Better data for budgetary surveillance: EU law on statistics as key to unlocking the potential of public sector accounting

Abstract

The quality of the data available for monitoring budgetary discipline of the Member States has been a hot topic within the European Union (EU) institutions and in the literature ever since the beginning of the economic crisis in 2008. The COVID-19 pandemic has shown the inadequacy, not only of the data, but also of the policy instruments available for coordinating efforts and decision-making. In this paper, we attempt to unlock the potential of public sector accounting (PSA) for contributing to the improvement of EU surveillance mechanisms. We look beyond the idea of standardised accounting rules for the entire EU public sector (European Public Sector Accounting Standards) into a less controversial area of EU competence, and we explore the conditions for introducing reporting obligations based on PSA data as part of EU law on statistics.

Points for practitioners

The current succession of crises might create momentum for a change in EU fiscal policy-making. New instruments for the monitoring of the budgetary situation in the Member States could become necessary. The EU institutions cannot impose the European Public Sector Accounting Standards. However, a new standardised reporting instrument could become binding EU law if it would come in the shape of a statistical methodology. Basic principles of EU law guarantee that any new statistical reporting obligations are limited to what is necessary, proportionate and cost-effective.

Keywords

Administrative law budgetary surveillance decision making ESA EU statistics public finance public sector accounting

Introduction

The quality of the data available for monitoring budgetary discipline of the European Union (EU) Member States (MS) has been a hot topic within the EU institutions and in the literature ever since the economic crisis began in 2008. It painfully showed the inadequacy not only of the data but also of the policy instruments used for coordinating MS fiscal policies and ‘punishing budgetary misbehaviour of specific national governments’ (Buti and Fabbrini, 2022). The European Commission (hereinafter referred to as the Commission) struggled against purposeful misreporting by some MS as well as technical difficulties in compiling and interpreting the reported data (Oulasvirta and Bailey, 2016). Various instruments have been developed since to improve control over MS budgetary discipline. The most prominent ones are the Stability and Growth Pact (SGP) and the instruments that developed it further, like the Six-pack, the Two-pack and the Budgetary framework directive. They were consolidated and streamlined in 2011 by introducing the European Semester (Amtenbrink and Hermann, 2020). Capacity building in the Commission increased the effectiveness of the surveillance mechanisms but attempts to equip Eurostat with additional audit-like or sanctioning powers have not been successful (Savage and Verdun, 2016; Oulasvirta and Bailey, 2016).

In 2011, the Commission first pointed out the connection between the ‘weaknesses in the quality of upstream public accounting data’ and the quality of EU statistics which Eurostat can produce from this data. From this notion sprang the idea that the best way to improve budgetary surveillance was to tackle the source of much of the data which is used to produce EU statistics on the MS budgets: public sector accounting (PSA) (Jones and Caruana, 2015). Public sector accounting refers to the accounting systems that record and report on economic transactions of individual government entities like a municipality, a central government or even a public hospital or university. Based on an initiative in the European Council (2011) (hereinafter referred to as the Council), Eurostat started a project in 2013 to develop and implement a set of accounting standards for all levels of government in all MS: the European Public Sector Accounting Standards (EPSAS) (European Commission, 2013b; European Commission, 2013a). In the decade that has elapsed since the EPSAS project was born, it has faced much criticism, both content-wise and from a procedural perspective, and moreover it has not produced any tangible results yet (Caruana et al., 2019). Eurostat (sd) has lowered its ambitions for the project and aims now at increasing the transparency and comparability of public sector financial accounting and reporting between and within EU MS by developing and implementing a harmonised European accounting framework.

Meanwhile, the problems become ever more salient through the consequences of the COVID-19 crisis on the MS budgetary and financial situation (Dabbicco and Caruana, 2022; Jorge et al., 2022). The fiscal rules which the MS had to abide by and the corresponding procedures were suspended very early on in the crisis. Emergency measures involved massive government spending which made MS adherence to the budgetary limits set up by the so-called Maastricht criteria impossible. The existing tools proved inadequate for such a crisis situation (Dabbicco and Caruana, 2022). Instead, an entirely new instrument based on a substantial crisis fund without any macroeconomic conditionality attached has been installed: the NextGenerationEU (NGEU) programme (Buti and Fabbrini, 2022). The European Semester has been adapted to facilitate the execution of and reporting on the NGEU instead of the SGP (Blanchard et al., 2021).

