EN    EN  COMMISSION OF THE E UROPEAN COMMUNITIES 
Brussels, 1.12.2004 
COM(2004) 784 final 
  
COMMUNICATION FROM THE COMMISSION  
TO THE EUROPEAN PARLIA MENT AND THE COUNCIL 
“REPORT ON THE ACCO UNTABILITY ISSUE  
RELATED TO THE REVISION OF GREEK BUDGETARY DATA” 
  
{SEC (2004) 1539 } 
 
EN 2   EN TABLE OF CONTENTS 
1. I NTRODUCTION ............................................................................................................ 3 
2. D ESCRIPTION OF THE PRESENT SYSTEM ..................................................................... 4 
2.1. L EGAL BASIS ................................................................................................................. 4 
2.2. R OLE OF EUROSTAT ...................................................................................................... 4 
2.3. R OLE OF THE MEMBER STATES ..................................................................................... 5 
3. T HE IDENTIFICATION OF COMBINED DEFICIENCIES AT ALL LEVELS OF THE 
SYSTEM ......................................................................................................................... 5 
3.1. R ECURRING QUALITY ISSUES IN THE RE PORTING OF BUDGETARY DATA BY THE 
GREEK AUTHORITIES ..................................................................................................... 5 
3.2. I NSUFFICIENCIES IN THE BUDGETARY DATA PROVISION BY EUROSTAT .......................... 6 
3.3. E XISTING LIMITS OF THE BUDGETARY DA TA REPORTING AND PROVISION SYSTEMS 
AS A WHOLE .................................................................................................................. 7 
4. P ROPOSED ACTIONS ..................................................................................................... 7 
4.1. P ROPOSALS CONCERNING SYSTEMIC ISSUES .................................................................. 7 
4.2. P ROPOSALS CONCERNING EUROSTAT ............................................................................ 7 
4.3. A CTIONS CONCERNING GREECE .................................................................................... 8 
 
EN 3   EN 1. I NTRODUCTION  
Recently, the Greek budgetary statistics ha ve undergone a very large revision. The 
government deficit for 2003, which was initially  reported at 1.7% of  GDP, stood at 4.6% of 
GDP after the September 2004 notification. The de ficits notified to the Commission for 2000, 
2001 and 2002 were also revised upwards by more than two percentage points of GDP. Such 
substantial increases resulted from earlier ac tions undertaken by Eurost at as well as the 
initiative taken by the incoming Greek government  in spring 2004 to launch a thorough fiscal 
audit. This initiative led to the September no tification and subsequent  actions by the Greek 
authorities in close and continuing co-operation with Eurostat with a view to remedying the 
situation. 
Data revisions of such a scale have given rise to questions a bout the reliability  of the Greek 
statistics on public finances. The ECOFIN  Council of 21 October 2004 took note of the 
Commission’s information note on the fiscal notification of Greece, and welcomed the Commission’s initiative to present a detailed anal ysis of Greece’s deficit and debt data back to 
1997. The ECOFIN Council of 16 November welcom ed the preliminary Eurostat report, and 
stated the intention to return  to the question of accountabilit y and possible future action to 
prevent the re-occurrence of such events, based on a Commission report. The present 
document, which is based on, and should be seen in parallel with the final Eurostat Report of 
the Greek deficit and debt data over the period 1997-2003, responds to the Council’s request. 
The analysis of the 1997-2003 data shows that  the government deficit has been revised 
upward by 2.1 per cent of GDP on average over  the period. It also concludes that the 
government deficit ratio has consistently exceed ed 3% of GDP. Furthermore, it appears that 
Eurostat was putting particular pr essure on the Greek statistical authorities sinc e the 1990s to 
present their accounts on the basis of agreed and common standards, that Eurostat revised on 
several occasions the data reported by the Greek authorities, and that the Greek authorities fell 
short in the past of the essential co-operation requir ed in such an exercise. 
In general terms, the latest revision between the March 2004 and the September 2004 
notifications rests on a more faithful applicatio n of the ESA 95 and on the availability of new 
data. The principal elements explaining the re vision of the Greek defi cit between the March 
2004 and September 2004 notifications are the under-recording of military expenditure, the 
over-estimation of the surplus of social secu rity funds, and the downw ard revision of tax 
revenue estimates (mainly VAT). The revised de ficit-to-GDP ratio stands now at 4.1% in 
2000, 3.7% in 2001, 3.7% in 2002, and 4.6% in 2003. 
As for the accounts for 1997, 1998, and 1999, the r easons why these figures differ from the 
ones provided in previous notifications are essentially the recording of military expenditures and the treatment of capital injections and EU gr ants. The deficit figures after this exercise 
account for 6.6%, 4.3% and 3.4% of GDP  in 1997, 1998 and 1999 respectively. 
The present report is organised as follows. Sect ion 2 presents a concise description of the 
present system, thereby looking at its legal contex t and the respective roles of Eurostat and the 
national statistical institutes of  the Member States. Section 3 focuses on what went wrong in 
the Greek case: it analyses the weaknesses of th e system, both as far as the Greek authorities 
Eurostat and other participants in the system are concerned. On the basis of this analysis, 
 
