Fresh from Eurostat, the future of the EFSF.
At least, in terms of the way it’s accounted for in Europe’s national accounts. The statistics body figures that funds raised by the European Financial Stability Facility (EFSF) will have to be recorded in the gross government debt figures of the eurozone states which guarantee it, and according to the size of their guarantee.
Here’s Eurostat’s explanation (H/T Asymptotix) :
For Eurostat, the main question is to decide, in the case that the Facility comes into operation, to who the debt raised should be attributed. The Member State benefiting from the loan will of course have a debt, but to who belongs the initial debt acquired by the Facility in order to make the loan?
Eurostat’s opinion is that the EFSF does not possess all the normal characteristics of an institutional unit under ESA 95 …
Eurostat therefore considers that the EFSF is an accounting and treasury tool to enable the same conditions for access to borrowing for members of the euro area, acting exclusively on behalf of them and under their total control. Not being an institutional unit as defined in national accounts, EFSF operations must be partially consolidated in national accounts tables with the institutional units to which it belongs, in this case, the governments of euro area Member States.
And how it will work in practice:
These Member States will record in their national accounts, in proportion to their share and for an amount equal to the EFSF loan registered in their accounts, a loan to the euro area Member State which has requested the activation of the mutual support mechanism through the EFSF. This will not affect the amount of the government debt of the borrowing Member State, but simply the geographical breakdown of it.
The recording of these flows via the Member States providing guarantees will have an impact on their gross government debt (as defined in the Maastricht Treaty), but this transaction will be neutral in terms of debt, net of the loans they have granted for support operations to other Member States.
In addition, all revenue streams (interest, margins and service fees), recorded on an accrual basis, will pass through the national accounts of States having provided a guarantee. A portion of these flows (margins and service fees) will have a positive impact on government deficit/surplus of these States.
This decision contributes to the comparability of data on public finances across the EU, since it allows the recording in the same way, especially as regards the impact on gross and net debt, of all support operations, whether done on a bilateral basis – as in the case of the euro area for Greece in the spring of 2010, or by some non-members of the euro area in the case of Ireland – or through a specific entity such as the EFSF.
Eurostat will from now on publish, in its twice yearly News Release on the notification of government deficit and debt data for EU Member States, information that will permit the calculation of Member States’ debt, net of the loans they have granted for support operations to other Member States.
Bailouts are the new (Eurostat) norm.
Related link:
A sudden rise in Britain’s debt-to-GDP figures? Blame the banks – FT Alphaville