COMMISSION OF THE EUROPEAN COMVttJNITIES 
C0M(94) 16 final 
Brussels, 04.02.1994 
COMMUNICATION FROM THE COMMISSION TO THE COUNCIL 
AND THE EUROPEAN PARLIAMENT 
on progress in harmonization of GNP 
and the evaluation of financial support 
T?I 
communication to the Council and the European Parliament 
on progress in harmonization of GNP 
and the evaluation of financial support 
1. Summary and conclusions 
The decisions of the Edinburgh European Council concerning the financing of the Community for the 
period 1993 to 1999 envisaged a gradual replacement over the period 1995 to 1999 of the third resource, 
based on VAT, by the fourth resource, based on GNP, as the main source of Community finance. Work 
will therefore need to be speeded up if there is to be the most solid and equitable basis possible for the 
Member States' contributions to the Community budget. 
The work carried out by the Commission with the assistance of the GNP Committee has revealed 
shortcomings in the comparability of the GNP of the Member States. 
1. The Commission has already adopted Decisions aimed at clarifying certain rules of the European System 
of Integrated Economic Accounts (ESA) and ensuring that they are applied in a uniform fashion in all the 
Member States. Other Decisions will also be proposed. 
Two areas could be improved as regards the reliability of the accounts: the production of national business 
registers and the extension of statistics to cover market services would be in line with the concerns of the 
Community statistical programme and action has already been undertaken in both these areas. 
2. Work should in future concentrate mainly on evaluating the underground economy and integrating it into 
the national accounts. 
Some Member States have made more effort than others to cover this part of the economy, even in the case 
of countries with similar levels of statistical development. 
The Commission has adopted a programme of work on the underground economy and a timetable with a 
view to obtaining reliable results by 1 October 1995, the date by which the Commission must be informed 
of the GNPs (pursuant to Article 3 of the Directive). 
3. In order to examine the possibility of including corrections for tax evasion and avoidance in the present 
estimates, the programme includes a section concerning the use of the results of tax audits. Most of the 
Member States' delegations present at the meeting of the GNP Committee stressed the difficulties of 
obtaining access to these results and the Commission therefore calls on the competent national authorities 
to facilitate cooperation between the tax authorities and the statistical institutes. 
4. It will not be possible to implement this programme of work unless the Member States and the Community 
are able to finance the necessary actions in the various countries with a view to improving estimates of the 
underground economy. 
The Commission urges the Member States to take measures to allocate the necessary resources to the 
statistical institutes. 
The Commission will have to support this effort. Community financing has been estimated at ECU 3 
million, of which 1 million has been taken from the Eurostat(*) credits in the Commission budget for 
1993. 
(*) Statistical Office of the European Communities (Eurostat). 
2. Introduction 
2.1 Since 1988, the gross national products of the Member States have formed the basis of a new form 
of Community own resource. The Council Directive on the harmonization of the compilation of 
gross national product at market prices (GNP)' ' therefore establishes a procedure for verifying and 
assessing the comparability and representativeness of the GNP of the Community Member States 
calculated in accordance with the European System of Integrated Economic Accounts (ESA). 
In addition, the Edinburgh European Council (11-12 December 1992) made a statement concerning 
the financing of the Community for the period from 1993 to 1999 and, in particular, adopted a 
modification to the structure of own resources which would result in an increase in the relative 
weight of GNP, thus increasing the need for comparable and representative GNP data, as provided 
for in the GNP Directive. 
2.2 On 31 March 1992, the Commission submitted to the Council a report on the application of the 
Directive, in accordance with Article 10 thereof. 
In this report it made a general assessment of the degree of harmonization achieved in the GNP of 
the Member States so far. This assessment was based on an initial analysis of the inventories of the 
basic statistics and procedures used to calculate GNP provided by the Member States in accordance 
with Article 4 of the Directive. It can be summarized as follows: 
- GNP is reasonably comparable in the majority of the Member States as far as the regular 
economy is concerned, i.e. that part of the economy which takes due account of the relevant 
economic and social regulations. 
- However, there are shortcomings in a number of Member States and appropriate action has 
been taken to rectify this situation. 