EN 4   EN Section 4 draws some conclusions as to possible actions that could be un dertaken in order to 
prevent that similar problems recur. 
2. D ESCRIPTION OF THE PRESENT SYSTEM  
2.1. Legal basis 
Article 104 of the Treaty on European Community establishes that Member States shall avoid 
excessive government deficits, and that the Commission shall m onitor the development of the 
budgetary situation and of the stoc k of government debt in the Me mber States w ith a view to 
identifying gross errors in order to ensure compliance with the required budgetary discipline. 
The Protocol on the Excessive Deficit Procedur e (EDP), annexed to the Treaty (hereafter 
referred to as “the Protocol”), establishes inter alia that the statistical data for the 
implementation of the excessive deficit pro cedure shall be provided by the Commission. The 
Protocol also states that Member States shou ld report on their planned and actual deficits and 
the levels of their debt.  
The detailed rules of the Protocol (including the notification procedure) are specified in 
Council Regulation n° 3605/93. The terms used in  the Protocol and in the Regulation are 
defined in accordance with the European sy stem of integrated economic accounts (ESA 95), 
established also by a Council Regulation (2223/96). The ESA 95 is the statisti cal reference 
system for the standards, definitions, and acc ountancy provisions, aimi ng to ensure coherence 
and comparability of data supplied by the Member States. 
Council Regulation 3605/93 organise s the notification procedure by the Member States to the 
Commission of the budgetary figures within  a specific and regular time framework. 
The ECOFIN Council of 18 February 2003, fo llowing an initiative from Commission, 
adopted a Code of Best Practice for the comp ilation, the transmission a nd publication of data 
for the purposes of the excessive deficit procedur e, in order to clarify the procedures at the 
level of the Member Stat es and of the Commission. 
2.2. Role of Eurostat 
Given the Protocol provision, the Commission fulfils the role of statistical aut hority for EDP. 
It provides the statistical data to be used in the implementation of the EDP, after assessing the 
quality of the data reported by Member States. Moreover, it must interpret the accounting rules whenever there are doubts on the classi fication of government transactions, and how 
such transactions affect the gove rnment deficit and debt levels. When appropriate it can give 
recommendations to national stat istical authorities on the record ing of specific transactions. 
In the internal organisation of the Commi ssion, these tasks of sc rutinising the reported 
accounts and of interpreti ng the accounting rules ar e carried out by Eurostat. By assigning this 
task to Eurostat, the Commission ensures that th e accounting and statistical issues are treated 
independently, by an impartial and technica lly competent body, according to objective 
criteria. Moreover, this independence and techni cal competence is reinforced by the assistance 
given to Eurostat by the Committee of Monetary , Financial and Balance of Payment Statistics 
(CMFB), which gathers statisti cians and national accountants fr om the national statistical 
 
