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ESA 2010 and ESA GFS as basis for fiscal and economic policies in the EU Seminar on NA/GFS - Istanbul Denis Besnard Eurostat. Contents. An historical overview The coverage of EU fiscal surveillance A view on the analytical framework The sovereign debt crisis in the Euro Area

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  1. ESA 2010 and ESA GFS as basis for fiscal and economic policies in the EUSeminar on NA/GFS - IstanbulDenis Besnard Eurostat NA and GFS seminar Istanbul

  2. Contents An historical overview The coverage of EU fiscal surveillance A view on the analytical framework The sovereign debt crisis in the Euro Area A new legislative framework for better surveillance The impact on Government finance statistics GFS seminar Istanbul 2

  3. An historical overview In 1989, "Report Delors” as a fundamental milestone The need for a Monetary Union perspective: more integration and interdependence of the Member States A pragmatic strategy in 3 steps The main legal basis: Maastricht Treaty in 1992 ("Treaty on European Union", now “Treaty on the functioning of EU”) An innovation: the "Excessive Deficit Procedure" for all EU Member States (due to impact of national fiscal policies on the whole Union), starting in 1993 2 out of 4 criteria for joining the EMU related to public finance But also legislative acts (Council Regulations) for the application of the Treaty (last one: "479/2009" amended in 2010) Supplemented in 1997 by the "Stability and Growth Pact" ("1467/97”) zero deficit objective It was the legislative/regulatory tool box at the launch of the EMU (1rst January 1999) with 11 Member States GFS seminar Istanbul 3

  4. Coverage for EU fiscal surveillance An important point: the choice of national accounts (ESA79, then ESA95 and, next year, ESA2010) as statistical framework: "government means general government…as defined in the European System of Integrated Economic Accounts" "deficit" means net borrowing as defined in the European…" The reasons: "common language", experience, consistency (quadruple entries), heterogeneity of public accounting An imperative: full comparability of data (not only statistics!) In the Treaty: two variables with “reference values” (3% for deficit and 60% for debt) The mission of Eurostat in EDP: assessment of data, control of the compilation process, supervising the methodological framework (interpretation and complement of NA in specific Manual), decisions on special issues (consultative procedures) GFS seminar Istanbul 4

  5. A view on the analytical framework Not only deficit and debt notified twice a year Also: interest expenditure (primary deficit) And Capital expenditure (debt for current or capital expenditure?) Under a precise methodological framework: perimeter of government sector (different from public sector)? Financial/Non-financial boundary, transactions/other flows, time of recording, valuation, etc. Our "motto": substance over form! Data for sub-sectors (4 or 3) and consolidation at the level of the sector (”gross consolidated debt at nominal value”) Which transition from national public accounts to EDP (NA) data? What between deficit/surplus and debt? (the so-called “Stock flow adjustment” ) But the “Business cycle adjusted deficit” (also referred to as "structural deficit") is not calculated by Eurostat GFS seminar Istanbul 5

  6. The sovereign debt crisis in EU The EU fiscal surveillance was not as efficient in practice as in theory Last say in the Council (National governments) Peer pressure ("name and shame") and "market discipline" rather disappointing Rules a little "watered down" in 2005 at the initiative of some MS Not enough "benefit of good times" (no "rainy days" perspective) A partial view of fiscal risks (too much focusing on “nominal deficit”) Insufficient macro-economy perspective (weak detection of vulnerabilities) But also other factors = banking crises, international recessions, spill-overs and contagion, defaulting banking and financial regulation etc. It is not a crisis of the euro as currency GFS seminar Istanbul 6

  7. A new EU legislative framework for better surveillance The objectives: Stronger preventive action through a reinforced Stability and Growth Pact (SGP) and deeper fiscal coordination Stronger corrective action through a reinforced SGP Minimum requirements for national budgetary frameworks Preventing and correcting macroeconomic and competitiveness imbalances The instruments: December 2011: "six-pack" (5 Regulations and 1 Directive) 2012: Treaty on Stability, Coordination and Governance (TSCG) May 2013: "two pack" (2 Regulations) The results: more automaticity in procedures, less discretionary, sanctions expected more effective reinforced prevention arm and correction arm more severe more consideration to debt and to structural deficit extension to global macro-economic assessment with a set of indicators (11core indicators on external, internal imbalances and competitiveness plus about 20 additional indicators - very few from National accounts) GFS seminar Istanbul 7

  8. The impact on Government finance statistics "Greek drama" on statistics in 2009/2010 = quality of data is crucial Eurostat entitled with more powers for requiring information, controlling it and assessing its compliance More visits (regular, methodological, technical, "ad hoc") A new risk approach: debt of public corporations and contingent liabilities(potential effect on government accounts) and short term statistics (early detection of deviations) New “Upstream” perspective: availability and reliability of data sources used for government sector in national accounts (and EDP) Accent on quality management in public accounts: controls, audit, safe procedures, cooperation with statisticians Harmonisation process of public accounting ("EPSAS") Control of effective independence, powers and resources adequacy of National Statistical Institutes for GFS GFS seminar Istanbul 8

  9. Conclusions • Crises may have positive effects: more attention will be given to statistics in the future • National accounts remain the statistical framework for EU fiscal surveillance and, more generally, an essential tool for public finance analysis • Government Finance Statistics are being extended in coverage, quality and dissemination • The whole process is not yet completedbut first fruits are already observed Thank you for your attention denis.besnard@eu.europa.ec GFS seminar Istanbul

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