ESA 2010 accounting rules : impact of new ESA 2010 on local and regional authorities.
Date: 2015-06-29
Institutions: European Committee of the Regions
Subjects: Economic and Monetary Union, European accounting system, financial policy, national accounts, regional accounting, regional and local authorities, world economy

ESA 2010 accounting rules 

Impact of new ESA 2010 on  
Local and Regional Authorities 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
This file note was written by t33, OIR and SWECO. 
It does not represent the official views of the Committee of the Regions. 

More information on the European Union and the Committee of the Regions is 
available  online  at  http://www.europa.eu  and  http://www.cor.europa.eu 
respectively. 

Catalogue number: QG-04-15-446-EN-N 
ISBN: 978-92-895-0818-6 
doi:10.2863/781273 

© European Union, 2015 
Partial  reproduction  is  permitted,  provided  that  the  source  is  explicitly 
mentioned. 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contents 

2.1
2.2

1. Executive summary ........................................................................................... 1 
2. ESA 2010 analysis of new rules ........................................................................ 3 
  Overview of ESA 2010 and rationale for update ........................................ 3 
  Analysis of key changes in ESA 2010 ........................................................ 4 
3. Potential impact on LRAs ............................................................................... 13 
  Key implications of the changes for LRAs ............................................... 13 
  Impact on performance of LRAs .............................................................. 14 
  Transmission changes and information gap .............................................. 16 
  Note on statistical changes in regional accounts ....................................... 17 
4. Narratives from case studies ........................................................................... 19 
  Belgian case: impact on LRAs’ performance ........................................... 19 
  Other case studies- Sweden, Italy and Romania: key narratives .............. 22 
5. Conclusions / recommendations ..................................................................... 25 

3.1
3.2
3.3
3.4

4.1
4.2

 
 
 
 
 
1. Executive summary 

The  European  Commission  has  recently  updated  its  accounting  standards  used 
for the production of national and regional accounts data - the European System 
of Accounts (ESA) - to better reflect the changes occurring in world economies 
and  production  processes  globally.  The  update  was  implemented  through  a 
Regulation in May 2013 and the ESA 2010 rules have been fully in force since 
September  2014.  The  primary  motivation  for  the  new  standards  is  to  capture 
more  accurately  the  performance  of  an  economy  and  also  to  ensure  that  the 
European  standards  are  internationally  compatible,  making  it  possible  to 
describe the total economy of a region, country or group of countries in the EU 
in a way that is reliably comparable with other economies in the world. 

to  also 

A  number  of  methodological  changes,  which  have  an  impact  on  macro-
economic  indicators  such  as  GDP,  public  debt,  etc.,  have  been  incorporated  in 
the  revised  ESA  2010  standards;  and  most  Member  States  are  using  the 
opportunity 
incorporate  statistical  changes  (new  data  sources, 
improvement  of  sources,  etc.).  The  key  changes  involve  capitalisation  of 
research  and  development  (R&D)  expenditure,  and  also  military  expenditure; 
modification  of  methodology  for  goods  sent  abroad  for  processing  (recorded 
only as an export processing service and not as goods exported); a more detailed 
analysis of pension schemes; and an improvement in measuring the contribution 
of  non-life  insurance  to  GDP  by  reducing  the  volatility  caused  by  the  varying 
nature of claims. Another important change, also pertinent to local and regional 
authorities (LRAs) is the change in sectoral classification wherein the definitions 
for  assessing  whether  an  entity  is  government,  public  corporation  or  private 
sector are modified and include also qualitative criteria. In terms of transmission 
of data, a faster deadline has been envisaged (also for the main regional accounts 
indicators) for more timely, improved monitoring. 

With  specific  regard  to  the  impact  of  these  changes  on  LRAs,  a  number  of 
potential issues emerge, verified also through a series of interviews/ case studies 
carried  out  for  the  purposes  of  this  study.  The  methodological  changes  which 
have a regional variation, e.g. R&D which varies widely across the regions, shall 
cause  some  restructuring  in  the  budgets  and  allocations  of  LRAs,  thereby 
affecting  their  investment  capacity.  The  impact  on  structural  fund  allocations, 
though not immediate, shall be felt after 2016 when the allocations data shall be 
reviewed based on updated regional GDP data for the years 2012-2014. 

Two  key  issues,  as  evidenced  by  the  case  study  of  Belgium,  may  hamper  the 
performance  of  LRAs.  Firstly,  the  fact  that  all  expenditure  (including 
investments)  is  recorded  as  debt  and  thus  the  capital  aspect  of  investments  is 

1 

 
 
 
 
completely ignored by the ESA 2010 standards. This implies a risk of inflating 
the  amount  of  public  debt,  a  key  parameter  used  in  economic  monitoring,  and 
thereby  a  reduction  in  the  spending  capacities  of  LRAs.  Secondly,  since  the 
capital  nature  of  government  expenditure  is  not  considered,  all  expenditure  is 
accounted  for  in  a  single  year  and  cannot  be  written  down  /  amortised  over  a 
period  of  years.  This  seriously  affects  the  regional  accounts  balance,  for 
example,  in  the  case  of  Walloon  regional  accounts  wherein  a  surplus  of  €560 
million becomes a deficit of €330 million, simply because expenditure cannot be 
amortised  over  a  period  of  time.  A  third  important  matter  in  this  regard  is  the 
reclassification of the public sector, implying that the debt of sectors which were 
previously  not  part  of  the  public  sector  is  now  to  be  absorbed  by  the 
governments and be classified as public debt. 

The technical impacts of the changes on LRAs are quite limited, as evidenced by 
the case studies in Italy, Romania and Sweden. Even the change in transmission 
deadline  for  key  indicators  of  regional  accounts,  revised  from  24  months  after 
reference  year  to  12  months  after,  have  no  real  implications  on  LRAs  or  even 
regional statistical offices, as the compilation of regional data occurs centrally. 
However, one point of concern here is the fact that since the technical impacts 
on  LRAs  are  minimal,  no  specifically  targeted  communications/  training 
activities  have  been  organised  for  the  LRAs,  even  if  in  practice  these  changes 
might affect their spending capacities. Also, very limited involvement of LRAs 
through  consultations  in  the  preparatory  phases  of  the  regulation  and  in  the 
implementation phases has been observed so far, even if the new standards will 
affect  the  spending  capacity  of  several  sub-national  administrations,  raising 
questions on the credibility of these new rules. 

As  regards  recommendations,  the  primary  solution  is  to  relax  the  ESA  2010 
rules  to  allow  certain  degree  of  flexibility  in  the  calculation  of  public  debt: 
especially  strategically 
investments  (e.g.  for 
important  structural  fund 
sustainable  development)  could  be  excluded  from  strict  debt  categorisations. 
Additionally,  if  changing  the  rules  proves  too  difficult,  LRAs  need  to  explore 
alternative  paths  such  as  channelling  investments  through  non  public  sector 
entities. Lastly, even if the technical impacts are weak at local/ regional levels, 
LRAs  must be properly  trained of the changes in order to facilitate successful, 
inclusive transition to ESA 2010. 