EN 5   EN institutes and national central banks of all Member States, as well as Commission and ECB 
representatives and observers from the EFC. 
The Code of Best Practice specifies the role and mandate of Eurostat, as the statistical 
authority on behalf of the Commission, with rega rd to the evaluation of the notified data, their 
possible modification and their publication. 
The assessment by Eurostat of the data repor ted by the Member States consists in checking 
compliance with the accounting rules, completene ss, plausibility and consistency of data. The 
assessment is based on the tables reported by Member States to the Commission, other 
information accompanying the reporting, any other data, on the inventory of procedures and basic statistics, and on regular c ontacts with the National Statistical Institutes. Eurostat may 
publicly express reservations on the reported data  and eventually introduce changes to them 
when publishing the actual deficit and debt figures. 
2.3. Role of the Member States 
According to Article 3 of the Protocol, Member  States are responsible for the compilation of 
the deficit and debt data and for the transmi ssion to the Commission. The quality of the public 
accounts involves, initially, each Member Stat e. The assessment of the reported data by 
Eurostat cannot exonerate the Member States from their own responsibility. 
The Code of Best Practice specif ies that the National Statistical Institutes have to act in full 
scientific independence, with a strict resp ect of the accounting standards defined in 
Regulations 3605/93 and ESA 95. The Code also describes the obliga tion of the Member 
States to communicate to the Commission any re vision of the figures as soon as possible, 
including documentation to  explain the revisions.  
Overall, Member States have the obligation to facilitate the achievement of the mission of the 
Community, as laid down in Ar ticle 10 of the Treaty. They ha ve to take all general or 
individual measures designed to ensure the implementation of the obligations arising from the 
Treaty. 
3. T
HE IDENTIFICATION OF COMBINED DEFICIENCIES AT ALL LEVELS OF THE SYSTEM  
3.1. Recurring quality issues in the repor ting of budgetary data by the Greek 
authorities 
The Eurostat report on the revision of the budgeta ry figures presented to  the ECOFIN Council 
on 16 November 2004 shows that the Commission services correctly identified the most 
important accounting issues in Greek budgetary  accounts, and that th e key questions were 
raised as early as 1997. Sin ce then, Greece was more closel y monitored than any other 
Member State, as is shown e.g. by the number of follow-up missions1, which was 
substantially higher than in the case of other Member States. This intensive action was reflected in a number of specific recommen dations addressed to the Greek authorities . 
                                                
 
1 For a detailed description, see the final Report by Eurostat on the revision of the Greek government 
deficit and debt figures, 22 November 2004 
 
EN 6   EN Although the recommendations were clear enou gh, the Greek authorities did not – or only 
partly - implement them. On some issues (such as military expenditure and capitalized interest) Eurostat received assurances from the Greek authorities that the transactions were 
correctly registered, while in 2004 it tr anspired that this was not the case. 
The statistical framework, in order to work pr operly, has to rely on a degree of co-operation 
from Member States. Statements made by th e Greek authorities in the past, in regular 
meetings or in formal correspondence with Euro stat, were not always fully accurate in the 
light of the recent information ma de available to the Commission. 
Since 2002, Eurostat systematical ly expressed reserva tions about certain figures for Greece. 
While most countries never received a re servation or some only got one, Greece was 
mentioned not less than four times. 
It appears that the deficiencies of Greek fiscal statistics in the past resulted to a large extent 
from systemic weaknesses, in particular in th e areas of national accounts and public sector 
accounts. Consequently, there is a certain lack  of expertise in these matters, which could 
partially explain the non-compliance with Eurostat ’s recommendations. There is also a lack of 
reliable basic data needed to produce public accounts of good quality. As a consequence of 
this, the Greek Statistical Office made use of pr oxies which did not provide reliable results. 
The revised figures concerning the so cial security are one example. 
The Commission notes that the September notifi cation by the Greek authorities, as well as 
replies by these authorities to further specifi c requests by the Commission since then, have 
allowed now to reduce consider ably the elements of non-compliance with the aforementioned 
legislation.  
3.2. Insufficiencies in the budgetary data provision by Eurostat 
On the basis of the current legislation, Eurost at does not have the po wer to exert direct 
controls of the government accounts of the Memb er States. Discussions between Eurostat and 
the national statistical authorities are based on th e co-operative spirit of  national authorities. 
Eurostat cannot directly compile data from  basic sources, can not oblige the national 
authorities to provide information that is d eemed to be relevant for counterchecking the 
reported deficit and debt figur es, and it does not have the power to make on-the-spot 
verifications of items that may be deemed in  need of further clar ification. As in other 
statistical systems, Eurostat, in its role of  Community statistical authority, works on a bona 
fide basis with the supp liers of basic data. 
In spite of the very important responsibilit y, and of its complexity, the number of staff 
members of Eurostat devoted to the analysis of fiscal statistics is relatively limited. Some of 
the (non-core) tasks were externalised. Eurostat lacks the necessary resources to develop real 
inspection capacities in the field of EDP statistic s. Eurostat did however start to express its 
doubts publicly on several accounting problems in the Greek notifications in  its press releases 
from 2002 onwards. 
There was a lack of awareness of Eurostat to bring promptly the problems to the right public 
level instead of having a clos ed discussion between  statisticians (who we re not sufficiently 
sensitive at that time to the discussions at th e political level). There was also an absence on 
the need to prioritise and to concentrate on co re activities. With the benefit of hindsight, the 
 
