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THE CRISIS EFFECT ON PERFORMANCE BASED BUDGETING PANAGIOTIS KARKATSOULIS National School of Public Administration, Athens, Hellas ABSTRACT

The recent global economic crisis has posed significant questions not only to the management of the financial institutions but also to the budgeting and, furthermore, to the Governance structures. The paper reviews the different periods of budgeting theory, starting from the one- size- fits- all Performance Based Budgeting, going on to the managerial era, when budgeting had been transformed to the basic tool of a social engineering, and from there to the New Public Management which was considered as an instrument of cutting back policies and, finally, to the Governance concepts of the new millennium. The paper sees the current crisis as an opportunity for the emergence of a sounder budgeting theory, since all basic notions, such as steering, trust , regulatory capture, etc. have indicated the theoretical and practical vacuum of the current Governance/Budgeting theorems. The main point of the theoretical proposal of the paper is a re-balancing between the global, regional and local identities which participate in the governing and budgeting process. To that direction a lot of systemic failures can be avoided. The paper concludes with some theoretical work assumptions after having examined a typical budgeting failure concentrating on the Greek case. Key words: Global economic crisis, governance, budgeting, social systems theory

THE MANAGERIAL FOUNDATION OF BUDGETING The global economic crisis poses significant questions to both the theory and practice of budgeting, disputing the validity of well established theorems and practices.

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The crisis questions the core notion of performance as well as other cardinal concepts of Performance Based Budgeting (PBB), such as the greatest return in social utility (Downs 1960), political and social consent (Key 1940)- notions central to the way state resources were allocated during the previous five decades. The crisis influences the budgetary agenda, as new facts arise (such as climate change, clean energy, employment policies) which call for a revision of the methods and tools used up to now. Other issues which also emerge refer to the internal organization of the structures dealing with the budget as well as with the structures involved in recruiting, training and evaluating their staff. The discourse on budgeting has been going on for a long time (Schik 1966): it is as old as administrative science and has always been one of its major issues. Administrative science and budgeting theory evolved in close interconnection: the methods and tools used by budgeting over time depicted the prevailing paradigm of the administrative science. This article intends to clarify the main characteristics of the four distinct periods in the evolution of budgeting, and to point out the weak points that should be cured in the crisis aftermath. The conclusion drawn from this mapping is that there is a need for a reinforced central government model, different from any authoritarian or imperative model of the past. (Economist 2010). PBB used to offer a better, alternative, answer to the question why public money were spent to Action A instead of Action B (Key 1940) in comparison with the one offered by the classic executive budget theory (Thurmaier 1995). Given the scarcity of resources, it becomes even more imperative to find the most appropriate criterion in order to choose among different options. Notions such as relative value, displacement costs (Lewis 1952) etc, should

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be re-examined under the light shed upon them because of the recent crisis. Looking back at the initial managerial stages of the budgeting theory one observes that a primary emphasis was put on the central control of spending and the budget was used to guard from administrative abuses (Caiden and Wildavsky 1974). The detailed classification of objects of expenditure which was the main characteristic of the budget during the first period, turned out to be its weak point. The monitoring of all expenditure lines required a high capacity and led to the establishment of complicated and extended control mechanisms. Thus, it was the procedure of budgeting that gained all the attention and not the very essence of the budget itself, which is to pursue policy outcomes. Such an approach to the budget is not viable especially in the aftermath of the economic turmoil. When budgeting entered the matured managerial era, it was disposed of the weaknesses observed during the first period. Its main objective was to manage the efficient performance of work and prescribed activities. Performance budgeting, officially introduced by the Hoover Commission (Cothran 1993), was the major contribution of the managerial era to budgeting. During this phase, the emphasis was given on the efforts to avoid the social engineering of reform; namely, to obviate the mechanistic transformation of budgeting and render it a tool to change the state and society (Lynch 1995). It was considered (Bouckaert 1994) that the objectives of budgeting would be better accomplished through the implementation of a set of techniques, capable to replace the simple balance sheet debit-credit accounts and reflect the financing of (a sum of) (Boorsma and Mol 1995) single actions incorporating policy goals and aiming at specific results (Bouckaert 2002). Managerialism's weak point was a metaphysical understanding of rationalism, since the absence of the

