By Juraj Mesík - 21.12.2011 / 05:30 CET
A failure to book public-private partnerships on balance-sheets allows governments to drive a hole through plans to cap deficits.
On 9 December, the EU's member states – with the exception of the UK – agreed to a new treaty that will impose strict caps on government spending and borrowing. This intention may end up being yet another paper tiger, for many different reasons.
One of them could be that EU authorities fail to address a major hole in the system. The hole's name is public-private partnerships (PPP). Another is the European Commission's culture of feeding wasteful projects, with no questions asked.
In a decision on deficits and debt in February 2004, the EU's statistical office, Eurostat, recommended that “the assets involved in a public-private partnership should be classified as non-government assets, and therefore recorded off balance-sheet for government, if both of the following conditions are met: 1) the private partner bears the construction risk, and 2) the private partner bears at least one of either availability or demand risk.”
Eurostat's decision opened the gates for creative accounting and manipulation of statistics by governments. Despite Eurostat's mission “to be the leading provider of high-quality statistics on Europe”, its treatment of PPPs guarantees exactly the opposite.
That, at least, is the case of Slovakia, a country in which ‘we are not the Greeks' rhetoric became so loud that it led on 11 October to parliament's refusal to support measures to bolster the powers of the eurozone bail-out fund, and to the collapse of the government.
Two days later, the main opposition party voted in favour of the bail-out fund and the ‘Slovak problem' was over.
Or was it? Many of Slovakia's problems, including high deficits and fast-growing debt, are far from over. That does not make Slovakia special. What makes it notable, though, is that beneath the ‘responsible government' rhetoric are tricks that would fit into the repertoire that took Greece into effective bankruptcy.
Consider a 47-kilometre motorway between Nitra and Hron built using a PPP and opened in October. For its construction, management and operation over 30 years, Slovakia will pay the best part of €3.9 billion (of which less than one-fifth is for construction). If you think you will find this listed in the government's debts, you are wrong: thanks to Eurostat, it is not included. This one PPP alone, however, would add 2%-3% to the total 2010 debt.
Eurostat figures show the countries with the largest deficits as a percentage of gross domestic product (GDP) in 2010 to be: Ireland (32.4%), Greece (10.5%), the UK (10.4%), Spain (9.2%), Portugal (9.1%), Poland (7.9%), and Slovakia (7.9%). The figure for Slovakia is, of course, without PPP debt. Recent prognoses released by the Commission predict that Slovakia's deficit will reach 5.8% of GDP in 2011. Again, that is without PPP accounted for.
That provokes a question: How many other PPPs are lurking in the muddy waters of EU statistics?
In addition to hidden PPP debts, the Commission has a sorry reputation for turning a blind eye to misuse of EU funds. In Slovakia alone – a country with just over 1% of the EU's population – the EU is supposed to contribute 85% of the €275 million for the construction of a 15km highway on a road that serves just 1,500 cars per day. That is the traffic density between two average Slovak villages.
Another €1.7bn – the vast majority of it coming from the EU – is earmarked for the construction of another motorway (near Žilina) with over 10km of tunnels. An alternative route would cost less than half that figure and serve more traffic – but why should Slovakia build cheaper roads, when the bill is paid by someone else, no questions asked?
Can Europe still afford such waste?
Juraj Mesík is a Slovak civic and environmental activist and university lecturer.
http://www.europeanvoice.com/article/im ... 73040.aspx