Europe acts to police data as debt levels spiral

Tuesday, 19 January 2010 21:16

Written by Aman Bansil

debt BRUSSELS — Europe wants to police spiralling debt levels in member states, officials said, as the finance minister in crisis-stricken Greece issued a desperate plea for "faith" from the markets.

The drive for new powers to snoop in national accounts came as European ministers rounded on Athens over dodgy data that covered up the staggering scale of Greece's national debt, triggering panic among its neighbours.

But Greek Finance Minister George Papaconstantinou said he should not be blamed for the previous government's failures and announced reforms intended to give the heavily-discredited Greek statistics service greater independence.

The EU's executive arm will propose next month that the bloc's data office, Eurostat, be allowed to "carry out audits" on information provided by national governments, Economic and Monetary Affairs Commissioner Joaquin Almunia said.

Brussels failed with a similar request in 2004, but Almunia insisted that the recent Greek experience proved that "it's not enough to have notification from (national) budgetary authorities."

"We need to get these new competencies," he said.

Ministers are concerned that Ireland, Portugal and Spain are having difficulties in dealing with heavy deficits and debts.

Swedish Finance Minister Anders Borg earlier condemned Greek economic mis-reporting to Brussels as "fraudulent" and "a cost for the whole of Europe."

Greece, which is mired in recession, has a public spending deficit that rose to 12.7 percent of output last year, far above the 3.0 percent ceiling permitted to countries sharing the euro.

It is also saddled with a ballooning debt constituting 113 percent of gross domestic product (GDP).

A damning commission report endorsed by finance ministers on Tuesday highlighted two widely differing sets of figures on Greece's excessive deficit, sent by Athens to Brussels on October 2 and October 21.

In the second set of estimates the Greek authorities revised the country's planned deficit ratio for 2009 from 3.7 percent of GDP to 12.5 percent, which the commission termed "deliberate misreporting."

Papaconstantinou said the latest change in what is now a 14-point plan to fix the Greek economy would mean "the ministry of finance will not be able to appoint or fire the head of the service."

He said legislation would be passed "within a month" to render "the statistics produced... statistics that everyone can have faith in."

"The report identifies institutional and systemic problems, and issues of political interference," he said.

"We are in broad agreement with all the report's conclusions, and have taken measures to ensure the problem does not occur again."

Claiming a "serious, dedicated, ambitious and fully realistic" response to the credibility crisis, he acknowledged that its success would depend on how markets react.

"Unfortunately, given our large borrowing requirements, the markets react on a daily basis," he said, hours after credit rating agency Moody's said it was maintaining a negative outlook on Greece amid doubts over its chances.

The Greek government has been in tailspin since suffering a credit downgrade from all three leading ratings agencies last month.

Despite fears of social unrest over the austerity programme, Papaconstantinou insisted that "the Greek people realise the seriousness of the matter."

The Socialist government, which came to power in October, last week unveiled a "front-loaded" three-year crisis blueprint to cut back a public deficit of over 30 billion euros (43.1 billion dollars) and rein in government debt estimated to exceed 294 billion euros this year.

The plan aims to save more than 10.3 billion euros in 2010 with improved tax collection, cost cuts and reduced arms spending to bring the public deficit to 2.8 percent of output by 2012.

Source: AFP