EN 7   EN Commission should have report ed earlier and more consiste ntly to the Economic and 
Financial Committee and ECOFIN Council of the problems encount ered. Specifically, already 
when validating the 1999 defici t data in March 2000, Eurostat could have signalled potential 
problems of compliance with ESA 95.  It should also have c onducted a deeper and more 
systematic analysis of the coherence and c onsistency of the figur es. The 2000 Convergence 
Reports by the Commission and the ECB could have  raised questions in this respect ( data 
available at the time showed a deficit of 1.6% of GDP for 1999). 
3.3. Existing limits of the budgetary data rep orting and provision systems as a whole 
The mission reports (conducted in  co-operation with DG ECFIN a nd the ECB) were available 
to the members of the CMFB already in the 19 90s. The issues were repeatedly discussed at 
technical level, with all Member States taking part of the consultation process.  
Member States, through their political instance s, could also have paid more attention to 
statistical revisions. The larg e revision of figures in 2002 passed unnoticed. Statistical 
fragility of Greek budgetary data was repeated ly highlighted in Commission’s assessments 
and reflected in the provision of data by Eurostat. 
4. P ROPOSED ACTIONS  
4.1. Proposals concerning systemic issues 
The Commission is currently working on guideline s to improve statisti cal governance. There 
is a need to establish European-wide standard s as regards 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 Comm ission is considering to organising the 
framework on the basis of a Code of Conduct, possibly through the mechan ism of a Directive. 
This improved governance also implies, inter alia , that the Commission should report in due 
time as soon as any problem appears. This is reflected in the Code of Best Practice of 
February 2003 which states that, within one  month after the reporting deadline, the 
Commission shall summarise major issues or pr oblems in the reporting tables submitted by 
the Member States, with a view to identifying solutions and constantly  improving the quality 
and timeliness of data.  
There is also a need, in order to improve governance, to reinforce both the notification, 
verification and publication procedures, and to bring stability, simplicity and transparency 
into the system. Member States have also to provide consistent support to the system. 
4.2. Proposals concerning Eurostat 
The Commission will consider making a proposal  aimed at supplementing the existing rules 
by strengthening data monitoring mechanisms. Under existing law, the Commission lacks the 
power to monitor public accounts directly. The ex isting set of rules needs to be extended to 
ensure that Eurostat, as the statistical author ity, can carry out effec tive checks on the data 
notified by Member States. This will l ead to a clarification of accountability. 
 
EN 8   EN The Commission will also consider making a propos al to increase of its control and inspection 
capacities for EDP statistics. This means a rein forcement of the Commission services dealing 
with these issues and the po ssibility to include wider expertise from Member States. 
Furthermore systematic planning of existin g missions, plus longer and more in depth 
verification missions, are required. 
4.3. Actions concerning Greece 
The Commission is launching an infringement procedure for the continued failure of the 
Greek authorities to provide the Commission with statistical data in acco rdance with Article 3 
of the protocol on the excessive deficit pro cedure annexed to the Treaty, Council Regulation 
3605/93 and Council Regulation 2223/96 on the European system of national and regional accounts. The Commission considers that this si tuation denoted persistent systemic problems 
in the relevant departments.