceived differently by people at different levels of the

organization.

�The reduction of the importance of the human factor in the process of change

� Lack of information and communication may increase uncertainty and distrust

causing resistance to change.

Administrative simplification

The challenge for governments is, on one hand, to balance their need to use

administrative procedures as a source of information and as a tool for

implementing public policies, and on the other, to minimize the interferences

implied by these requirements in terms of the resources demanded to comply

with them.

Administrative simplification is currently high on the political and policy agenda in

most countries. It is one of the most effective methods for fighting against

regulatory complexity and inflation. Governments are facing increasing and

changing challenges and, in response, regulatory activities multiply red tape.

There are many advantages in cutting red tape and maintaining administrative

requirements better adapted to real needs and circumstances.

Three key benefits should be underlined:

24

i) innovation can be encouraged through efficiency gains,

ii) entrepreneurship can be favoured by fewer administrative burdens,

releasing resources otherwise devoted to red tape, and

iii) better public governance can be attained with more effective tools

available for policy implementation.

Visibility of cutting red tape policies has also been of support when launching

reform. Administrative simplification can be very appealing politically as

governments can gain constituency by reducing administrative costs to

businesses and citizens, thus promoting a proactive and business enabling

environment.

Challenges ahead

Defining and identifying challenges for administrative simplification is not an easy

task since they link to broader policy issues that are difficult to tackle

simultaneously. The main objectives in cutting red tape should be to improve the

efficiency of administrative processes needed to undertake economic and social

activities, provide a co-operative relation between public administration and

citizens, and minimize cost interferences to businesses and citizens. Some of the

key challenges to meet these objectives are:

Build a constituency for administrative simplification. Without support from

a network of partners at a high political level, but also at a technical level, reforms

might not attain expected goals. This support should not be taken for granted and

needs to be gained.

�Effective and efficient use of capacities and resources available

Consideration of opportunity/cost and benefit/cost analysis of reforms are needed

to rank priorities.

25

� Manage institutional and organizational needs. Administrative simplification

is not embedded in the mandate of all government institutions; it needs to be

pushed forward in a co-ordinated manner.

The establishment of administrative simplification units inside government and

outside taskforces can help with co-ordination and keeping up the path of

reforms.

� Ensure sound multilevel governance. Uncoordinated government efforts at

different levels of government might multiply the adverse effects of red tape. The

approach should take into account that even though administrative requirements

emanate from different institutions, the end user should be able to address all

responsibilities using a common information source.

� Involve all stakeholders fairly in administrative simplification strategies.

All relevant stakeholders and affected parties should be able to be involved in the

administrative simplification reforms. This can also contribute to gaining

constituency.

� Develop and improve measurement and evaluation mechanisms. The

relevance of this challenge is two-folded: first, the strategies already in place

need to be evaluated to ensure that their objectives are met, and second, there is

still a lack of information on how red tape strategies impact and benefit public

interest.

Administrative simplification strategies

Simplification strategies in Balkan States are designed to improve the efficiency

of transactions with citizens and business without compromising regulatory

benefits. These strategies are complex schemes for administrative simplification

efforts and should have a long-term and “whole-of government” perspective.

They need to be well thought through and be clearly defined by

26

establishing measurable objectives, resources, timing, outcomes, and

monitoring and evaluation mechanisms. Strategies or program often prioritize

specific sectors or policy areas, but as achievements come, other areas also

start to undertake reform. The trend should lead towards a comprehensive

approach to reduce the risk of creating administrative gaps between

different sectors of activity or government entities.

Strategies normally follow sequential phases: planning, consultation, design,

implementation and evaluation:

� Planning. This is the first part of the process to set up a strategy for

administrative simplification. Planning requires a preliminary identification of

policy objectives, resources, capacities and tools to be used. During this phase,

government officials have to sketch the way they want to achieve objectives in

the most efficient manner (at lowest cost), and the most effective way (achieving

defined objectives).

� Consultation. It is necessary to consult with stakeholders to gain political

support. This phase of the project is essential to create constituencies for the

strategies to be implemented. Consultation is important not only to echo the

concerns expressed by stakeholders, who should be reflected in the strategy per

se, but also to make the strategy relevant and viable in the medium and long

term. Political support is fundamental to create momentum for reform and

sequence the reform in the most appropriate way.

� Design .In this phase objectives, timing and resource allocation are

established. The design phase should include variables that can be measured

over time in relation to specific outcomes. The design phase provides an

opportunity to indicate clearly how policy objectives will be achieved, assessing

the different variables that can interfere during the subsequent phases of the

27

process. The tools to be used for simplification have to be integrated in the

different stages of the project.

� Implementation. The tools for simplification are put into practice. It is time to

review simplification tools focused on administrative provisions, improving

guidelines for administrative regulation, communication mechanisms, incentives,

etc.

� Monitoring and evaluation. This is an important element of the process that

should be planned right from the inception of the project in order to know,

whether the policy strategy really contributes to the achievement of the desired

objectives. Progress monitoring can contribute to assess how institutions

participating in the project perform and could be able to improve the simplification

strategy implementation. Techniques to monitor and evaluate include the use of

quantitative and qualitative tools to measure administrative burden reduction.

Some of the key elements of a simplification strategy can be gathered in

three areas: simplification targets, institutional framework and tools

available.

1. Targeting simplification efforts

A complete strategy requires defined objectives in qualitative and quantitative

terms within a given timeframe, to avoid ideas that are too broad as well as

imprecise declarations of intentions. For instance, the 25% reduction target

proposed by different European countries to be obtained in a determined period

of time is a solid target that helped move reform ahead. Defining priorities can be

complemented by identifying targeted groups and the impacts of red tape on

these. For instance, most of the administrative simplification efforts have

concentrated on business and, in particular, small and medium enterprises.

