A rejoinder to ELSTAT’s & EUROSTAT’s defence of the New Greek Statistics

ELSTAT, the official Greek statistical service, has put out a document in response to my post unveiling, what I call, their New Greek Statistics over the calculation of the Greek government’s primary budget outcome for 2013. In addition, Eurostat gave an informal response to various journalists who took the matter to them. Full marks for defending the indefensible. 

ELSTAT’s announcement contains nothing of substance, except the curious suggestion that I should have consulted with its ‘experts’ before unveiling their shenanigans. In other words, I should have given them advance warning that they were caught red-handed and, subsequently, that I should have bowed to their superior expertise. But Eurostat’s answer is more substantive, and thus deserves a reply. Here are its main points, as conveyed to me by Michael Maier who received the Eurostat’s response to my charges and passed it on to me - see my interview with Michael here:

1.       The author argues that we need to subtract the stock of arrears from the 2013 programme primary balance of 1.5bn. This would be double counting. The ESA balance published by Eurostat (as well as the programme primary balance) are expressed in accrual terms. As such, spending commitments worsen the fiscal balance in the year in which the commitment is made, irrespective of whether a cash payment is made by the government to the private sector in that year or whether the government delays cash payments and instead accumulates arrears to the private sector. As such, the stock of outstanding arrears is already reflected in the published fiscal balance of the year in which the arrears were accumulated.

2.       The author seems to argue that asset transfers from the State to the Local Government and Social Security funds artificially improved the General Government balance. In fact, which part of the General Government holds financial assets or transfers between sub-sectors is neutral for the overall General Government fiscal balance. The article might be referring to the special arrears clearance programme under which the State has transferred funds to the Local Government and Social Security funds in 2013 to clear arrears in these sectors. Yet this programme is neutral for the General government accrual balance.

My response follows:
Eurostat’s reply reminded me of a similar one that I received in 2005 when I had written to them to ask why Eurostat was allowing the then Greek government to under-report hospital arrears. I received precisely the same response as Point 1 above. Verbatim! Then, in 2010, when Greece’s public finances imploded and the story about Greek Statistics began to circulate around the globe, Eurostat quietly revised the 2004/5 figures (which I had contested) to reflect my calculations. Did they ever own up? As if…  And now? Now they are back to their good ol’ ways. But let me take their points one by one:
On point 1, they are quite right, in principle though not in practice. ESA balance is computed in accrual terms and thus any liability ought to be recorded at the moment in time it was made – not at the point of actual payment. (As was the case back in 2004/5 over the hospital invoices.) Tragically, and unlike what they are saying, the outstanding arrears are not “reflected in the published fiscal balance of the year in which the arrears were accumulated”. How come? The Greek government was allowed to get away with leaving off its primary budget calculation invoices worth a few billion euros that were issued within 2013. Just as it did in 2004/5 with its hospital invoices. Crude but effective. (Watch how, in the years to come, these liabilities for 2013 will be, silently, updated…)
On point 2, yes, indeed, I was referring to “the special arrears clearance programme under which the State has transferred funds to the Local Government and Social Security funds in 2013 to clear arrears in these sectors.” Only it did more than to clear arrears. The said ‘clearing’ does occur inter-temporally (by shifting some of the burden to 2012 and 2011) and also in the computation of the general government’s overall budgetary balance (which is computed properly, including all liabilities, including bank recapitalisation costs etc.). However, when it comes to the 2013 primary budget computation, the 5.4 billion parked in the pension funds and local government accounts appears as a phantom ‘windfall’ that produces the 1.3 billion ‘surplus’. 
Of course, all this will come out eventually, in a couple of years time or so. As it did in the past. By then, its newsworthiness will have been eclipsed by the new dramas that current policies are sowing…

 

18 thoughts on “A rejoinder to ELSTAT’s & EUROSTAT’s defence of the New Greek Statistics

  1. I really admire your efforts with ELSTAT for honest accounting, but their behaviour and the Greek government behaviour has not changed. This was always how the EU works. Either you love it or hate it.

