Communication from the Commission to the European Parliament and the Council -  “Report on the accountability issue related to the revision of greek budgetary data” {SEC (2004) 1539 }
Date: 2004-12-01
Institutions: European Commission
Subjects: Eurostat, Greece, audit, budget deficit, economic statistics, public finance

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 1.12.2004 
COM(2004) 784 final 

COMMUNICATION FROM THE COMMISSION  
TO THE EUROPEAN PARLIAMENT AND THE COUNCIL 

“REPORT ON THE ACCOUNTABILITY ISSUE  
RELATED TO THE REVISION OF GREEK BUDGETARY DATA” 

{SEC (2004) 1539 } 

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TABLE OF CONTENTS 

1. 

2. 

2.1. 

2.2. 

2.3. 

3. 

3.1. 

3.2. 

3.3. 

4. 

4.1. 

4.2. 

4.3. 

INTRODUCTION ............................................................................................................ 3 

DESCRIPTION OF THE PRESENT SYSTEM ..................................................................... 4 

LEGAL BASIS ................................................................................................................. 4 

ROLE OF EUROSTAT ...................................................................................................... 4 

ROLE OF THE MEMBER STATES ..................................................................................... 5 

THE IDENTIFICATION OF COMBINED DEFICIENCIES AT ALL LEVELS OF THE 
SYSTEM......................................................................................................................... 5 

RECURRING QUALITY ISSUES IN THE REPORTING OF BUDGETARY DATA BY THE 
GREEK AUTHORITIES..................................................................................................... 5 

INSUFFICIENCIES IN THE BUDGETARY DATA PROVISION BY EUROSTAT.......................... 6 

EXISTING LIMITS OF THE BUDGETARY DATA REPORTING AND PROVISION SYSTEMS 
AS A WHOLE .................................................................................................................. 7 

PROPOSED ACTIONS..................................................................................................... 7 

PROPOSALS CONCERNING SYSTEMIC ISSUES .................................................................. 7 

PROPOSALS CONCERNING EUROSTAT ............................................................................ 7 

ACTIONS CONCERNING GREECE .................................................................................... 8 

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1. 

INTRODUCTION 

Recently,  the  Greek  budgetary  statistics  have  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 deficits 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  actions  undertaken  by  Eurostat  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  notification  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 about 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 analysis of Greece’s deficit and debt data back to 
1997. The ECOFIN Council of 16 November welcomed the preliminary Eurostat report, and 
stated  the  intention  to  return  to  the  question  of  accountability  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 exceeded 3% of GDP. Furthermore, it appears that 
Eurostat was putting particular pressure on the Greek statistical authorities since 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 required in such an exercise. 

In  general  terms,  the  latest  revision  between  the  March  2004  and  the  September  2004 
notifications rests on a more faithful application of the ESA 95 and on the availability of new 
data. The principal elements explaining the revision of the Greek deficit between the March 
2004  and  September  2004  notifications  are  the  under-recording  of  military  expenditure,  the 
over-estimation  of  the  surplus  of  social  security  funds,  and  the  downward  revision  of  tax 
revenue  estimates  (mainly  VAT).  The  revised  deficit-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 reasons 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  grants.  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.  Section  2  presents  a  concise  description  of  the 
present system, thereby looking at its legal context 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 the system, both as far as the Greek authorities 
Eurostat  and  other  participants  in  the  system  are  concerned.  On  the  basis  of  this  analysis, 

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Section 4 draws some conclusions as to possible actions that could be undertaken in order to 
prevent that similar problems recur. 

2. 

DESCRIPTION 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 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  (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 procedure shall be provided by the Commission. The 
Protocol also states that Member States should 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 system of integrated economic accounts (ESA 95), 
established  also  by  a  Council  Regulation  (2223/96).  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. 

Council Regulation 3605/93 organises 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,  following  an  initiative  from  Commission, 
adopted a Code of Best Practice for the compilation, the 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. 

2.2. 

Role of Eurostat 

Given the Protocol provision, the Commission fulfils the role of statistical authority 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  classification  of  government  transactions,  and  how 
such transactions affect the government deficit and debt levels. When appropriate it can give 
recommendations to national statistical authorities on the recording of specific transactions. 

In  the  internal  organisation  of  the  Commission,  these  tasks  of  scrutinising  the  reported 
accounts and of interpreting the accounting rules are carried out by Eurostat. By assigning this 
task to Eurostat, the Commission ensures that the accounting and statistical issues are treated 
independently,  by  an  impartial  and  technically  competent  body,  according  to  objective 
criteria. Moreover, this independence and technical competence is reinforced by the assistance 
given to Eurostat by the Committee of Monetary, Financial and Balance of Payment Statistics 
(CMFB),  which  gathers  statisticians  and  national  accountants  from  the  national  statistical 

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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 regard to the evaluation of the notified data, their 
possible modification and their publication. 