Targeted groups can also be citizens and the public administration itself.

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2. Definition of institutions, responsibilities and co-ordination

mechanisms

A consolidated strategy for administrative simplification includes an institutional

framework. Different government departments and other outside stakeholders

share responsibilities to design, implement, supervise and measure outcomes of

the strategy.

3. Tools to develop and implement the strategy

Experience shows that there are different tools to be used in isolation or in

combination. The selection of these tools is determined by political and

administrative issues and not all of them are effectively applicable everywhere.

These tools can be included in five categories: better regulation, organizational

improvements, ICT implementation, better information and enhanced coherence

among administrative requests.

Elements promoting administrative simplification strategies in

EU Member States

1 Domestic: reflecting interests and pressures from business and civil

society

Administrative simplification strategies respond to real domestic concerns.

Simplification of citizens` lives and business activities has become a common

demand in many countries as the complexity of the government` s procedures

increases and regulations are difficult to understand and to comply with.

Complaints from businesses are widespread and they reflect the workload that a

29

burdensome regulatory system can impose on them. Citizens can also be

affected by paperwork and regulations that are not clear, transparent and

effective.

In most EU-27 countries businesses and citizens (to a lesser extent) have played

an important role in advocating and lobbying to simplify administrative

procedures. This has been one of the main domestic drivers to introduce and

implement simplification strategies by governments. The test governments have

to pass is related to the effectiveness of such strategies and the mechanism

they can set up to establish and foster fluid consultation and communication with

stakeholders.

Administrative simplification program are not free from political pressure but a

well designed and implemented approach will resist being influenced by political

interests. The advantage of launching simplification strategies that bring specific

results is that the benefits cannot be reasonably opposed by anybody. The

difficulty is to sustain these benefits over time and to integrate them in broader

program that improve the quality of the new regulation that accumulates over

time.

2 External: making national economies more competitive

One of the key elements that count for competitiveness is the degree to which

the regulatory environment facilitates economic activity, attracts investment,

increases trade, creates jobs and promotes competition. A common element in

this list is the importance to keep administrative requirements to a minimum

without imposing charges and barriers that only hamper and discourage

entrepreneurship and to maintain a sound regulatory framework that is clear,

transparent and understandable.

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All Balkan countries face external pressure to introduce and implement strategies

for administrative simplification. This pressure refers not only to those directly

linked to the globalization of the economic activity but also to the need to

compete for investment and capital. Being ranked in international benchmarkings

also creates incentives to eliminate burdens and reduce red tape. In many

Balkan countries donors have also played an important role in promoting

administrative simplification conditioning financial support on targeted measures

in that domain.

Barriers to administrative simplification strategies in Balkan

States

Strategic barriers

� The lack of high political support is probably the first issue practitioners

think about when they are asked about barriers.

� Resistance to change is related to the first barrier, though this resistance

refers mainly to lower levels of government, and even outsiders to government.

In these instances resistance can come either from technical and operational

levels within the administration or from the general public. This resistance is

usually related to lack of understanding of the reform proposals, a perceived

threat to traditional administrative culture and vested interests.

Reform, in general, meets with resistance due to incertitude and potential

privilege losses.

� Lack of a comprehensive whole-of-government administrative

simplification strategy makes change difficult. Limited program bring progress

but leave gaps behind. A broad strategy can help co-ordinate different reform

31

program focused on concrete policy areas or sectors to reach common far-

reaching goals. An overarching strategy can also facilitate capacity building and

transmission of know-how among government departments. This barrier is

greater, if an effective communication strategy is also lacking.

� Limited resource availability is a burden affecting management in general.

Priorities compete for resource allocation also in public governance. Cutting red

tape might be an expensive policy option, and its benefits, though demonstrable,

are difficult to collect since they are translated into efficiency gains throughout the

economy. Political support and thus sufficient resources are needed to obtain

and bring these benefits to society. This limitation is usually greater in developing

and emerging economies. Furthermore, resource availability might be

conditioned to aid management cycles, meaning that ambitious program for

reform run out of steam despite efforts are starting to harvest results if funding

becomes unavailable, making reforms unsustainable for national and local

governments.

� Lack of co-ordination in an administrative simplification strategy obstructs

coherence, multiplies costs, and creates gaps between policy areas and sectors.

Unclear division of responsibilities, ineffective communication and lack of co-

operation mechanisms in place, and conflicting powers are some of the reasons

behind this particular obstacle. This is especially relevant in complex institutional

contexts.

Technical barriers

� Legal complexity reduces compliance and enforcement capacity. This is

important because laws and regulations determine and shape the administrative

environment. Legal complexity might result from deficient legal review

mechanisms to improve and adapt to societal, technological and economic

32

changes. This problem might be larger in contexts with different legal heritage.

Legal complexity might become an unsolvable challenge, if regulatory

management frameworks are too burdensome and resistant to change. Laws

may need to be changed as part of the simplification process.

� Lack of human skills and capacities. Administrative simplification is not

inherent to any public administration therefore special skills and capacities need

to be built upon. Often there is a mismatch between the needs of public

administration and available training facilities and program. Specific training

capacities should be developed. Having an insufficiently skilled and ill-equipped

team working on administrative simplification will likely prevent governments from

meeting ambitious expectations.

� Lack of understanding of the use of administrative simplification

generally inhibits participation and compliance by the parties involves.

