77 Manipulation of deficit data in Valencia
| Committee's assessment
| Politically important |
| Committee's decision | Cleared 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
|
| Department | HM 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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