A hole in Number 11, Downing Street

Chancellor George Osborne.LONDON | There was a bit of a kerfuffle in UK politics, not to mention economics, when the Financial Times‘ (FT) Monday edition announced it had reached a 25 per cent-difference conclusion on what the country’s structural deficit actually weighs. The FT researchers, the newspaper explained, had spent the British summer making swift calculations –while probably reading Aristotle and his Metaphysics: they followed the government’s own mathematics formula to bring forward a £12bn contradiction previously unnoticed.

“The Financial Times has replicated the model of government borrowing used by the independent Office for Budget Responsibility, which suggests the structural deficit in 2011-12 is now £12bn higher than thought, a rise of 25 per cent.

“Putting the public finances back on track at the next Budget would require the equivalent of raising value-added tax from 20 per cent to 22.5 per cent.

“Using OBR methodology, which was published in April, the FT has calculated that the best current estimate of the output gap in the second quarter of 2011 is 2.6 per cent of national income. This change alone raises the structural deficit in 2011-12 from £49bn to £61bn, an increase of almost a quarter. In March, the OBR estimated that the current budget deficit would be £99bn in 2011-12, of which £49bn was persistent and needed action over this parliament.”

The FT seems to have followed here the Greek media’s recent track on uncovering wrong, if not plainly dodgy numbers given to the public and other institutions by official sources:

“In news that will likely not surprise many, Greek newspaper Eleftherotypia reports that according to a just terminated member of the Greek Statistical Authority, Greece artificially misrepresented its 2009 15.4% deficit number to Eurostat in order to obtain aid from the EU and IMF. Per professor Zoe Georgantas ‘The deficit was artificially inflated in 2009 to show that the country had the largest deficit across Europe, including that of Ireland was 14% in order to justify all these severe measures against the country [these bold words come from ZeroHedge]. And we presented in the Eurostat 15,4%.'”

True enough, Greece’s accountancy had until now been the main material for criticism on how some euro zone finance ministers have manipulated registers on national balance sheets. For instance, last January, the European Commission itself acknowledged that

“Greek budget deficit and debt figures may be revised further because the current institutional setup for Greek statistics is ineffective and prone to political interference.”

The FT’s Undercover Economist Tim Harford last week used Greece, too, confirming the trend.

“In the late 1990s, eurozone wannabes squeezed and stretched to meet the criteria for accession, including low inflation and government deficits, and moderate levels of debt. The criteria were somewhat irksome, especially for an economy such as Greece, but nevertheless the Greeks seemed to comply. Eventually, it became clear that the Greek numbers did not quite add up. Eurostat, the European statistics agency, has complained about widespread misreporting of deficit and debt data from the Greek authorities.”

The Greeks –or even the peripheral EMU members, Spain among them– are not alone, one might now say with little consolation. More importantly, though, efforts at Eleftherotypia and the FT have posed a challenge to all news outlets to keep clearing the financials scene for the public opinion to access facts and not mere opinions, as these from the British Business Secretary Vince Cable trying to offset some pressure after the £12bn-gap revelation:

“I don’t actually recognise those numbers. We do need to look at them very carefully.”

We all must, indeed.


About the Author

Victor Jimenez
London contributor at thecorner.eu, reporting about the City and the Eurozone economies. He regularly writes for Spanish newspaper group Prensa Ibérica--some of his features include shared work with journalists of The Daily Telegraph and the BBC.

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