    I consider these people hopeless and the best course, that their powers be reduced and the centralization be reversed to the member states.

    Accountibility is more likely to work better on the national level, provided proper institutional safeguards.

  2. I tried to follow Yanis‘ argument that the general government‘s deficit has been reduced by the transfer of borrowed monies from the central government to the local government and the social security funds. This transfer, confirmed by elstat, is per se not objectionable.

    Nevertheless, I believe Yanis could be right that the deficit resp. the primary surplus, reported according to the programme definition, is just not what it pretends to be.

    Isn‘t it strange transferring money to someone, who obviously does not need it? Definitely the money was not spent. The surplusses in the local government‘s and social security funds‘ accounts document just this. But if the money actually was needed, where do we find the corresponding expenses? Will they occur in 2014 to be reported when the elections are over?

  3. Hubert:

    No, things are not alright in Greece but this gives no license to anyone to fabricate accusations on false grounds.

    Κωνσταντίνος,

    The 3 year cumulative taxes have not hit yet. They will be levied and collected this year during 2014(in the summer). No one knows yet what these taxes would be and how are calculated.

    The problem the Greek government has relates to the alleged deficits in years 2015 and 2016. This has been a cause for great disagreement between the EU and the IMF. Each time the disagreement played out publicly Greece’s anticipated performance has been greatly understated which lead to suggestions for further austerity. Greece in 2013 performed better than expected. So let it be unless of course you enjoy additional austerity.Despite ideological disagreements there has to be a predictable common ground for all Greeks not to seek further undue punishment. Arguing about numbers the Eurostat has already approved comes across as a suicidal tendency for lack of a better word and completely discredits our capacity to launch an effective strategy towards liberation and a functioning society of free citizens.

    • Dean,
      We paid real estate taxes (FAP) for ’10, ’11, ’12 in 2013.
      Look what is happening in Greece. They are selling assets without any plan. They turn around and spend the money right away to buy votes. They go to the markets at 5% when as you say they anticipate signing a deal for 1%. The extra money the get from the markets they spend to buy votes again.
      Incompetence cannot describe this.

  4. I don’t reply to Yanis’ posts when I agree with him entirely.

    But here it seems that he falls into the Eurostat trap of focusing too much on what the accounting rules (ESA95) prescribe rather than how (and to what effect) they are actually applied jointly by Eurostat, ELSTAT and the Greek government.

    This weakens the thrust of his rejoinder and allows Plassaras to make the extraordinary claim that “primary surplus is [only??] an income statement issue”.

    As a matter of fact, what is at stake is the issue of the government’s most catastrophic of all the austerity policies that carry the express approval of both the Troika AND Eurostat, right from Year One (2010) of the EZ Debt Colony regime forced on Greece.

    We are referring to the policy that’s aptly termed “a state of permanent domestic default” (to the tune of €5-9 billion per year) on General Government arrears to the private sector (including, alas, years of delayed disbursement of pensions to first-time retirees).

    These systematic arrears include, ironically, VAT rebates to Greek exporters, whose contribution to GDP has plummeted, instead of spearheading a genuine “Greekovery” on the back of a most brutal “internal devaluation” (exclusively on labour costs).

    Now, had the government truly recorded this “stock of arrears” every year in “accrual terms”, as Eurostat ostensibly dictates, we would easily have observed that these “spending commitments worsened the fiscal balance in the year in which the commitment was made, irrespective of whether a cash payment is made by the government to the private sector in that year or whether the government delays cash payments and instead accumulates arrears to the private sector”.

    Well, have we observed any of that in the years under Troika rule? Of course not!

    If the government (under strict Troika-Eurostat supervision) had allowed these “spending commitments” to worsen the fiscal balance of their respective year by the corresponding amounts, the Primary Deficit on each of these years would have been higher by 3-4 percentage points.

