Brussels, 22.12.2004

COM(2004) 832 final

COMMUNICATION OF THE COMMISSION TO THE COUNCIL AND THE EUROPEAN PARLIAMENT

TOWARDS A EUROPEAN GOVERNANCE STRATEGY FOR FISCAL STATISTICS

COMMUNICATION OF THE COMMISSION TO THE COUNCIL AND THE EUROPEAN PARLIAMENT

TOWARDS A EUROPEAN GOVERNANCE STRATEGY FOR FISCAL STATISTICS

1. INTRODUCTION

In the EU economic policy framework, compliance with budgetary discipline is examined on the basis of quantitative criteria relating to government deficit and debt. Therefore, the quality of budgetary statistics is crucial to ensure adequate implementation of the agreed framework for surveillance and effective co-ordination of fiscal policies. In November 2002, the Commission adopted a Communication on the need and the means to upgrade the quality of budgetary statistics[1] whereby it proposed that the ECOFIN Council endorses a code of best practice on the compilation and provision of data within the context of the excessive deficit procedure. The ECOFIN Council of 18 February 2003 adopted conclusions containing a code of best practice.

The issue of the quality and reliability of the deficit and debt figures for the EU fiscal surveillance has recently been the subject of increased attention. Substantial data revisions contained in fiscal notifications have occurred and the credibility of budgetary surveillance has at times been put at risk.

The Council of Ministers (ECOFIN) of 2 June 2004 acknowledged deficiencies in the compilation and reporting of fiscal statistics to the Commission, and in particular their vulnerability to political and electoral cycles. After having noted that “ reliable statistics are essential for the credibility of the excessive deficit procedure ” it invited the Commission “to strengthen the monitoring of the quality of reported fiscal data and to report back to the Council before the end of the year 2004”. It also invited the Commission to make, by June 2005, a proposal for the development of “minimum European standards for the institutional set-up of statistical authorities”… …”which reinforce the independence, integrity and accountability of the Member States’ national statistical institutes”. These standards should also help to address the specific concerns on the quality of fiscal statistics”.

The Commission adopted on 3 September 2004 a Communication on “Strengthening economic governance and clarifying the implementation of the Stability and Growth Pact” (COM (2004) 581 final). In its Communication, the European Commission suggests possible improvements to the enforcement of the EU fiscal framework :

“The implementation of the fiscal framework and its credibility also relies on the quality, timeliness and reliability of fiscal statistics and the assessment of government budgetary positions. An improved monitoring at the EU level of the reported data will contribute to this end: following the ECOFIN Conclusions of 2 June 2004 the Commission will prepare minimum European standards for the institutional set-up of statistical authorities” .

The Greek fiscal notification of September 2004 showed significant revisions of deficit and debt figures for the years 2000 to 2003. This raised concerns about the reliability of the deficit and debt figures previously notified by Greece and highlighted the possibility of weaknesses in the monitoring of fiscal statistics.

In his statement of 23 September 2004 on the revision of Greek deficit and debt data, Commissioner Almunia said: “In our EMU architecture, statistics are and will remain under the new constitution a national responsibility. It is therefore of outmost importance that the independence, integrity and accountability of the Member States’ national statistical institutions be reinforced in the future. As highlighted in our Communication of economic governance and in line with the ECOFIN conclusions of 2 June 2004, the Commission will make proposals to that effect soon.”

The Commission adopted on 1 December 2004 a Communication from the Commission to the European Parliament and the Council on “Report of the acountability issue related to the revision of Greek budgetary data”[2], which provided an analysis of systemic issues at a global level.

The present Communication aims at presenting a consistent Commission strategy for strengthening the EU governance of fiscal statistics along the following three lines of action:

- first, the relevant provisions on the quality of statistical data used in the context of the Excessive Deficit Procedure should be clarified. A proposal will be presented, aiming at supplementing the existing rules by strengthening data monitoring mechanisms. Under existing law, the Commission (Eurostat) lacks the power to monitor government accounts directly. The existing set of rules needs to be extended to ensure that Eurostat, as the statistical authority, can carry out effective checks on the data notified by Member States;

- second, the operational capacities of the Commission, most notably Eurostat and of the Directorate-General for Economic and Financial Affairs need to be improved. Systematic planning of existing missions, plus longer and more in-depth verification missions, are required. There is also the need to mobilise all existing expertise, including that at national level;

- third, there is a need to establish Europe-wide standards as regards the independence, integrity and accountability of the national statistical institutes.

2. BUILDING UPON THE EXISTING EXPERIENCE

2.1. The EU legal framework

Article 104 of the EC Treaty establishes that Member States shall avoid excessive government deficits and that the Commission shall monitor the development of the budgetary situation and of the stock of government debt in the Member States with a view to identifying gross errors in order to ensure compliance with the required budgetary discipline.