Administrative simplification is a difficult-to- understand and restrictive term. It is

usually confused with the improvement of the public administration structure,

overlooking the cutting red tape aspect. This lack of understanding also limits the

possibility of building constituency and a sense of ownership among relevant

stakeholders potentially affected by the strategy.

� Lack of information and data. Blindly designed reforms undertaken without a

comprehensive understanding of reality and its changes are generally doomed to

fail and perhaps make things worse. In some cases information is available, but

effective data-collection or sharing mechanisms might not be in place. Economic

data is generally relevant for administrative simplification strategies, but

information such as a complete assessment of government requirements, the

time-cost needed to comply with them, and an estimation of the number of

potential compliers is also important.

33

�The digital divide means that segments of the population of both, the EU and

the Balkan countries, enjoy limited access to ICTs. This impedes them to fully

benefit from the development of an information society and limits access to

improved and simplified e-government services. Before investing much effort in

ICT for administrative simplification access to electronic means by end users

should be assessed.

� Lack of standardization of procedures might contribute to create confusion

and promote discretion, and thus potential discrimination and corruption. Lack of

guidelines, defining conditions that should be respected by administrative

procedures can hamper predictability and coherence of an administrative system

as a whole.

�Lack of measurement and evaluation mechanisms. Administrative

simplification strategies should set clear objectives and targets. Measurement

mechanisms are then needed to assess performance and target achievement.

Furthermore, evaluation mechanisms can promote benchmarking of public

institutions and thus encourage involvement through greater competition. At the

same time, cooperation can also be encouraged since evaluation highlights

elements where progress is possible.

EU economic situation and main governance challenges

The economic recession came to an end in the EU in the third quarter of last year

in large part thanks to the exceptional anti-crisis measures put in place under the

European Economic Recovery Plan but also supported by some other temporary

factors. Beyond the initial rebound, the recovery is proving more difficult than in

the past. This is not surprising given the nature of this crisis. Cyclical rebounds

following financial crises tend to be more muted than in other circumstances.

Moreover, this was a global financial crisis, the biggest since the Great

34

Depression. Like other developed countries, the EU will grapple with its legacy

for some time to come.

The EU economy will thus continue to face headwinds from several directions.

The soundness of financial markets has yet to be solidly re-established. Whilst

clearly gaining strength, the banking sector still seems fragile and further

significant losses cannot be excluded. The necessary deleveraging of banks

takes time, and the cost of capital for banks is unlikely to return to its pre-crisis

level. The deleveraging of households and firms also has some further way to go,

effectively putting a brake on investment. Moreover, despite apparent signs of

stabilization the labour market situation will remain weak. The adverse impact of

the financial crisis on potential output growth points to other supply-side

constraints going on.

EU economic situation in 2009/2010

Overall, EU GDP growth is expected to remain rather subdued during the first

three quarters of 2010, on average, and to regain ground only by the end of the

year. This follows from, in particular, the fading impact of the temporary support

that kick-started the recovery (both within the EU and outside). A temporary hike

is expected in the second quarter, however, reflecting in large part a technical

rebound in the construction sector that was depressed by unusually adverse

weather conditions during this winter. As both external and domestic demand

gradually strengthen, GDP growth could recover to about 0.5 per cent q-o-q

during 2011 in both, the EU and the euro area. Taking into account the easing in

activity towards the end of 2009 (limiting the so-called carry-over to 0.2 per cent

in the EU), annual growth rates of about 1 per cent are expected in both regions

this year. For 2011, GDP growth could accelerate to, or just above, 1.5 per cent

thereby starting to slowly close the sizeable output gap that opened up during the

recession.

35

While all EU economies were hit by the crisis there are important

differences between them. Factors explaining the divergences include trade

openness, exposure to the financial-sector disturbances and the existence of

sizeable internal and/or external imbalances. Looking forward, the recovery is

expected to advance at different speeds reflecting the challenges individual

economies face and the policies they pursue. Mounting concerns about fiscal

sustainability, especially in some euro-area Member States, which cause

increased turbulence in government-bond markets and differences in

competitiveness positions are among the most important challenges in this

regard.

Euro area

According to euro area real GDP data the decline rate in the fourth quarter of

2009 slowed down to -2.2 per cent on an annual basis (against -4.1 per cent in

the third quarter). The last year saw a GDP fall of -4.1 per cent, the greatest

reported since 1999. On a quarterly basis GDP remained unchanged, with the

breakdown by component showing that investment had a negative contribution,

while the contribution of net exports and inventories was positive. As regards

private and public consumption, no changes were registered compared with the

previous quarter level. During the first quarter of 2010 major euro area indicators

went on increasing, while the economic sentiment index and the EC business

climate indicator increased to 97.7 (prior value of 95.9) and -0.32 (prior value of -

0.65) respectively in March. PMI were above the threshold of 50, signalling an

expansion of economic activity. During the same month the PMI Composite

came to 55.9 (prior value of 53.7). As a result of the anti-crisis measures and the

gradual improvement in external environment, a moderate recovery in euro area

economic activity was observed. According to the ECB forecast of March 2010,

this year’s GDP growth is expected to move within the range of 0.4–1.2 per cent,

while in 2011 - within the range of 0.5–2.5 per cent. Expectations about the next

36

year underwent a minor upward revision reflecting the global improvement in

economic activity.

EU countries, non-members of the Monetary Union

GDP decline in EU countries, non-members of the Monetary union, moderated in

the fourth quarter of 2009 and the reported overall drop came to 1.5 per cent on

an annual basis (against 3.7 per cent during the previous quarter). Investment in

fixed capital continued their strong negative contribution to growth, although this

effect tends to subside during the year. Private consumption also exhibited a

slight improvement. Positive signals were also seen in terms of exports which

increased on an annual basis in Romania, Hungary, the Czech Republic and

Bulgaria.