- There would appear to be a need to improve coverage of economic activity by the national 
accounts in order to take more accurate account of activities which, for various reasons, 
escape current statistical enquiry and in order to obtain more systematic information on 
activities carried out without due respect for the relevant economic and social regulations, 
which it has been agreed to call the "underground economy". 
2.3 The aim of the action undertaken is to increase the degree of harmonization of GNP. The 
approaches adopted have been discussed in the Committee set up by the Directive: 
- Certain specific subjects have been identified as requiring ad hoc decisions so that that field 
covered by GNP can be dealt with progressively. Measures aimed at clarifying certain ESA 
definitions and ensuring their uniform application in all the Member States have been 
proposed and in some cases already adopted. 
- The Commission ' has drawn up a report on each of the Member States on the basis of 
the inventories and additional contacts. These reports particularly stress that the reliability 
of GNP depends on factors which are largely beyond the direct responsibility of the national 
accounts departments, as evinced by the need to produce central business registers and to 
extend statistics on market services. 
- All the Member States have made efforts to cover the underground economy, but some 
more than others. The Member States are aware of the work they have to do to make up for 
the shortcomings in this area. 
(*) Council Directive of 13 February 1989 (89/ 130/EEC,Euratom), OJ No L49, 21.2.89, p. 26. 
(**) Statistical Office of the European Communities (Eurostat). 
It will not be possible to complete the work programme concerning the exhaustiveness of GNP 
measurements drawn up by the Commission by the end of 1995 unless the necessary financial 
resource both national and Community, are granted to the Member States. 
It should be borne in mind that when the Directive was adopted the minutes of the Council meeting 
contained the following declaration in connection with Article 7 of the Directive: "The Council and 
Commission declare that the Committee shall concentrate its work on increasing the degree of 
coverage of the so-called underground economy in the context of national accounts." 
2.4 In accordance with Article 10(8) of Council Regulation No 1552/89 on own resources' \ the 1988 
GNP data have been made definitive except as regards the points notified by the Commission by 30 
September 1992. The Commission has therefore expressed a number of reservations for each 
Member State regarding the points which need to be improved. These reservations will make it 
possible to correct the financial contributions of the Member States retroactively. 
2.5 The improvement of the quality of the accounts has benefited from the financial contribution 
provided for in Article 8 of Directive: the ECU 6 million deemed necessary have thus been made 
available to the Member States following the 1989, 1990, 1991 and 1992 budget years. The use of 
these credits is outlined in the annex to this communication. 
Further work on harmonizing GNP, particularly to take account of the underground economy, with 
a view to having harmonized data by the end of 1995, will require additional financial support of 
ECU 2 million. This aid will be used for actions carried out in each Member State under the 
responsibility of the national statistical institute. 
3. Harmonization of GNP 
3.1 The work undertaken 
The work on harmonizing GNP first required the Member States to produce an inventory of the 
procedures and basic statistics used for calculating their GNP. 
On the basis of these inventories as well as additional contacts, a report was drawn up by the 
Commission on the various countries, which was submitted to the GNP Committee at its meetings 
in July and September 1992. These reports are largely devoted to assessing non-financial and non-
agricultural market activities in the regular economy, excluding housing services. In addition to a 
critical assessment, they contain precise recommendations for improving the quality of current 
estimates for this part of the economy. 
The recommendations fall into three categories: 
- Some involve corrections which the Member States can introduce in a very short time -
often concerning compliance with the ESA rules. 
- Others stress the need to compare results from different sources. The validation of estimates 
of household consumption carried out in connection with the national accounts by 
comparing them with the most recent results of the family budget surveys or the retail trade 
production statistics is of relevance to all the Member States. 
(*) Council Regulation of 29 May 1989, OJ No L155, 7.6.89, p. 1, 
- Finally, a third type advocates the development in the majority of Member States of conical 
business registers and the extension of the statistics to cover market services. 
The recommendations set out in the country reports enabled the Commission to formulate "specific 
reservations" for each Member State, as opposed to reservations which were common to all the 
countries and concerned either the horizontal analysis themes (cf. end of part 4) or the 
exhaustiveness of GNP measurement, particularly as regards the underground economy (cf. end of 
part 6). 