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"super managers" translated as lack of necessary prerequisites to implement a management oriented budgeting. The heterogeneity between the goals and the means to attain them, the difficulty to connect strategy and implementation as well as the absence of concrete goals for each public organization hinder the success of PBB, especially when it came to economic and financial turbulences (Bier 2006). The reasoning of performance based budgeting grew more mature, as it was structured in a next step, in a systemic way. Information, criteria, indicators and financial flows were networked and took stock on each other striving for better choices and decisions (Posner P., Ryu S. K. and Tkachenko A. 2009). Some quite important institutional set ups had been undertaken, mainly for the strengthening of controls and the evaluation of the results of the budgetary process, through the empowerment of parliaments and audit offices (Peters and Savoie 1996). A determinative factor of success is considered to be the strengthening of the administrative capacity of the Ministries of Finance as well as of the financial department in every other Ministry and organization that spends public money. The frequently observed lack of the capacity of public organizations to identify themselves and their various long-standing shortcomings (lack of reliable data, low learning capacity, poor communication with organizations and stakeholders) have often led to a re-allocation of the existing budgetary codes after linking them to some objectives and results (promulgated but not real) (Walters 1994). This was followed by a focus on the planning and projecting function of the budget, rooted in the Keynesian economics, according to which a country's economy depends a lot on public expenditures. Nevertheless, the discussion, in this phase, remains introvert, one-dimensional (basically of a monetary character) and asocial, despite the vivid theoretical

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discussion on quality (Bouckaert and Peters 2002), ethics (Melkers and Willoughby 1998) or organizational change (Pollitt and Bouckaert 1995) which resulted to suggestions (Caiden 1988) about the best way to transform budgeting (Rabin 1992). But, in spite of all good, theoretical, intentions (Lee and Johnson 1989), the results were feeble (OECD 2007). BUDGETING IN THE GOVERNANCE ERA The concept of governance marked the next qualitative differentiated phase of the relevant discussion, as it was called to cover the deficit of legitimacy in performance based budgeting. Governance puts emphasis on networking and the re-establishment of confidence among the stakeholders (World Bank 1994). Governance accentuates the social dimension in the procedure of drafting, monitoring and evaluating policies (Halachmi and Boorsma 1998). Therefore, a non linear quest takes place in order to find a modus vivendi between the supranational and national (central and local) administrative state, markets and civil society. The adoption of goals, results and indicators is no longer based on established subjective notions, but it is happening in a systemic context, in order to reflect the interface of each subject and its environment, adding to their credibility and coherence. Following the above mentioned principles and orientations, some significant issues of social/political character have been raised about budgeting. The emphasis should henceforth be on the re-examination of the relation between policy goals/results and their budgetary prediction, whereas the societal character of the budget prevails compared to the econocratic one (Pollitt and Bouckaert 2004). The rise of the political dimension of budgeting

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mainly stems from its strategic and operational forecasts, particularly the long term ones. A remarkable set of questions has been expressed by various authors (Mintzberg 2000) who do not see the direct relation between budgeting and strategic planning. They basically doubt the methodological way of linking the goals and reform intentions to the budget, in the sense that strategy, which the budget is supposed to support, constitutes mainly an irrational exercise (myths, beliefs, etc), while budgetary predictions should be as rational as possible (Miller, Rabin and Hildreth 1987). However, the desire of people in power to uphold their status undermines the objectiveness of the budgetary forecasts, because of the high political cost. On the other hand, social self-reflection, contributing to the sustainability of budgetary forecasts, can only be achieved through a painful and time consuming procedure of redefinition of the public and social values (Luhmann 1997). The toilful procedure of self-reflection is necessary in order not to wrongly determine the values and the social myths which are to be served by the budgetary expenditures (Moynihan 2004). It has been noticed (Ciborra 2002) that in the case that those values and myths are wrongly determined, budget deficits may be observed. According to the above mentioned estimations, budgetary policy should be conceived rather as a framework of goals, means and results than as the direct linkage of outcomes with expenditures. A framework allows for more (equivalent) solutions to budgets goals - a kind of a supportive instrument to the annual decisions taken by the respective society and administration. When it comes to the annual budget, one has to deal more with a psychological than with a rational issue, since it reflects more the anxiety of the budget people regarding time span than a consistent choice based on long term predictions (Sun and Lynch 2008).

