Getting to grips with statistics and damn lies

Labour MEP Prof. Edward Scicluna was recently appointed as the European Parliament’s statistical governance rapporteur. “The Times” journalist Kurt Sansone talked to Prof. Scicluna seeking the background of the issue and the way forward.
The Times carried Sansone’s report on Monday, October 31, 2011, titled “Getting to grips with statistics and damn lies”. Full report follows:
Greece’s debt mountain was not born overnight but an “understanding to look the other way” by other eurozone countries in the past hid brewing problems, according to Labour MEP Edward Scicluna.
Whether it was Greece or any other country, the understanding was to look the other way since the euro could not be harmed
Talking to The Times after his recent appointment as the European Parliament’s statistical governance rapporteur, Prof. Scicluna partly blames the current problems afflicting the eurozone on the lax attitude adopted by Germany, France and Italy soon after the single currency was born.
“In 2003 when Germany and France broke the stability and growth pact no fines were imposed and then EU Commission president Romano Prodi said the criteria were stupidly and unnecessarily restrictive,” he says.
At the time, he adds, only the head of the European Central Bank, Jean Claude Trichet, stood his ground and opposed revising the criteria.
“In this environment, whether it was Greece or any other country, the understanding was to look the other way since the euro could not be harmed,” he says.
When Greece finally came round to admitting the true nature of its debt, the country was practically insolvent and had to be bailed out by other eurozone countries last year. It was not enough and a second bailout followed this year until last week’s eurozone summit accepted that banks had to write-off half of the loan exposures they had in Greece.
It is this backdrop that accompanies Prof. Scicluna’s new appointment as he tries to answer the pertinent question raised by many on how Greece was allowed to present false accounts that flaunted the eurozone’s stringent deficit and debt criteria.
Prof. Scicluna says that the success of the euro for so many years up to the aftermath of the financial crisis succeeded in hiding the trouble that started brewing but went unnoticed.
Low inflation in Germany translated into low interest rates for the whole eurozone and peripheral countries such as Greece, Portugal and Italy were rewarded with a low interest rate despite low productivity levels and higher inflation rates.
The bad experience has led the eurozone to seek closer integration and the Six Pack rules adopted this year on better fiscal and economic governance are expected to change the previous attitude.
Under the new rules the Commission could, among others, almost automatically impose stiff penalties on defaulting countries.
However, the question remains: how will statistical information, supplied by member states, be verified?
Prof. Scicluna says that the cosy relationship between some governments and their statistical agencies will end.
“Even economic forecasting models will be scrutinised and the EU’s statistical agency Eurostat is being given powers which were previously withheld from it by the Council of Ministers,” he says.
The list to ensure greater fiscal discipline is longer and also includes the approval of national budgets by the Commission.
It is under this umbrella that Prof. Scicluna will report on the way statistics are being collected in the individual member states and suggest ways to ensure the data is accurate and reliable.
Asked what Malta’s failings are, Prof. Scicluna says the National Statistics Office is still not as independent as it should be despite “enormous efforts to deliver”.
He cites the “frequent significant revisions” to some statistical data such as GDP as a reflection of the need to invest more resources and strengthen the institution.
“We also need to collect more data to avoid the situation where various EU-wide studies leave Malta out of the equation for lack of data collection.”
But the wish-list for change also encompasses the Finance Ministry’s accounting methods and standards. “We must stop having two standards, one for Malta and another one for Brussels.”
Prof. Scicluna says the government’s economic forecasters have to be realistic and avoid being so much more optimistic than the Commission or the International Monetary Fund.
“I wish we could carry out these reforms before we are told to do so by the Commission,” he says.

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