There seems to be a broad agreement in the literature that better data is necessary and that PSA scholars can potentially play a significant role in tackling the issue (Dabbicco and Caruana, 2022; Cohen et al., 2021; Jesus and Jorge, 2015; Dabbicco and D'Amore, 2016; Jones and Caruana, 2015; Oulasvirta, 2021; Biondi, 2016; Moretti et al., 2021). Binding accounting standards for the EU public sector, as originally envisaged in the EPSAS project, however, are not going to be efficacious. The EU simply lacks the power and competences to force MS to make changes to their PSA systems (Helldorff and Christiaens, 2021) and therefore such standards could never achieve their aim. As an alternative approach, Helldorff and Christiaens (2021) consider it within the powers and competences of the EU to develop measures inspired by EPSAS ‘within the realm of statistics’.

To put this idea to the test, we will divert from the common approach to take EPSAS as given and try to find ways to introduce them and make them binding. The nature of any legal analysis dictates that we take the law, in this case EU law on statistics, as given. We therefore turn the question around: what would EPSAS have to look like to qualify as EU statistics? Is it even possible to adapt EPSAS for this purpose and under what conditions? Formulated in a way that admits a legal analysis, our research question is: do the EU Treaties provide a legal basis for the introduction of EPSAS-like reporting obligations and if so, what are the conditions to introduce such obligations as binding EU law?

The findings will contribute to the PSA literature by marking out the basic conditions which any PSA-data-based standard needs to fulfil if it is to become a binding standard for every MS on all levels of government. This will help direct research efforts towards feasible policy options and supports the claim that fully fledged EPSAS are not the only way in which the EU can contribute to better data for fiscal policy-making (Helldorff and Christiaens, 2021).

The remainder of this paper is organised the following way. First, a review of accounting literature is provided that will give insights into the shortcomings of existing instruments from an accounting perspective and attempts improvements and suggestions on how PSA can contribute. From this, the contribution of the paper is derived, and subsequently, the materials and methods used are explained. This is followed by the analysis of EU law on statistics and elements of the most important legal basis. We end with a discussion of the findings and concluding remarks.

From ESA to EPSAS: the issue from an accounting perspective

While there is a widespread impression that better data is necessary, there are very different views on what kind of data is actually necessary and what is the best way of presenting it. Accordingly, various theoretical approaches are advocated in the accounting literature (Caruana et al., 2019). The most prominent idea is to develop EPSAS. The original aim of the EPSAS project was that accounting standards should improve the quality of the data that the MS feed into the European System of Accounts (ESA).

The ESA is a statistical methodology that was developed to measure and report on an economy as a whole for macroeconomic policy-making. The economy is split into several sectors (e.g. financial corporations, households). One such sector is called whole-of-government (Sarmento, 2018). For the purpose of fiscal surveillance of the EU MS, this whole-of-government is effectively taken to equal the sum of all individual government entities of a jurisdiction. Research elaborates why this is cutting one too many corners (Guthrie, 1998; Lequiller, 2014; Dasí et al., 2016). The specificities of the public sector mean that ESA data cannot directly be used for fiscal policy-making. A host of adjustments to and clarifications of the ESA data are necessary to make the data more suited to public sector reality, e.g. concerning the accounting base, the timing of the recording of an economic event, the classification of transactions, the perimeter of consolidation and valuation of the definition of surplus and deficit (Lequiller, 2014; Columbano et al., 2022; Dasí et al., 2016; see Sarmento, 2018: 82 for a summary). Economic and fiscal reporting both use certain terms, but they do not necessarily have the same meaning in their respective contexts. When EU fiscal surveillance started taking shape and was introduced in 1993 into the Treaty of Maastricht, criteria and reference values needed to be fixed, and the ESA was used to define them. This was not necessarily done out of conviction that they were the best for the purpose but simply because the numbers were readily available (Lequiller, 2014; De Streel, 2014). In the development of further instruments, this approach was simply continued.