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Governance took budgeting ahead but remained a loose frame offering no operational solutions. Governance did not succeed to broaden, in a non-ontological way, the notions of trust, responsibility and accountability and lend to them a social meaning beyond that of the mere representation and collectivity (Sztompka 2000). Governance, furthermore, did not create psychological and cognitive expectations, which counterbalance the limitations of the rational forecasts and allocations (Bevir and Rhodes 2001). Governance, finally, did not provide a fertile ground for the establishment of new, more effective mechanisms to monitor the budget. These mechanisms could have been based on the networking and substantial participation of all those who are affected by the budget. According to the Governance principles, consensual control models, like peer reviews or the European open method of coordination are to be preferred, but, even so, not uncritically: They have to be adapted to the established political and administrative control culture (Pollitt and Bouckaert 1995). Another weakness of the current Governance concept lies in its drawback to dealing effectively with crisis phenomena, an issue that might be attributed to a lesser epistemological clarity. The critique expressed, from the very beginning of the discussion about Governance, was about the missing practicability of its solutions and has recently re-appeared in the discussion regarding the global financial and economic crisis. Applicable solutions and the final decision per se have not been properly developed in their qualitative and communicative nature. That is a piece of knowledge, which has been gained thanks to empirical studies (Latin America, Africa) on Governance (Plumptre and Graham 1999) showing that a re-definition is needed. Governance has to distance itself from certain theoretical foundations, (such as the rational-choice

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theory), which are underlying its epistemological foundation, to a power based model of change (Bovaird and Loeffler 2001). The necessity to renounce the piecemeal approaches with insufficient content (Opello and Rosow 2004), in favour of an unconditional empowerment of Governments (Pierre 2000), is again in the spotlight because of questions the crisis left unanswered. Moving from the current Governance concept onwards, both theory and practice elaborate on the reinforcement of coordination and policy coherence. All levels of government are equally asked to undertake responsibility for the promotion of relevant actions. Governance based approaches to budgeting relied heavily on credible indicators measuring and evaluating its efficiency on certain policy areas. Strategic forecasts are particularly difficult because of the high capital investments required for their attainment. Therefore, composite indicators were required to monitor budget implementation, instead of the univocal results indicators usually used (Saltelli 2006). Composite indicators offer the advantage of a broad general view of procedures mapped out in various parameters. Laying down and keeping tabs on such composite indicators shifts the observation point of every defined legal and administrative policy closer to its goals. The selection of the appropriate indicators as well as the definition of the weight attributed to each of their constitutive parameters is in itself a political process, which may be better achieved through a participatory and deliberative procedure. Decentralization is also a crucial parameter of a successful performance based budgeting. The connection between decentralization and budgeting has been reinvented through the multi-level governance discussion (Cothran 1993 and Doern and Johnson 2006). The proposed model is that central governments undertake the responsibility for their own budget only, while local self-

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governments for the regional and local budgets. The implementation of the model proved quite unproductive, since it leads to tensions and conflicts between central and regional governments (Grizzle 1987), especially as far as compliance and control functions are concerned. The multi-level governance approach is not a mere structural decentralization. It focuses on policy areas and attempts to improve the efficiency of the public entity, offering a public service at whatever level of governance that entity may be. However, even in the context of multilevel governance, the discussion focuses on the management of budgeting instead of the budgetary policys functions, the content of the policy itself and the prevailing values. THE QUESTIONS INTRODUCED BY THE CRISIS The reduction of policy and social problems to technical or structural ones befogs the actual query about effectiveness. As the attempts to exit the economic and financial crisis have shown, it is crucial for public decision making and public policy building to have explicit knowledge of the field a reform takes place: Many of the measures adopted to confront the crisis should have been implemented at the local level, but policy advisors were not aware of the administrative capacity at that level of governance, so the measures were not properly effected, resulting to further money losses (Posner P., Ryu S. K. and Tkachenko A. 2009). The economic and financial crisis has shown that an organization may be equally ineffective in pursuing a policy, regardless of the content and methodology, either if it was designed bottom-up or top-down. Governmental decisions on budgets without their legitimacy will continue to be conceived as an allocation problem, identified in a simplistic monetary sense (or, in some other cases as a

