European statistics as a defining element of the Member states' public sectors

by Ester Marco Peñas, Professor of Financial and Tax Law, Universidad Autónoma de Madrid

The nature of the ESA 2010 concepts, in particular the general government sector concept

The restrictions established in article 126 of the Treaty on the Functioning of the European Union (hereinafter, TFEU), and in the Stability and Growth Pact that develop this precept, are largely quantitative in nature, as they are based on numerical fiscal rules. Therefore, in order to guarantee their effectiveness, it is necessary to have precise definitions of the concepts that comprise them, which allow them to be measured. Article 2 of Regulation (EC) No 479/2009 of 25th May 2009 on the application of the Protocol on the excessive deficit procedure annexed to the TFEU, contains the definitions of the essential concepts in the Stability and Growth Pact[1]. These definitions, in turn, contain cross-references to the provisions of the Regulation (EU) No 549/2013 of 21st May 2013 on the European system of national and regional accounts (hereinafter referred to as Regulation ESA 2010 or the ESA 2010[2]. So, for example, in Article 1 of the Regulation (EC) No 479/2009 public sector/government means «the sector of ‘general government’ (S.13), that is ‘central government’ (S.1311), ‘state government’ (S.1312), ‘local government’ (S.1313) and ‘social security funds’ (S.1314), to the exclusion of commercial operations, as defined in ESA 95» (currently the references to ESA 95 shall be replaced by ESA 2010) [3]. ESA concepts are particularly complex concepts, which is why, in order to define their parameters, as we will explain in detail later, it is necessary to analyse not only the text of the ESA 2010 Regulation, but also the interpretative documents approved by Eurostat (statistical office of the European Commission) and, since the end of 2019, the case law of the Court of Justice of the EU (hereinafter, CJEU).

In turn, ESA concepts are both uniform throughout the EU and autonomous with respect to their counterparts at the national level[4] (section 1.20 ESA 2010). In fact, the ESA specifies that national administrative concepts are not used by the ESA «in order to attain a consistent, internationally compatible framework» (section 1.48 SEC-2010). In short, they are functional concepts[5], which aim to transcend the formal limits established by the Member States’ legal systems in order to achieve the legislative objectives where they operate, and are not necessarily transferable to other areas[6].

However, we should point out that some of the ESA concepts are closely related to other European legal system concepts, such as some of the basic concepts in the field of public procurement. Public procurement regulations and budgetary discipline have different, but largely overlapping, purposes. Public procurement regulations aim to ensure competition among economic operators and guarantee the absence of distortions in the market performance derived from the procurement of goods and services by contracting authorities. The latter, however also has the indirect objective of improving the efficiency of public spending (recital 2 of Directive 2014/24/EU). It should also be kept in mind that long-term contracts generate significant levels of public debt and, therefore, both the contract itself and the public entity that subscribes it must be supervised to ensure compliance with budgetary discipline.

This situation means that there are multiple similarities between the two sets of regulations when it comes to defining their key concepts[7]. A clear example of this conceptual approach can be seen in the concepts of «general government sector» in terms of ESA and «bodies governed by public law» in article 2 of Directive 2014/24/EU[8]. This conceptual convergence largely derives from the similarities existing in the defining notes of both concepts, which refer to elements such as the control exercised over the entity by the general government and the market nature of the activity carried out by the entity[9].

More specifically, the three criteria set by the ESA 2010 to determine the classification of an entity within the «general government sector» (S.13) are: whether the entity is an institutional unit, i.e., an institutional unit is an economic entity characterised by decision-making autonomy in the exercise of its principal function (section 2.12 ESA 2010); whether the unit is controlled by the government or not, the latter controls its general policy (sections 1.36 and 2.35 to 2.39 ESA 2010); and finally, whether the institutional unit is a market producer or not (paragraphs 20.19 - 20.31 ESA 2010)[10].

As will be discussed in detail below with respect to the concept of «general government sector», generally the ESA criteria have been systematically tightened, first through Eurostat's interpretation of ESA 95 and then with the approval of ESA 2010 and its interpretation by Eurostat. Thus, the existence of government entities considered as market entities, whose deficit and debt levels are not consolidated in the balance sheet of the general government that controls them, is becoming increasingly complex[11].