A point of critique towards the idea of EPSAS is that it might help to supply better data to the ESA, but the resulting ‘better’ economic data would still have to be adjusted for fiscal policy-making (Caruana et al., 2019). Another point is that EPSAS are to be based on the International Public Sector Accounting Standards (IPSAS). The IPSAS are a non-binding public sector adaptation of financial reporting standards for businesses. The usefulness of the IPSAS, however, remains contested for both PSA and reporting on the Maastricht criteria (Polzer et al., 2022; Columbano et al., 2022; Oulasvirta, 2021; Polzer and Reichard, 2020; Jones and Caruana, 2015).

In addition to the voices supporting or criticising the EPSAS approach, there are also calls for altogether replacing the historically grown ESA-based system, either by changing the Maastricht criteria or by keeping but redefining them (Jesus and Jorge, 2015: 20; Jones and Caruana, 2015; Blanchard et al., 2021; Guarini and Pattaro, 2019). One idea is to derive the necessary data directly from the various accounting systems of governments instead of from the ESA (Montesinos et al., 2019; De Streel, 2014; Lequiller, 2014; Lüder, 2000; Jones and Caruana, 2015). This is supposed to save several steps of adjustment and could therefore lead to better data.

The emergence of the NGEU programme has shown, moreover, that an altogether different method of fiscal policy-making is possible, even if only temporarily and in the context of recovery from the COVID-19 crisis (Buti and Fabbrini, 2022; Arnold et al., 2022). The crisis context has, for a time, changed the aim and focus of fiscal policy-making and a different aim might make a different kind of data necessary.

From an accounting perspective, there are a range of technical and theoretical solutions available for standardised reporting of PSA data. However, the question remains unanswered of if and how such standards can be turned into binding EU law and therefore oblige MS to report according to such standards. Gröpl (2014) and Ohler (2014) both delivered expert opinions on possible legal bases for the introduction of binding PSA standards on all levels of government. They rejected that such standards could be imposed in the name of Economic Policy, the common currency, the approximation of laws for general EU objectives or by using delegated or implementing powers of the Commission. They also opposed the idea that accounting standards could be imposed using the EU competence in statistics. That is, as we will elaborate below, simply and plainly because accounting is not statistics. The contribution of the present paper is that it approaches the problem from the other end: what would EPSAS have to look like to qualify as EU statistics?

Materials and method

The chosen method is a legal analysis of material and procedural EU law on statistics. To be able to interpret the general legal provisions in the context of PSA, pertinent literature was consulted additionally.

The first step of the analysis is to locate and determine the applicable law which regulates EU competence in the field of statistics. The primary source of EU law is the founding treaties: the Treaty on European Union and the Treaty on the Functioning of the European (TFEU). The relevant treaty provisions and secondary law are then analysed to identify and explain the conditions under which they can be used to introduce EPSAS-like reporting obligations.

Analysis

EU statistics

The EU competence in the field of statistics evolved in stages together with the EU itself. In the beginning, coal- and steel-producing undertakings were obliged to report certain information. Later, the agricultural and fisheries sector became subject to several regulations. To support the development of the Single Market, an extensive body of regulations on business statistics was developed. With the expansion into new policy areas, statistics on employment, environmental data, etc., as well as frameworks and valuation rules became necessary. The creation of the Economic and Monetary Union triggered the need for data on the economy of the EU MS, individually and as a whole (Hahlen, 2009). To cater for this need, the ESA system was gradually developed. The System of National Accounts, an international reference framework, was taken as a model. It defines the macroeconomic accounting rules to describe the economies of the MS in quantitative terms in a consistent, reliable and comparable manner (Amtenbrink and Hermann, 2020).

Article 338 of the TFEU

In 1999, Art 285 (now Art 338 TFEU) was introduced into EU law with the Treaty of Amsterdam. This Art 338 is the legal basis for the production of statistics and provides for standardised procedures and conditions for any new type of statistical measures that the EU institutions want to take. The introduction of Art 338 made it explicit that the EU institutions cannot ask for any type of information at any given moment, but every measure needs to serve a purpose. Statistics are not a policy in their own right but a tool to support the activities of the EU.

Article 338 TFEU (emphasis added)

1. Without prejudice to Article 5 of the Protocol on the Statute of the European System of Central Banks and of the European Central Bank, the European Parliament and the Council, acting in accordance with the ordinary legislative procedure, shall adopt measures for the production of statistics where necessary for the performance of the activities of the Union.

