€300bn European investment plan will be hampered by ESA

EU must relax accounting standards in order to liberate economic recovery, argues Hugues Bayet.

By Hugues Bayet

05 Dec 2014

Strict application of the European system of national and regional accounts (ESA) 2010 accounting standard, in place of the ESA 95 standard to calculate the public deficits of member states, will have major consequences for the investment capacities of local authorities and any revival of economic growth.

It presents two major difficulties. First, as with the ESA 95 standard, which emanated from the application of the Maastricht treaty, it continues to record public investment only as debt without taking into account the capital assets relating to it. Second, it has an impact on any public investment, in its entirety, in the year in which it is carried out. It is like asking a citizen to pay for their house in just one year. It is all the more unwelcome as the extremely low interest rates cost the authorities less and therefore become more profitable. But, for the many authorities who repay their investment on a multiannual basis, it is a real brake on investment. In that regard, let's point out that the application of the ESA 95 standard did not bring about an unexpected increase in the debt of town councils. For example, the investments of Belgian local authorities represent more than 50 per cent of public finance and barely seven per cent of the country's public debt.

"A sustainable economic revival, bringing jobs within the EU, requires the mobilisation of all resources and players, public and private."

The application of the ESA 2010 standard will have a negative impact on economic revival. It will rapidly and drastically reduce the investment capacities of local authorities, regardless of their level of indebtedness and the nature of the investments planned. Some structured, sustainable, strategic and productive investments necessary to boost our economy and growth will be deferred or cancelled – even if they are partially financed by public savings.

We can point out, by way of examples, investments relating to rational use of energy and those associated with the rollout of economic activities – like the creation of industrial estates or instruments for sustainable mobility. But, there is a paradox here between a European commission which is asking authorities to put forward structured, sustainable and strategic projects within the framework of the €300bn investment plan and, on the other hand, will limit the possibilities of public investments through the use of a strict standard associated with an accounting calculation of debt. The commission argues that this will not increasingly impact the everyday functioning of town councils and municipalities. In reality, it will reduce the capacity to provide a quality service to the population and to responsibly manage their public infrastructures. It is not a matter, of course, of defending all public investments indiscriminately. However, for those which bring growth, it is necessary to step outside the strict perimeter of debt. Some sustainable investments must be stopped from having an immediate impact on public debt so that they can participate in the growth of GDP, and therefore in the reduction of that debt. That need seems all the more obvious to me when we see the difficulties encountered by private investment in stimulating the economy and creating employment. The recent failure of the targeted longer term refinancing operations launched by the European central bank is ample proof of that.

A sustainable economic revival, bringing jobs within the EU, requires the mobilisation of all resources and players, public and private. The relaxing of the ESA 2010 standard would be an additional lever in that regard and a logical step in the recovery effort.



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