Are States in contemporary Europe driven to enforce new forms of territorial convergence under the impact of economic crisis, enhanced European steering and international monitoring? Or is the evolution of sub-national governance largely driven by endogenous pressures? This very significant research question get to the heart of contemporary European States through a focus on the interplay between territorial capacities, domestic veto players and exogenous constraints. The article reports interim findings from a research project supported by the UK’s Leverhulme Trust and the Collegium of Lyon on Territorial Governance in Western Europe between Convergence and Capacity1. The empirical data is focused mainly on four ‘second order strong identity’regions: Andalucía (Spain), Brittany (France), Wales (UK) and Wallonia (Belgium). These regions share many characteristics. These hybrid regions are economically challenged yet have a distinctive and developed territorial capacity. They each have ingrained traditions of social-democratic party control. They are regions facing stark economic challenges and problems of economic adaptation. They are traditionally pro-European regions, or at least regions benefiting from substantial EU investment. They are regions with a strong sense of territorial identity. They have variable degrees of decentralised authority: as a minimum, each has a directly elected regional Assembly with powers ranging from a general competency to partial legislative authority. The four regions exist in states that cover the range of logical possibilities for comparison: a loose federal state (Belgium), a hybrid state with some federal characteristics (Spain), a predominantly unitary state modified by forms of asymmetrical devolution (United Kingdom) and a decentralised but still unitary state (France). The EU context provides the core similarity between these states, with three of the four participating in the euro and signed up to the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (TSCG). The research involves sustained empirical investigation of sub-national governments and governance communities in the four regions over an 18 month period from November 2012 to May 2014.

Territorial governance and economic crisis: convergence and divergence
How did our regions face up to the combined pressures of economic crisis and political decentralisation2? Is the economic crisis recentralising previously decentralised functions, or is there no linkage between these two phenomena? Are convergence and divergence best considered as part of agency driven processes of adaptation and as strategic choices exercised by actors in regional governments? These questions were investigated via a series of semi-structured interviews with comparable panels of actors (of around 25 interlocutors) in each of our four regions. Identical questions were asked of our interlocutors in each region3.
Has economic crisis produced a recentralisation of public finances?

The most obvious effect of economic crisis has involved moves to strengthen central government control over regional and local government financial circuits. As central governments are now threatened with stiff fines if they do not respect the revised budget and debt criteria, enshrined in the Treaty on Stability, Coordination and Governance, they are less willing to tolerate ‘spendthrift’local and regional authorities. In some instances, in Spain notably, regions have attempted to hand back competencies to central government. In France and Spain, the proportion of local and regional government expenditure directly transferred by central government grants has been rising (usually with forms of hypothecation). Enhanced centralisation of local financial circuits could be observed in France, for example, mainly as the result of a major tax reform in 2010 that involved the abolition of the local collection and setting of business rates and its replacement by a more centralised formula-based method of tax collection (Steckel, 2012). In Spain, though many competencies have been devolved or are shared with the central state, 80% of the autonomous communities’ financial resources are transferred by the central state (Harguindéguy, et al, 2014). Our investigation in Andalucía revealed a region under sustained financial pressure, suffering budgetary cuts from central government, a decreasing performance of regional taxes and a drying up of bank loans. Even more than in France and Spain, public finance remains a highly centralised policy field within the UK. The Welsh policy community demanded enhanced fiscal autonomy, but politicians were careful not to call into question the core block grant mechanism of financing devolution, based on the Barnett formula. Key actors involved see little prospect for significant change or reform, even in the event of Scottish independence. 4

The case of Belgium stands apart (de Visscher and Laborderie, 2013). Once the sixth reform of the State has been fully implemented (in theory in 2014), the Federal government budget will be limited to servicing the national debt and funding part of social security, with all other functions having been regionalised. The Belgian case raises the issue of the relative lack of linkage between the post-2008 economic crisis and changes to the institutional architecture of the state; the causes of ever deepening decentralisation are linked to community competition, communitarisation and regionalisation that have their roots in Belgium’s uneven history. The Belgian case demonstrated a high degree of polarisation on institutional questions between the main Flemish and francophone communities. Retaining credibility as a good European player, however, incited the main actors to agree on key measures of budgetary retrenchment; controlling the public debt was experienced less as an intolerable constraint than as a gauge of managerial credibility.