GDP Growth on an Annual Basis

I II III IV 2009

Poland 0.9 1.2 1.2 3.3 1.7

Czech

Republic

-3.9 -5.2 -5.0 -2.8 -4.8

Bulgaria -3.5 -4.9 -5.4 -5.9 -5.0

Hungary -6.7 -7.5 -7.1 -4.0 -6.3

Romania -6.9 -8.7 -7.1 -6.5 -7.1

Estonia -15.0 -16.1 -15.6 -9.5 -14.1

Lithuania -13.3 -19.5 -14.2 -12.8 -15.0

Latvia -17.8 -18.4 -19.0 -16.0 -18.0

Source: Eurostat.

The Balkan Region

37

During the last quarter of 2009 most Balkan countries reported a slowdown in

GDP decline, while Turkey and Macedonia were the first ones with positive

growth on an annual basis. In Turkey private consumption, government

consumption and inventories contributed most to the positive 6 per cent growth in

the fourth quarter of 2009 (by 3.3 percentage points, 2.3 percentage points and

2.5 percentage points respectively). Macedonia also posted growth in

consumption (1.5 per cent on an annual basis). Unlike Turkey, where investment

had a negative contribution, in Macedonia low growth of 0.3 per cent on an

annual basis was reported. Inflation kept accelerating in the first quarter of 2010,

due mainly to the base effect of fuels.

Economies in the region are expected to recover gradually in the second and

third quarters of 2010. Enhanced external demand, predominantly on the part of

leading European economies, will remain the major factor behind this.

Real GDP Growth in Balkan Countries

2008 2009

I II III IV TOTAL I II III IV TOTAL

Growth (on the corresponding period of previous year, %)

Bulgaria 7.0 7.1 6.8 3.5 6.0 - 3.5 - 4.9 - 5.4 - 5.9 - 5.0

Greece 2.7 2.7 2.0 0.7 2.0 - 1.0 - 1.9 - 2.4 - 2.5 - 2.0

Macedonia 6.4 7.9 6.4 1.2 4.8 - 0.9 - 1.4 - 1.8 1.2 - 0.7

Romania 8.2 9.3 9.2 2.9 7.3 - 6.2 - 8.7 - 7.1 - 6.5 - 7.1

Turkey 7.0 2.6 0.9 - 7.0 0.7 -

14.5

- 7.7 - 2.9 6.0 - 4.7

Croatia 4.3 3.4 1.6 0.2 2.4 - 6.7 - 6.3 - 5.7 - 4.5 - 5.8

Serbia 8.8 6.3 4.6 2.9 5.5 - 4.1 - 4.2 - 2.3 - 1.6 - 3.0

Sources: Statistical institutes and central banks of respective countries.

38

Budgetary policy objectives: efficient allocation of

resources subject to fair distribution of income and

stable macroeconomic environment

Short-Term Budget Reform Recommendations

1. Stronger top-down budgeting should be introduced in the budget

preparation phase. This will be work in progress, since in order to establish

good top-down ceilings, good estimates of baseline costs are necessary as

discussed below. A second element of good top-down ceilings is to ensure

effective policy attention regarding the ceilings from the Prime Minister and

Cabinet. This involvement should both include a discussion of overall ceilings as

well as funds allocated to new initiatives - budget requests for strategic policy

issues. At this point, ceilings should probably be flexible rather than "binding" in

order to allow for adjustments by government to meet policy needs.

2. Establish binding commitment controls for all budgetary institutions.

Expenditure control in Greece has been focused on the review of the Fiscal Audit

Offices on the legality and propriety of expenditure, not on budget control. Budget

execution should be delegated to line ministries, subject to controls on

commitments to ensure that their expenditures remain within approved budgets.

Ministers and/or budget managers should be legally prohibited from exceeding

budget authority. Monthly reports on commitments should be provided to the

Ministry of Finance. The Ministry of Finance should review the monthly reports on

commitments to identify problems in sufficient time to allow for their correction.

3. Improve the timeliness and reliability of budget execution reports.

Increased emphasis should be placed on producing timely accurate budget

execution reports. All budget institutions should be held accountable for

39

producing accurate reports. The Ministry of Finance should review the accuracy

of the reports and regularly report on any problems identified.

4. Develop accurate high quality baseline estimates for the budget. Baseline

estimates are the yardstick against which budgetary policies are measured.

Baselines depend upon reliable economic forecasts, informed estimates of

demographic changes, and accurate estimates of program costs. Baseline

estimates are prerequisites for expenditure ceilings and medium-term

expenditure frameworks. It is not possible to move to binding top-down ceilings,

until reliable baseline estimates are available.

5. Review and reallocate Ministry of Finance staff to functions that add

greater value. Skills and training of budget staff in the Ministry of Finance do not

fit the analytical and program review functions needed for more policy focused

budget control. Staffing should be reallocated as appropriate to expand the

budget analysis staff of the Ministry of Finance in issue areas such as social

security, health and revenues that have significant budget impact.

Medium-Term Budget Reform Recommendations

Reforms over the medium-term are intended to establish a sound foundation for

public financial management. Realistically, most of these changes will require

several years to fully implement. The Greek government, The Bulgarian and the

Romanian governments should develop plans for a phased approach to

implementation. Some of the changes may require legislation.