In addition, pursuant to Article 19 of Regulation No 1552/89 on own resources, the Commission is 
undertaking missions in each Member State to define a work programme and a timetable for the 
lifting of the specific reservations. These missions will be completed by the end of 1994. 
3.2 The main harmonization problems 
The definition of GNP, as of all the concepts used in national accounts, obeys certain rules. 
Measurement of GNP is the result of statistical work and the comparability of the GNP of the 
Member States presupposes the application of common accounting rules and depends on the quality 
of the statistical sources and valuation methods used. 
1. The common accounting rules are those proposed in the European System of Integrated Economic 
Accounts (ESA). The Member States respect all the ESA rules affecting the measurement of GNP. 
It is also necessary to take account of specific statistical matters in following the ESA. It makes the 
accurate quantification of the basic concepts dependent on the sources of information. In particular, 
the data coming from the accounts kept by the various economic operators themselves may obey 
specific rules and consequently need adjusting to bring them into line with the national accounts. 
2. The degree of coverage of economic activity depends on the statistical sources and methods used for 
producing the national accounts. Ideally, coverage should be both exhaustive, in the sense that ail 
productive operations are measured, and reliable, in the sense that the figure obtained for GNP is as 
accurate as possible. 
Most economic activities in the Community Member States are carried out openly, particularly with 
due respect for tax and social security regulations. However, possibly to varying degrees from one 
country to another, certain economic operators conceal part of their activities and income from the 
authorities and certain production units even operate totally underground. 
The problems of measuring the underground economy are by no means the same as those of 
measuring the regular economy: 
- In the case of the regular economy, reliability plays a central role. The national accounts 
departments have information systems based on declarations by the economic operators 
concerning production, income received or distributed and expenditure from this income. 
The question therefore is to extend the observations received to the known population of 
economic units and, if possible, to compare assessments made according to different 
methods. 
- The purpose of assessing the underground economy, on the other hand, is to correct the 
GNP figures for the effects of under-reporting by production units and to try to cover the 
activity of non-declared units. By their very nature, the methods used in this field can only 
be indirect and cannot hope to be as reliable as is possible in measuring the regular 
economy. 
3.3 General approach to the problems of harmonization 
The ideal approach would involve breaking down all the problems arising in the valuation of GNP 
into a number of subject groups. These would be analysed simultaneously, and proposals made, for 
all the 12 Member States. Given the diversity of the statistical sources and valuation methods, 
however, it is not possible to adopt this approach systematically. 
It has therefore been decided to combine the two approaches, i.e. the subject approach and the 
country approach, depending on the type of problems involved. The subject approach is also 
referred to as the "horizontal" approach to indicate that the question is dealt with simultaneously for 
all 12 Member States. 
Part 4 of this communication describes progress to date on the subjects of horizontal analysis. 
Part 5 describes progress to date on improving the reliability of GNP measurement and particularly 
stresses the need to improve the statistical instruments in most Member States. 
Part 6 deals with the exhaustiveness of GNP measurement and describes work in this field -
particularly the work programme and timetable drawn up by the Commission. 
Part 7 gives a brief outline of work undertaken in three countries (Greece, Portugal and 
Luxembourg), at the request and with the assistance of the Commission and the statistical institutes 
of certain Member States, with a view to bringing about a fundamental improvement in the methods 
for producing the national accounts. 
4. Subjects of horizontal analysis: progress to date 
4.1 A number of subjects have already been examined in connection with the Member States as a whole: 
a. The delimitation of the economic territory of the Member States is the subject of a Commission 
Decision^ ' which concluded the discussions in the GNP Committtee. According to the Decision, 
the Overseas Départements must in future be included in the economic territory of France and 
Madeira and the Azores in the economic territory of Portugal. 
b. Classification of taxes and subsidies: at its meeting on 16 June 1993, the Commission submitted to 
the GNP Committee, pursuant to Article 6 of the GNP Directive, two draft Commission Decisions -
one setting out a number of definitions of taxes and the other of subsidies. Since they were 
favourably received by the GNP Committee, these two draft Decisions were adopted. 
