29 May 2013

President Van Rompuy: Strengthening public sector accounting for sound fiscal policies in Europe

In Europe, discussions about fiscal policy largely revolve around two key indicators of fiscal sustainability, deficit and debt. These indicators are so pivotal to European fiscal framework. The fact that statistical issues feature prominently in the Treaty, so have in a sense a constitutional status, shows the importance of public sector accounting.

The importance of the reliability of government accounts has been illustrated by some dramatic episodes of inaccurate reporting of deficits and debts in the run-up to the  sovereign debt crisis. There is one lesson to draw from such episodes: statistics are a mirror image of the real world, they are not the real world. Misreporting fiscal data, either on purpose or due to lack of diligence in the production of reliable statistics, is never a solution to fiscal problems. Inaccurate accounting contributes to ill-founded policy decisions, insufficient consolidation efforts when deficits and debts are underestimated, and eventually to a total collapse of confidence leading to refinancing problems. This unfortunately is experienced in Europe. Europe has had its day of reckoning for inaccurate reporting of government accounts.

I have never worked directly in the field of statistics, but I have had a long professional experience with public accounts, including as budget minister and as Member of Parliament in Belgium. I can safely say that I am a user, even a professional user of consolidated government accounts, and that I fully appreciate the importance of the work to ensure the production of accounts that provide a reliable and complete picture of the financial position and economic performance of governments.

That is why another important aspect of government finance statistics in Europe: their comparability. Comparability of public sector statistics requires an effort of harmonisation, which is the topic of the conference. Harmonisation efforts are warranted for at least three key reasons.

First, the crisis has taught us the high degree of interdependence between Member States. What happens in one country can affect all the others. The deeper economic and financial integration of the Union calls for further harmonisation of public sector statistics. The revised fiscal framework, the reinforced Stability and Growth Pact and the "two-pack", provides for closer monitoring of the public finances of Member States. Such enhanced fiscal surveillance needs adequate accounting underpinnings, where country monitoring takes place on a level playing field, where there is no room to shun responsibility through budgetary gimmicky. The reliability and timeliness of fiscal statistics is essential for the smooth functioning of a rules-based budgetary framework that includes recommendations and even sanctions to Member States in breach of the rules. Your conference today will contribute to defining the appropriate public sector accounting framework that can provide high-quality financial and statistical reporting of the performance and position of governments in Europe, taking into account our European specificities, procedures and institutional set-up.

Second reason, the quality of policy decision-making largely hinges upon the quality of statistics. In times of budgetary retrenchment, when major policy decisions have to been taken, high quality statistics are more important than ever. Hard budgetary decisions, expenditure cuts and tax increases affecting directly our citizens, have to be taken on the basis of data that are as hard as possible. As we continue on our road towards deeper European integration, towards a genuine economic and monetary union, needs fully comparable public sector accounts covering all sub-levels of general government. In a Union consisting of Member States with a wide range of internal budgetary arrangements, from federations to centralised states, ensuring such comparability is essential to the pursuit of sound fiscal policies. It is even indispensable for the smooth functioning of the new elements of governance EU puts in place with the "two-pack". Ex ante coordination of annual budgets in the euro area, to be fully effective, should be based on an harmonised set of public sector accounts.

Third reason, transparency and democratic accountability. Transparent public accounts are the cornerstone of the accountability of governments to their citizens and their elected representatives. Reliable, timely and complete public sector accounts contribute to high quality budgetary debate in lively democracies. Harmonised public sector accounting would help strengthen the discussions on budgetary matters between all stakeholders, at national level and at the European level.

Harmonising public sector accounts, moving towards harmonised public sector accounting standards in European Member States: no doubt this is easier said than done. My message is: we need harmonised public sector accounts in Europe. I have no doubt that you  will contribute to defining best public sector accounting standards for Europe looking  forward. By doing so, you will make a significant contribution towards European integration. Laying the ground for fully effective surveillance of fiscal policies in Europe.

Allowing direct comparability of public accounts across countries. Feeding informed policy debates on budgetary matters throughout Europe, and thereby helping improve the quality of policy decision-making. Harmonised public sector statistics are a common language and the basis for sound fiscal policy-making both nationally and Union-wide.

Full speech

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