Has economic crisis recentralised decentralisation?
Rather more general analysis of the impact of the economic crisis on the decentralised and devolved forms of government revealed contrasting findings in our regions. Wales and Wallonia, in rather different ways, were tied up with endogenous programmes of state reform, and socio-economic issues of economic crisis were given less saliency than in either Andalucía or Brittany. In the cases of Wales and Wallonia, surprisingly little indication was provided in fieldwork of the impact of economic crisis on prospects for devolved government. In Wales, at the time of empirical investigation (November 2012–July 2013) the Welsh Government had begun a process of streamlining public service provision, encouraging collaboration between service providers and introducing timid performance management measures. But local government spending on frontline services had been sheltered from the worst of the cuts and public service providers acknowledged that conditions might deteriorate. Welsh political debates were tied up in constitutional futures: whatever happened in the Scottish Independence referendum and its aftermath would have an impact on Wales. Likewise, the panel in Wallonia (interviewed in early 2014), though touched by economic crisis, was preoccupied with implementing the sixth state reform programme and deeply anxious about the prospect of further institutional and political deadlock after the 2014 federal elections.

The French and Spanish regions, on the other hand, were more fully engaged with enduring economic crisis and the effects of the economic downturn on the broader territorial model. In both regions, a general sense of pessimism was shared by representatives of all parties, employers’ organisations, associations and trade unions. There was heightened consciousness of the crisis. In Brittany, there was a deep sense of pessimism about the future of the Breton model of intensive agriculture, inspired by the massive layoffs or plant closures in 2013 at food producers Doux, Tilly Sabco and Gad. In Andalucía, the atmosphere was also generally pessimistic; the crisis had highlighted the contradictions of the ‘state of autonomies’. When forced to choose, Andalucían elites preferred solidarity between regions (using the historical debt of Spain towards Andalucía as an argument for continuing transfers) over differentiation and enhanced autonomy.

Converging Europeanisation? An end of the Europe of the Regions?
Is what direction is the relationship between European integration and regional governments heading? Does the European Union still provide a structure of opportunities for a third tier of regional government? Or, on the contrary, does the fieldwork suggest scepticism towards the ‘Europe of the Regions’? Europe is an important strand of regional governance. All the selected regions have been key beneficiaries of EU structural funds and the Common Agricultural Policy. All regions ought to be pro-European.

The field of European integration appears as one of clear differentiation between these traditionally pro-European regions. The principal cause of variation related, first, to whether or not a region is within the Eurozone and, second, to the degree of influence exercised domestically in relation to monetary policy (a highly Europeanised policy domain). Europeanisation might be understood as an independent variable, in the sense of the definition given by Cole and Drake (2000), where the direction of change and causality runs clearly from the European Union (and its multiple institutions) to member-states and regions. The Fiscal Compact Treaty (TSCG), agreed in December 2011 and signed in 2012 by 25 of the 27 EU member states, strengthened the automatic penalties to be paid by states who are unable to control their debt, or to bring into line their budgets to zero deficits by 2015. The TSCG came after a significant fiscal and budgetary tightening in the form of the Six Pack and the Two Pack, allowing the European Commission, through the European Semester process, a much more intrusive oversight into national budgets (including commenting upon national budgets before they have passed the parliamentary stage). The European Semester process produces annual reports on the strengths and, more usually, structural weaknesses of all EU states (including those, such as the UK and the Czech Republic, not having signed the TSCG). The details of these reports filter down into fields such as the housing market, wage indexation, pension ages – the core of traditional economic sovereignty. Numerous competencies dealt with by local and regional authorities are concerned; especially in those areas of infrastructure and investment such as road building, urban transport or education that required long-term capital investment.