1. Fiscal rules: Greece, Bulgaria and Romania should commit to monitorable

fiscal policy objectives. The fiscal rules should be incorporated in law should

comprehend all fiscal activity of the Greek public sector, should be based on

accurate, reliable budget assumptions, should be open and transparent, and

should be reflected throughout the budget procedures.

40

2. Medium-Term Fiscal Framework: The budget documentation should present

multiyear estimates (year t+2 and t+3) reflecting the strategic goals and

objectives of Government. The estimates should be supported by baseline

calculations reflecting current policy. The estimates should be allocated by

Ministry and serve as the basis for top-down budget ceilings. Program changes

should be measured against this medium-term framework.

3. Parliamentary Budget Office: Parliament should take a stronger role in

reviewing the budget, supported by access to analytical resources of a

parliamentary budget staff body. The establishment of a budget research unit

within the Parliament should be considered. The parliamentary budget staff

should serve as an independent check on the accuracy and reliability of

government budget estimates. The presentation of the budget on a program

basis will present more transparent information to the Parliament; the budget

documentation will contain program objectives and performance indicators. This

should serve as the basis for parliamentary program review.

4. Program budgeting: Priority should be given to implementing a program

budget with a focus on policy objectives, and supported by performance

measures. The budget system should address the quality of expenditure, review

program results, and address value for money. Some input controls and caps on

administrative expenditures could be maintained as in most Balkan countries.

The use of performance information to support budgets for programs based on

quantitative indicators should be implemented where appropriate (e.g.

universities).

5. Comprehensive budget: The comprehensiveness of the budget should be

increased. Subsidies and borrowing from social security funds, municipalities,

and general government Public Law Entities, such as hospitals, and own

revenues from all sources should be incorporated in the budget to avoid

41

transparency problems. The split between the ordinary and the investment

budget should be abolished and full cost commitments of public investment

programs should be published.

6. Distributed management: Line ministry autonomy and accountability should

be strengthened. As part of the increased transparency that a new program

budget will attain it is important that accountability and responsibility be

decentralized. The decentralization must be within the top down constraints

established in the medium term fiscal framework. The line ministries should be

given a strong mandate to manage within the new system and be held

accountable for the results. Each line Ministry should establish a central budget

office to coordinate budget and financial management functions of the ministry.

The primary responsibility for budget execution should be transferred to spending

units. The Ministry of Finance should provide agencies with clear guidance on

budget execution requirements and deadlines for budget reporting.

POST-CRISIS FISCAL RULES: STABILIZING PUBLIC FINANCE

WHILE RESPONDING TO ECONOMIC AFTERSHOCKS.

Fiscal rules have been among the most widely adopted budget innovations

during the past two decades. However, the fiscal crisis has revealed flaws

in many of the fiscal rules in place, which will force governments to adjust

on the basis of the lessons learned. The present article discusses the

optimum design choices for fiscal rules, key factors for their successful

implementation, measures to strengthen their enforcement mechanisms,

and expanding the scope and time-frame of fiscal rules to include tax

expenditures, contingent liabilities and other long-term fiscal risks.

1. Fiscal rules have been among the most widely-adopted budget innovations

during the past two decades. Many rules have been adopted by national

42

governments on their own initiative; others have been imposed by supranational

authorities such as the European Union or other regional bodies.

2. Fiscal rules are numerical targets that constrain key budget aggregates. The

constraints can apply to the deficit or the debt, to total revenues or expenditures

or to other aggregates. Enforcement can range from legal sanctions against

violation to reliance on information and transparency. The lack of a single

template for fiscal rules indicates that they are still undergoing conceptual as well

as trial-and-error development and that fiscal rules must be consonant with a

country’s political culture. Political factors are especially salient in determining the

means of enforcing constraints and the actions taken (or not taken) when

breaches occur.

3. The pervasiveness of fiscal rules derives from several sources and may be

influenced by a country’s development. Advanced European countries tend to be

concerned about elevated tax burdens and expenditure levels as well as the

pressure on public finance from their ageing populations. Some also are

sensitive to the sustainability of fiscal trends and believe that tougher budgetary

discipline will improve long-term prospects. Emerging countries in the Balkans

have been among the most enthusiastic rule adopters largely because they

believe that a strict fiscal framework will give investors and entrepreneurs

confidence in the government’s capacity to manage public finance. In fact, some

emerging countries have been rewarded with lower interest rates and longer

maturities on public debt. Finally, low-income countries have begun to embrace

rules, sometimes under pressure from international financial institutions,

sometimes because of self-realization that loose fiscal policies have impeded

development.

Main governance challenges

43

Government capacity is being tested like never before. Decision makers are

being confronted by a combination of policy challenges of unprecedented size

and complexity – from unemployment to climate change, ageing populations,

migration and other long-term concerns. Citizens are turning to governments,

seeking immediate solutions to complex problems and demanding high-quality

public services to meet their changing circumstances and needs.

Independent of recent extraordinary interventions, government plays a large role

in the economy as a spender, taxer and employer. Government expenditure

averaged 40% of gross domestic product (GDP) in Balkan member EU countries

and the government employed roughly 14% of the labour force. Government is a

major actor in modern society contributing to economic growth, delivering goods

and services, regulating the behaviour of businesses and individuals, and

redistributing income. It is imperative that governments work well.

Moreover, as they look to swiftly address the current financial and economic

outlook Balkan governments are re-thinking how to put in place a long-term

growth strategy that improves productivity and competitiveness. As the world

becomes more interconnected, governments need to be agile to respond quickly

in dynamic environments.

The pace of public sector reforms will undoubtedly have to accelerate in the

three main areas described below as governments respond to current financial,

economic, environmental and social challenges.