The following section is devoted to analysing the key elements of this article underlined above. Relevant secondary legislation and pertinent PSA literature are used to interpret the terms in the context of introducing EPSAS-like reporting obligations.

The term ‘statistics’ has a specific meaning in the context of the EU, which might overlap but does not necessarily conform with commonly used definitions. We therefore need to use a definition in line with the one used by EU authorities and legislation to clarify what characteristics reports derived from PSA would require to qualify as statistics. ‘Statistic’ means quantitative and qualitative, aggregated and representative information characterising a collective phenomenon in a considered population (Council, 2009). The considered population here is governments on all levels of all EU MS. Statistical data relate to the outcomes of PSA systems which are processed based on statistical methodologies (European Council, 2011). Additionally, these data need to be collected within a national statistical system (Eurostat, 2017), not within the governments themselves. Accounting data from all levels of government can therefore only be the source of statistics but never statistics in their own right. This coincides with the interpretation by Ohler (2014) and Gröpl (2014) that statistics cannot be equated with accounting data from a legal point of view.

In order to qualify as statistics, standards for reporting on PSA would, in short, have to be developed as a statistical methodology for collecting and processing representative or aggregate data within the national statistical systems. These standards could serve as the framework and valuation rules which are in place for EU statistics in any policy area (Hahlen, 2009). As standardisation of the PSA systems of the MS is not an option, the output of the PSA systems of all levels of government (the upstream data) would have to be converted or translated into standardised reports instead (Manes Rossi et al., 2016).

The developers of such standards for conversion would of course face the same challenging starting conditions as the proponents of EPSAS: the dazzling diversity of accounting techniques, standards and frameworks within and between EU MS (Manes Rossi et al., 2016; Polzer et al., 2022). Choices need to be made about what accounting framework and valuation rules would be most suitable for taming the diversity and the most useful for policy-making. Yet even on such a fundamental point, there are different views among PSA scholars. Dabbicco and Caruana (2022), Dabbicco and D'Amore (2016) and Moretti et al. (2021), for example, advocate a balance-sheet-based approach, especially for better policy-making in the recovery phase of the COVID-19 crisis. This could mean that data for policy-making would be found in a balance-sheet type report which consolidates input from all levels of government of every MS. Biondi (2016) and Oulasvirta (2021) on the other hand argue against a balance-sheet approach in general and a reference to IPSAS in particular and suggest an income statement approach. The theoretical choices behind these approaches are fundamentally different, but the basic conditions set out by EU law are the same: the standards need to serve for collecting and converting, not for producing PSA data.

All this begs the question of how such a version of EPSAS would be different from other EU statistical methodologies like the ESA. The answer is that the difference will have to lie in the concrete (accounting) framework and valuation rules that are tailored to the needs of fiscal, not macroeconomic, policy-making. Such a methodology will, however, certainly not resemble IPSAS, as those are standards for the production of PSA data by governments themselves.

‘Activities of the Union’ (EU) in the sense of EU policies are listed exhaustively in Art 3–6 TFEU. EU statistics on the other hand are regulated in the ‘General and final provisions’ of Art 335ff . Unlike, for example, the customs union, monetary policy or agriculture and fisheries, statistics are not an EU policy. They are not produced for their own sake but as a means to an end. Accordingly, measures for the production of statistics are only created ‘where necessary for the performance of the activities’ of the EU.

Public sector accounting is neither an EU policy nor an activity of the EU (Helldorff and Christiaens, 2021). We therefore need to establish which other activity of the EU could make it necessary that the MS produce and deliver statistical data derived from their PSA systems, and this activity needs to be found in the aforementioned Art 3–6. The context in which the EPSAS project was set up clearly points towards the provisions concerning the Economic and Monetary Union of Art 5(1) (Economic and Financial Committee, 2017; Economic and Financial Committee, 2014; Helldorff and Christiaens, 2021). The role that PSA is supposed to play in the context of the coordination of the MS economic policies is to help improve budgetary surveillance (Jones and Caruana, 2015). The only treaty provision explicitly referring to the MS budget is Art 126. It declares that the avoidance of excessive deficit is a duty of each MS. We find two provisions which charge the Commission with an activity connected to fiscal policy-making. The first is to monitor the development of the budgetary situation and the stock of government debt with a view to identifying gross errors. It prescribes budgetary discipline and provides criteria on how to measure compliance. Secondly, Art 126(14) requires the implementation of a particular procedure to examine compliance with these criteria: the Excessive Deficit Procedure (EDP).

