It’s not just Greece that was an economy with the truth | FT Alphaville

It’s not just Greece that was an economy with the truth

You might normally expect a European Central Bank working paper with the title ‘Fiscal Data Revisions in Europe’ to be dry as dust.

Not with these conclusions:

Recently, some voices have been wondering whether revisions to Greek data revisions are representative of the Europe’s fiscal reporting system or, conversely, they are just an isolated occurrence that can be explained by Greece’s idiosyncratic factors… the President of the ECB recently stated that “while the government finance statistics of the overwhelming majority of the Member States is reliable, this does not yet apply to all of them”…

First and foremost, most preliminary government deficit data releases are biased and nonefficient predictors of subsequent releases, with later vintages of data tending to show larger deficits than indicated by earlier data releases on average; nevertheless, if the systematic bias is excluded, revisions can be considered rational after two years. In addition, on average, small countries and/or countries not subject to EDP [Excessive Deficit Procedure] procedures along the analysed time period make a more rational use of the available information than large countries and/or countries subject to EDP procedures.

Second, such systematic bias in government balance revisions cannot solely be attributed to the behaviour of a small number of countries; it is rather a general feature of the sample, although the Greek case is clearly an outlier in the group of analyzed countries.

Third, the presence of stringent and binding fiscal rules contributes to enhancing the rationality of (earlier) fiscal data releases.

Fourth, Eurostat’s decisions and methodological clarifications leading to forced data revisions explain a great deal of the bias towards larger deficits, providing some evidence that some individual countries might have distorted preliminary releases of data by using accounting rules in a partial way.

Finally, expected real GDP growth and political cycles also explain revision patterns, with estimated signs supporting the hypothesis that governments tended to conceal deficits in electoral and pre-electoral years, and when the economic situation was adverse.

Here’s a representative chart — note where the asterisks fall:

Accounting tricks rife across the rest of the periphery? Who knew?


There’s another ECB paper just out too which concludes that the Stability and Growth Pact has had ‘limited or no success’ at improving fiscal governance of eurozone states in the last ten years. Which is a bit depressing. Here on FT Alphaville we’re always looking forward, and we think that it won’t be peripherals like Greece who’ll be troubling the eurozone by the end of this decade — it’ll be the gigantic debt piles of Italy, Belgium… and worse. This isn’t sustainable.

Although it’s always worth pointing out that France and Germany were the first eurozone states to break Maastricht’s 3 per cent deficit-to-GDP rule way back in 2004….

Related link:
EMU — How will the markets price break-up risk? – Investment Policy (1999)