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management skills problem) (IMF 2001). The economic and financial crisis offered a relevant example, when many countries proceeded to allocating stimulus packages to be administered at the regional or the local level. But as the capacity at those levels was not always adequate, the result was inefficient management and lack of transparency. Transparency is considered as a collateral damage of the central-local budgetary interdependence and a quite long discussion was focused on its ideal linkage to budgeting (Blndal 2002). We may consider the arguments about transparency in budgeting as one more episode in a metaphysical understanding of social and governmental notions and contexts. There is a rather undifferentiated discussion about weak governments, regulatory capture and lack of trust, mostly perceived from a moral (instead from a social) point of view. But even among social scientists, trust has only marginally been considered as a mechanism for reducing the complexity of the globalised world (and consequently economy), which overcomes the barriers of causal unequivocal interpretations (Luhmann 1988). Trust should be conceptualized as an attribute of the institutionalized system of Governance and in this sense Governance sets the framework to redefine the design, implementation and monitoring of policies in a systemic way. The most important question in budgetary research is about the guarantors of the consistency and the social return of actions among the spenders of public money. The termini steering and coherence of actions are used interchangeably to describe both a self-referred way of organizing as well as a way of exercising power over others in order to better govern. The experience from dealing with the current crisis also attests that coordination can only be achieved by powerful and coherent governments. Thus, we

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could set forth, as a predictive behest for the budget, the necessity to support the coherence of government. The tricky part is to achieve coherence without slipping towards centralization and authoritative management. Governments are entrusted with two different functions: On the one hand, they establish collective binding decisions and, on the other hand, they are stakeholders in the legitimacy process of these decisions. Governments should, of course, preserve, inside the stakeholders network, their distinguished character. It is under this condition, Governments and the political economy of reform (Tommasi and Velasco 1996), shall avoid the traps of bureaucratization of politics (World Bank 1995) and, at the same time, re-gain some of their lost reputation. But, for these certain purposes a redefinition of Governance is needed. It should in an organic way incorporate global, regional, and local characteristics of governing to a unique notion. In order to do that, many cases have to be studied and some concrete examples of failures and successes have to be thoroughly examined. It is in this direction we present the case of the Greek budgetary policy and reform. The Greek case will be elaborated upon in order to evaluate what has been achieved so far trying to construe the jigsaw of economic and political factors affecting the budget, in order to draw a road map for a successful transition from the current budgetary policy to performance based budgeting, in a re-shaped context of Governance. GREEK BUDGETARY POLICY AND REFORM Budgeting reforms in post war Greece are correlated to the Ministry of Coordination. It was established in the early 50s mainly to undertake the coordination of foreign economic aid and to promote the development of the

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country. Most of the institutional, organizational and administrative structures and functions of the country were established under its leadership. The criticism exercised to the Ministry of Coordination regarded the fact that its policy agenda has been formulated as a response to the flow of foreign aid to Greece during the post war period instead of an elaborated national development strategy based on the existing needs of the economy and the society (Porter 1950). Although budgeting in Greece has been constantly described as an instrument of development (Diomides 1905), it was handled rather as a facilitating instrument to support extraneous priorities than as an instrument to serve broader public interest. The criticism was rather accurate, as the same pattern re-appeared some decades later, when Greece joined the European Union. Apart from the national priorities, there were new imperatives deriving from the acquis communautaire and the European conventions whose fiscal policy was called to support, thus becoming an instrument for the integration of Greece to the EU. The main policies which the budget had to support were the regional development, the macro-economic stability and the micro-economic alignment to the Lisbon goals (competitiveness, administrative reform and better jobs) (European Commission 2005). The growth strategy was then focused in following the indexes and indicators monitoring the attainment of the policy priorities imposed by the EU, consequently disorientating the country from the development of initiatives for structural reforms, in order to heal the systemic failure of the Greek state. Examining the current situation from an organizational point of view, the Ministries of Economy and Finance and the Ministry of the Interior, which are involved in the budgetary policy, have been two separate entities during the last two decades. Furthermore, when it comes to the internal formation of the Ministry of Economy