These Decisions will particularly result in the GNP data transmitted to the Commission each year, 
pursuant to Article 3 of the GNP Directive, being revised in certain Member States. 
c. The question of how to evaluate housing services has been discussed in the GNP Committee; it 
should be finalized by mid-1994 on the basis of the guidelines proposed by the Commisssion. 
d. The transition from GDP to GNP: the discussion following the presentation to the GNP Committee 
of an initial document primarily concerned problems in connection with the integration of balance of 
payments data into the national accounts. It was decided to consult the Committee on Monetary, 
Financial and Balance of Payments Statistics. This question should also be settled by mid-1994. 
(*) Commission Decision of 26 July 1991 (91/450/EEC,Euratom), OJ No L240, 29.8.91. p.36. 
4.2 It is intended to discuss the following subjects for horizontal analysis during 1994: 
- general government; 
- financial institutions; 
- agricultural activities; 
- distinction between final uses and intermediate consumption; 
- private non-profit institutions. 
Pursuant to Article 10(8) of Council Regulation No 1552/89 on own resources, the Commission has 
formulated reservations for each Member State corresponding to each of the subjects for horizontal 
analysis mentioned above, apart from agricultural activities. These adjustments enable account to be 
taken retroactively of changes to GNP for 1988, which became definitive on 30 September 1992, 
with the particular exception of the points notified by the Commission. 
5. The reliability of the measurement of GNP; progress to date 
Of the recommendations formulated for each of the Member States, those likely to have the greatest 
impact on the measurement of GNP are very probably the ones connected with the production of 
central business registers and the extension of statistics to cover market services. 
a. Business registers 
An exhaustive knowledge of the statistical units is a matter of priority if the reliability of estimates 
is to be improved, since, for various reasons, the sources used for the national accounts do not 
cover all production units and it therefore needs to be possible to extrapolate from the observations 
made concerning those units included in current sources of information to the total population of 
units, or at least to those which are not deliberately trying to escape observation. For this reason, 
the total population of production units must be known. 
Generally speaking, the Member States, apart from Denmark, France and the Netherlands, do not 
have a single centralized register of statistical units. 
Denmark has produced a register on the basis of turnover returns in connection with VAT and 
employers' statutory annual wages declarations. In the Netherlands, the register of statistical units 
and the survey system, in which production statistics are a common element, are closely linked. In 
France, an interadministrative business register has been produced. 
Nevertheless, in the other Member States lists have been produced for launching surveys in specific 
areas of activity. 
In Germany, a census of local production units is carried out at the same time as the population 
census and in Italy periodic censuses of establishments are also organized. 
In Luxembourg, the registration authorities provide Statec (Luxembourg statistical office) with a list 
of persons subject to VAT. In Belgium, there is also a register based on VAT returns in certain 
fields, which is used for production surveys. 
In Greece, the periodic industrial censuses are the only reference universe with which the current 
surveys can be compared. The situation used to be similar in Spain and Portugal, but recently 
efforts have been made to produce a register of statistical unite. This has resulted in the creation of 
the "Directorio Central de Empresas" in Spain from tax and social security records, and of the 
"Ficheiro Central de Empresas e Estabelecimentos" in Portugal. Both are already used for certain 
business surveys. 
The UK Central Statistical Office, in cooperation with the Department of Employment, is also 
producing an interadministrative business register, initially on the basis of data contained hi the 
VAT files and income returns. This will in due course be supplemented by other business registers 
used by the Goverment for statistical purposes. 
b. Statistics on market services 
In France, the use of the accounting data included with the tax returns of enterprises means that all 
non-financial non-agricultural businesses can be covered. In the Netherlands, the revision of the 
1987 accounts benefited from the extension of standardized production statistics to cover the 
services sector. 
However, in the other Member States, market services other than those produced by public 
enterprises and financial services are not completely covered by specific regular surveys. Partial 
surveys are conducted in certain Member States but these do not permit exhaustive coverage of 
market services. 
These gaps are sometimes filled by using VAT statistics, at least in Denmark and Germany. 
It must be stressed that the implementation of these two priority actions is not the direct 
responsibility of the national accounts departments alone. It also depends on the extent to which the 
national statistical systems are developed; the improvement of these systems is a long-term task 
which must take account of the concerns of the Community statistical programme, the main aim of 
which is to implement measures to improve the quality of the Member States' statistics and to make 
them more comparable. 