In particular, with regard to the control criterion, the ESA 2010 has introduced a series of indicators to be taken into account when deciding whether a company is controlled by general government (section 2.38 and sections 20.309 and 20.310 of the ESA 2010 Regulation)[12]. These indicators are not only related to the composition of the entity's main bodies (an element analysed in ESA 95), but there are also control indicators related to aspects such as excessive regulation, contracting (demand) or majority financing. In relation to the market criterion, ESA 2010 has modified its structure, distinguishing two aspects within this criterion: together with the «quantitative test» (which already existed in ESA 95, and requires that the unit's «sales» cover at least 50% of its production costs), a «qualitative test» has been introduced, aimed at assessing the existence of market circumstances and sufficient market performance by the producer (sections 20.23 to 20.28 ESA 2010).

This restrictive trend towards reducing the number of entities with public functions outside the «general government» sector, which is based on the idea that the proliferation of instrumental public entities has a negative impact on the achievement of the budgetary discipline objectives, has clearly affected Member States' public sector design. Consequently, through the mandates derived from European statistics, European law impacts on areas, such as administrative organisation and the way in which public services are managed and financed, over which it has no jurisdictional authority. This expansion of the parameters of the «general government» sector in terms of ESA 2010 has not been without controversy, as we will examine in detail in the following sections.

Eurostat and CJEU's interpretation of ESA concepts

Despite the importance of specifying ESA concepts for the correct application of European and national budgetary discipline, the CJEU case law on the subject is still very limited, which contrasts with the CJEU’s extensive and key case law on public procurement concepts[13]. So far there have only been two CJEU rulings, dated September and October 2019, on the interpretation of ESA concepts. These two rulings represent a turning point, as they put an end to Eurostat’s monopoly on the ESA interpretation[14]. Until 2019, the Commission (Eurostat) was the only institution, at the European level, interpreting the ESA. The type of discrepancies that existed until then resulted in a lack of CJEU case law on the subject.

Discrepancies between Eurostat and Member States' statistical authorities

As is well known, Regulation (EC) No. 479/2009 assigns statistical data evaluation tasks to the Commission in relation to the Member States’ statistical data. In particular, article 8.3 of Regulation (EC) No. 479/2009 establishes that «The Commission (Eurostat) shall report regularly to the European Parliament and to the Council on the quality of the actual data reported by Member States» after evaluating «the compliance with accounting rules, completeness, reliability, timeliness, and consistency of the data». Therefore, the Commission does not compile the Member States’ statistical data, but exercises a supervisory role over the data submitted. In this sense, the CJEU (Case C-448/07 Ayuntamiento de Madrid and Madrid Calle 30, S.A. v Commission, dated 20th June, 2008, paras 51 and 52)[15] has denied the existence of a general power for the Commission to approve the national accounts when it publishes the Member States’ statistical data. The Commission only intervenes to formulate reservations on the quality of the data reported by the Member States, or to modify them when it is evident that such data do not have the necessary quality (articles 8 and 15 of Regulation (EC) No. 479/2009).

Likewise, the CJEU (Case of the Court of First Instance T-148/05, Comunidad de Madrid and Madrid, Infraestructuras del Transporte (MINTRA) v. European Commission, dated 5th September 2006, para 57) has stated that statistical data are produced in a collaborative framework between Eurostat and the national statistical authorities[16] , mainly through Dialogue visits and Methodological visits to Member States, in the framework of the excessive deficit procedure (articles 11 and 12 Regulation (EC) No. 479/2009), and through bilateral advice from Eurostat to a Member State on the classification of a given operation (article 10 (1) and (2) Regulation (EC) No. 479/2009). The purpose of these interpretative and cooperative instruments is to ensure constant communication between Eurostat and the national statistical authorities and, ultimately, to guarantee the existence of reliable statistical data (recital 1 ESA 2010).