The importance of the question of whether a measure for the production of statistics is ‘necessary’ can be understood best when looking at the history of Art 338 itself. The production of Union statistics was for a long time regulated differently for each of the various activities of the EU. The absence of one single legal basis for measures on statistics meant that there was no consistency in procedural requirements and guarantees, the quality of the data or the extent of the reporting obligations. In most cases, only a simple majority in the Council was enough to introduce far-reaching reporting obligations that demanded considerable financial and staff resources from the MS. There was a widespread opinion among the MS representatives that the demands were out of proportion with the needs for policy-making, that they were too costly and that such far-reaching standardisation of MS statistical data was not necessary in all cases. In other words, the MS called for the general principles of proportionality and subsidiarity to be respected in the making of new statistical measures (Hahlen, 1997). These issues were addressed by introducing one single, exclusive article on statistics, which explicitly demanded a qualified majority in the Council and a consultation of the European Parliament (hereinafter referred to as the Parliament). The article made it explicit that new statistical measures had to be necessary and cost-effective and shall not entail excessive burdens on economic operators. With the Treaty of Lisbon (2009), the role of the Parliament was strengthened even further by making it a legislator together with the Council (Lenaerts et al., 2021a). The development towards ever more stringent material and procedural conditions shows the significance of the criteria set out in the article as they are the result of a struggle towards limiting the EU's competence in the area of statistics.

Any draft legislative Act, including measures for the production of statistics, needs to be justified with regard to the principles of proportionality. Its meaning in the EU context is defined in Art 5 TEU. According to this article, the content and form of Union action shall not exceed what is necessary to achieve the objectives of the Treaties.

Action is necessary where it cannot be replaced by some alternative form of action which would have equal effectiveness (effet utile) having regard to the intended aim and be less detrimental to another objective or interest protected by Union law. (Lenaerts et al., 2021b: 106, emphasis added)

In the first instance, we can take stock of what (alternative) data and processes are already available for monitoring the budgetary situation of the MS. Any proposed alternative to this would certainly have to be proved more effective than the existing processes and instruments. Article 126 was chiefly implemented through the SGP and consolidated and streamlined in the European Semester (for a summary see De Streel, 2014: 87). The European Semester consists of various instruments. They typically contain fiscal or economic criteria and reference values that guide policy decisions (Fabbrini et al., 2019: 65). The ESA is a major source of data but by no means the only one. Likewise, ESA has many fields of application, fiscal policy being only one of them. Regardless of whether and how the data is used for fiscal policy-making, the MS are obliged to report regularly on their economy in compliance with ESA standards for the aim of economic coordination. There is no consolidated instrument or procedure for monitoring the budgetary situation. The bulk of the reference values for budgetary surveillance are, however, defined according to the whole-of-government definitions of the ESA (Lequiller, 2014). Proposing to implement a new way of surveying budgetary discipline could challenge, complement or consolidate this existing way of data collection and usage.

From an accounting perspective, there are numerous different opportunities and possibilities for improving the way budgetary discipline is currently monitored. However, the desirability and the technical possibility of replacing existing instruments or creating new ones do not prove the necessity of doing so in the sense of the TFEU. To be introduced into EU law, a new PSA-based reporting standard would have to be proved more effective than the existing ESA-based system and all the various additional sources of data together, having regard to the ‘monitoring of the development of the budgetary situation and of the stock of government debt in the Member States’ (Art 126). Maybe the superiority of such a standard could be claimed if it was tailored to the reporting of the MS administrations as the sum of individual entities, not as part of the reporting on the economy of a country as a whole. Data derived according to such a reporting standard could be usable for fiscal policy-making directly and therefore save several steps of adjustment from economic data.

