EU countries disguising true financial position

Dr Joachim Wehner says member states are using creative accounting techniques to make themselves look good

EU countries sometimes use creative accounting to disguise their true financial position, a Dublin conference has heard. Photo: Bloomberg

EU countries sometimes use creative accounting to disguise their true financial position, a Dublin conference has heard. Photo: Bloomberg

Thu, Jun 13, 2013, 09:23

EU countries sometimes use “gimmickry” and other forms of creative accounting to disguise their true financial position and to make themselves look good, a Dublin conference has heard.

Ireland is in the “comfortable middle zone” of the European league table of states which massage their debt levels and deficits, according to London School of Economics lecturer Dr Joachim Wehner.

The worst countries, those with the least levels of transparency concerning their true trading position are some of the Mediterranean states and the new accession States in eastern Europe including Cyprus and Greece along with Romania, Bulgaria and Hungary.

Britain and France lead the table for reliability and transparency along with Sweden and the Netherlands.

Dr Wehner told a Politics of Sovereign Debt conference at Dublin City University that some states practice two main “gimmicks” to make themselves appear more in line with the terms of the EU Growth and Stability Pact which governs state spending and debt levels.

One method was to treat government subsidies to ailing state bodies as equity purchases. Portugal’s subsidising of the Lisbon Metro company was an example of re-branding a bailout as an equity purchase, he claimed.

The other trick is to cover government spending under the heading of “other accounts payable”, thus concealing the true level of state expenditure. He cited Greek military spending as an example of this.

“Gimmickry is by its nature, hidden,” he said. “If your debt levels in total is increasing year on year is greater than your annual deficit announced – then there is a likelihood that something gimmicky is going on.”

Dr Iain McMenamin of DCU referred to his study of the relationship between election results and bond levels and showing the effects of money markets on the democratic process.

He and his DCU colleagues analysed the effects of some 130 elections in 19 countries over a 30-year period.

“Markets are politically sensitive,” he said “and this is not a temporary effect of euro crisis”.

He said the findings pointed to a heightening of this phenomenon in “highly centralised” countries such as Ireland where much power is concentrated in the hands of the head of government.

“This is a weakness of Ireland’s executive dominated system,” he said.

The findings of his research also indicate that markets welcome the election of right wing governments and tend to shun the left.

However he added that Ireland had an advantage here in that there was “ideologically narrow competition between the two main centre-right parties”.