2 

 
 
 
2. ESA 2010 analysis of new rules 

2.1

 Overview of ESA 2010 and rationale for update 

The European System of Accounts (ESA) is the framework for the measurement 
of  the  economical  and  financial  activities  of  an  economic  system,  its 
components  and  the  relations  between  them  in  a  given  period  of  time.  It  sets 
down  the  harmonised  methodology  that  must  be  used  for  the  production  of 
national accounts data in the European Union (EU). It is used both for national-
level and regional-level accounts. 

In  2009,  the  United  Nations  Statistical  Commission  endorsed  a  revised  set  of 
international  standards  for  the  compilation  of  national  accounts:  the  System  of 
National Accounts (SNA) 2008. The European System of National and Regional 
Accounts  2010  (ESA  2010)  is  the  adaptation  of  2008  SNA  to  the  European 
context. ESA 2010 is consistent with the 2008 SNA with regard to definitions, 
accounting  rules  and  classifications.  This  compatibility  means  that  European 
national  and  regional  accounts  data  is  fully  compliant  with  international 
standards and can be used for meaningfully comparing performance with other 
economies.  It  nevertheless  incorporates  certain  differences,  particularly  in  its 
presentation, which is more in line with its specific use in the EU. The specific 
situation  refers  to  the  fact  that  macroeconomic  figures  in  Europe,  besides  the 
'traditional' roles of preparation and evaluation of policy, also play a major role 
in various ‘administrative’ procedures, e.g. the excessive deficit procedure, the 
macroeconomic  imbalances  procedure,  the  EU  budget  own  resources  and  the 
structural  funds  allocation.  By  way  of  example,  the  monitoring  of  government 
finance and, in particular, the excessive deficit procedure (EDP) requires high-
quality  data  that  should  be  fully  comparable  across  EU  Member  States.  The 
same is true for determining Member States’ respective contributions to the EU 
budget, as the calculation is based on gross national income (GNI).  ESA 2010 
was adopted as a legally binding regulation 549/20131, and Member States are 
expected  to  have  started  transmitting  national  account  according  to  the  new 
standards from September 2014 onwards. 

The rationale for changing the ESA framework from the erstwhile ESA 95 to the 
current ESA 2010 has been to better reflect the performance of the economy in 
line  with  changes  occurring  in  world  economies.  It  will  adapt  the  national 
accounts to the current economic environment, advances in methodologies and 
changing  user  needs.  It  is  important  to  note  that  the  ESA  95,  the  former 

1 European Commission (2013), Regulation (EU) No 549/2013 of the European Parliament and the Council, of 
21 May 2013, on the European system of national and regional accounts in the European Union, (OJ L 174 of 
26.06.2013). 

3 

 
 
 
 
                                                 
methodological  framework,  for  producing  national  accounts  data  has  been 
developed  in  the  1990s.  In  the  meantime,  substantial  changes  have  impacted 
economies, in  particular  the increasing  role of  information  and  communication 
technologies  in  production  processes,  the  growing  importance  of  intangible 
assets,  intellectual  property  products  and  services,  and  the  globalisation  of 
economic  systems.  A  shift  of  manufacturing  production  by  multinational 
international 
corporations 
fragmentation  of  production  processes,  facilitated  by  rapid  advances  in 
communication and information technology, and financial innovation. The way 
in  which  macroeconomic  statistics  are  compiled  needs  to  be  adjusted 
accordingly, to reflect these changes. 

to  emerging  countries  has 

resulted 

the 

in 

The changes concern important economic indicators such as GDP, external trade 
and the net international investment position, as well as government deficit and 
debt.  The  changes  will  also  have  an  impact  on  the  recording  of  debt  of  non-
financial corporations and the saving ratio of households. As regards GDP, the 
weighted average impact of methodological changes is an increase of 2.3% as at 
2010, of which +1.9 (around 80% of the total impact) is due to the capitalisation 
of  research  and  development  (see  below).  Another  related  point  worth  noting 
here is that the Member States also took the opportunity to re-benchmark their 
national  accounts,  review  their  data  sources  and  introduce  new  or  improved 
ones.  These  statistical  improvements  increased  GDP  by  1.4  %,  creating  an 
upward revision to total GDP for the EU-28 of 3.7 % in 2010. In addition, also 
the harmonised inclusion of illegal activities into the GDP, these numbers may 
further escalate. The introduction of ESA 2010 did not affect much the EU-28 
government  deficit  ratio,  but  at  national  level  there  were  some  significant 
changes. Nine countries improved their deficit ratios and eleven worsened them. 
Revisions  to  the  government  debt  ratio  were  quite  substantial  in  a  number  of 
countries  and  at  the  EU  level,  were  revised  from  79.9%  to  78.2%,  a  -1.7% 
change for the EU-28. 

2.2

 Analysis of key changes in ESA 2010 

Several  changes  have  been  introduced  in  the  new  ESA  2010  framework  as 
compared to the erstwhile ESA 95, and a detailed manual has been prepared by 
Eurostat2  delineating  the  exhaustive  list  of  changes,  consequences  of  these 
changes in terms of national estimates and numerical examples illustrating these 

2 Eurostat (2014), Manual on the changes between ESA 95 and ESA 2010, Publications office of the European 
Commission, Luxembourg. 

4 

 
 
 
 
                                                 
changes. The current section highlights the key methodological changes3 in the 
new standards, focusing specifically on those which are significant in terms of 
their  impact  on  economy/  potential  for  additional  burden,  and  presents  the 
rationale for introducing these changes. Changes pertinent to regional accounts 
are analysed in the following section. 

Capitalisation of research & development expenditure 

Research  and  development  (R&D)  has  long  been  recognised  by  economists  as 
having the characteristics of fixed assets: defined ownership rights, long-lasting 
and repeated uses and benefits in production process. However, ESA 95 (even if 
it considered mineral exploration; computer software; entertainment, literary & 
artistic  originals  as  intangible  assets)  did  not  recognise  R&D  as  capital 
formation, despite the fact that it is thought to be a major contribution to future 
economic  growth.  Instead,  R&D  expenditure,  whether  conducted  on  own 
account or purchased, was recorded as intermediate consumption, meaning that 
it was recorded as "completely used in the production process" at the end of the 
period. As a result, the balance sheet of the economy was understated, as well as 
GDP and operating profits. In ESA 2010, outputs of R&D are now capitalised, 
meaning  they  are  recognised  as  assets  and  the  acquisition,  disposal  and 
depreciation of R&D fixed assets will be treated in the same way as other fixed 
assets. This is the major improvement introduced by 2008 SNA and ESA 2010 
and  the  expansion  of  the  asset  boundary  also  to  include  R&D  expenditure  is 
only logical and especially relevant in a modern, increasingly digitised economy 
like the EU. In the conservative world of accounting, it is quite a bold change, 
coming way ahead of business accounting practices. 

