The Greek government’s decision to pay out over 600 million euros to the country’s pensioners in the form of a Christmas bonus shows up the weaknesses of its financial management system.
On New Year’s Day The Guardian published a story titled “‘Patients who should live are dying:’ Greece’s public health meltdown.” It quotes the head of the Panhellenic Federation of Public Hospital Employees who describes the acute shortage of resources in the Greek health system. The article identifies the deaths attributed to fatal hospital infections and cites the European Center for Disease Prevention and Control, which “recently revealed that about 10 percent of patients in Greece were at risk of developing potentially fatal hospital infections, with an estimated 3,000 deaths attributed to them.” However, it also notes that the “data referred to outbreaks between 2011 and 2012 – the last official figures available.”
The previous day, in Kathimerini newspaper, Finance Minister Euclid Tsakalotos explained why the government had given Christmas bonuses totalling 617 million euros to pensioners:
“Our problem was that from an administrative point of view it was easier to give to pensioners and spend the money in December so it would go down in the 2016 budget expenditures, as this would not create any problems with regards to the program’s fiscal targets. We could have planned it better if we had more time.”
It is a reflection on the Greek government’s poor grasp of its financial performance and position that it was not aware that it would so significantly “over-perform” financially and have financial leeway to spend this 617 million euros. The implication of the minister’s statement is that, had the government known sooner how well it was doing, it could have allocated the additional spending to more worthwhile ends – such as saving lives in the health system. But because he believed that the cash had to be out the door by December 31, the government opted for the Christmas bonus. There could not be a clearer illustration of how the price for poor financial management in government is that people die.
But what makes this worse is that the finance minister, on December 27 in an article titled “A Europe of Two Narratives,” published in openDemocracy, describes a “rules-are-rules” narrative which he asserts “will sooner or later lead to the break up of Europe.” But in this case, it seems that the minister, or his advisers, did not know the rules. The spending rules, which are formalized in the European System of Accounts 2010, are, like normal commercial accounting, based on accrual numbers. These rules mean that the critical event is not the cash going out the door, but the government having an obligation that it could not reasonably avoid – a liability. On this basis, with the right management skills, the government had options which could have produced a better social outcome.
The result is a government which does not have a modern financial management system, and therefore has a poor grasp of its fiscal position and prospects, on discovering that its position is actually better than it thought, chooses to spend the “over-performance” in the way which gets the money out the door as quickly as possible, even if there are ways that the resources could be better used, e.g. to save lives. And this occurs for two reasons. First, the government’s control of its revenue and expenditure flows is poor, reflecting its archaic cash-based accounting system. Second, it does not know that the rules to which it objects do not in fact require the cash to be out the door, because the rules are on a different (accrual) accounting basis.
Good management requires good numbers. In relation to both its accounting and its health management systems, Greece lacks good numbers. Its accounting system operates on a basis that does not suffice even for small businesses. And its data on patient deaths from hospital infections are five years old. The critical need is for the Greek government to establish management, and especially financial management, systems that are fit for purpose. But such management systems require competent, experienced managers, both to build and to operate those systems. Two key priorities are therefore to recruit financial managers on the basis of competence and experience, and to implement modern financial systems. These two actions would enable the government to plan its resource use better and would be a vital start in rebuilding trust and confidence. And it would save lives.
* Ian Ball is the Chair of the Chartered Institute of Public Finance and Accountancy (CIPFA) International and the former chief executive of the International Federation of Accountants (IFAC).
This article was first published on Public Finance International.