Despite the cooperative nature of the whole data compilation process between Eurostat and the Member States, some elements show that Eurostat's position is decisive when classifying an operation in ESA terms. In this regard, the Eurostat Guidelines on the functioning of the bilateral Councils state that «exchanges of views on different options are not generally welcomed» and that Eurostat «does not intend to put itself into a position of negotiating with Member States over the classification of borderline cases»[17]. However, the non-binding nature of Eurostat’s decisions, as they are made within the aforementioned cooperative framework with the Member States, limits the possibilities for Eurostat's decisions to be challenged before the Court of Justice, insofar as there is no act against which an action for annulment may be brought. (Case 448/07 Ayuntamiento de Madrid and Madrid Calle 30, S.A. v Commission, para 53).

The scenario described above places the Member States in a complex position, since a Eurostat decision regarding a specific transaction may lead to a significant increase in their public deficit and debt levels, which, in turn, may damage their financial credibility. Therefore, in our opinion, the Eurostat decisions classifying transactions in terms of ESA differently to the way the statistical authorities of the Member State in question had done it can be considered as what academics have called «factual acts»[18]. That is, acts which, although not intended to produce legal effects within the meaning of article 263 (1) TFEU[19], may affect the parties’ rights or significantly change the existing circumstances, and on which a potential subsequent judicial ruling will take place when the situation is consolidated.

In this context, and taking into consideration the pressure on the Member States to follow Eurostat’s decisions, it is very likely that there will not be a legally binding decision, but that the Member State will itself modify the data submitted, following Eurostat’s indications. In summary, we are dealing with a composite procedure (procedures defined as multiple-step procedures with input from administrative actors from different jurisdictions, cooperating, in this case, vertically, between Member States and EU authorities), in which, very often, due to the constellations of decision making, there are problems with the supervision of administrative actions, especially for judicial review[20].

However, according to the CJEU case law (C-448/07, Ayuntamiento de Madrid and Madrid Calle 30, S.A. v Commission, para 53) if Eurostat modifies or makes reservations regarding the data submitted by a Member State, there will be an administrative decision that can be challenged before the CJEU. It should be noted that in cases where discrepancies with the Member States have continued, Eurostat has chosen to make reservations on the quality of the data submitted by the Member State in question (in application of article 15.1 of Regulation (EC) No. 479/2009), thereby avoiding the direct modification of the data submitted by the State (a possibility also provided for in article 15.2 Regulation (EC) No. 479/2009).

By way of example, this was the case for the sectoral classification of Belgian public hospitals. In 2016, Eurostat, following the Manual on Government Deficit and Debt. Implementation of ESA 2010 (hereinafter MGDD), considered that Belgian public hospitals should be included in the general government sector[21]. However, the Belgian statistical authority (Institut des Comptes nationaux or National Accounts Institute, hereinafter NAI) pointed out that the Belgian courts had stated that the binding rule was the ESA 2010 Regulation and not the MGDD[22], and that the Belgian State is entitled to defend the sectoral classification of an entity according to the text of the ESA 2010 Regulation[23], in this case, keeping hospitals outside the general government sector. In light of this situation, Eurostat, in the News Release on government deficit and debt of 21st April 2016, established a reservation on the quality of the data provided by Belgium, in relation to the classification of hospitals[24]. In January 2018, NAI informed Eurostat that a law passed at the end of 2017 repealed Article 117 of the national legislation on hospitals, a precept that could, in NAI’s view, constitute an obstacle to the consideration of government transfers to hospitals as market sales[25]. Following this reform, in the News Release on government deficit and debt of 24th April 2018, Eurostat withdrew the reservation on the quality of the data reported by Belgium in relation to the sectoral classification of hospitals (article 5.1 in fine Regulation (EC) No 479/2009), pending receipt of data from an open consultation across all Member States on the classification of their hospitals[26].

