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…