Some work has already been done in the fields of business registers and market services. 
On 18 June 1992, following a proposal by the Commission, the Council approved a two-year 
programme (1992-1993) for the development of European statistics in the field of services' \ and 
on 22 July 1993 decided to implement a harmonized system of business registers '. 
6. Exhaustiveness of GNP measurement: work programme 
Questions in connection with the exhaustiveness of national accounts, and particularly the coverage 
of the underground economy, have been discussed at GNP Committee meetings, at which the 
following documents have been presented: 
a summary of how the underground economy is covered in the national accounts of the 
various countries; 
. a draft programme of work in this field. 
The summary was presented in the report on the application of Directive. 
The contents of the work programme and the timetable are presented below. 
6.1 The contents of the work programme 
The Commission's proposals for a programme of work on exhaustiveness fall into four categories: 
a. An assessment of adjustments to the accounts in order to cover the underground economy. 
It is possible that adjustments not mentioned in the inventories of statistical sources and methods 
used for calculating GNP provided by the Member States were not included in the summary report. 
It is also possible that use of certain methods at local level enables part of the underground economy 
to be included. 
The Member States should therefore revise the summary report so that the appreciation of the 
present situation can be made as precise as possible. 
(*) Council Decision of 18 June 1992 (92/326/EEC), OJ No L179, 1.7.92, p. 131. 
(**) Council Regulation (EEC) No 2186/93, OJ No L196, 5.8.93, p. 1. 
b. Comparing the employment data from demographic sources with the employment figures underlying 
the measurement of GNP. 
The aim is to try to assess the proportion of clandestine work. Whatever approach is used for 
calculating GNP, there is a volume of employment underlying the measurement obtained, provided 
by the units declared. This volume needs to be compared with the volume of employment resulting 
from the declarations made in connection with the surveys - i.e. population censuses and 
employment surveys - of households. Obviously the problem of people holding more than one job 
must be investigated. 
c. Describing the tax provisions and statistical adjustments applicable to benefits in kind and tips. 
d. Correcting the declarations made by producers or receivers of income in the statistical surveys for 
the effects of tax evasion. 
For this purpose, it is recommended to examine the scope for using the results of verification 
operations carried out by the tax authorities. The Commission considers that it is desirable that the 
competent national authorities facilitate access by the statistical institutes to the results of tax audits. 
If the work described above makes it apparent that certain productive activities are not covered 
exhaustively, the Member States will need to estimate what activity is missing from the GNP. 
This presupposes the definition of methods to integrate the results of the work described in points a, 
b, c and d, particularly regarding the attribution of value added to the clandestine units. The 
Commission has started work on this important question and the results were submitted to the GNP 
Committee in September 1993. 
6.2 Timetable 
In order to obtain harmonized GNP data by the end of 1995, particularly as regards coverage of the 
underground economy, for each module of the work programme: 
- review of adjustments; 
- comparison of employment; 
- description of benefits in kind and tips; 
- use of tax audits, 
the following timetable has been proposed: 
- Transmission by Member States of the results of each module: 30 June 1994 at the latest; 
- Study of results by the GNP Committee: second half of 1994. 
After consulting the Member States at the meeting of the GNP Committee in September 1993, the 
Commission adopted measures concerning the contents of the programme and the timetable for its 
implementation. 
Finally, pursuant to Article 10(8) of Regulation No 1552/89 on own resources, the Commission has 
formulated a reservation for each Member State on the exhaustiveness of the measurement of GNP, 
particularly as regards the coverage of the underground economy, which in this case permits 
retroactive correction of the financial contributions. 
7. Specific actions 
Even before the situation had been examined in detail, the Commission offered Greece and Portugal 
assistance in the work on revising their estimates. This work has been concluded in the autumn of 
1993. 
Greece's national accounts system had some obvious shortcomings and to rectify them the 
Commission has called on the assistance of experts from the French national statistical institute in 
order to generally reform the system, with the following main aims: adoption of the ESA as a 
context for producing accounts, developing more reliable valuation methods and improving the 
coverage of economic activity. The data which have been submitted in October 1993 led to a 
substantial increase in the estimate of Greece's GNP. 