The most immediate and visible impact for users will be that the level of GDP 
will be increased for all countries, by an amount depending on their investment 
in  R&D.  It  will  lead  to  macroeconomic  balance  sheet  data  that  have  better 
analytical capacity. According to preliminary estimates the level of GDP will be 
boosted by 1.9% in Europe (weighted average of Member States). The impact of 
this change has been estimated at 2.5% in the United States,  due to, relatively, 
more R&D expenditure in the US. However, the European figure is an average 
that masks diversity among Member States due to variability in their respective 
R&D  expenditure.  The  change  will  also  influence  other  indicators  that  are 
contingent  on  the  level  of  GDP,  such  as  debt  and  deficit  ratios.  Potential 
difficulties  in  measuring  R&D  involve  setting  the  absolute  value  of  these 

3 This section draws heavily and expands upon papers / guidelines prepared by Eurostat, the European Central 
Bank and the work of specialised experts through papers presented in conferences. See for example, the highly 
pertinent paper by Eurostat experts, Gueye, Gallo and Jens Gruetz (2014), Issues Related to the Introduction of 
ESA  2010  in  Europe,  Paper  Prepared  for  the  IARIW  33rd  General  Conference,  Rotterdam,  the  Netherlands, 
August 24-30, 2014. 

5 

 
 
 
                                                 
investments and especially the measurement of price and volume split. As there 
hardly is any information on market prices of R&D-expenditures, a substantial 
part of which is produced on own account, most countries have to rely on some 
kind of input method to measure volume and price changes. 

Capitalisation of military expenditure 

In ESA 95, military acquisitions of weapon systems and their means of delivery 
such  as  military  aircrafts  or  vessels  were  treated  as  intermediate  consumption 
regardless of their life length and only the acquisition of those military structures 
and equipment which were considered to have a civilian equivalent were to be 
recorded as capital formation. Examples given were airfields, docks, roads and 
hospitals.  This  treatment  does  not  correspond  to  the  economic  reality  as 
weapons and their means of delivery are used for a long period and can even be 
exported  after  several  years.  In  ESA  2010,  the  boundary  of  military  capital 
assets is extended to include military weapons and supporting systems, even if 
they have no equivalent civilian purpose as long as they are items of value and 
last  longer  than  a  year.  ESA  2010  treats  as  gross  fixed  capital  formation  all 
expenditure  by  the  military  which  meets  the  definition  of  being  used  in 
production  over  a  period  in  excess  of  one  year,  regardless  of  the  nature  of  the 
expenditure  or  the  purpose  intended  for  it,  in  particular  regardless  of  its 
destructive potential. Military weapons  systems,  comprising vehicles and  other 
equipment  such  as  warships,  submarines,  military  aircrafts,  tanks,  missile 
carriers and launchers are fixed assets, used continuously for more than one year 
in the production of defence services. 

The  impact  of  this  change  for the  accounting  of  destructive  weapons  and  their 
means  of  delivery  on  GDP  (equal  to  consumption  of  fixed  capital  of  these 
weapons  and  means  of  delivery)  obviously  differs  among  countries  depending 
on  their  military  budget;  a  rough  estimate  is  a  weighted  average  increase  of 
around  0.1%  of  GDP  for  the  EU  as  a  whole.  An  issue  under  this  particular 
heading may be the sometimes confidential nature of the relevant expenditures. 

Goods sent abroad for processing 

The ESA 95 treated goods that are sent abroad for processing and then returned 
to  the  country  from  which  they  were  dispatched  as  exports  for  their  full  value 
when they leave the first country and in imports when they return to it. Because 
of  the  growing  international  fragmentation  of  production  processes,  it  is  more 
logical  to  look  at  the  value  added  content  of  trade  flows,  by  subtracting  the 
import content from the exports and, by doing so, removing the double counting 
implicitly included in gross trade flows. The ESA 2010 and the new Balance of 
Payment  Manual  (BPM6)  use  a  change  of  ownership  recording  which  is  no 

6 

 
 
 
 
 
more based on physical movement. In fact, the new treatment recognises that the 
recipient country does not export goods but exports its processing services. 

Under ESA 2010, the value of goods sent abroad for processing will no longer 
impact  both  gross  imports  and  gross  exports  figures.  Also,  the  value  of  the 
processing  will  be  re-classified  as  export/import  of  services.  Thus,  in  the 
national accounts and the balance of payments, the level of exports and imports 
of goods will be reduced while the level of exports and imports of services will 
increase.  This  is  important  for  international  trade  analysis.  For  example,  for 
countries that significantly undertake processing, their goods trade balance will 
be  negatively  impacted,  while  their  service  trade  balance  will  be  positively 
impacted. It is important to note that, as the new recording affects symmetrically 
exports  and  imports,  there  is  practically  no  impact  on  the  overall  balance  of 
external trade of goods and services. So there is no significant impact on GDP. 

A more detailed analysis of pension schemes 

ESA  95  recognised  pension  obligations  on  the  balance  sheet  only  for  funded 
schemes;  unfunded  employer  schemes  did  not  lead  to  recognition  of  liabilities 
for  the  employer.  Also  no  pension  entitlement  was  recognised  for  households 
(employees & retirees) in the case of unfunded schemes. ESA 2010 recognises 
in  its  core  accounts  employment-related  pension  entitlements,  irrespectively  of 
whether  the  schemes  are  funded  or  not.  In  addition,  a  supplementary  table 
presents  all  accrued-to-date  pension  entitlements  in  social  insurance;  including 
unfunded  government  pension  schemes  and  social  security  pensions,  besides 
also  allowing  for  reporting  on  household  retirement  resources,  to  enable 
countries  to  report  all  pension  schemes  including  those  which  are  not  part  of 
social  insurance.  Hence  the  supplementary  table  shall  provide  a  powerful  tool 
for economic analysis of households' pension wealth across countries. 

ESA 2010 also changes the recording of lump sum payments that are sometimes 
received  by  governments  from  public  corporations  in  exchange  of  the  taking 
over  of  the  pension  liabilities  of  these  employers.  Previously,  under  ESA  95, 
such a lump sum was considered revenue of the government, and thus positively 
impacted its deficit in the year of the transaction. ESA 2010 does not recognise 
it  as  revenue,  as,  in  fact,  it  is  compensated  by  an  increase  in  the  pension 
obligations of the government. This may lead to some correction of the deficit 
figure  for  the  few  Member  States  that  have  recently  undertaken  such 
transactions. 

7 

 
 
 
 
 
 
Non-life insurance 

ESA  2010  will  in  particular  improve  significantly  the  measure  of  the 
contribution  of  insurance  services  to  GDP.  Under  the  previous  system,  this 
contribution was based on the difference between premiums and claims. As the 
level of claims may be quite volatile (catastrophes are more and more frequent), 
the result was itself volatile. In ESA 2010, the formula of calculation of the non-
life insurance output has been amended and an “adjusted claims” methodology 
is used in order to smooth the level of this output. 