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and Finance, a fractured structure appears once more: The Ministry of Economy merged with the Ministry of Finance, in 2002, but only nominally, since economic policy design was practically separated from fiscal policy implementation and control. The necessity of reducing the number of the Ministries had led to another quasi reform. As a result the economic, financial or organizational performance did not improve. Structural discrepancies led to policy inconsistencies: Although regional development and decentralization has been a promulgated goal, financial management and budgetary control remained heavily centralized. Some competencies and resources were, indeed, decentralized but the strategic planning capacity of the local government was not enhanced Some cultural as well as historic issues were added on top of structural and policy inconsistencies. Clientelism and rent seeking pushed the already tight budget to the edge augmenting its deficit. The large numbers of the so-called special accounts as well as the continued accruals in a series of deficit budgets is a proof of that. Legalism, adhocracy and political maneuvers also hindered the efforts to modernize budgeting: As a matter of fact, during the first eighteen years (1975 1993) after the military junta in Greece, one hundred thirty four (134) bills were enacted, regulating the prices and income policy. The General Accounting Office (GAO), competent for drafting the budget and monitoring its implementation, supervised by the Ministry of Finance, suffers from internal tensions: On the one hand, there is the strong ex ante control culture and, on the other hand, the decentralization policy is going on for almost two decades. The transfer of some dispersed competencies to the local level of governance was not followed by a corresponding realignment of the relevant budgetary structures. The GAO established a well centralized control mechanism, through

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the Financial Control Units (YDE) belonging to the Ministry of Finance and located within the line ministries, the prefectures, some major municipalities and other public organizations. They are independent from the public entity which hosts them, their mission being to control the legality of the entitys expenses. On the other hand, budgeting priorities are set according to the programme, policy and wish of the elected local governments. The line ministries as well as the regional and local authorities remained mere recipients of centrally made decisions about resource allocation. The Municipalities are funded by the state budget through a procedure that involves two decision centers and consequently two poles of political power: The dominant player is the Minister of the Interior who takes the final decision on the exact amount of funds to be allocated to each municipality. On the other hand, it is the Minister of Finance who decides on the ceiling of each category of municipality expenses. The Union of Municipalities of Greece is also a significant political player, since decision makers have to take into account its proposals on how the resources would be allocated. Having not declared and communicated a clear strategy on political, fiscal and administrative autonomy of the local self-governments the different rationale of each one of the participants to the decision making on the budget allocations to the municipalities, leads to tensions among the major stakeholders. With a rigid ex ante control framework in place and people who have developed an organizational culture towards administrative but not performance scrutiny, the budget reform efforts face the challenge of balancing those internal system tensions. Some hesitant reform efforts took place during the past five years, namely the enactment of the regulatory framework for Public Private Partnerships (PPPs), the

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elaboration of the municipal business plans and the pilot programme for performance budgeting. PPPs were widely used in the mid-'90s as an antidote to the feeble results of the nationalization movement which was prevailing in the '80s. Most of the projects for the Olympic games in 2004 were also undertaken through PPPs. But as no regulatory framework was in place until 2005, there is no concrete evaluation of all the PPPs projects undertaken up to then and their efficiency was not always obvious. When the PPPs were regulated a PPP unit has also been created at the Ministry of Economy and Finance, in order to promote and scrutinize PPP projects (Karkatsoulis, Plymakis, Stefopoulou 2009). It could, moreover, serve as an overarching unit to embed PPP initiatives in the countrys growth vision. It is not only the two parallel decision centers that disrupt the coherence of the municipal budget, but the institutionalization of a parallel funding structure which creates extra administrative burdens to the municipal budgetary mechanisms. Some significant extra resources are given to the municipalities through a special project Thiseas, managed by the Ministry of the Interior. Thiseas expenses are not integrated in the state budget but in the annex to the budget, the Public Investment Program. The municipalities are funded on the basis of project proposals, making it difficult to track the total expenditures of a municipality. The municipalities have thus to face the fact that the central state decides on the scope of the investment of their allocated budget, which leaves no room for local initiatives and accountability to flourish. The fragmentation of the budgetary procedure, along with the fragmentation of competencies and of the accountability procedures, is not an isolated phenomenon detected only in the budgetary management at the