In summary, the process described above reflects the willingness of both parties, Eurostat and national statistical authorities, to resolve their differences within a framework of cooperation and dialogue. For this reason, Eurostat does not directly modify the data submitted by the Member State, but makes reservations on them. Reservations that, in many cases, will end up being withdrawn after aligning positions with the Member State in question within the context of cooperation and dialogue. However, taking into account the CJEU case law (Case T-148/05 and C-448/07), there is nothing to prevent the Member State whose data have been subject to Eurostat’s reservation from lodging an annulment application against these reservations, which has not happened so far.

The controversy over the classification of Belgian hospitals highlights one of the recurring problems regarding Eurostat’s application of ESA 2010: the legal nature of the MGDD. It is well known that Eurostat interprets the ESA by means of different documents that can be qualified as soft law, among which the MGDD is one of the most important. Through the MGDD, Eurostat mainly aims to respond to the statistical problems posed by the practical application of the ESA. Although the MGDD is not binding, it includes the set of criteria used by Eurostat in its previous decisions, thus providing certainty to the Member States’ actions in accordance with the guidelines set out in it. However, the legal basis for the accounting practices of both Eurostat and the Member States can be found in the articles of the ESA 2010 Regulation[27]. The problem arises when the MGDD establishes stricter obligations for the Member States than those inferred from the text of the ESA 2010 Regulation[28], a discrepancy that is becoming increasingly apparent.

In these circumstances, the Belgian NAI pointed out that many controversies would be avoided if the MGDD had legal force, and urged Eurostat to take the necessary steps to make this possible. Eurostat, however, has stated that this option has not been envisaged for several reasons, including the fact that many Member States do not have any problems with regard to the current nature of the MGDD. At the same time, Eurostat stated that «in case the Commission (Eurostat) has doubts on the quality of the data reported by any Member State it might express a reservation or amend the reported data (Commission Regulation 479/2009 Art 15)»[29]. Maintaining the MGDD as soft law gives Eurostat a wide margin of manoeuvre to guide the transposition, implementation and enforcement of European statistical regulations by national statistical authorities and other interested parties. In this regard, the MGDD can be considered what academics have called «soft post-legislative rulemaking», which fulfils a post-legislative function and which, at least in principle, does not seek to establish rules[30]. At this point, if Eurostat’s position is accepted by the Member States, the MGDD will have fulfilled its function as a guide for the elaboration of statistical data. On the other hand, if the interpretation is not accepted by the Member States, it may end up becoming hard law through the CJEU’s judicial recognition[31], which is possible given Eurostat’s extensive interpretative expertise. At a material level, we cannot ignore the fact that the tightening of ESA, in aspects such as the scope of the general government sector, has occurred not only with the approval of new, more restrictive, criteria in ESA 2010, but also with Eurostat’s strict interpretation of ESA 95 and ESA 2010.

Conflicts between national statistical authorities and entities that have been reclassified to the General Government Sector

The willingness to avoid the judicialisation of the discrepancies that we observed in the previous section contrasts with the belligerent nature of some entities that have used internal judicial channels to challenge their classification in the general government sector, in terms of ESA 2010, by the national statistical authorities (backed by Eurostat).

So much so that the only two cases resolved to date by the CJEU interpreting ESA 2010 are in response to two requests for preliminary rulings made by the Italian Court of Audit (Corte dei Conti) and by the Belgian Conseil d'État on the elements that make up the concept of the «general government sector» in the ESA 2010 Regulation. In the case of Italy, these preliminary ruling have been requested (joined cases C-612/17 y C-613/17)[32] in the court cases between Federazione Italiana Golf – FIG and the Istituto Nazionale di Statistica (hereinafter, ISTAT) and between Federazione Italiana Sport Equestri – FISE and the ISTAT, respectively. Furthermore, in the Belgian case (Case C-632/18), the preliminary ruling was made in the context of proceedings between the Fonds du Logement de la Région de Bruxelles – Capitale SCRL and the NAI[33]. Moreover, the issue is still ongoing, as reflected by the fact that the Belgian Conseil d’État has requested a new preliminary ruling from the CJEU on the classification of non-profit entities in the area of education (SeGEC and others v. NAI and Banque nationale de Belgique, Case C-277/21)[34].