Where the rather wide and general activity of monitoring the budgetary situation of the MS leaves room for a great variety of possible new reporting needs and tools, there is not much room for manoeuvre in the case of monitoring compliance with the excessive deficit criteria. The key criteria that need to be monitored are determined in Art 126: debt and deficit. The limits of what is considered excessive were fixed with the Maastricht criteria, and compliance is monitored through the EDP. How debt and deficit are calculated is defined in the Protocol No 12 annexed to the Treaties. The protocol declares that debt and deficit are defined and to be calculated according to the ESA standards. This way, the ESA is firmly anchored in the EU Treaties as an exclusive reporting standard. The data derived from a new statistical methodology could not be attributed to any role within the procedure. For the purpose of monitoring compliance with the excessive deficit criteria, it can therefore neither be desirable nor necessary to set up an entirely new statistical methodology to supplement the ESA system.

If better data for the EDP should come from a different source or in a different guise than ESA data, then the connection in the protocol would need to be removed. The only role which could be attributed to a new statistical reporting methodology would be to replace the ESA as an accounting standard altogether. Debt and deficit would need to receive a new definition according to the new statistical methodology. To judge whether this could be considered necessary for more effective monitoring of compliance with the excessive deficit criteria, it is important to recall the specific role of the reported debt and deficit. In the current setup, these numbers are ‘just’ a trigger for the EDP. They are only one element of many that the Commission and the Council consider before such a procedure is officially opened (De Streel, 2014). More detailed or much better numbers cannot be necessary where the decision at stake is simply a matter of raising a red flag or not. In the course of the EDP, better or more data could be very useful, but this can hardly justify the obligation for all MS to provide this additional information continually and routinely. Apart from that, this would go beyond the scope of the EDP and bring us back to better data for monitoring the budgetary situation in general, which has been discussed above.

Procedural aspects

If a new (additional) legal instrument for better data surveillance of budgetary discipline fulfils the requirements discussed above, it could be created based on Art 338 and Regulation (EC) No. 223/2009. It requires a joint adoption by the Parliament and the Council on a proposal from the Commission.

Replacing the ESA as a standard for calculating the EDP indicators and deriving data for the EDP directly from upstream data would have to happen in two steps. First, the new standard would have to be created according to the same Art 388. Second, Protocol No. 12 on the EDP and corresponding secondary legislation would have to be replaced or the provisions referring to the ESA would need to be amended. This requires unanimity in the Council and consultation of the Parliament and the European Central Bank. Unlike statistical measures, the Parliament only needs to be consulted. This means that the representatives of the MS are the most important actors in this decision-making process.

Discussion and concluding remarks

The EPSAS project was originally created for PSA to play its part in improving budgetary surveillance over the MS by providing better data. The chosen approach was to develop and implement accounting standards for all levels of government, which should bring PSA closer to the existing ESA-based budgetary surveillance tools. This approach was met with much resistance, contains difficulties and has not produced any tangible output yet. In our contribution, we looked for an alternative way to utilise the potential of PSA and to direct policy-making towards feasible options. We clarified that EU law on statistics does provide a legal basis for the introduction of binding EPSAS-like reporting obligations but only under the rather narrow conditions of Art 338 and with due consideration of the basic principles of EU law.

Interpreting the term ‘statistics’ in the context of EU law clarified that any kind of European standards for reporting on PSA (whether they are called EPSAS or not) would have to be developed as a statistical methodology for the reporting of representative or aggregate data from all levels of government, collected and processed within the national statistical systems. This means that such reporting standards cannot look like IPSAS, as those are standards for the production of PSA data by governments themselves. They would necessarily look much more like the ESA which were created under the same legal conditions. Taking a short-cut by adapting ESA for the purpose of budgetary surveillance is not an option, however, as the ESA is an instrument developed for a different purpose: accounting for the economy as a whole.

A new PSA-based statistical methodology would, however, need some kind of accounting framework and valuation rules which allow for the translation of the fiscal data from all levels of government of the different MS into standardised reports. The question whether they should contain similar accounting choices to the IPSAS, or if they should be based in the balance sheet or income statement or follow a completely different theoretical approach, cannot be answered from a legal perspective. This at the same time shows the limitations of this paper and emphasises its contribution. With the help of a legal analysis, we could explain the principles and conditions for introducing PSA-based reporting obligations as binding EU law; we cannot however contribute to their actual development. Here, accounting scholars and practitioners are called upon to advise policy-makers and develop a reporting standard that fulfils the identified legal conditions as well as meeting the needs of policy-makers. The magnitude of this task can hardly be underestimated, considering the dazzling diversity of accounting techniques and underlying accounting frameworks existing between and within the MS.

