ECONOMY

EU finance officials agree on steps toward more transparent budgets

BRUSSELS – European Union finance ministers yesterday agreed to steps that will help prevent creative accounting from flattering public finances as part of a broader push to improve the quality of economic data. The European Commission stepped up calls for better quality budget data after the high-profile case of Portugal, which discovered in 2002 that it bust European Union deficit limits the previous year as it sharply revised upward its 2001 shortfall. Greece also had to revise its budget data last year after strict application of the accounting methods used by the EU statistics office, Eurostat, showed it would run a small deficit in 2002 rather than the surplus it had expected. At a time when faltering growth is causing budget slippage in the eurozone’s largest economies, the EU executive has insisted it cannot do its job of policing public finances without a more accurate picture of budget positions. «As shown by recent experience, there are still weaknesses in the compilation, reporting, and publication of budgetary statistics,» according to a text which EU sources said had been backed by finance ministers meeting in Brussels. The move is long overdue as far as financial markets are concerned, analysts said. «The current data releases are appalling – last year, there was no indication in March or April that the budget situation was going to be as bad as it turned out to be,» said Jacques Cailloux, European economist at Barclays Capital in London. «They definitely need to improve the harmonization, quality and timing of the data. If budget deficit or debt figures are revised two years later it is not very good for financial markets who really want to know if you can trust the figures, particularly as it will affect issuance (of bonds).» The lag with which final budget data is released has underscored the difficulty that EU officials face in heading off budget slippage before deficits threaten the EU cap of 3 percent of gross domestic product, which Germany has breached. The Commission currently relies on EU member states to submit regular estimates of the state of their public finances, with the data later checked by the independent Eurostat. The full verification process can take some time. EU finance ministers are hoping to address the delay in obtaining Eurostat-verified budget data by adopting a code of best practice which sets out the obligations of EU member states to provide accurate and timely data. The code calls for an inventory to be compiled next year, and updated regularly, of the methods and sources that states use to compile debt and deficit data. This will be used to ensure countries are using comparable procedures to gather the data and producing accurate accounts of the health of their public finances.