1. Fiscal consolidation and efficiency gains.

The current economic crisis has profoundly weakened the fiscal health of nearly

all countries. Many countries in the Balkan region are experiencing unsustainable

budget deficits, which have generated strong pressure to reduce public spending.

Most of these same countries are also facing other severe long-term challenges

44

– such as demographic change, global climate change and government

contingent liabilities – that also have the potential to threaten their fiscal

sustainability. While society’s expectations of government are increasing, the

resources available to meet these needs are becoming more limited. Under

these circumstances, rethinking the role of government and the scope of

activities, as well as improving public sector efficiency and effectiveness have

become more urgent.

Most countries have already implemented some budget reforms to introduce a

medium- and long-term perspective, and provide incentives to constrain

spending in the short-run. However, the effectiveness of these reforms varies,

and more action may be needed to strengthen fiscal discipline.

� All but five EU countries use fiscal rules of some kind (most often rules

concerning debt and balanced budget) as a means to constrain spending.

� Medium-term expenditure estimates are produced in every member country

except Greece, most often at an aggregate level.

Over the past 20 years, governments have implemented reforms in all areas of

public administration in order to increase efficiency; many of these reforms have

involved adopting market mechanisms and/or investing in communications

technology. As governments continue to seek efficiency gains in the current

environment of constrained resources, partnerships with the private sector to

produce and deliver goods and services may increase, as may the use of

information and communication technologies.

� Outsourcing is common in EU countries. On average, 45% of goods and

services used by government have been contracted out in OECD countries.

However this percentage has been relatively stable in the last 20 years.

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� Governments are increasingly using private and non-profit entities to provide

goods and services directly to citizens. In 2009, in the Balkan States, 20% of all

government-financed goods and services were provided by private actors directly

to citizens compared to 6% in 1995.

�When compared to the high availability of e-government services citizens’ take-

up remains low even for leading countries, suggesting room to harness more

efficiency from e-service delivery. Between 10% and 60% of the citizens in EU

member countries used e-government services in 2008 compared to 55% to 90%

of businesses.

While efficiency gains are critical, they will not be sufficient in most countries.

Budget cuts to program may be inevitable. Governments will have to think

critically about what goods and services they should provide and how best to

provide them.

� Large differences in government employment across countries reflect policy

decisions on the scope and level of provision of public services as well as the

delivery method chosen (e.g. whether public services will be provided by

government employees or the private sector). However, government employment

is relatively constant, levels have remained stable over the past decade, and

most employees work in State and local government. Thus, central governments

may have little room for manoeuvre in terms of cutting payrolls.

� The average EU country spent close to 55% of total government expenditure

on social program in 2008 (including unemployment insurance, health care,

education and retirement program) compared to around 40% in 1995, indicating

the difficult choices facing policy makers when looking for savings.

2. Building strategic capacity to deal with complex problems.

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Due to the complex nature of the current policy challenges, governments must

develop their capacities to think and act in the long-term, collaborate and co-

ordinate across levels and sectors of government, and to analyze and process

diverse information. This requires skilled and educated workforce, good quality

data and analysis, and incentives to take a medium- and long-term perspective.

Over the past 10 years many central Balkan governments have reformed their

human resource management (HRM) practices to delegate more decisions to

line Ministries, open recruitment to external candidates, introduce performance

assessments and performance-related pay, and cultivate a separate senior

management group.

The public sector will have to shape new rules for the private sector that balance

public responsibility and private interest. This will entail creating a more balanced

regulatory framework that prevents excesses and adequately manages risk,

while not inhibiting entrepreneurship and innovation. To accomplish this, it is

important that countries develop strong systems for regulatory management,

including the use of impact analysis, public consultation when developing new

rules and strategies to minimize burdens from existing rules. Some elements of

these systems are already in place, but governments may need to do more.

� Regulatory impact analysis (RIA) is a key policy tool that provides decision

makers with detailed information about the potential effects of regulatory

measures, including costs and benefits. Over the last decade, RIA systems have

become more comprehensive across nearly all countries. However, the depth of

these systems still differs.

� A large group of countries, new EU Members (Bulgaria, Romania, Slovakia,

Poland, etc.) were heavily engaged in administrative simplification strategies in

2009/2010. Among the most common strategies are the use of information and

47

communication technologies and electronic record and reporting requirements,

such as allowing businesses and citizens to file and pay taxes on line.

3. Maintaining transparency and accountability

Calls for government transparency and accountability have gained increased

support in the context of the public and private failures that contributed to the

financial crisis, as well as the scale of government intervention and spending that

the crisis has induced. Public procurement accounted for between 10% and 25%

of GDP in EU member countries before the crisis, and has been identified as the

government activity the most vulnerable to corruption.

Within government itself, transparency has greatly increased in importance over

the past decade. The number of governments (including in the Balkan region),

identifying transparency as a core value almost doubled between 2000 and 2010.

This increased focus on transparency is also reflected in reforms to budget

processes, legislation promoting access to information, the strengthening of the

integrity framework within government and the increased use of public

consultation.

�Today, the legal framework for open government is largely in place in EU

member countries. It consists of laws on access to information, privacy and data

protection, administrative procedures, ombudsman institutions and supreme

audit institutions.

� All EU member countries have a supreme audit institution to audit government

accounts. While all countries ultimately make the audited accounts available to

the public, there is considerable variation in the time it takes to do so. Fewer than

half of the EU member countries release the accounts within six months after the

fiscal year ends as is suggested by the EU Best Practices for Budget

Transparency.

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�As of 2009, almost 90% of EU member countries provide some sort of

protection to whistle-blowers.