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municipal level. In fact, most of the reforms implemented in Greece end up fragmented, although they were designed in a rather comprehensive and systemic manner. A typical example is offered by a reform initiative implemented in the mid '90s. It was the decentralization program Kapodistrias, initiated in 1997 to reform the local selfgovernment. It reduced the number of municipalities from 6500 to 1000, but did not allocate to them the budgetary autonomy. Lack of ownership of the local economic and fiscal policy led to a politically manipulated bargaining between the local and central level of government, resulting to the inflation of the deficit and the public debt of local administrations. These problems are now intensified, because of the global economic crisis. It is only with a recent (2008) decision that a municipal budget is attempted to be connected to an overall strategic planning. Municipalities with a population over 20.000 inhabitants have to present an Action Plan where the expenses and the intended results should be highlighted. Although it took over 1.5 year for the Municipalities to elaborate the Action Plans, they face serious difficulties when it comes to their reliability. Since the allocation of competencies to the Municipalities is still evolving in an incremental way, they cannot guarantee a certain quality of services to be provided by them. Some of the horizontal competencies usually allocated to the local level of government (both regulatory and operational) are still exercised by the central Government. Primary regulatory power remains to the Ministries while linking mechanisms between the levels of government (local and regional) are missing. The central response to the request for a modernization of the budgetary policy came in 2007, with the launching of a programme based budgeting reform. It is an effort, aiming at the introduction of performance budgeting in Greece, in order to fight some major

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deficiencies of the current budgetary policy such as: the weak top-down process, its fragmented and detailed character and the lack of a single cohesive budget which offers a clear snapshot of the state income and expenditures. The reform effort was launched by the GAO in cooperation with the OECD (OECD 2008), in the framework of a three years agreement. A pilot performance budget for the Ministry of Culture and a functional classification of the entire budget became part of the 2008 budget (as an appendix to the annual budget) and it was characterized as an excellent first step that clearly will be a great help in making the budget a more modern strategic policy document (OECD 2008). A similar pilot for all Ministries on a performance basis has been included in the 2009 budget. The initial plan was to shift to a final Programme Based Budgeting by 2012, after having evaluated the results of the pilot projects. In spring 2009, the government announced the acceleration of the procedures to fully adopt programme based budget, so that all Ministries draft a programme based budget by 2011. The GAO used the Classification of Functions of Government (COFOG) methodology (United Nations 2000), to classify general government expenditure into policy areas in order to analyze the effectiveness and efficiency of general government spending. The GAO asked from the line Ministries to present goals which should be attained and performance indicators according to which their results would be evaluated. The officials called to submit a proposal for program budgeting reacted with the well known, already in place, incremental budgeting, simply by recapitulating existing expenditures under the new rubrics of the COFOG classification. The main shortcoming of the performance based budgeting attempt in Greece is its weakness to connect goals and results to estimated expenditures and finally allocated expenses.

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Although the institutionalization of setting goals and performance indicators took place in Greece in 2004, they were never interconnected to the factual administrative actions which followed according to the command-andcontrol model and the legal competencies on which the Greek public administration has been founded. However, it is not only the light goal setting that cancels the rationalization of the budget but it is also the fragmentation of the administrative system, which makes extremely difficult to follow up -if at all- on the goals set by a public organization and to assess the return of its social utility. 19 Ministries (within some of them exist other smaller coming from unfinished mergers), 13 Regions, 54 local governments of second tier and 1034 municipalities are producing a chaotic regulatory environment for citizens and businesses. Even if the Ministries were obliged to connect their activities and projects with goals and performance indicators, it would have been impossible to coordinate and follow up their implementation without clearing the regulatory jungle. A new merger plan to reduce the number of municipalities by two thirds has been recently announced. The present structures for the monitoring of the budget implementation should be strengthened. The Greek Court of Auditors, established in 1833 according to the French Court des Comptes (Charisis 2006), has a heavy work load, scrutinizing ex-ante the expenditures but the results are still to come. The empowerment of the Parliament should be a priority as well. An amendment to the Parliaments Rules of Order concerning the budget procedure was added in June 2008, providing that, in the future, the Parliament will be able to make modifications to the budget, if the budget totals remain unchanged i.e. the Parliament can reallocate between line items and not only vote on the budget on a block basis.

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There is a necessity to provide a unified budget which includes all expenditures and revenues. As a first step toward integration, top-down ceilings should be imposed on the budget and the investment budget data should be included in program budget presentations (OECD 2008) The use of the economic assumptions should also be streamlined in order to enhance the forecasting process. A full set of data for making forecasts should be added to the circular which is being sent out to the Ministries every spring. Such data should include projected GDP growth, inflation, unemployment, social security insurance take up, demographic developments, and other variables or indicators that are of importance in the forecasting process. Budget documentation should include multi-year estimates (years t+2 and t+3) on the basis of maintaining current policy. These estimates should be at program level and continually updated in the light of new policy decisions. The capacity of the GAO to conduct ex ante and ex post value-for money analysis should be strengthened. Accordingly, its responsibility for both the investment and the ordinary budget should be institutionalized. The use of net budgeting (i.e. the budget containing only the transfer of funds, not the total expenditure) to fund public law entities and hospitals should be reformed as well, shifting to a gross budgeting basis as recommended (OECD 2002), since the present situation creates transparency problems. The above mentioned suggestions lead, in the short run, to a rationalization of the current budgetary policy. At the same time, the streamlining of broader reforms, which shall create the conditions for the sustainability of short term reforms, is urgently needed. Such reforms are related to the improvement of strategic planning as well as the enhancement of the administrative capacity of the entities which spend public money.

