January 27, 2010 8:46 pm

EU seeks audit power over national accounts

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Eurostat, the European Union’s statistical agency, will be empowered to conduct audits of EU national government accounts under an initiative being prepared by the European Commission in response to outrage over the political manipulation of official financial data in Greece.

The Commission is drafting a legislative proposal, likely to be unveiled in the next few weeks, which would allow Eurostat to carry out an audit if there were grounds for doubting the reliability of a government’s data.

The Commission, which is responsible for upholding the eurozone’s fiscal rules, requested such powers in 2005 but was rebuffed by EU governments, which did not like the idea of conferring more powers on Eurostat.

This time the chances of approval appear higher, because EU finance ministers are furious with Greece for concealing the true state of its public finances behind false statistics and setting off a crisis of confidence that risks spreading contagion via the bond markets to other countries in the 16-nation eurozone.

Separately, the Commission is due next Wednesday to issue recommendations to Greece on how and at what speed to reduce its budget deficit to 3 per cent of GDP. Greece has vowed to get the deficit below 3 per cent by the end of 2012.

According to a hard-hitting Commission report published two weeks ago, Greece deliberately misreported financial data last year in categories such as swaps write-offs, EU financial grants and hospital liabilities. The report said political interference with the collection of statistics might have continued even after Greece’s socialist government came to power last October and blamed the problem on its conservative predecessor.

Almost immediately after it took office, the new Greek government shocked its EU partners by revealing that the national budget deficit for 2008 was 7.7 per cent of gross domestic product, not 5 per cent as originally reported, and the 2009 deficit would be as high as 12.5 per cent.

The Greek government has promised to grant complete independence to the national statistics office and to introduce new rules under which the finance ministry would no longer be able to appoint or dismiss the head of the service.

In addition, the government plans to give a seat on the agency’s board to a EU representative, either from Eurostat or from the statistics office of a EU member-state.

The Commission has given a guarded welcome to the proposed reforms but, with vocal support from the European Central Bank, contends that the Greek debacle demonstrates the need not just for rigorous auditing at national level but for intervention where necessary by Eurostat.

If approved, the Commission’s proposal would mark an appreciable step forward on the path to closer integration and tighter EU-level surveillance of eurozone economic policies.

The Commission is due next week to issue recommendations to Greece on how and at what speed to reduce its budget deficit to 3 per cent of GDP. Greece has vowed to get the deficit below 3 per cent by the end of 2012.

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