    But then, what would be the purpose of delaying cash settlement of these commitments (and thereby condemning tens of thousands of small firms to closure and the rest of the economy to liquidity strangulation) if no gain was “accruing” to the regime in terms of concealing the true size of the primary balance?

    Same goes with the “transfers of 4.2 billion euro and 0.7 billion euro from the subsector of Central Government to the subsector of Social Security Funds and to the subsector of Local Government, respectively, so that these two subsectors could clear arrears they had built up in previous years”.

    On what grounds of Common Logic should these transfers count as “an increase in the revenues of the Social Security Funds and Local Government subsectors, and a reduction of their deficits (generation of surpluses) this year” if they are supposed to “clear arrears built up in previous years”? Isn’t this the epitome of …double counting?

    • The primary surplus IS an income statement byproduct. It’s revenues minus expenses for a given year. Inter-transfers between the general government fund and sub-accounts have no impact on the primary surplus per ELSTAT the way they were conducted as one off for years 2011 and 2012. Even if they had an impact this would not apply to year 2013. Which part of such statement of fact do you find extraordinary?

      Are you trying to suggest that in the opaque world of innuendo and supposition the truth is actually extraordinary and all other false variants are actually normal? Why be so blinded by an acute bias on this issue?

    • You are spot on. The issue is not the rules but their implementation. This was my point too. As I explained on a number of occasions, in the end the Eurostat data always ‘evens out’ and its rules are applied. But the timing of this ‘evening out’ is politically crucial and always ‘managed’ in a manner that suits the powers-that-be (and never the peoples of Europe). Recall the original meaning of Greek Statistics: Deficits were always, in the end, reported in full. Their essence, and point, was to disguise deficits in politically important years (e.g. just before the decision was made to let Greece in the Eurozone, or when the Karamanlis government wanted to shift deficits into earlier years, when PASOK was still in government). Same with the New Greek Statistics: their purpose was to make 2013 look much better than it was in order to boost Mrs Merkel and Mr Samaras prior to the European Parliament Election.

    • Selective and ad hoc application of ESA95 amounts to fraud, does it not? Had a publically traded corporation engaged in such ‘convenient’ use/misue of accounting rules, wouldn’t it be liable?

  5. Pingback: Links May Day 2014 | naked capitalism

  6. In your post you clearly write: “However, when it comes to the 2013 primary budget computation, the 5.4 billion parked in the pension funds and local government accounts appears as a phantom ‘windfall’ that produces the 1.3 billion ‘surplus’.”
    This is in line with a comment you made earlier in this dialogue: “While they accounted properly for this ‘adjustment’ of 5.4 billion in the overall deficit figure, in the calculation of the primary figure they counted the 5.4 only as an asset and not as a liability”.
    Both Eurostat and ELSTA commented on you position.
    Eurostat on the same says (according to your post):”In fact, which part of the General Government holds financial assets or transfers between sub-sectors is neutral for the overall General Government fiscal balance.”
    And ELSTAT in their announcement on the subject say: “The transfers between the government subsectors increased the expenditures and thus the deficit of Central Government. By the same token, there was an increase in the revenues of the Social Security Funds and Local Government subsectors, and a reduction of their deficits (generation of surpluses). There was no effect on the overall deficit of the General Government”.
    It is clear that Eurostat and ELSTAT say that your position is false.
    Please let us know you comments on this.

  7. Is the sum of “5.4 billion parked in the pension funds and local government accounts” booked as ‘income’

  8. @another one: Can you please rephrase your post? I do not follow it, especially your point #2. Thanks in advance.

  9. This is getting counterproductive but now I am knee deep into this thanks to Yanis’ unrelenting nature. So let me say for the record one final time: The primary surplus is an income statement issue. The balance sheet issues Yanis seem to take exception to are asset vs. liabilities issues with zero effect on the primary surplus calculation. In fact the ELSTAT language below makes this very clear. So why do we keep arguing about it; I don’t get it!