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An opportunity to deliver long term reform programs is provided through the EU co-funded structural funds Operational Programme Public Administration Reform 2007-2013. The experience from its poor implementation shows though that a high degree of intergovernmental coordination and coherence is needed. The Government should urgently achieve the improvement of its effectiveness and efficiency towards the implementation of both short and long term reforms. If the attainment of reforms, over time, is a difficult task, under the crisis it seems a much more difficult target. But, there is also a strong counter-argument: The crisis offers a good opportunity for reforming and re-organizing both central and local governments, otherwise an exemplary crisis opportunity will run to waste (Gurria 2009) The impact of such a reform shall have a positive impact on budgeting. The reform agenda should be broadened in order to encompass the highest level of government which, up to now, was left out. A restructured government could act as a fertile environment for budgeting, curing many of the shortcomings previous efforts failed to deal with. TOWARDS A NEW GOVERNANCE CONCEPT: FROM NETWORKS TO SYSTEMS The Greek case is not unique in what it concerns a poor budgetary policy and a mal implemented budget. In many countries, European or not, the reforms attempted towards the implementation of a PBB system met substantial difficulties. What caused them was the lack of osmosis between the principles and methodologies of PBB, as they have been developed so far, and the uniqueness of the political, cultural, economical identity of each country (Eigen 1979). The initial Governance proposal which

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attempted to solve all the reforms problems by simply summing up its main components (economical, political, administrative etc.) had either failed, or had hardly offered any result. A re-definition of governance, enriched with the crisis input, needs to confront with the regressive approaches on the states role: A command and control state model isnt an appropriate path to go. Still, more and better guarantees for the proper function of the markets in a social market economy can be provided by a decisive decentralization policy instead of a re-concentration of competencies. Multi-level coordination instead of authoritative decision making and enhancement of accountability in all levels of government can provide a suitable context for a healthy cooperation of the state and markets institutions. A new governance scheme must emphasize on a whole-of- government- approach and integrate through a process of self-knowledge and selfreflection functional and structural elements of the policy cycle, such as planning and monitoring of the implementation of goals and strategy, as well as of the mechanisms for the assessment and redesign of policies. Institutional trust becomes, that way, a more introvert than extrovert issue. In the systemic public policies, the co-existence and cooperation of social sub-systems, depends not on their specific goals but on their ability to share the same basic value set. Moreover, the criteria for the assessment and evaluation of their performance should be established and monitored by the sub-systems themselves (Luhmann, 2000). This is a crucial difference from other approaches that considered a personal disappointment from institutions as critical to their efficiency (Rothstein, 1998). According to our concept, there is no specific point, out there from where one could observe and evaluate a self-referential social sub-system. Anybody who is affecting or being

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affected by governance and its interfaces with the other social systems, is an environmental element and participates, ex definitione, throughout the policy cycle. In this approach, governance is perceived as emerging from the interface among the social subsystems. Trust and distrust of the participators is an indicator of the quality of the systems internalized environment; what in other words has been described as emancipation of a social structure (Mishler and Rose, 2005). In a selfreferential governance system there are no restrictions on the expression of contradictory opinions, interests or conflicts in any given part of it. The divergent degree of the emancipation of the systems parts reflects to the identity of the social system. Therefore, internal and external structures and functions of a system, as well as human capital and communications, provide an indication about its maturity degree. The same goes to the inter-systemic communication and interactions, mostly known as networks. The intersystemic trust, should be understood as an internal affair of the network itself. The budgeting theory should, thus, be revised in such a wider context of governance. Accordingly, its main notions such as "performance", "networks" etc, should be re-conceptualized. It seems an unavoidable prerequisite for PBB to remain alive and well (Boorsma 1999).

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