The Protocol on the Excessive Deficit Procedure annexed to the Treaty establishes inter alia that the Member States shall report their planned and actual deficit and debt levels promptly and regularly to the Commission. Furthermore, the statistical data used for its application shall be provided by the Commission.

The detailed rules of the Protocol (including the notification procedure to the Commission) are specified in Council Regulation (EC) No 3605/93[3] (amended by Council Regulation (EC) No 475/2000[4] and Commission Regulation (EC) No 351/2002[5]). The terms used in the Protocol and in the Regulation (such as "government" or "deficit") are defined in accordance with the European system of integrated economic accounts ("ESA 95"), established by Council Regulation (EC) No 2223/96[6]. The ESA 95 is the statistical reference system for the standards, definitions, and accountancy provisions, aiming to ensure coherence and comparability of data supplied by the Member States.

The Economic and Financial Affairs Council of 18 February 2003 adopted a code of best practice for the compilation, transmission and publication of data for the purposes of the excessive deficit procedure, in order to clarify the procedures at the level of the Member States and of the Commission, following a proposal from the Commission[7].

The Code lays down that the Commission’s role as statistical authority in the context of the Excessive Deficit Procedure (EDP) is taken on by Eurostat, on behalf of the Commission. However, the Commission does not directly compile government data in the Member States but depends on data compiled and reported by the national authorities.

The Code of Best Practice also includes provisions for securing the quality of budgetary data by laying down guidelines for resolving methodological issues and monitoring the compliance of data with the accounting rules.

Recent developments and in particular the large revisions of the notified Greek government deficit and debt statistics show the need to complement the present set of rules.

2.2. The experience of statistical monitoring

Accurate monitoring of the budgetary developments in the Member States requires comprehensive, reliable and timely fiscal statistics. EU legislation imposes that the fiscal figures reported to the Commission meet the requirements with respect to the definitions in the European System of Economic Accounts, ESA 95. Fiscal figures that meet the ESA 95 statistical standards are suitable for comparative analysis.

Member States have been notifying their ESA government deficit and debt figures to the Commission within the framework of the Excessive Deficit Procedure (EDP) since its implementation began in 1994. The experience gained is that the quality of the ESA figures submitted to the Commission has improved steadily throughout these ten years.

However, experience also shows that there is room for further improvement as various types of difficulties still impinge on the quality of statistics, and that it is now opportune to adopt measures to ensure harmonised implementation of the rules in this key area, as presented in Section 3.

In this respect, it is important to ensure that the accounting rules of the ESA 95 are interpreted correctly and that the necessary methodological requirements are implemented in a consistent way. In addition, it is important to ensure that Member States have sufficient statistical capacity to enable reliable data to be issued within the deadlines stipulated. Finally, it is essential to confirm that Member States have robust systems of compilation and classification of basic government data, that they produce budgetary accounts of good quality and that they make the quantitative information available to the statisticians according to the necessary timetable.

Eurostat has the key responsibility of ensuring that the data used in EU fiscal surveillance meet the necessary statistical quality standards. This requires a regular and in-depth dialogue with national statistical offices. Eurostat has steadily intensified its monitoring of the quality of data notified in the framework of the EDP. EU statistical legislation has been adopted through the years in order to develop the coverage and the timeliness of the transmission by member States of ESA 95 government accounts statistics to Eurostat.

3. THE COMMISSION PROPOSES THREE LINES OF ACTION

To deal with the current situation, the Commission has proposed, in its Communication on the acountability issue related to the revision of Greek budgetary data[8], three lines of actions relating to, respectively, building up the legislative framework, improving the operational capacities of Eurostat and the Directorate General for Economic and Financial Affairs (DG ECFIN), and lastly, establishing European standards on the independence of national statistical institutes. The main objective is to establish stronger, common oversight of the governance of fiscal statistics at European level, which is itself essential to economic governance.

3.1. Completing the legal framework

To begin, the Commission will propose to supplement the existing rules to strengthen data monitoring mechanisms. As the law currently stands, the Commission does not have the right to monitor public accounts directly, much less to compile data in the stead of Member States. The Commission, as per the principle of subsidiarity, cannot extend its prerogatives to the point of taking the place of Member States within a system for collecting, compiling and notifying on data if the legislator has not provided for this. Insofar as Eurostat, as a statistical authority, must be able to actually verify the figures provided, there is a need to supplement the current provisions with an instrument which would consolidate the following aspects:

- the recognition of audits on the basis of documents consisting of a right for the Commission to directly examine public accounts – together with the corresponding obligation on national authorities to keep and make available all of the relevant sources of information;

- the establishment of on-the-spot checks consisting of verification missions, with a precise definition of the scope of the Commission’s powers within these missions, such as guaranteed access to all locations, all pieces of information and all individuals;

- precisely defining exceptions to confidentiality when this is invoked by Member States and does in fact relate to legitimate interests; in return, the Commission is under an obligation to maintain confidentiality;

- the rules under which these checks are to operate, for example, whether experts from other national administrations may take part in them.