    “In response to recent reports in the media claiming that unreliable statistics were published by the Hellenic Statistical Authority, ELSTAT and Eurostat, regarding Greece’s annual fiscal figures for 2013 as these showed surpluses in social security funds and local government, the former sought to clarify matters in a statement released on Wednesday.

    “In 2013 there were transfers of 4.2 billion euro and 0.7 billion euro from the subsector of Central Government to the subsector of Social Security Funds and to the subsector of Local Government, respectively, so that these two subsectors could clear arrears they had built up in previous years,” the statement read. “The transfers between the government subsectors increased the expenditures and thus the deficit of Central Government. By the same token, there was an increase in the revenues of the Social Security Funds and Local Government subsectors, and a reduction of their deficits (generation of surpluses). There was no effect on the overall deficit of the General Government. The incurring of the relevant arrears had affected the overall deficit in previous years (mostly 2011 and 2012), given that accrual accounting is applied according to European and international national accounts rules.

    The agency said it regretted the fact that “analysts publishing the mistaken conclusions about unreliable statistics did not take the time to pose their question to ELSTAT if they could not understand the matter at hand but proceeded to erroneous analyses, and even jumped to the irresponsible conclusion that this was another case of the old ‘Greek statistics’ ” and urged its data users to address questions and queries to its staff.”

    • 1. Why a settlement of arrears within the financial accounts? Due to the ESA 95 standard, a payment obligation causes an expense just when it occurs.
      2. There were very well a substantial effect on the overall deficit of the General Government, assumed there were an income record from borrowed money in the Central Government’s account, which neutralised the expense record from transferring just that money to the other subsectors.

    • Another One:

      1. ELSTAT urges data users to address questions and queries to its staff. I would also urge you to do just that because it was never my intent to get into this so that I would address dissatisfied customers.

      2. The way it looks to me the issue is of an accounting nature with zero substance. For every debit created in accounting a corresponding credit has to offset it. This is what seemed to have happened here. There was an arrears issue for prior years (and not 2013) and the corresponding transfers created a net zero effect for the General Government. In other words the increased deficit for the General Government created by the debit entry of funds transfer was fully offset by a credit due to an increase in Social Security fund revenue resulting in a net zero effect for the overall Greek budget.

      3. I don’t see ELSTAT to refer to borrowed money. Borrowed money would mean that the subsector beneficiaries would have had to be charged interest which does not seem to be the case.

      4. The ELSTAT explanation is clear and unambiguous, so I am not sure what exactly is your unanswered concern at this point.

      If you now allow me I would like to take my leave from this topic because it’s overdone.

    • @Dean,

      I won’t pretend that I fully comprehend the fine details of accounting for a national budget, but what is your point?

      Are you trying to say that Greece is all fine and dandy now and – contrary to everything else that has been officially announced on this matter over the last five years – that this time around the numbers are actually accurate?
      Am I really expected to believe my chancelor and her swabian chief of austerity when they claim that the euro-crisis is in the final stages of being resolved and that they were right all along trying to save a dying economy by choking it to almost death?

      I am really confused now.

    • Dean,

      If the surplus is a result of collecting 3 years of real estate taxes in one year and of holding off from paying new retirements and putting people on a 2-4 year waiting list and a result of selling assets then it is engineered to be what was agreed with Europe.
      Where the situation stinks in Greece is with the recent debt offering at near 5% rates and with the sale of 7000 acres of the Ellinikon airport to the ONE and ONLY ONE company making an offer (well connected to the parties in government). All that money collected from the debt offering and the land sale promptly evaporated in pre-election bonuses.

      For all your love of Stournaras he engineered the highest tax increases, treating the Greek middle class like tax evaders. You have unemployment of 27% and a real estate market that is overtaxed and in pieces.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s