Interlocutors in our three euro-zone states expressed varying degrees of engagement with the European project. In Brittany, interviewees stressed their fundamentally pro-European sentiment: Europe was part of the Breton ‘DNA’. One of the core novelties of the 2013 round of interviews related to disillusion with the European Union as an institution (though not with the European ideal). The ‘neo-liberal’European model of the Barroso Commission was contrasted unfavorably, in interviews, with the traditional Breton model of partnership, cooperation and support for public services. The sense of relative deprivation was aggravated by the EU Commission placing obstacles in the way of direct aids from the French government. Andalucía is also traditionally a strongly pro-European region and a key beneficiary of EU structural funds and the CAP. Against a backdrop of diminishing enthusiasm for the European project, fieldwork uncovered two types of response to the EU question. First, interviewees lamented diminishing resources from the EU. Second, the PP-led government in Madrid was blamed for using the crisis as an argument to recentralise control over a number of policy sectors and tighten budgetary steering. Belgium offered another interesting case. Interviewees in Wallonia and Belgium overwhelmingly backed the European ideal: in the words of one interlocutor, Belgians were the ‘last Europeans’, now that even neighbouring Netherlands and France had moved in a less pro-European direction. One interviewee believed Belgians to be naïve, however; the European semester process and the recommendations made by Brussels to stop indexing salaries with inflation were met with consternation by the Belgian government. The commitment to zero deficit budgets by 2015 was proving extremely difficult for Belgium’s regions and communities, as well as its local authorities; another interlocutor predicted damaging consequences for the level of infrastructural investment.

The exception is most obviously presented by Wales, part of the sterling zone. The UK’s position outside of the Eurozone and the TSCG effectively shelters Wales from enhanced European budgetary supervision. In contrast to Scotland, Wales has no immediate existential choices to make and does not have to consider whether it might have to join the EU as a new member state. Welsh Government rhetoric remains staunchly pro-European. The EU remains seen as a benevolent fund-provider; there were clear signs of internal tension with UK premier Cameron and the commitment to hold a referendum in 2017 on the UK’s future membership of the EU.

Even in the Belgian case, the fieldwork suggested diminishing enthusiasm for the Europe of the Regions. Against this general conclusion, some distinctions can be drawn, the most obvious of which is between: Spain and Belgium, whose regions were at the forefront of attempts at budgetary discipline, and Brittany and Wales, somewhat further removed. Membership of the eurozone certainly played itself out as one of the key differentiating variables between our regions. Beyond the UK exception, three positions were identified: one (Wallonia) of Europeanisation facilitating coordination across community divides and, in some sense, empowering regions to participate in budgetary retrenchment; a second (Andalucía) whereby the sacrifices required to conform to budgetary adjustment as a result of the economic crisis were deeply felt (but Madrid was principally blamed), and a third, that of traditionally pro-European Brittany, feeling a sense of (temporary) betrayal. Overall, we conclude that the economic crisis is producing tensions between the EU, central governments and second order strong identity regions.

The futures of regional governance
The financial crisis has provided evidence of some recentralization of decentralization, and the latest phase of EU integration has forced central governments in most instances to attempt to exercise a tighter supervision over local and regional government expenditures. Europeanisation has produced a lessening of divergence in legal systems and in the provenance of much public policy. But domestic state structures, party systems and the political rules of the game still make sense nationally, leading writers such as Schmidt (2006) to diagnose a dangerous gap between (national) political competition and (European) policy formulation.

Over and above distinctive national institutional structures and territorial assymetries, our survey demonstrated a high level of convergence in relation to the futures of regional governance. Each of our 100 interlocutors was asked to identify the three principal challenges faced by the region over the next five year period. This measure was intended to capture how our panels of comparable actors envisaged the future of their respective regions. We conclude this article by observing the considerable regularities in terms of future policy challenges for our sample of European regions.

Unemployment, and especially youth unemployment (Wales, Andalucía, Brittany, Belgium).
The pressing state of unemployment was recognised in each of the four regions as the toughest challenge. The levels of youth unemployment in particular were presented as a major challenge. The example of Brussels, a city with a strong immigrant population and a high level of social deprivation, was instructive in this respect: the young unemployed of immigrant origin were primarily affected by socio-economic issues, their interest overlooked in the community based rivalry between Flemings and Walloons.
Economic reconversion and the capacity of established territorial models (Wales, Andalucía, Brittany, Belgium)
In each region, there was soul-searching about the capacity of the existing territorial model to cope with economic crisis and the challenges of reconversion. Members of our Breton panel described a peripheral region facing a huge crisis of reconversion. The traditional pillars of the Breton economy (agriculture, agro-alimentary) were crumbling and the model of social-economic ‘concertation’was failing. Rather similar narratives emerged in each of our regions.

