WRITTEN QUESTION E-3177/02

by Charles Tannock (PPE-DE) to the Commission

(7 November 2002)

Subject: The Integrity of the Growth and Stability Pact

As right-of-centre governments took power in a number of Member States, including France, Italy and Portugal, it became clear that the budgetary deficits in these countries had been seriously underestimated. In the case of Portugal the figure of 2,2 % claimed by the outgoing Socialist government has given way to a figure of 4,1 %. In the case of Italy, a figure of 1,4 % has been revised upwards to 2,2 %. For the record, can the Commission indicate what it now believes were the correct figures for each of the Member States where there has been an upward revision following a change of government, does the Commission believe that the upward revision of the Italian budgetary deficit was due entirely to the application of Eurostat's recent decision on the calculation of securitisation operations undertaken by general government (c.f. Euro-Indicators news release 116/2002) and how was it possible for so many left-of-centre governments to pull the wool over the Commission's eyes using what many would regard as Enron-style accounting procedures?

Does the Commission believe that it has now identified the principal methods used to disguise true budgetary deficits and, if so, what measures has it taken to ensure that similar methods are not being used in Member States where there has been no recent change of government?

Finally, according to the Maastricht Treaty Protocol on the Excessive Deficit Procedure, government deficit (surplus) means the net borrowing (net lending) of the whole general government sector (central government, state government, local government and social security funds), and is calculated according to national accounts concepts (European System of Accounts, ESA95). Government debt is the consolidated gross debt of the whole general government sector outstanding at the end of the year, whilst primary surplus means the government deficit/surplus excluding interest charges. In his answer to Written Question E-1620/02(1), Commissioner Solbes Mira pointed-out that the British government's finances have been close to balance or in surplus in recent years, thus upholding the requirements of the Growth and Stability Pact while at the same time conforming to the British government's own fiscal rules, including the so-called golden rule, which stipulates that investment expenditure by government should not be counted as expenditure for the purposes of the Growth and Stability Pact. Can the Commission clarify whether or not such investment expenditure constitutes net borrowing under the terms of the Pact as defined by the aforementioned Maastricht Treaty Protocol?

(1) OJ C 28 E, 6.2.2003, p. 125.

Answer given by Mr Solbes Mira on behalf of the Commission

(4 December 2002)

According to the protocol on the excessive deficit procedure, the deficit figure must be in line with the European system of integrated economic accounts, the current version of which is ESA95(1). Experience accumulated over the years by both Member States and the Commission have led to an increase in the quality of data and it must be acknowledged that the EDP has given a major impetus for improving the quality and comparability of Community government accounts. The ESA95 government accounts are now more reliable, complete, transparent and detailed, and are published in a more timely fashion than a few years ago. Moreover, co-ordinated efforts have been made to harmonise the accounting rules and to check the respective implementation. Thus, the government accounts of the different Member States are now of better quality and more comparable than they used to be.

However, weaknesses can still be identified, as highlighted recently by the significant revision of figures and therefore late identification of the excessive deficit in Portugal for 2001.

Improvements can therefore be introduced in different aspects of the budgetary collection and verification process. Additional steps are therefore needed to further improve the reliability and timeliness of the budgetary statistics which are the foundation on which the fiscal surveillance is built. The Commission will soon propose

to the Council a set of best practices on the reporting of government data. The purpose is to clarify the role and responsibilities of different actors in order to increase transparency, quality and timeliness of the budgetary data (both statistics and forecasts) used in the surveillance process.

The Commission published its 2002 autumn forecast on 13 November 2002. The 2002 deficit in Germany is now forecast to be 3,8 % of gross domestic product (GDP), in France 2,7 % of GDP, in Italy 2,4 % of GDP and in Portugal 3,4 % of GDP. In Italy, the 2001 deficit has been revised upward by 0,6 % of GDP due to the Eurostat decision on the accounting of securitisation operations.

As regards the treatment of government investment expenditure in the calculation of net-lending, the ESA and the EC Treaty are very clear: the recording in the accounts of investment expenditures are in no way different to any other government expenditure. That is, recorded government investment expenditure has an impact on net lending.

(1) Council Regulation (EC) 2223/96 of 25 June 1996 on the European system of national and regional accounts in the Community (ESA 95) OJ L 310, 30.11.1996.