When the Directive was adopted, the INE - the Portuguese national statistical institute - was 
planning to revise the Portuguese national accounts in order to bring them up to date. In order to 
take better account of the objectives of the Directive, the INE has staggered the timetable for its 
revision. The Commission is keeping a close eye on the revision work. The change in the estimate 
of Portugal's GNP is not insignificant. 
At the request of the Luxembourg authorities, the Commission has called on the technical assistance 
of an expert from the German statistical office and German university staff to revise the national 
accounts. Work has also be concluded at the end of 1993. It results in a significant upward revision 
of the GNP. 
/>S> 
ANNEX 
Review of use of credits pursuant to Article 8 of the Directive 
USE OF "GNP CREDITS" 
(Article 8 of the Council Directive of 13 February 1989) AA 
Use of credits 
Belgium 
Drawing up of inventory 
Work on improvement 
Total 
Denmark 
Drawing up of inventory 
Work on improvement 
Total 
Germany 
Drawing up of inventory 
Work on improvement 
Total 
Spain 
Drawing up of inventory 
Work on improvement 
Total 
France 
Drawing up of inventory 
Work on improvement 
Total 
Greece 
Drawing up of inventory 
Work on improvement 
Technical assistance 
Total 
Ireland 
Drawing up of inventory 
Work on improvement 
Total 
Italy 
Drawing up of inventory 
Work on improvement 
Total 1989 
71750 
71750 
80 000 
80 000 
80 000 
80 000 
80 000 
100 000 
180 000 
80 000 
80 000 
80 000 
80 000 
80 000 
70 000 
150 000 
80 000 
80 000 1990 
8 250 
8 250 
200 000 
200 000 
320 000 
320 000 
225 000 
225 000 
100 000 
100 000 
230 000 
28 000 
258 000 
-
-1991 
88 000 
88 000 
300 000 
300 000 
250 000 
250 000 
150 000 
150 000 
20 100 
330 000 
350 100 
180 000 
57 699 
237 699 
100 000 
100 000 
300 000 
300 000 1992 
119 996 
119 996 
120 000 
120 000 
115 000 
115 000 
115 000 
115 000 
115 000 
115 000 
165 000 
72 175 
237 175 
200 000 
200 000 
120 000 
120 000 Currency : Ecu 
TOTAL 
80 000 
207 996 
287 996 
80 000 
620 000 
700 000 
80 000 
685 000 
765 000 
80 000 
590 000 
670 000 
100 100 
545 000 
645 100 
80 000 
575 000 
157 874 
812 874 
80 000 
370 000 
450 000 
80 000 
420 000 
500 000 
Al 
Use of credits 
Luxembourg 
Drawing up of inventory 
Technical assistance 
Total 
Netherlands 
Drawing up of inventory 
Total 
Portugal 
Drawing up of inventory 
Work on improvement 
Total 
United-Kingdom 
Drawing up of inventory 
Work on improvement 
Total 
Support services 
SUB-TOTALS 
Drawing up of inventory 
Work on improvement 
Technical assistance 
Support services 
GRAND TOTAL 1989 
45 000 
45 000 
80 000 
80 000 
80 000 
80 000 
80 000 
80 000 
-
s 916 750 
170 000 
1 086 750 1990 
-
-
250 000 
250 000 
-
-
8 250 
1325 000 
28 000 
1 361 250 1991 
62 900 
62 900 
-
-
-
100 000 
20 100 
1698 000 
120 599 
100 000 
1 938 699 1992 
50 300 
50 300 
5400 
5400 
200 000 
200 000 
177 100 
177 100 
38 330 
5400 
1447 096 
122 475 
38 330 
1 613 301 TOTAL 
45 000 
113 200 
158 200 
85400 
85 400 
80 000 
450 000 
530 000 
80 000 
177 100 
257 100 
138 330 
950 500 
4 640 096 
271 074 
138 330 
6000 000 
ISSN 0254-1475 
COM(94) 16 final 
DOCUMENTS 
EN 09 17 
Catalogue number : CB-CO-94-019-EN-C 
ISBN 92-77-64593-8 
Office for Official Publications of the European Communities 
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