The  consequence  of  the  change  is  that  the  non-life  insurance  service  charge 
(output)  is  less  volatile,  and  value  added  less  likely  to  be  negative  under  ESA 
2010.  Using  the  ESA  95  approach,  in  times  of  unusually  large  claims,  the 
payments  for  the  service  charge  by  customers  may  be  negative  reflecting  the 
large amount of money transferred as claims are made. In ESA 2010, the service 
charge calculated using adjusted claims ensures that the service charge remains 
representative  of  the  activity  of  nonlife  insurance  over  an  extended  period  of 
time. 

Other changes - sectoral classification etc. 

There  will  be  a  number  of  other  changes  that  could  affect  GDP  or  some  other 
important  variables,  such  as  general  government  deficit  and  debt,  due,  for 
example,  to  some  reclassification  of  units  notably  following  the  refinement  of 
the  50%  sales  to  costs  criterion  for  the  distinction  between  market  and  non-
market.  Given  the  important  policy  requirement  for  accurate  figures  on 
government deficit and debt in Europe, and the experience of applying ESA 95 
in  determining  reliable  estimates,  there  is  a  significant  increase  in  material  on 
these issues in ESA 2010 over ESA 95. The changes include expanded guidance 
on  the  sector  boundaries  between  government,  public  corporations,  and 
private  corporations.  Under  ESA  95,  an  entity  is  classified  to  the  general 
government  sector  if  it  is  either  a  non-separate  institutional  unit  from  the 
government, or when separate but controlled by the government, it satisfies the 
non-market  criterion  of  having  50%  or  less  of  its  production  costs  covered  by 
sales.  In  ESA  2010,  besides  this  50%  quantitative  criterion,  a  number  of 
qualitative criteria  are also  applied  -  such  as  the  entity’s  economic  motivation, 
independence in respect of undertaking a profit-making activity and the ability 
to  pay  its  debts  without  government  support,  in  order  to  ensure  that  only 
independent  entities  that  are  motivated  by  market  competition  fall  outside  the 
general government sector. The ESA 2010 also provides for a clearer separation 
between  non-financial  corporations  and  corporations  that  are  not  directly 
engaged in non-financial activities, such as holding companies of non-financial 
corporations  and  other  so  called  captive  financial  institutions.  These  changes 

8 

 
 
 
 
allow  a  better  analysis  of  the  financing  and  investment  of  non-financial  and 
financial corporations. 

Based on first preliminary data, the impact of these changes on the overall EU 
economy aggregates appears limited. The change in the criteria for determining 
whether  an  entity  is part  of  the  general  government  sector  is  likely  to increase 
the  number  of  units  classified  in  the  sector  and  thereby  increase  government 
debt and also to have a small impact effect (increase or decrease) on government 
deficit  levels.  Further,  differing  on  a  country  to  country  basis,  these  changes 
might  cause  some  serious  adjustments  in  public  debt  and  deficits  in  some 
Member States. For example, in Croatia, the application of ESA 2010 has led to 
a remarkable rise in public debt from 60% to 80% of GDP4, not because of new 
debt  creation  but  because  of  the  change  of  the  methodology,  the  debts  of  the 
shipyards were  included  in  the  public debt  and  as of  next year  the budget will 
have to swallow also the debts of the Croatian motorways (estimated at around 
€30 billion of guarantees and debt). 

Transmission programme 

Alongside the methodological rules for the compilation of the national accounts 
figures, also the transmission programme has been changed in order to allow for 
more  detailed  and  timely  data,  e.g.  on  sector  accounts  and  financial  accounts. 
Under  the  ESA  2010,  the  release  deadlines  will  be  brought  forward  to  two 
months  (60  days)  after  the  reference  quarter,  from  the  current  deadline  of  70 
days after the reference quarter. Specific changes in the transmission programme 
of regional accounts have been explained in the following section. 

The new ESA 2010 transmission programme supposedly will allow an improved 
monitoring  of  economic  changes  in  the  next  15  years.  More  complete  balance 
sheet data shall be made available, also more quarterly variables, with improved 
timeliness and seasonal adjustment, and a complete new set of data on potential 
obligations of government. 

The overview of the impact of the above methodological changes (and other key 
ones) on the main economic indicators in the EU has been presented in the table 
below. 

4  Marini,  Adelina 
euinside 
<http://www.euinside.eu/en/news/croatia-again-in-recession-autumn-economic-forecast-gjurkovic> [accessed 14 
May 2015]. 

Supports  More  Flexibility 

of  Fiscal  Rules, 

(2014),  Croatia 

9 

 
 
 
 
 
 
 
                                                 
Table  1:  Expected  impact  of  main  methodological  changes  on  important 
macro-economic variables 

Source: ECB Monthly Bulletin, August 2014, p. 85. 

As  regards  GDP  in  particular,  the  impact  of  the  methodological  changes  (split 
between  R&D  related  versus  other),  as  well  as  the  statistical  changes,  spread 
across the Member States is presented in the figure below. 

10 

 
 
 
 
 
 
Figure  1:  Impact  of  methodological  and  statistical  changes  on  the  level  of 
GDP, 2010 (in % terms) 

Source: Eurostat. 

11 

 
 
 
 
3. Potential impact on LRAs 

On  an  overall  level,  it  may  be  stated  that  the  idea  of  updating  the  European 
accounting rules in line with international standards is a commendable one. It is 
worth  noting  that  the  revised  2008  SNA  has  already  been  implemented  in  the 
USA,  Australia  and  Canada  as  early  as  2009-13  (Australia  in  2009, Canada  in 
2012, the USA in 2013) and therefore the updates in the European standards to 
increase  comparability  of  data  across  economies  is  indeed  praiseworthy. 
However, since changes in the accounting standards necessarily imply a change 
also in the budgets/ spending capacities of LRAs, the impact of these changes at 
the local/ regional level needs to be carefully studied. 

3.1

 Key implications of the changes for LRAs 

At the regional level, two types of effects can be distinguished. 

Firstly,  the  impact  of  changes  at  national  level  which  do  not  have  a  specific 
regional variation. This is the case for instance for weapon systems expenditure, 
which  is  not  allocated  across  regions  in  a  different  way  than  before.  These 
changes will affect the GDP of all regions equally, and will therefore not affect 
the spread of GDP between regions. Secondly, the impact of changes which do 
have  a  regional  variation.  The  most  important  change  of  this  type  is  the 
treatment  of  research  and  development  expenditure  as  investment.  Since  R&D 
tends to have a higher incidence in Member States and regions with a relatively 
high GDP per inhabitant, an increase in the spread of GDP per inhabitant among 
regions is expected. 

