Documents considered by the Committee on 21 July 2015 - European Scrutiny Contents


77 Manipulation of deficit data in Valencia

Committee's assessment Politically important
Committee's decisionCleared from scrutiny
Document details(a) Draft Council Decision imposing a fine on Spain — manipulation of deficit data in the Autonomous Community of Valencia;

(b) Commission Report on the investigation related to the manipulation of statistics in Spain

Legal base(a) and (b) Article 8 (1) Regulation 1173/2011; QMV
DepartmentHM Treasury
Document numbers(a) (36840), 8801/15, COM(15) 209

(b) (36841), 8818/15 + ADDs 1-2, COM(15) 211

Summary and Committee's conclusions

77.1 Article 126(1) TFEU requires Member States to avoid excessive government deficits. Accusations of misrepresentation of government deficit and debt data, whether intentional or due to serious negligence, will be investigated by the European Commission, which will report to the European Council. The Council is then empowered to impose a fine on a Member State found guilty of such misrepresentation.

77.2 In July 2014, the Commission launched an inquiry into the manipulation of statistical data in Spain, specifically referring to the Autonomous Community of Valencia. It concluded that there had been serious negligence in the non-recording and therefore non-reporting of expenditure and the failure to respect the accrual principle in national accounts, leading to an inaccurate reporting of the government deficit data of Spain to Eurostat in March 2012. Accordingly, the Commission recommended to the Council that Spain be fined €18.93 million (£13.46 million).

77.3 We note the decision of the Council to fine the Kingdom of Spain for serious negligence in the reporting of statistical data. Under the circumstances, a fine was required by EU legislation. The accurate reporting of statistical data is vital for the coordination of economic policy within the Eurozone. However, we also note that the misrepresentation of data had a limited impact on economic governance of the EU, that there was no intent to deceive, and that the various bodies involved cooperated fully with the investigation, and that accordingly the fine was reduced to 20% of the possible total.

77.4 We further note that this is a matter for Member States within the Eurozone. The UK cannot face any financial sanction under the Stability and Growth Pact.

Full details of the documents: (a) Recommendation for a Council Decision imposing a fine on Spain — manipulation of deficit data in the Autonomous Community of Valencia (36840), 8801/15, COM(15) 209; (b) Commission Report on the investigation related to the manipulation of statistics in Spain as referred to in Regulation (EU) No 1173/2011 of the European Parliament and of the Council on the effective enforcement of budgetary surveillance in the euro area (Commission Decision of 11 July 2014) (36841), 8818/15 + ADDs 1-2, COM(15) 211.

Background

77.5 Article 126(1) of the TFEU requires Member States to avoid excessive government deficits. Economic policy coordination within the EU requires accurate government deficit and debt data. Regulation (EU) No 1173/2011 of the European Parliament and of the Council (16 November 2011) provides for a system of sanctions to enforce budgetary surveillance in the Eurozone. Specifically, Article 8(1) of the Regulation empowers the Council, upon recommendation from the Commission, to impose a fine on a Member State guilty of misrepresentation of government debt and deficit data, whether by design or by serious negligence.

The documents

77.6 In July 2014, the Commission began an investigation into the alleged manipulation of statistics in Spain. This related to data from the Autonomous Community of Valencia. Its purpose was to assess whether serious indications of the misrepresentation of debt and deficit data could be confirmed, and, if so, whether such misrepresentation occurred as a result of intent or negligence.

77.7 The Commission found that there were irregularities in the accounting, recording and reporting of expenditure in Valencia over a number of years. The irregularities included:

·  Lack of application of the accrual principle;

·  Use of extra-budgetary accounts;

·  Late recording of expenditure;

·  Misleading reporting of statistical information from Valencia to the national authorities.

77.8 As a result of these irregularities, the Excessive Deficit Procedure (EDP) data communicated to Eurostat in March 2012 failed to include some of the expenditure incurred by Valencia. This led to a breach of the rules of the European System of Accounts (ESA 95).

77.9 The Commission also found that a key role in the failure to record and report expenditure was played by the Regional Audit Office of Valencia (Intervención General de la Generalitat Valenciana, IGGV). Moreover, information on unrecorded expenditure was publicly available through the yearly reports of the Regional Court of Auditors of Valencia, which had recommended that the IGGV should ensure accurate recording of such expenditure.

77.10 The Commission concluded that its report satisfied Article 8(1) of Regulation (EU) No 1173/2011 and therefore recommended to the Council that a fine be imposed on the Member State. Article 8(2) of the Regulation stipulates that the fine should not exceed 0.2% of the most recent gross domestic product of the Member State concerned.

Calculation of the fine

77.11 Article 14 of Commission Delegated Decision 2012/678/EU of 29 June 2012 requires that the Commission, in imposing a fine for the manipulation of statistics as covered by the Regulation, should ensure that the fine is effective, proportionate and dissuasive. This is a two-step process.

77.12 First, the reference amount of the fine is decided. This is calculated according to Article 14(2) of the Commission Delegated Decision, which says that the reference amount should be equal to 5% of the larger impact of the misrepresentation of the general government deficit of Spain for the relevant years covered by the notification in the context of the EDP. This figure was calculated as €1.893 billion, which means that the reference figure was €94.65 million.

77.13 The second part of the process is a decision as to whether to vary the reference figure upwards or downwards, according to the specific circumstances of the case. The Commission in this case concluded that the misrepresentation of the data had had no significant effect on the functioning of the economic governance of the EU, since it had had little impact on the deficit of Spain as a whole. Accordingly, it considered that a reduction of the fine could be granted on this account.

77.14 The Commission also determined that the misrepresentation had taken place due to serious negligence. As there was no intent to deceive, on this account no variation in the reference amount was applied.

77.15 Furthermore, the Commission ruled that the misrepresentation of data was the responsibility of one entity, the IGGV, within the general government sector of Spain, and under these circumstances a reduction of the fine could be granted.

77.16 Finally, the Commission noted that the Spanish statistical authorities and, indeed, all bodies concerned in the case had demonstrated a high degree of cooperation with the investigation, providing the necessary information as and when requested. On these grounds, a reduction of the fine could be granted.

77.17 The final recommended amount of the fine, taking into account the mitigating circumstances detailed above, was therefore set at €18.93 million (£13.46 million), which equates to 20% of the reference amount. This is the recommendation of the Commission to the Council.

The Council decision

77.18 The Council accepts the recommendation of the European Commission's report into the matter and proposes to impose a fine of €18.93 million (£13.46 million) on the Kingdom of Spain for the misrepresentation, by serious negligence, of government deficit data.

The Government's view

77.19 The Government is clear that there are no policy implications arising from this draft Council Decision for the UK. The Decision is addressed only to the Kingdom of Spain as a member of the Eurozone. The UK cannot face any similar type of financial sanction.

Previous Committee Reports

None.



 
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