Eurostat details problems with Greek public accounting

Economic and Monetary Affairs Commissioner Joaquin Almunia today will recommend to the European Commission that a warning letter be sent to Greece over inaccurate budget data submitted for the years between 1997 and 2003. The letter, which is expected to be endorsed by the Commission, is the first stage of the procedure envisaged for member states whose budget deficit exceeds the prescribed limit of 3 percent of gross domestic product, leading to possible referral to the European Court of Justice. After a revision of public finances for 2003, initiated by the Greek government itself, the European Union’s statistics service Eurostat has calculated that Greece actually violated the 3 percent rule for all the years of the period in question, including 1999, the year prior to the country’s entry into the eurozone. Economy and Finance Minister Giorgos Alogoskoufis, who appeared confident on Monday that the Commission will not ultimately send Greece to the European Court, yesterday presented Parliament with a Eurostat report, dated November 22, detailing Greece’s divergences from the expected accounting methods. «The reliability of Greek deficit and debt statistics has been the object of particular attention by Eurostat in the past. Statistical issues in this field were debated with the Greek statistical authorities far more frequently than with any other Member State,» said Eurostat. «Government accounts are compiled by the Member States’ statistical authorities and reported to the Commission… Eurostat’s role is to check the accounting treatment of the data in the framework of the European system of integrated accounts (ESA 95)… Eurostat has repeatedly expressed concerns on the accounting treatment of some issues… «However, Eurostat has no power to audit the data provided by the Member States. Therefore, the quality of statistical data for the excessive deficit procedure depends to a large extent on the administrative ability, good will, good faith and cooperative spirit of Member States.» Eurostat acknowledged that this year’s revised figures rest on a more faithful application of the ESA 95 and said the principal elements explaining the revision of the Greek deficit between the March 2004 and September 2004 notifications are the under-recording of military expenditure, the overestimation of the surplus of social security funds, and the downward revision of tax revenue estimates (mainly VAT). Military equipment «These three elements alone explain almost 90 percent of the total revisions… The divergences on account of the recording of military equipment account for 25 percent of the total revisions in 2003, 75 percent in 2002, 50 percent in 2001 and 90 percent in 2000,» Eurostat said. As a result of the revision, the Greek deficit changed, in relation to previously published data, from 2.0 percent of GDP to 4.1 percent for 2000, from 1.4 percent to 3.7 percent for both of the years 2001 and 2002, and finally from 1.7 percent to 4.6 percent for 2003. ESA 95 rules concerning the recording of expenditure in military equipment have been interpreted as implying that military equipment should be recorded as government expenditure at the moment of their delivery, irrespective of effective payments, the Eurostat document said. It added that, as acknowledged by the Greek authorities, although the method for recording expenditures was based on deliveries, in fact no information on deliveries was ever received by the National Statistics Service (NSS) and the Ministry of Finance after 1997. «Therefore most military expenditures covered by borrowing were not recorded since the last seven years. As information on deliveries could not be obtained now, the Greek authorities have decided to record these amounts on a cash basis.» Recording of taxes Eurostat said that in November 2002 it concluded that the implementation of the formula defined by the Greek statistical authorities in order to record taxes and social contributions in ESA 95 did not seem to be in line with Regulation (EC) 2516/2000 of the European Parliament and of the Council, and with Commission Regulation (EC) 995/2001. In 2003, Eurostat found that the coefficients used by the Greek statistical authorities to estimate the amounts of taxes and social contributions unlikely to be collected were not calculated correctly and asked the Greek statistical authorities to record such amounts using the time-adjusted method, which seemed to be the only reliable method that could be applied in the case of Greece. Eurostat said the Greek statistical authorities complied but that eventually the amount of revenue for the year 2003, mainly due to VAT, had been overestimated by 1436 million euros, that is, 0.9 percent of GDP. Conclusions The shift to cash accounting regarding military equipment was not determined by methodological reasons – the accounting rules have not changed – but because of feasibility considerations. Given the confidential nature of data on deliveries in Greece, only cash accounting can guarantee that no expenditure is left unrecorded. Regarding the surplus of social security funds between 2001 and 2003, Eurostat said it had identified the Greek relevant accounts as very fragile already several years ago, and urged Greek authorities to correct a situation that was clearly unsatisfactory. «Greece has now implemented a new survey and… there is evidence that social security does register significant surpluses and invest some of the surpluses in the stock exchange. Given the lack of experience in the compilation of social security accounts in Greece, this topic needs to be monitored over the next years, but there would be no reason for Greece from now on for not compiling high-quality social security accounts.»