In specific regards to the allocation of structural funds, a key item in the budgets 
of LRAs, the impact is not immediate but shall be felt after 2016. The allocation 
of  structural  funds  for  the  current  multi-annual  financial  framework  (2014- 
2020) was decided in 2012 on the basis of regional GDP data for the reference 
years 2007  - 2009. The allocation will be reviewed in 2016,  most probably on 
the basis of regional GDP data for the reference years 2012-2014. This data set 
will be compiled in accordance with ESA 2010. Due to the potential increase of 
the  spread  in  regional  GDP  per  inhabitant  that  will  result  from  the 
implementation  of  ESA  2010  there  should  in  theory  be  an  impact  on  regions 
whose values of GDP per inhabitant were very close to the eligibility thresholds 
for structural funds assistance in 2012. This is especially relevant for instance in 
the case of a region receiving structural funds assistance while at the same time 
investing  a  considerable  amount  of  resources  in  R&D,  the  main  factor  in  the 
upward increase of GDP per inhabitant. 

13 

 
 
 
 
 
 
The  European  Commission,  however,  claims  that  since  R&D  activities  tend  to 
be  concentrated  in  regions  of  relatively  high  GDP  per  inhabitant,  including  in 
comparatively less prosperous Member States, such effects would be very small 
compared  to  other  changes  resulting  from  the  developments  of  economic 
activity  at  the  regional  level  that  have  taken  place  since  2009.  The  validity  of 
this  argument  shall  only  be  verified  when  the  allocation  shall  be  reviewed  in 
2016. 

3.2

 Impact on performance of LRAs 

In addition to the key implications of the methodological changes to ESA 2010 
highlighted in the previous sub-section, there are certain provisions in the new 
standards that  have  the potential  of  impairing  the  performance  of  governments 
in  general  and  LRAs  in  particular.  They  deal  specifically  with  the  potential  of 
increase  in  government  debt  and  thereby  a  reduction  of  the  budgets  and 
spending capacities of LRAs. For the sake of clarity, the consultants would like 
to repeat the fact that this potential increase in debt is not because of new debt 
creation  in  the  regional/  local  economies  but  because  of  changes  in  the 
accounting  methodology,  and  hence  a  matter  of  concern  for  LRAs.  In  this 
regard,  two  major  issues  indicated  below  have  been  repeatedly  stressed  as 
pertinent for LRAs by relevant regional stakeholders, such as the Committee of 
the  Regions  (CoR)  and  the  Council  of  European  Municipalities  and  Regions, 
amongst others. 

Categorisation of all government expenditure as debt 

The  first  major  issue  with  ESA  2010,  as  with  the  ESA  95  standard,  which 
emanated  from  the  application  of  the  Maastricht  Treaty,  is  that  it  continues  to 
record  public  investment  only  as  debt  without  taking  into  account  the  capital 
assets relating to it. In other words, as the CEMR5 notes, the ESA 2010 does not 
distinguish between expenses made by the LRAs towards operational costs and 
those towards investments. So, all investments of the government are counted as 
debt  and  add  to  the  debt-to-GDP  ratio  which  has  a  ceiling  of  60%  of  GDP  in 
order  to  stay  out  of  the  corrective  mechanism  of  EU’s  budgetary  control,  the 
Excess Deficit Procedure (EDP). Under the Stability and Growth Pact, the EDP 
operationalises  the  limits  on  the  budget  deficit  and  public  debt  given  by  the 
thresholds  of  3%  of  deficit  to  GDP  and  60%  of  debt  to  GDP  (failing  to  meet 
which fines/ sanctions may eventually be imposed on Member States) and since 
the  regional  budgets  are  integrated  into  the  national  budgets,  the  LRAs  are 

5  Council  of  European  Municipalities  and  Regions  (2014),  EU  accounting  rules  must  not  jeopardise  public 
investment, CCRE < http://www.ccre.org/en/actualites/view/2962> [accessed 20 May 2015]. 

14 

 
 
 
 
 
                                                 
forced  to  reduce  their  investment  considerably.  The  same  point  was  clearly 
stressed by CoR in its “Opinion of the European Committee of the Regions  — 
Guidelines  on  the  application  of  the  measures  linking  the  effectiveness  of  the 
to  sound  economic 
European  Structural  and  Investment  Funds  (ESIF) 
governance”  (2015/C  140/06):  “(CoR) 
its  concerns 
regarding  Eurostat's  new  ESA  2010  accounting  framework,  implemented  as 
from  September  2014,  which  makes  no  distinction  between  expenditure  and 
investment and which obliges local and regional authorities to apply maximum 
investment  ceilings  per  year  and  per  inhabitant.  These  ceilings  could  prevent 
local and regional authorities in certain Member States from providing the co-
financing  needed  for  ESIF  projects.    The  Committee  therefore  urges  the 
Commission to present a report on the implementation of ESA 2010”. 

therefore  reiterates 

The CEMR, in its declaration in Rome, on 17th December 2014, at the occasion 
of  its  Policy  Committee  meeting,  calls  for  “the  review  of  the  accounting  rules 
(ESA  2010)  to  treat  expenses  for  investments  different  than  expenses  for 
operational costs, allowing public authorities to invest in the maintenance and 
improvement of their infrastructure and services to the benefit of the citizens and 
businesses and a sustainable and competitive future. It also underlines the need 
to  exclude  public  expenditure  related  to  the  implementation  of  the  Structural 
and Investment Funds programmes from the budgetary surveillance rules”. 

Budgeting of expenditure (investment) in a single year 

A  related  point  to  the  one  mentioned  above  is  the  fact  that  since  government 
expenditure  is  not  considered  as  capital  investment  but  merely  debt  or 
expenditure,  the  whole  sum  is  accounted  for  in  the  year  in  which  it  is  made. 
According  to  general  accounting  rules,  investments  can  be  depreciated. 
However, since ESA 2010 does not recognize the capital nature of government 
investments  (i.e.  makes  no  distinction  between  operational  expenses  and 
investment), 
these 
investments.  As  Hugues  Bayet  of  the  European  Parliament  notes6,  “It  is  like 
asking  a  citizen  to  pay  for  their  house  in  just  one  year.  It  is  all  the  more 
unwelcome  as  the  extremely  low  interest  rates  cost  the  authorities  less  and 
therefore become more profitable. But, for the many authorities who repay their 
investment on a multiannual basis, it is a real brake on investment”. 

is  no  room  for  depreciation/  amortisation  of 

there 

This  particular  provision has  potential repercussions  for  regional  accounts.  For 
example,  in  a  speech  at  the  same  declaration  of  the  CEMR  mentioned  above, 
Jacques  Gobert,  the  President  of  the  Union  of  Cities  and  Municipalities  of 

6 Bayet, Hugues (2014), €300bn European investment plan will be hampered by ESA, The Parliament Magazine 
<https://www.theparliamentmagazine.eu/articles/opinion/%E2%82%AC300bn-european-investment-plan-will-
be-hampered-esa> [accessed 20 May 2015]. 