In the literature we found that from an accounting perspective there is no lack of ideas and knowledge for technical and theoretical solutions to improve existing instruments or replace them altogether. The principle of proportionality, however, lifts the requirements for a new instrument beyond finding the best technical solution. A new type of instrument has to be decidedly more effective for the performance of a specific activity of the EU than the existing ones. From the interpretation of Art 126, we derived such two activities which might justify the request for better data: the monitoring of the budgetary situation in the MS and compliance with the excessive deficit criteria. The former, rather general purpose could involve setting up an entirely new instrument to supplement or replace the various sources of data currently used. The latter would entail replacing existing reporting standards (ESA) with new European reporting standards for the purpose of the existing EDP.

It seems hard to argue that better data for the ESA-based EDP is necessary since the official role of debt and deficit is ‘only’ to raise a red flag if MS public finances exceed certain reference values. For the actual procedures and policy-making, better or more data might well be necessary, but this is outside the scope of the EDP. The latest communication of the Commission (2022) points towards a careful adaptation of the existing excessive deficit criteria rather than a complete overhaul of the EDP. We cannot expect, therefore, that PSA could be attributed a more important role in the nearer future.

The assessment of the necessity of a new statistical methodology for monitoring the budgetary situation is not as straightforward. A new statistical methodology could be used to complement or replace the ESA and the various other existing sources of data. It could be considered more effective if it would allow the production of statistics that can be directly used for fiscal policy-making instead of providing economic data which need to be adjusted for fiscal policy-making.

There are various aspects, however, that policy-makers will have to take into account when considering the effectiveness of a new instrument. Among these is the fact that asking for a different set of data can hardly be expected to solve, in itself, the underlying problem of data quality. Disclosure provisions similar to the EDP would certainly be necessary to assure quality and comparability of the data across MS. Jorge et al. (2022) emphasise the vital role of standardised charts of accounts on a national level for the quality of consolidated accounting data from all levels of government and for its link with statistics. Also, the problem of varying interpretations of reporting standards (Gandrud and Hallerberg, 2017) cannot be solved by changing the reporting standard alone. Without trying to find an answer to the question of cost-effectiveness and excessive burdens on economic operators, it is probably safe to say that the costs for the development of a statistical methodology could at least never be as high as guesstimated for the introduction of a fully fledged accrual accounting system on all levels of government for all MS like the EPSAS project originally envisaged (PwC, 2014). Whether any statistical methodology could lead – even on paper – to the same type and quality of data as real PSA standards is another question that needs to be further investigated and discussed.

The aftermath of the COVID-19 crisis and the consequences of the war in Ukraine might create momentum for a change in fiscal policy-making altogether. It could trigger a thorough analysis of the actual data needs of policy-makers. These needs have to be determined first in order to be able to judge what type of data is necessary for policy-making and if a PSA-based methodology is the most effective for gathering this data and producing statistics.

EU law on statistics does provide a legal basis to introduce PSA-based reporting obligations but only under the conditions set out in the Treaties for statistical measures. Article 338 protects the MS against unnecessary, disproportionate and costly claims for data. An instrument with the general aim ‘to increase the transparency and comparability of public sector financial accounting and reporting between and within EU Member States’ (Eurostat, sd) will not be able to pass the material and procedural safeguards of Art 338. A high-quality statistical methodology which caters to the (changing) needs of fiscal policy-makers and is more effective than the currently available instruments might just stand a chance.

Footnotes

Declaration of conflicting interests

The authors declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The authors received no financial support for the research, authorship, and/or publication of this article.

ORCID iDs

Karoline Helldorff

Johan Christiaens

Karoline Helldorff is a PhD candidate and Teaching Assistant at Ghent University, Belgium. Her research focuses on regulatory aspects of accounting standardisation in the EU public sector.

Johan Christiaens is Professor of Public and Non-profit Sector Accounting and Auditing at Ghent University, Belgium. Other affiliations include being an honorary registered auditor specialised in public and not-for-profit sector auditing.

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