The Commission intends to propose draft legislation that will enable it to carry out in-depth verification of the figures. The draft legislation will also include measures to make Member States truly responsible for the budgetary figures that they transmit to the Commission, in particular through provisions which make those providing the figures liable for them.

Furthermore, it will include the implementation of a number of initiatives improving transparency, such as disseminating the fiscal notification tables and publishing the reports on verification missions to Member States.

The proposal will build upon the experience gained in the implementation of the Code of Best Practice and will aim at setting up surveillance mechanisms, resolving methodological issues and increasing accountability and transparency. The modalities for implementation of the Council Regulation will be defined and adopted by the Commission, taking into account experience gained.

The Commission intends to adopt this legislation proposal in the course of the first months of 2005.

3.2. Developing the operational capacity

Secondly, Eurostat’s operational capacity has to be addressed, as well as the way in which Eurostat’s statistical checks interact with DG ECFIN’s budgetary surveillance under the Stability and Growth Pact. This will include the following:

- systematic planning of verification missions in addition to the missions which are currently carried out;

- mobilisation of all of existing expertise: intellectual resources in the highly-technical field of national accounting, particularly in the public sector, are not limitless. The goal must therefore be to allow Eurostat to benefit from the expertise which already exists in the Member States by providing the Commission with the support of national bodies and statistical experts;

- budgetary support for the goal of reinforcing and making systematic the checks on the accounts of national public administrations. The financial and human-resource requirements need to be analysed and may have to be reallocated in order for Eurostat and DG ECFIN to be able to carry out in-depth evaluations of fiscal statistics and budgetary positions.

3.3. Towards minimum European standards

The third line of action concerns the development of minimum European standards for the institutional set-up of statistical authorities. This action requires a thorough consultation of the competent national authorities in order to ensure a coherent, comparable and efficient framework to be applied as soon as feasible, as well as careful examination of the legal basis, taking due account of the principle of subsidiarity.

The Commission is currently working on guidelines to improve statistical governance. There is a need to establish minimum European-wide standards in the domain of statistics, which reinforce the independence, integrity and accountability of the National Statistical Institutes, in order to respond to the invitation of the ECOFIN Council on 10 September 2004. The Commission is examining various possible legal instruments for organising the framework, such as a Code of Conduct or a Directive.

These standards should have the dual purpose of, on the one hand, improving trust and confidence in statistical authorities by proposing certain institutional and organisational arrangements, and, on the other hand, reinforcing the credibility and quality of the statistics they produce and disseminate, by promoting the coherent application of best international statistical principles, methods and practices by all producers of official statistics in Europe.

Eurostat had the occasion to discuss the outline of such a Code in November 2004 with the Member States in the framework of the Statistical Programme Committee, comprising the Directors General of the National Statistical Institutes; work continues in the first months of 2005 within a task force comprising Member States and Eurostat representatives, in order to finalise the minimum European standards by June 2005, as required by the ECOFIN Council.

[1] Communication from the Commission to the European Parliament and the Council on the need and the means to upgrade the quality of budgetary statistics (COM(2002) 670 final).

[2] COM(2004) 784 final.

[3] Council Regulation (EC) No 3605/93 of 22 November 1993 on the application of the Protocol on the excessive deficit procedure annexed to the Treaty establishing the European Community (OJ L 332, 31.12.1993, p. 7).

[4] Council Regulation (EC) No 475/2000 of 28 February 2000 amending Regulation (EC) No 3605/93 on the application of the Protocol on the excessive deficit procedure annexed to the Treaty establishing the European Community (OJ L 58, 3.3.2000, p. 1).

[5] Commission Regulation (EC) No 351/2002 of 25 February 2002 amending Council Regulation (EC) No 3605/93 as regards references to ESA 95, OJ L 055 , 26/02/2002, p. 23

[6] Council Regulation (EC) No 2223/96 of 25 June 1996 on the European system of national and regional accounts in the Community (OJ L 310, 30.11.1996, p. 1) last amended by Regulation (EC) No 1267/2003 of the European Parliament and of the Council of 16 June 2003 (OJ L 180, 18.7.2003, p. 1).

[7] COM(2002) 670 final.

[8] COM(2004) 784 final.