15 

 
 
 
 
                                                 
Wallonia  (Belgium),  indicated  the  impacts  of  the  ESA  2010  which  does  not 
allow  for  amortisation  of  government  expenses.  Taking  the  example  of  the 
accounts of Walloon region’s cities and municipalities, he noted that under their 
own  accounting  rules,  which  allow  (and  even  require)  the  amortisation  of 
investment,  the  accounts  show  a  surplus  of  €560  million,  a  figure  which 
becomes  a  deficit  of  €330  million  in  ESA  accounting,  because  the  investment 
cannot  be  amortised  and  must  enter  into  the  accounts  in  the  year  as  a  current 
expense. 

3.3

 Transmission changes and information gap 

Of  the  three  tables7  related  to  regional  accounts,  a  change  in  transmission 
deadline occurs only in the case of table 108: ‘Tables by industry and by region 
(NUTS  level  2)’.  The  general  transmission  deadline  for  regional  statistics 
remain  unchanged  at  t+249  months,  however  some  important  indicators  are 
required to be reported under the revised deadline of t+12 months. Specifically, 
an important data set in the EU policy context is the information on gross value 
added and employment at regional level (table 10), which provides input for the 
allocation  of  the  most  important  structural  development  budget  of  the  EU,  the 
Structural  Funds.  Currently,  this  information  is  only  available  24  months  after 
the end of the reference year. This deadline will now be advanced to 12 months, 
providing more timely information for policy decisions. 

Another  related  aspect  to  consider  here,  besides  the  change  in  transmission 
deadline, is the short transposition timeline. From the regulation in June 2013 to 
the  required  submission  of  updated  accounts  in  September  2014,  a  quick 
understanding  of  the  changes  from  ESA  95  to  ESA  2010  is  required  and 
regional stakeholders may not yet be ready to accept/ implement these changes. 
It  is  worth  noting  that  regional  stakeholders  have  not  been  involved  in 
consultation  processes  either  during  the  preparation  of  the  regulation  or 
thereafter,  and  naturally,  there  is  not  enough  clarity  regarding  the  proposed 
changes  at  the  local/  regional  levels.  In  addition,  no  consideration  has  been 
placed on the potential added burden of these rules on LRAs/ statistical offices 
and this raises questions on the credibility of the new standards. 

7  Table  10  -  Tables  by  industry  and  by  region  (NUTS  level  2);  Table  12  -  Tables  by  industry  and  by  region 
(NUTS level 3); and Table 13 - Households accounts by region (NUTS level 2). 
8  These  commonly  employed  “table  numbers”  are  well-established  references  across  Europe  among  data-
providers and compilers. 
9 Indicates the time-lag after which data becomes available: for e.g. t+24 implies that regional accounts for the 
year 2013 become available only 24 months (or 2 years) after 2013 - i.e. in 2015. 

16 

 
 
 
 
 
 
                                                 
3.4

 Note on statistical changes in regional accounts 

For the specific purpose of regional accounts, apart from the faster transmission 
timelines,  the  following  changes10  can  be  observed  between  ESA  95  and  ESA 
2010 in recording of the data. This sections aims to assist the  statistical offices 
and other relevant stakeholders by highlighting the key differences in preparing 
the  accounts  based  on  the  new  standards.  The  sections  indicated  below  (e.g. 
ESA  13.21,  13.40,  13.44  etc.)  refer  to  Eurostat’s  manual  on  ESA  2010 
standards11. 

1.  Local  Kind  of  Activity  Units  (KAUs):  ESA  13.21,  sections  b)  and  c) 
provide new texts about respectively ‘production units without significant 
labour input’ and ‘production activity without a fixed location’. 

2.  ESA  13.40  provides  another  concept  for  the  allocation  of  Financial 
Intermediation Services Indirectly Measured (FISIM) to user industries12. 

3.  ESA 13.44 is a new item about per inhabitant data and the fact that these 

data are not calculated for the extra-regio territory. 

4.  ESA  13.46-13.48  regard  a  new  item  for  regional  accounts:  the 

compilation of volume growth rates of regional GVA. 

5.  ESA 13.55 regards an extension of the regional household accounts with 

the use of income accounts. 

6.  ESA 13.55 regards a new item for the regional accounts: social transfers 

in kind. 

7.  Though  not  mentioned  explicitly  in  chapter  13  of  ESA  2010,  attention 
should  be  drawn  to  conceptual  changes  for  GFCF  (see  ESA  2010,  par. 
3.124 - 3.129): 

a.  Weapons systems. 
b.  Research and development. 
c.  Databases. 

10 See Annex 4 of Eurostat (2013), Manual on regional accounts methods, Publications Office of the European 
Union. 
11 Eurostat (2013), European System of Accounts ESA 2010, Publications Office of the European Union (refer 
specifically to Chapter 13, pp. 321-326) <http://ec.europa.eu/eurostat/en/web/products-manuals-and-guidelines/-
/KS-02-13-269> [accessed 14 May 2015]. 
12 The concept to allocate FISIM to user industries has been applied by the Member States from 2005 on. 

17 

 
 
 
 
 
 
 
 
 
 
                                                 
 
4. Narratives from case studies 

For the purpose of this study, the consultants interviewed a number of relevant 
authorities/  experts,  spread  across  the  EU  (Belgium,  Romania,  Sweden  and 
Italy) in order to gain a balanced viewpoint and build narratives on the regional/ 
local  impact  of  ESA 2010. A series  of  interviews  were  conducted  from  21st  to 
29th  May  2015  and  the  following  respondents  were  involved:  Hugues  Bayet 
(Mayor  of  Farciennes  and  Member  of  the  European  Parliament)  representing 
Belgium  (focused  on  impacts  in  the  Walloon  region);  Mrs.  Mondilu  (National 
Institute  of  Statistics,  Romania)  representing  Romania;  Linda  Kollberg 
(Statistics  Sweden)  representing  Sweden;  and  finally  information  was  also 
collected from the  Marche and Puglia regional statistical offices of the Italian 
National  Institute  of  Statistics  (ISTAT).  On  an  overall  level,  a  great  level  of 
information could not be extracted from these case studies (except in the case of 
Belgium) as the general awareness of ESA 2010 was not very high (because of 
its new-ness) and the potential impacts, especially at regional/ local levels, have 
not yet been assessed. 

Of  the  several  interviews,  only  in  the  case  of  Belgium,  it  emerged  that  ESA 
2010  accounting  rules  are  debated  with  a  strong  reference  to  the  impacts  on 
local  and  regional  levels.  This  is  the  reason  why  a  peculiar  attention  has  been 
dedicated to the Belgian case (with a separate case study presented); whereas for 
the  Romanian,  Swedish  and  Italian  cases,  which  highlight  merely  technical 
aspects related to the ESA 2010 rules implementation, the key insights generated 
have been summarised and presented jointly.  

