See also FT Alphaville on a “Greek tragedy“:
It’s the last thing you need when you’re trying to convince the market that you’re fiscally sound and responsible — a European Commission report condemning you for deliberately falsifying data.
But that’s just what happened to Greece on Tuesday afternoon. From the report:
On 2 and 21 October 2009, the Greek authorities transmitted two different sets of complete Excessive Deficit Procedure (EDP) notification tables to Eurostat, covering the government deficit and debt data for 2005-2008, and a forecast for 2009. In the 21 October notification, the Greek government deficit for 2008 was revised from 5.0% of GDP (the ratio reported by Greece, and published and validated by Eurostat in April 2009) to 7.7% of GDP. At the same time, the Greek authorities also revised the planned deficit ratio for 2009 from 3.7% of GDP (the figure reported in spring) to 12.5% of GDP, reflecting a number of factors (the impact of the economic crisis, budgetary slippages in an electoral year and accounting decisions). According to the appropriate regulations and practices, this report deals with estimates of past data only.1
Revisions of this magnitude in the estimated past government deficit ratios have been extremely rare in other EU Member States, but have taken place for Greece on several occasions. These most recent revisions are an illustration of the lack of quality of the Greek fiscal statistics (and of macroeconomic statistics in general) and show that the progress in the compilation of fiscal statistics in Greece, and the intense scrutiny of the Greek fiscal data by Eurostat since 2004 (including 10 EDP visits and 5 reservations on the notified data), have not sufficed to bring the quality of Greek fiscal data to the level reached by other EU Member States.
The above report deals with the past data only, the subtext being that the 2009 forecasts could well be off too. And that seems to be what’s worrying bond markets.
The yield on the Greek 10-year jumped about 15bps to 5.68 per cent earlier on Tuesday, and is currently hovering around 5.65 per cent:
The full EC report is available here.
(Financial Times) — Greece was condemned by the European Commission on Tuesday for falsifying data about its public finances and allowing political pressures to obstruct the collection of accurate statistics.
In a damning report published as the eurozone grapples with its worst financial crisis since the euro’s launch in 1999, the Commission said figures from Greece’s were so unreliable that its budget deficit and public debt might be even higher than government had claimed last October.
At that time Greece estimated its 2009 deficit would be 12.5 per cent of gross domestic product, far above 3.7 per cent predicted in April. It revised its 2008 deficit up to 7.7 per cent from 5 per cent.
The data shocked and angered Greece’s 15 eurozone partners and prompted swift downgrades of Greek debt as well as an increase in the premium demanded by financial markets to buy Greek bonds.
The socialist government is promising to slash its deficit to 3 per cent or less by 2012, but financial markets question whether it can introduce the drastic austerity measures implied by such a target without sparking labour unrest and social disorder.
The Greek finance ministry said the Commission report reflected the approach of previous governments, not the current one. “We’re in the process of changing the way statistics are collected and analysed,” it said.
Separately, an International Monetary Fund technical team arrived in Athens on Tuesday in response to a Greek request for help with a radical overhaul of the tax system due to be completed in March.
“There is absolutely nothing on the agenda about loans and borrowing [from the IMF],” the ministry said. It dismissed speculation the government might turn to the IMF for assistance if the public finances deteriorated.
The Commission, which is responsible for upholding the eurozone’s fiscal rules, made clear in its report that it had next to no faith in Greek statistics. “The current set-up does not guarantee the independence, integrity and accountability of the national statistical authorities,” it said.
The Commission denounced “poor co-operation and lack of clear responsibilities between several Greek institutions and services … diffuse personal responsibilities, ambiguous empowerment of officials, absence of written instruction and documentation, which leave the quality of fiscal statistics subject to political pressures and electoral cycles”.
The report listed categories in which, it said, Greece had deliberately misreported financial data last year, including revenues from abolished extra-budgetary accounts, swaps write-offs, adjustment for interest payments, European Union financial grants and hospital liabilities. Hundreds of millions of euros were involved in each case.
George Papandreou, Greece’s prime minister, sought at a December summit to regain the confidence of his EU colleagues, acknowledging that corruption was a national disease and vowing to make the statistics agency politically independent.
However, other EU countries have not forgotten that Greece massaged its public finance data to ensure that the country qualified for eurozone entry in 2001.
According to the Commission report, Greece overstated the surplus of its social security sector by €2.8bn between 2001 and 2003.
The Commission warned of more trouble ahead, saying that Eurostat, the EU’s statistics office, had not yet validated the data Greece submitted in October.
“A substantial number of unanswered questions and pending issues still remain in some key areas, such as social security funds, hospital arrears, and transactions between government and public enterprises,” it said.
“These questions will need to be resolved, and it cannot be excluded that this will lead to further revisions of Greek government deficit and debt data, particularly for 2008, but possibly also for previous years.”
The Commission said EU fiscal data were generally of high quality and Greece represented a one-off problem. However, it cautioned that it lacked audit powers and so relied heavily on the goodwill and integrity of member-states to supply accurate data.
By Tony Barber in Brussels
Published: January 12 2010 13:59 | Last updated: January 12 2010 17:23
Source: The Financial Times