Education and levels of basic skills was a common theme in Wales, and Andalucía, to some degree in francophone Belgium and Brittany also. In Wales and Andalucià, raising the general educational level was identified as a vital priority. The Brittany region and Brussels-Wallonia Federation, starting from a much higher base, acknowledged problems of unequal educational performance.

Political decentralisation; challenges and opportunities
The saliency of forms of political devolution came after the first three socio-economic issues. In the case of Brittany, the perceived crisis of 2013 was linked by many respondents with a case for more political decentralisation and a thoroughgoing regionalisation. In Andalucía, the PSOE-IU led region was caught between resisting Madrid’s sustained drive at recentralisation in education and arguing in favour of sustained ‘solidarity’and continuing financial transfers from richer regions (such as Catalonia). In Wales, the future of devolution was a major preoccupation, but judgement was suspended while awaiting the outcome of the Scottish referendum. In Wallonia, there was no appetite for future decentralisation, but realisation that a new push from the Flemings would probably take place after the May 2014 elections.

Preserving public services
These social-democratic regions all identified the preservation of public services (especially health and education) as core to preserving their own territorial model. Interviewees in the Spanish region were proud of the ‘Andalucian model’of welfare, based on fiscal transfers from richer regions to Andalucía in the name of solidarity (and on transfers within Andalucía from the more affluent cities to the PSOE-led small towns). The panel in Brittany, likewise, used economic crisis to argue in favour of central state aid (forthcoming in the Breton plan of December 2013). In the case of Wales, fiscal transfers via the Barnett formula were given more importance than fiscal autonomy; recognising Welsh public service needs (and relative deprivation) was amongst the top priorities. In Wallonia, finally, defending public services in the name of solidarity was given a high priority.

These core challenges were sufficiently similar to support a conclusion based on ideational soft convergence. Certainly, the core challenges identified by regional decision-makers were not those, in general, that were readily amenable to regional influence. Our second order strong identity regions had limited control over core macro-economic levers, and each developed different versions of a mode of territorial action based on influencing central government and the EU, in a pattern of multi-level governance. Each of our regions had different mixes of territorial political capacity, and ways of exercising influence; other regions not included in the survey would not necessary share these priorities. The most significant distinction was between the two regions caught up in a process of ongoing political decentralisation (Wales and Wallonia) and the French and Spanish regions, which appeared more directly affected by the direction of economic crisis and whose territorial models struggled to cope with change.

References
Leverhulme Trust (IN-2012-109), 2012-15 ‘Territorial Governance in Western Europe: between Convergence and Capacity’Leverhulme Trust International Network award, 2012-2015. The PI extends his grateful support to the trust. The project La gouvernance territoriale en Europe entre convergence et capacité is also supported by the Collegium of Lyon.
For a robust general discussion, see Le Galès (2013)

Around 100 interviews were carried out in fieldwork from November 2012 to March 2014 in Wales, Brittany, Andalucía and Wallonia. We used a common interview schedule designed to elucidate the causal mechanisms that produce divergence and convergence (identified as being administrative, economic, epistemic, institutional, normative, interest-based or multi-level in character). A common interview schedule included questions that dealt with the impact of the economic crisis on decentralisation; on the direct effect of EU regulatory frameworks and the EU more generally; on ‘best practice’in public services (including that promoted by the EU or by index ranking such as PISA); on patterns of intra- and inter-regional cooperation and policy learning; on inter-governmental relations, territorial political traditions and party linkages. Equivalent panels were contacted in each region, composed of three cognate groups: devolved government, regional or regional state actors; representatives of professional and policy communities in the fields of public finance and secondary education and elected representatives with competence in the field, controlled for by party affiliation. Interviews are being transcribed, data input into N-Vivo 10 and will be deposited with the UK Data Archive.

This view was expressed notably by Gerald Holtham at the British Academy conference of May 31st 2013. Reported in S. Tanburn, (2013) Wales, the United Kingdom and Europe, London: British Academy, pp. 14–15.

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