As can be seen from the cases indicated above, following the approval of the ESA 2010, the conflict over the classification of non-profit institutions (hereinafter, NPI), among which are sports federations, cultural and educational entities, etc., has become generalised in some Member States, especially Italy and Belgium[35] . This is because, until the effective implementation of ESA 2010 in September 2014, as a general rule, NPIs had been classified in the Non-profit institutions serving households sector (S.15) to the extent that their boards of trustees consisted of members appointed by the private sector. However, under the new control indicators (such as: b) the enabling instrument provisions; c) contractual agreements; d) level of funding; e) risk exposure in section 2.39 ESA 2010), even though the composition of the Board of Trustees remains unchanged, the entity may be considered to be controlled by the government and, therefore, of a public nature. This, in turn, will mean that the NPI is likely to be classified in the «general government» sector (S.13), as, being a non-profit entity, its activity is likely to be non-market in terms of ESA 2010.

It should be noted that the inclusion of an entity in the general government sector (imagine, for example, an NPI, as in Joined Cases C-612/17 and C-613/17), not only has budgetary consequences for the general government, which will include the entity’s accounts in its balance sheet, but also entails a series of restrictions for the entity itself. In this sense, it is likely that there will be limitations on the management capacity of the entity, which until then had been private in ESA terms, and that financial controls will be introduced (such as the need to have authorisation from the general government on which it depends in order to approve its budget, incur in debt, buy and sell assets, etc.). For these reasons, many entities are opposed to their reclassification in the general government sector.

In this context, in the FIG and FISE v ISTAT and Ministero dell'Economia e delle Finanze ruling, the CJEU carries out, in our opinion, a restrictive interpretation of the scope of the new ESA 2010 control indicators, both in NPIs and companies. Factors such as the need to carry out a double review (firstly, of the number of indications regarding the concurrence of an indicator and, secondly, of the importance of that indicator in the final conclusion as to the existence of public control of the entity) mean that the control exercised by general government has to be very intense and affect various elements of the entity’s operation or financing in order to be significant in terms of ESA 2010.

Following the ruling in FIG and FISE v ISTAT and Ministero dell'Economia e delle Finanze, the Italian Court of Audit has decided to remove some entities from the list of entities that make up the general government sector (a list drawn up by ISTAT), such as the Accademia Nazionale di Santa Cecilia and the Teatro alla Scala di Milano[36] . Subsequently, Eurostat has expressed its support for the suitability of including both entities in the general government sector, pointing to the existence of «considerable deviations in the interpretation of relevant ESA provisions» by the Italian Court of Audit[37]. In the Scala di Milano case Eurostat’s two objections refer to the existence of joint control (which can be carried out without referring to how the action of controlling units is effectively coordinated); and not considering payments made to NPI as sales (insofar as there is no payment directly linked to the volume or value of the output). Regarding the classification of the Accademia Nazionale di Santa Cecilia, Eurostat considers that public control is exercised through the regulation contained in the Decree dated 29th June 1996 no. 367, which «tightly regulates the activity of the unit so that the room of manoeuvre is very narrow».

The sequence and content of the rulings reflect the existence of diverging interpretations regarding the scope of the «public control» concept between the Italian Court of Audit and Eurostat. In this context, the Italian legislator, through article 23 quarter Decree-Law, October 28th, 2020, no. 137 has modified article 11.6 b) Codice di giustizia contabile, in order to clarify that the Italian Court of Audit’s rulings about the inclusion in the ISTAT list will be for the sole purpose of applying the national legislation on controlling public expenditure. Or, in other words, as Eurostat has pointed out, the new approved legislation allows ISTAT to include these units in the public sector for statistical purposes[38].

Contrary to this legislative change, the Italian Court of Audit has requested two preliminary rulings before the CJEU[39], in which it questions the compliance of the new Italian regulation with the ESA 2010 rule of direct applicability, with the principle of useful effect of Regulation No. 549/2013, with Directive 2011/85/EU, on the requirements applicable to the Member States’ budgetary frameworks, and, in general, with the rule of law; insofar as, for the Italian Court of Audit, the new regulation conditions the organisational separation between the budgetary authority (ISTAT) and the control body (Court of Audit), and prevents jurisdictional control over the correct application of ESA 2010 by ISTAT for the purposes of delimitation of the public sector.

