WRITTEN QUESTION E-1892/01

by Antonios Trakatellis (PPE-DE) and Ioannis Marínos (PPE-DE) to the Commission

(28 June 2001)

Subject: Economic values and creative accounting in Greece

It has been said and written innumerable times that some Member States have resorted to creative accounting and that the manner in which it is used runs counter to the objective of containing fiscal deficits, which is a basic component of the stability and development programmes.

What are the Commission's findings in this respect, and what practical steps is it taking to curb this phenomenon? In particular, does it consider, in common with the Council's official opinion that the Greek Government's stability programme for 2000-2004 is ambitious in terms of development and employment and that future challenges call for a more determined approach to reform that progress in this area will be further hindered if it is in fact confirmed, that by virtue of creative accounting, the Greek public debt appears to be five or six times lower than it actually is, as figures disclosed to the Greek Parliament reveal? It has been said, for example, that although the official fiscal deficit in the national budget for 2000 is calculated as 0,9 % of GDP, the final report by the Governor of the Bank of Greece puts the Greek Government's borrowing requirement for 2001 at 4 % of GDP. To what extent is the Commission aware of this important issue? Has it taken steps to check the credibility of these allegations and to what extent does it consider the government's reassurances to be sufficient? What specific, verified information does the Commission have on this matter? If in fact there is an attempt to cover up the real extent of the public debt, the consequences for future economic stability in Greece would be devastating since, apart from the disruptive effect it might have on the EU's stability, future generations would have to pay an extremely high price because of the practice of transferring debt to future financial years by means of issuing securities and bonds in anticipation of future revenue. What is the Commission's view of the Greek Government's advance borrowing from the banks against future revenue from the third Community Support Framework obviously for high rates of interest and commission which will become a liability in future financial years? Does anything similar occur in other countries involved in the Cohesion Fund?

Answer given by Mr Solbes Mira on behalf of the Commission

(18 September 2001)

The assessment of the budgetary situation of Member States is made on the basis of information provided to the Commission, on a regular basis, according to the EC Treaty, that is, in the context of the excessive deficit procedure (twice a year) and in order to satisfy the requirements of the Stability and Growth Pact (Convergence and Stability Programmes, once a year). Budgetary data refer to the general government which includes: the state budget and the central government, the local government and the social security sector; data are elaborated by the Member States on the basis of the rules laid down by Council Regulation of ESA 95 (European System of National Accounts(1)). The conformity of the submitted data with Regulations is validated regularly by the Commission (Eurostat).

Greece submitted the first stability programme under the requirements of the Stability and Growth Pact in December 2000. At that time, the deficit of the general government for 2000 was estimated at 0,8 % of gross domestic product (GDP). Following an assessment by the Commission, and with respect to the Commission Recommendation, the Council issued an opinion on the Greek stability programme on 12 February 2001. In the March 2001 notification under the excessive deficit procedure, the deficit of the general government was marginally higher, at 0,9 % of GDP for 2000. For the sake of transparency, the notification explains in detail the transition between the budget deficit (public accounts) and the government deficit (national accounts); according to this, the State budget deficit in 2000 was 4,0 % of GDP (public accounts), while the deficit of the central government was 3,3 % of GDP (in national accounts, ESA 95) and the surplus of the social security sector reached 2,4 % of GDP. Indeed, the social security sector accounts in Greece in recent years show significant surpluses which are contributing in compensating partly the deficit of the central government and the State Budget. This situation is partly explained by the fact that, while a small number of main pension funds face large deficits and are extensively subsidised by the State Budget, a big number of supplementary funds are receiving contributions and pay no pensions as they have not yet attained maturity. To some extent, the surpluses of the social security funds are the result of the reforms undertaken in the 1990s.

With respect to the stock of government debt in Greece, the data notified in March 2001 showed that the debt ratio declined by only 0,7 percentage points to 103,9 % of GDP in 2000 while the 1999 Convergence Programme projected a much stronger reduction; this development was partly due to valuation effects on Greece's external debt from the strong decline in the drachma effective exchange rate in 2000. Although the debt ratio in Greece is on a downward trend since 1996, it is still very high and exceeds significantly the reference value of 60 % of GDP set in the EC Treaty. For this reason, and in view of preparing for future challenges, notably the budgetary burden from ageing population, the Commission and the Council have recommended to the Greek government to implement a

fiscal consolidation strategy centred on high primary surpluses which is essential in reducing rapidly the still very high government debt ratio. Such a strategy is indeed underlying the budgetary projections of the first Greek stability programme. The Greek government will present an update of the stability programme before the end of 2001.

Finally, with respect to debt management operations and debt financing, the Commission is not involved in the choices made by governments as regards the financial instruments used. Nonetheless, the Commission is monitoring on a regular basis, in the framework of the above mentioned procedures, the correct treatment of each operation in terms of national accounting and ensures that a sufficient degree of transparency is associated with Member States' reporting. In cases where the treatment of a financial operation is not covered explicitly by the commonly established rules of national accounting, the Commission proceeds to an ad hoc methodological examination of the operation in close collaboration with all Member States; subsequently, a general recommendation is issued, thereafter followed by all the Member States. For instance, this has been the case a few years ago as regards the treatment of privatisation revenues, of debt assumption and of zero coupon bonds.

Nevertheless, as far as the Community Support Framework for the 2000-2006 programming period is concerned, the Commission has written to the Greek authorities, asking for some clarifications about the practicalities of these schemes.

(1) Council Regulation (EC) No 2223/96 of 25.6.1996 OJ L 310, 30.11.1996.