�There are many different mechanisms used by EU countries to engage the

public in the development of regulations, and the use of consultation has

increased in the past five years. While most EU member countries consult

informally with selected groups less than two-thirds publish public notices and

calls for comments.

CONCLUSIONS

One of the most notable features of European integration has been its creativity

and capacity to adapt to constantly changing challenges and needs. As the

Union embarks on a phase of “active” integration the practical need for

convergence between the Member States is making itself felt afresh. This calls

for closer harmonization of legislation or new forms of collective action on top of

the “passive” integration focused on eliminating internal barriers in the

Community that has long been the mainstay of its success.

Taking into consideration the experiences in the EU Member Balkan countries,

an administrative strategy needs to comply with at least five principles: it needs

to be innovative, multidisciplinary, communicative, assertive and outcome-

based. The proposals gathered below have been drawn observations carried out

in different countries. They are presented in a simplified manner and each of the

statements should be carefully examined and adapted for applicability in light of

the specificities of a given country.

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The first set of elements can be defined as strategic and policy-oriented.

They refer to those actions that support the strategy from a tactical

perspective. They are relevant at all phases of the strategy but in particular

during the design phase, when policy makers need to make sure that they

will find support and they are setting the right objectives. They refer,

mainly, to the need to have in mind a broad concept of reform, to establish

clear objectives and feasible targets, to ensure political commitment, to

adopt a whole-of-government approach without a one-size- fits-all model,

and to promote a reform attitude inside the administration:

1) Establish a comprehensive program on administrative reform and

maintain broad policy priorities. Administrative reform should be

systematically adopted, avoiding an exclusive use of ad hoc measures.

Even if a strategy should be focused on a specific area at its inception,

such as processes of licensing reform to obtain relatively fast results, in

the long run a comprehensive program for administrative reform ensures

continuity, endurance of reforms and the creation of synergies. In the

Lisbon Strategy the European Commission has given much emphasis to

the reduction of regulatory burdens as a priority and member countries

have been asked to define a comprehensive strategy in pursuit of this

objective.

2) Take a whole-of-government approach. A whole-of-government

approach involves considering and including all parts of government in the

proposed strategy. This includes both horizontal (government agencies at

the same level) and multi-level governance perspectives (the relation

between national, sub- and supranational levels of government).

Institutional co-ordination and accountability are at the service of common

priorities and outcomes for better governance.

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3) Ensure powerful (political) support. Political commitment in the form of

a strong declaration of interest needs to be followed by specific action. A

consistent legal framework in the form of a law or regulation is a way of

building a solid foundation for the strategy by describing its priorities,

allocating responsibilities in government and ensuring accountability of

results. To make sure the strategy goes beyond mere words on paper,

expected outcomes should be defined (a priori) and compared with their

realization (a posteriori).

4) Define clear objectives-targets and make institutions accountable for

them. In line with the legal frame and the definition of short and medium

term action plans, clear and measurable targets are needed to ensure that

reform ambition is met. This targeting is only useful, if there is institutional

accountability over time. In this policy area it is important to know where

the administrative burdens are and how substantial they are. Regulations

from some ministries are more burdensome than from others, and affect

end users differently. The simplification strategy needs to concentrate on

those regulations that create the greatest burdens, with goals that would

put pressure on the institutions responsible for lowering them.

5) Use success stories: start small and gain constituency. Benefits of

cutting red tape might be expressed in monetary terms. It is often said

that administrative reform saves money through the reduction of

regulatory burdens. But these savings are not collected and made directly

available to governments so that they can invest somewhere else. This

monetization of burden reductions rather expresses efficiency gains,

which should be the final objective of the reform strategy. As a result,

more resources are freed to undertake “normal” business, to the benefit of

those who must comply with regulation and the general public interest. To

start small means starting with reasonable ambitions that can be

realistically obtained within a concrete timeframe. Once successful stories

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and numbers are available to show the benefits of cutting red tape,

building constituency for administrative simplification is less costly. A good

starting point could be to centre efforts on bureaucratic processes that are

either widely used or create much irritation, for instance the bureaucratic

processes related to health coverage and insurance.

6) Promote a reform attitude and innovative approaches. An innovative

approach should include the consideration of alternative approaches to

traditional administrative regulation, organizational issues and

management. An example to illustrate this is the use of ex post notification

procedures instead of ex ante approval mechanisms to obtain licences

and permits. This significantly reduces burdens to activities since they can

start before actually obtaining a licence. But it is only recommendable

when dealing with low risk activities and in cases where most applications

result in a licence being issued. A lack of innovation has often been

observed among civil servants participating in reforms in the Balkan

countries. It appears that financial incentives are not a definite solution

since these innovative shortcomings have been also observed in countries

where economic incentives are not a constraint. Reacting against this, the

Bulgarian Ministry of State Administration and Administrative Reform has

established an ambitious plan for Government Modernization Program

promoting incentives, implementing human resource development

program, promoting co-operation with the private sector when efficiency

gains can be obtained, and building a solid framework for the integration

of new technologies in public management.

Capacity building mainly refers to increasing abilities and skills of human

resources that will be dealing with specific issues as well as making

possible the development of intellectual debate inside the administration

on the best way possible to move forward the reform agenda. Facilitating

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the dissemination of knowledge and increasing the awareness of why

administrative strategies are necessary, along with the way they can be

best implemented, are fundamental to success. Governments have to

ensure that staff can have access to information, technical support and

training and that these resources are well allocated so as to exploit their

potential.

1) Ensure a multidisciplinary approach to administrative simplification.