In our opinion, the preliminary ruling request of the Italian Court of Audit raises serious doubts that go beyond the legality of the limitation of its powers in determining the ISTAT list. Matters that reflect the importance of European statistics, not only for the control of budgetary discipline, but also for the design of the Member States' public sectors and, consequently, matters that reflect the need for judicial control, and multilevel dialogue between courts, on the implementation of ESA 2010.

Conclusions

The key concepts of European budgetary discipline are regulated in an EU Regulation (hard law), however, due to the complexity of this regulation, the Commission (Eurostat) carries out the important task of interpreting it, especially through the MGDD, a regulatory instrument that can be classified as soft post-legislative rulemaking. In this respect, controversies have arisen when the national entities that are reclassified in the general government sector, together with the national courts, have understood that the MGDD contains stricter mandates than those regulated in the ESA 2010 Regulation. Eurostat's willingness to maintain the MGDD as soft law reflects the role that the MGDD plays in advancing and consolidating the strict application of European statistics. Eurostat's interpretation through the MGDD determines, and will continue to determine to a large extent, the application of ESA 2010 either because it is assumed by the national statistical authorities, or because of its translation from quasi-legal to legal form through CJEU rulings that consider it to be the valid interpretation of ESA 2010.

In turn, the task of interpretation and implementation of ESA 2010 is carried out within the framework of «cooperation» between Eurostat and the Member States, through bilateral advice or dialogue or Methodological visits to the Member State (acts that make up a «composite procedure»). This process, which is theoretically characterised by cooperation and coordination between Eurostat and the national statistical authorities, although it has not prevented the strict application of ESA criteria, paradoxically, it has prevented Eurostat's decisions from being challenged before the CJEU. This challenge is only possible if the Member State directly ignores the information provided by Eurostat and Eurostat corrects or makes reservations on the statistical data submitted by the Member State (C-448/07, Ayuntamiento de Madrid and Madrid Calle 30, S.A. v Commission). However, in those cases in which the State has not followed Eurostat's indications regarding the accounting classification of certain transactions, Eurostat has opted to formulate reservations on the statistical data, thus avoiding their direct modification and extending the dialogue process until the discrepancy is resolved.

The process described above is key, because the consistency of the data submitted by the Member States is an essential element to ensure the proper functioning of budgetary discipline monitoring by the EU institutions and, in particular, of the excessive deficit procedure. For this reason, it is essential to establish mechanisms that allow the Commission to occupy a predominant position in this process. In fact, following the 2011 reform of the Stability and Growth Pact, the Commission has increased its powers to verify the data submitted by the Member States (recitals 4, 5 and 7 and article 12 of Directive 2011/85/EU). However, in our opinion, the Commission's (Eurostat's) privileged position as an entity supervising the Member States' budgetary discipline is not incompatible with the CJEU’s role of interpreting European legislation, nor with the judicial review of decisions adopted by national statistical authorities in domestic courts (both European and national case law, which has been on the rise in recent years). This increase in judicial rulings will surely encourage the ever fruitful jurisdictional dialogue between the CJEU and national judges (C-363/21 Ferrovienord SpA v ISTAT and Case C-364/21 Federazione Italiana Triathlon v ISTAT). And it must be like this, because otherwise we would be creating a sector within the European and national legal system where jurisdictional control would be limited. It should not be forgotten, as the CJEU itself points out (C-632/18 Fonds du Logement de la Région de Bruxelles-Capitale SCRL v. Institut des Comptes nationaux) that, despite its accounting nature, the ESA 2010 is a legal rule and its concepts are legal concepts that give content to the mandates of European budgetary discipline. Only if key concepts of budgetary discipline such as «general government» or «public deficit and debt» are clearly defined will it be possible to determine the scope of the budgetary discipline requirements and, in turn, to ensure that they are applied equally to all Member States.