The assessment by Eurostat of the data reported by the Member States consists in checking 
compliance with the accounting rules, completeness, 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 contacts 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 transmission to the Commission. The quality of the public 
accounts  involves,  initially,  each  Member  State.  The  assessment  of  the  reported  data  by 
Eurostat cannot exonerate the Member States from their own responsibility. 

The Code of Best Practice specifies that the National Statistical Institutes have to act in full 
scientific  independence,  with  a  strict  respect  of  the  accounting  standards  defined  in 
Regulations  3605/93  and  ESA  95.  The  Code  also  describes  the  obligation  of  the  Member 
States  to  communicate  to  the  Commission  any  revision  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  Article  10  of  the  Treaty.  They  have  to  take  all  general  or 
individual measures designed to ensure the implementation of the obligations arising from the 
Treaty. 

3. 

THE IDENTIFICATION OF COMBINED DEFICIENCIES AT ALL LEVELS OF THE SYSTEM 

3.1. 

Recurring  quality  issues  in  the  reporting  of  budgetary  data  by  the  Greek 
authorities 

The Eurostat report on the revision of the budgetary 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  the  key  questions  were 
raised  as  early  as  1997.  Since  then,  Greece  was  more  closely  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  recommendations  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 

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Although  the  recommendations  were  clear  enough,  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 transpired that this was not the case. 

The statistical framework, in order to work properly, has to rely on a degree of co-operation 
from  Member  States.  Statements  made  by  the  Greek  authorities  in  the  past,  in  regular 
meetings  or  in  formal  correspondence  with  Eurostat,  were  not  always  fully  accurate  in  the 
light of the recent information made available to the Commission. 

Since  2002,  Eurostat  systematically  expressed  reservations  about  certain  figures  for  Greece. 
While  most  countries  never  received  a  reservation  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  the  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 proxies which did not provide reliable results. 
The revised figures concerning the social security are one example. 

The  Commission  notes  that  the  September  notification  by  the  Greek  authorities,  as  well  as 
replies  by  these  authorities  to  further  specific  requests  by  the  Commission  since  then,  have 
allowed now to reduce considerably 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,  Eurostat  does  not  have  the  power  to  exert  direct 
controls of the government accounts of the Member States. Discussions between Eurostat and 
the national statistical authorities are based on the 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  deemed  to  be  relevant  for  counterchecking  the 
reported  deficit  and  debt  figures,  and  it  does  not  have  the  power  to  make  on-the-spot 
verifications  of  items  that  may  be  deemed  in  need  of  further  clarification.  As  in  other 
statistical  systems,  Eurostat,  in  its  role  of  Community  statistical  authority,  works  on  a  bona 
fide basis with the suppliers of basic data. 

In  spite  of  the  very  important  responsibility,  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  statistics.  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  closed  discussion  between  statisticians  (who  were  not  sufficiently 
sensitive at that time to the discussions at the political level). There was also an absence on 
the need to prioritise and to concentrate on core activities. With the benefit of hindsight, the 

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Commission  should  have  reported  earlier  and  more  consistently  to  the  Economic  and 
Financial Committee and ECOFIN Council of the problems encountered. Specifically, already 
when validating the 1999 deficit data in March 2000, Eurostat could have signalled potential 
problems  of  compliance  with  ESA  95.  It  should  also  have  conducted  a  deeper  and  more 
systematic analysis  of  the  coherence  and consistency  of  the  figures.  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 reporting and provision systems as a whole 

The mission reports (conducted in co-operation with DG ECFIN and the ECB) were available 
to the members of the CMFB already in the 1990s. The issues were repeatedly discussed at 
technical level, with all Member States taking part of the consultation process.  

Member  States,  through  their  political  instances,  could  also  have  paid  more  attention  to 
statistical  revisions.  The  large  revision  of  figures  in  2002  passed  unnoticed.  Statistical 
fragility  of  Greek  budgetary  data  was  repeatedly  highlighted  in  Commission’s  assessments 
and reflected in the provision of data by Eurostat. 

4. 

PROPOSED ACTIONS 

4.1. 

Proposals concerning systemic issues 

The Commission is currently working on guidelines to improve statistical governance. There 
is  a  need  to  establish  European-wide  standards  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  Commission  is  considering  to  organising  the 
framework on the basis of a Code of Conduct, possibly through the mechanism 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  problems  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 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. This will lead to a clarification of accountability. 

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The Commission will also consider making a proposal to increase of its control and inspection 
capacities for EDP statistics. This means a reinforcement of the Commission services dealing 
with  these  issues  and  the  possibility  to  include  wider  expertise  from  Member  States. 
Furthermore  systematic  planning  of  existing  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 accordance with Article 3 
of the protocol on the excessive deficit procedure 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 situation denoted persistent systemic problems 
in the relevant departments. 

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