4.1

 Belgian case13: impact on LRAs’ performance  

In  Belgium,  a  public  debate  was  started  in  spring  2015  on  the  impact  of  the 
European  budgetary  coordination  on  LRAs  investment  capacity,  with  specific 
regard  to  the  changes  in  ESA  2010  accounting  rules.  This  debate,  which 
includes  both  political  and  highly  technical  components,  is  summarised, 
expanded  through  one  targeted  interview  and  presented  in  the  following 
paragraphs. 

13This  case  study  on  Belgium  is  based  on  technical,  political  and  mass  media  sources.  The  main  source  is  a 
study,  published  by  Belfius  Research  in  May  2015,  entitled  ‘Les  pouvoirs  locaux  dans  le  cadre  du  pact  de 
stabilité  budgétaire  et  des  normes  SEC  –  Analyse  thematique  Finances  Locales’.  On  the  political  level,  the 
position  of  the  Mayor  of  Farciennes  (and  Member  of  the  European  Parliament)  Hugues  Bayet  has  been 
considered,  taking  into  account  an  article  published  on  ‘The  Parliament  Magazine’  in  December  2014,  an 
interview conducted on 26 May by our researchers, and a technical note sent directly by the team of Mr Bayet. 
Also  two  articles  published  on  the  Belgian  business  newspaper  L’Echo,  respectively  on  10  April  and  27  May 
2015, were taken into account 

19 

 
 
 
 
 
 
                                                 
The economic context of Belgium is characterised by a public debt of over 60% 
of  the  GDP.  This  forces  the  country  to  adopt  a  restrictive  and  corrective 
budgetary  plan  under  the  New  Stability  Pact  for  the  period  2015-2018.  These 
new  financial  constraints  are  of  key  importance  for  the  Belgian  LRAs’ 
investment  capacity.  Since  13  December  2013  -  as  a  consequence  of  the 
Cooperation  agreement  between  the  Federal  State,  the  Communities,  the 
Regions  and  the  Community  Commissions  on  the  implementation  of  Article 
3(1) of the Treaty on Stability, Coordination and Governance in the Economic 
and Monetary Union - the Belgian LRAs are integrated in the process of public 
budget  coordination  and  programming.  In  other  words,  Belgian  LRAs  are 
directly committed to the achievement of the national annual budget objectives, 
without having the possibility to take part in the negotiations. Furthermore, it is 
worth  noting  that  over  the  last  20  years,  LRAs  in  Belgium  have  demonstrated 
the  capacity  to  generate  a  significant  share  of  public  investments  in  a  country 
featured  by  a  general  low  capacity  of  public  investment  (1.6%  of  GDP,  being 
one  of  the  lowest  registered  in  Europe).  A  more  direct  participation  of  LRAs 
could  offer  the  occasion  to  emphasise  that  public  debt  incurred  by  these 
authorities  represents  only  5%  of  the  national  public  debt,  whereas  LRAs’ 
weight  in  terms  of  public  investments  amounts,  since  1995,  to  ~40%  of  the 
public investment at national level. 

In  such  a  context,  the  debate  in  Belgium  has  highlighted  a  number  of  direct 
negative  impacts  of  the  ESA  2010  accounting  system  on  the  performance  of 
LRAs by reducing their spending capacities. 

The  first  major  issue  is  that  no  distinction  is  made  between  financial  needs 
linked to the exploitation cycle (operational costs), and investments (gross fixed 
capital  formation  according  to  ESA  2010).  The  impact  on  Belgium’s  LRAs  is 
especially important because the financial needs accounted for according to ESA 
2010 at regional/ local level are almost entirely related to investments. Another 
highly relevant issue here is the lack, in the ESA 2010 accounting system, of the 
financial asset management perspective. The investments costs are accounted as 
debts  in  the  local  authorities’  accounts,  but  the  assets  are  not  considered.  The 
implication is that even if LRAs focus their spending on necessary, financially 
viable  investments,  they  will  still  face  accounting  problems  as  the  expenditure 
shall add to the public debt. As a natural consequence, it was noted that LRAs in 
Belgium  are  forced  to  under-invest,  which  represents  a  sort  of  hidden  debt, 
because it will generate future (and probably higher) costs. 

The second issue refers to the necessity, for the local authorities, to account the 
budgeting  expenditure  in  a  single  year.  In  the  previous  section,  it  was 
highlighted that the whole sum of the investment enters into account in the year 
in  which  the  investment  is  made.  Therefore,  there  is  no  amortisation  or 

20 

 
 
 
depreciation possible for the investment. This negatively affects the balance of 
regional accounts (as for example in Walloon region, where the surplus of €560 
million  is  converted  to  a  deficit  of  €330  million  in  ESA  accounting)  and  it 
becomes increasingly difficult for LRAs to obtain loans, even if favourable rates 
would  encourage  opting  for  this  solution.  The  new  ESA  2010  standards  are 
expected  to  have  a  serious  impact  on  a  number  of  Belgian  municipalities, 
especially those which repay on multi-annual basis. 

The last ESA 2010 issue which is considered to have a negative impact on the 
Belgian  LRAs  is  the  reclassification  of  public  entities.  In  detail,  entities  like 
alternative financial entities, Public Private Partnerships (PPP), or social housing 
societies at regional level are considered now to be part of the public sector. A 
total  of  700  entities  were  reclassified  in  Belgium  and  participate  now  to  the 
deficit and the public debt, as illustrated in the table below (see  Table 2). This 
new element is expected to have an important impact on the Walloon region, for 
example,  where  a  social  housing  company  invested  in  an  affordable  housing 
project  before  the  ESA  2010  implementation.  This  organisation  is  now 
registered as a public sector entity under ESA 2010, and the project is accounted 
as a debt of approximately €11 billion at the regional level. 

Table 2: Impact of the transition to ESA 2010 on the financial balance and 
public debt (2013) in Belgium 

Federated entities: Communities/ 
Regions (S1312) 
Local governments (S1313) 
Source: Belgian High Council of Finance (November 2014). 

Financial balance 
% 
€ Millions 
0.16% 
-640.5 

Public debt 

€ Millions 
+18,030 

% 
4.6% 

-92.4 

0.02% 

+2,804 

0.7% 

All these factors are considered as serious threats to the Belgian LRAs’ capacity 
for investment. Another example of a negative impact based on ESA 2010 is in 
Liège, a city of Walloon region, which had to stop its tramway line project. The 
new accounting standards therefore affect the quality of life of citizens and the 
services  provided  to  them.  The  risk  of  the  ESA  2010  standards  for  LRAs  and 
indirectly for the citizens could be to increase taxes or bring to the  decision to 
sell public assets. 