In many cases EU countries administrations are staffed by multidisciplinary

teams to undertake reform: economists, lawyers, philosophers, sociologists,

psychologists, political scientists, etc. Different backgrounds and approaches

help enrich administrative strategies and avoid an excessive dominance of

one of these fields of expertise. For instance, legal complexity is more difficult

to solve using overly legalistic approaches, thus lawyers need the support of

other specialists when drafting regulations and defining administrative

framework. How to define responsibilities and establish effective co-operation

between experts is an important challenge. A degree of specialization should

also exist to facilitate expertise development. This is especially relevant when

central services offer technical support to different government departments,

officials at the central services should be familiar with the concerned

department’s common challenges and jargon. For example, in Denmark the

Better Business Regulation Division of the Commerce and Companies

Agency designates officials to support the work of specific ministries so that

teams follow up the work of each ministry and respond to their inquiries. Such

an approach could support the improvement of skills and human capacities

for administrative reform in the Balkan states.

2) Training, training and training. Training is the main tool to improve skills

and human capacities. Training should target core teams for administrative

reform, public administration as a whole as well as the general public. Each of

the groups should be addressed accordingly through different training means

53

and adapted content. Whereas officials at the centre of government need

highly technical training, dissemination of knowledge to general public on how

administrative simplification affects citizens needs a more accessible and

simpler approach. Co-operation with academic, research and consulting

institutions could be timely so as to attract expertise and outsider

perspectives. This should not only be limited to a domestic sphere, as

international expertise, including that of other governments, can be essential

for capacity development

3) Reduce the digital divide. Ensuring the widespread use of new

technologies is necessary so as to maximize the benefits of using e-

government for administrative simplification. Internet penetration determines

the utility and reach of administrative procedures available on-line. Innovation

and adaptability of electronic devices can bring appropriate solutions.

Institutional design. Institutions matter in regulatory governance since they

are fundamental in designing and implementing any strategy. Institutions

are needed to establish rules to increase transparency, to foster co-

ordination inside the administration, to ease communication with

stakeholders and to promote a cultural change in the way the

administration approaches administrative simplification. The right

institutional design, however, needs to take into account political, cultural

and social specificities. Administrative strategies require institutional

support in order to guarantee the quality of the strategy, to stimulate

champions for reform and to find a right balance between centralization

and ownership of reform.

1) Find a balance between centralization and reform efforts ownership.

There is a trade-off between centralized control over reform and complete

involvement at lower levels of government. If co-ordination mechanisms are

too loose, a comprehensive strategy might encounter problems in being

54

coherently implemented. On the contrary: if centralization is too tight,

institutions applying the strategy might lose the feeling of ownership and thus

the strategy might encounter implementation barriers. The right balance

needs to be achieved to keep strategies moving forward, taking into account

the institutional system, the size of the public administration, and the needed

degree of ownership. A central unit for administrative reform can become a

useful tool to understand this balance and provide effective co-ordination in

practice. This balance can be more easily found in the case of small

countries, such as Bulgaria and Croatia, than in larger countries or

administrations with decentralization tensions.

2) Promote transparency through communication. Communicating a

strategy’s objectives and elements, its relation with other reform programme,

and its progress over time contribute to enhancing transparency. It also helps

ensure that there is a match between achievement and objectives

contributing to accountability. If work on administrative reform goes unnoticed,

it is highly probable that support will diminish. Moreover, sound

communication contributes to cultural change and to building a sense of

ownership. There are different tools for communication which adapt to

different audiences and messages to convey. Standards, guidelines and

manuals for communication designed for the general public can support

better communication initiatives. Examples of this can be found in Italy, Spain

and the United Kingdom where principles for effective communication have

been established. This facilitates the general understanding of administrative

reform and could diminish the resistance to change.

3) Encourage public consultation and participation in policy making.

Consultation and participation support the definition of priorities for a strategy.

Consultation processes can enhance a government capacity to identify irritating

areas of regulation. For instance, in the United Kingdom the Better Regulation

Website collects ideas from citizens, which are processed transparently and

55

reported on if ideas were taken forward or rejected. Consultation can be

encouraged through different channels such as launching satisfaction surveys,

establishing advisory bodies with particular roles to give voice to stakeholders

and creating ad hoc task-forces that can make recommendations on very specific

issues. These bodies are often able to channel priorities and to promote efforts

for improving the administrative culture. They open the possibility for different

parties to exchange views that are good source of data collection for the

administrations and encourage the participation of other entities in the policy-

making process.

Develop indicators on government performance: benchmarking and

awarding. Measuring and evaluating government performance is needed to

ensure accountability of public institutions. In addition, benchmarking can

encourage competition and promote co-operation between institutions, thus

facilitating progress. Performance can be further enhanced through mechanisms

to reward effective efforts. Rewarding can also take place at a more micro level

by encouraging citizens to point out relevant administrative burdens and

procedures that are too cumbersome and in need of revision. “The Best Idea for

Red Tape Reduction Award” is an example of how authorities promote and

reward good and innovative ideas from citizens to reduce unnecessary

bureaucracy stemming from legislation. The criteria of this award take into

consideration:

a) originality and degree of innovation of the proposal,

b) feasibility (i.e. potential for simple and quick implementation),

c) reduction potential (i.e. how much businesses could save; sometimes

relatively small burdens can be more irritating than more costly ones - this is also

taken into account) and

d) transferability of possible solutions to other areas/other cases.

This award organized in 2009 by the General Directorate for Enterprise and

Industry of the European Commission complements the “Red Tape Reduction

Award” conceived to award only public authorities.

56

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