29 March 2012

ACCA: The economic governance challenge in the EU

The meeting was held within the framework that the economic and financial crisis has revealed a series of weaknesses in economic governance throughout the EU. The EU institutions and its Member States have therefore taken a series of important decisions aiming to strengthen fiscal, economic and budgetary coordination for the EU as a whole and for the euro area in particular. However if budgetary consolidation and sustainable public finances are crucial, it is vital further to discuss and implement concrete growth and employment measures, which are noticeably absent from the current initiatives.

Fabian Zuleeg, chief economist at the European Policy Centre, indicated: "The only way out of this crisis is to have further integration with real decision-making power at the European level. We have to make a distinction between austerity and fiscal consolidation, as too much austerity can lead to a deterioration of public finances. Exclusive focus on public finances and on austerity cannot be a sustainable approach; we need to look at the long term durability of the economies concerned. 

"In the eurozone, we are experiencing this crisis because we have a single monetary system but a fragmented political system. In addition, we are talking about the growth problem in Europe as a whole, but we forget to talk about the divergence in growth between worst performing countries and best performing countries. If we want to avoid countries dropping out of the democratic system, we need to allow these countries to ringfence certain expenditure in some areas - as Finland did with its education budget in the 1990s - and help them attracting private investment and public investment, through a 'new deal'. We should envisage a 'collateralisation' of debt and take these countries away from market forces that are destroying them."

Philippe Peuch-Lestrade, Partner at Ernst & Young, explained: "Most of the current national accounting systems do not include the cost of future policy governance and commitments, though we need clarity on the numbers. This is a key issue we have to solve; governments should know what the cost to produce services is and how these should be financed, as they should know what assets are worth and what are the liabilities. We do not have sufficient reliable and quality data to protect investors and ensure stability of financial markets, nor restore trust within citizens. 

"For a better budget efficiency and a better decision-making, it is urgent to change Member States’ bookkeeping and accounting systems. The public sector need to shift from a cash to accruals-based accounting model, subject to an independent audit, to ensure the same level of transparency and accountability than for the private sector. It is also instrumental for the intergenerational equity."

He was echoed by Alexandre Makaronidis, head of the unit GFS quality management and government accounting at Eurostat, who added: "We need further harmonisation, if not integration, of public sector accounting systems within and across Member States, throughout the European Union. The quality and transparency of the policy and decision-making heavily depend on the quality of the input data. Accrual-based public accounting improves governance, transparency, accountability and comparability in public sector accounting. It would also facilitate harmonisation and comparability as well as improving efficiency and effectiveness of public sector audit.

"However the implementation of the harmonised accrual-based standards in EU Member States could lead to reluctances from some Member States, both linked to its substantial costs, not easy to address given the current constraints on resources, and also due to the different national legal traditions. Eurostat is undergoing an assessment of the suitability of introducing International Public Sector Accounting Standards by the end of 2012, and looks forward to receiving stakeholders’ contributions to the ongoing public consultation on the issue. The outcome of this assessment will determine the need for the possible development of a legislative proposal, including concerning EU Governance of the process of adoption of standards. The assessment will cover whether IPSAS could be applied in its pure form or if, for example, we should move towards a more European version of the standards."

Press release

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