The debate in Belgium is of particular interest not only because of the problems 
identified,  but  also  because  some  feasible  transferrable  solutions  have  been 
identified  to  minimise  the  impact  on  LRAs.  Some  very  specific  technical 
solutions  appear  as  ESA  2010  neutral,  and  could  be  therefore  immediately 
adopted  by  LRAs  across  Europe.  The  first  solution  implies  that  a  third  party 

21 

 
 
 
 
 
 
 
supports the investment risk through operational leasing, concession contracts or 
some form of Public Private Partnership (PPP). Another possibility is to identify 
bodies,  which  do  not  belong  to  the  group  of  public  entities  affected  by  the 
budget  constraints  and  channel  investments  through  such  bodies,  without 
increasing the public debt. It is clear that both solutions imply the transfer of the 
risk, from the public sector to outside of it. 

It is worth noting that in Belgium also more ‘political’ solutions, implying a new 
interpretation  of  the  ESA  2010  accounting  rules,  are  under  discussion,  with 
particular regard to the possibility to consider differently the investments which 
are  feasible,  clearly  defined  in  terms  of  management  costs  and  financially 
sustainable. For instance, in the CEMR declaration (see footnote  5 above), Mr. 
Jacques Gobert, President of the Union of Cities and Municipalities of Wallonia, 
calls  for  excluding  some  categories  of  structural  funds  investments  from  the 
budgetary surveillance procedures, which should be possible through exploring 
further the flexibility offered by the Stability Pact. 

4.2

 Other  case  studies-  Sweden,  Italy  and  Romania:  key 
narratives 

Limited technical impacts for regions 

In terms of the potential technical impacts, especially in reporting according to 
the new standards and respecting the new transmission deadlines, it seems that 
local/  regional  stakeholders  are  not  seriously  affected.  For  instance,  even  if 
Statistics  Sweden  admitted  that  ESA  2010  is  more  complicated  than  ESA  95 
owing  to  its  methodological  changes,  there  seemed  to  be  no  major  issues  in 
collecting and transmitting data according to the new standards and transmission 
deadlines. The required indicators of preliminary regional accounts could easily 
be made available in t+12 months (instead of the earlier t+24 months). In Italy 
as  well,  both  in  the  case  of  Marche  and  Puglia  regions,  it  emerged  that  the 
regional  levels  were  not  involved  in  calculating  the  indicators  or  the  regional 
accounts. The regional offices collected data, verified its accuracy and passed it 
on  to  the  national  office  where  indicators  were  calculated  and  the  regional 
accounts produced. Romania, similarly, concurred that the change in accounting 
standards  concerned  only  the  national  level  as  the  compilation  of  regional 
accounts  data  was  performed  at  a  central  level  while  and  that  the  transmission 
from ESA 95 to ESA 2010 was not difficult to manage. Therefore, all potential 
technical  impacts  related  to  the  change  in  methodology/  transmission  etc. 
affected only the national office and not the sub-national levels. 

22 

 
 
 
 
 
 
Lack of regional involvement 

The awareness on the ground at the local/ regional levels of the new ESA 2010 
standards  is  limited.  In  Italy,  the  comprehension  of  the  ESA  2010  accounting 
system by the regional offices mainly depends on the access to the web platform 
developed by the national office of statistics. The necessity of a more structured 
process  of  learning  did  not  arise,  as  the  new  commitments  for  the  regional 
offices  appear  as  very  limited.  Likewise,  in  Romania,  the  national  statistical 
office highlighted  that  they  did  not  consider  the change  in  ESA standards  as  a 
relevant  issue  for  regional  statistical  offices  and  hence  much  efforts  were  not 
spent on informing/ training stakeholders at sub-national levels (a press release 
detailing  the  key  changes  was  issued,  as  in  the  case  of  other  Member  States). 
Again, in the case of Sweden as well, awareness of the ESA 2010 seemed to be 
at a national level. This indicates a general lack of involvement of LRAs and the 
regional  perspectives  both  during  the  preparation  of  the  legislation  (through 
consultations)  or  thereafter  (through  trainings/  targeted  communications). 
Hence, it would be a reasonable assumption to extrapolate that, since ESA 2010 
is  treated  largely  as  a  matter  of  national  concern  (and  not  sub-national),  many 
local/  regional  authorities  across  Europe,  whose  budgets  may  potentially  be 
impacted by the change in ESA, are not properly informed (and in some cases, 
not  even  aware,  especially  in  the  case  of  smaller  local  authorities)  about  these 
new accounting standards. Further although it is true that the technical impacts 
at  the  regional/  local  levels  are  minimal,  the  potential  reduction  of  budgets/ 
investment capacity of LRAs is a matter of serious concern. 

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5. Conclusions / recommendations 

As  conclusion,  taking  into  account  the  information  gathered  from  literature 
review and the case studies organised as well as the consultants’ understanding 
of  the  impacts  of  the  new  ESA  2010  on  LRAs,  the  following  sets  of 
recommendations are prescribed. 

Recommendation 1: change in items affecting public debt 

This  two-fold  recommendation  calls  for  additional  flexibility,  and  if  possible, 
slight  modifications  in  the  ESA  2010  rules  to  account  for  the  perspective  of 
LRAs. Since it  may  not be feasible to allow all public investment at the local/ 
regional  levels  to  be  excluded  from  adding  to  the  public  debt,  certain 
strategically  important  categories  of  structural  funds  investments14  (esp.  those 
focused  on  sustainable  economic  development,  mobility  infrastructure,  public 
housing,  and  health  and  social  inclusion  facilities)  could  be  excluded  from  the 
strict  definitions  of  public  debt  and  the  triggering  of  Excessive  Deficit 
Procedures. 

The second natural consequence of categorising these structural expenditures as 
‘investment’  would  imply  that  these  can  be  amortised  over  a  period  of  years 
under general accounting standards. This would allow LRAs greater control in 
planning their budgets over a long period. 

Recommendation 2 (alternative to 1): adjustment by LRAs 

As a substitute to the recommendation 1 above, if it proves difficult to alter the 
ESA  2010  rules,  LRAs  need  to  be  flexible  enough  to  explore  alternative  paths 
(even  if  it  implies  additional  complexity)  and  the  Commission  must  strongly 
support such paths. For instance, the learning from the case of Belgium, where 
strategies to channel investments either through the private sector  (e.g. public-
private partnerships) or through an entity not categorised as a public body might 
be  a  possible  solution  to  circumvent  the  strict  ‘public  debt’  calculation  and 
restrictions thereof. 

14 These categories are highlighted by Mr. Gobert in the CEMR declaration above (see footnote 5). 

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Recommendation 3: better training/ involvement of LRAs 

Lastly,  for  a  smoother  transition,  even  if  the  rules  do  not  cause  a  technical 
impact  on  LRAs, they  have  to be  properly  trained/  informed  of  the  changes  in 
ESA. A more structured approach to reach out to LRAs and regional statistical 
offices  in  order  to  communicate/  coach  them  is  essential  for  grassroots  level 
acceptance/ implementation of ESA 2  

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