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European Commission


Brussels, 17 October 2014

Questions and Answers: European System of Accounts 2010

What is the European System of Accounts?

The European System of National and Regional Accounts (ESA) sets down the harmonised methodology which must be used for the production of national accounts data in the EU. It is crucial to have such a methodological rulebook in the EU, in order to ensure that statistics on Member States' economies are compiled in a consistent, comparable, reliable and up-to-date way.

ESA is internationally compatible, making it possible to describe the economy of a region, country or group of countries, in a way that is reliably comparable with other economies.

Why is the European System of Accounts important?

In Europe, national accounts have a vital role. They underlie many of the indicators that constitute the backbone of EU economic governance. Public deficit and debt ratios play a key role for fiscal surveillance under the Stability and Growth Pact. Several of the indicators in the Macroeconomic Imbalances Procedure are based on national accounts. Quarterly growth rates of gross domestic product (GDP) are an important background element in the monetary policy of the Eurozone. National accounts are used to calculate each country's gross national income (GNI), and as such, contributions to the EU budget. Moreover, regional GDPs are used to rationally distribute structural funds. This explains why, in Europe, the highest comparability and accuracy is needed.

Why has a new European System of Accounts been introduced?

The previous methodological framework for producing national accounts data (ESA 1995) was almost twenty years old. It has been replaced from September 2014 with a new European System of Accounts (ESA 2010). ESA 2010 revises and updates the common standards, classifications and accounting rules for Member States in drawing up their national accounts and transmitting their data to Eurostat.

Over the last twenty years, substantial changes have impacted economies, in particular the increasing role of ICT in production processes, the growing importance of intangible assets, intellectual property products and services, and the globalisation of economic systems. The way in which macroeconomic statistics are compiled needs to be adjusted accordingly, to reflect these changes.

National accounts are at the core of economic statistics, and provide the statistical framework for analysing economies. They therefore have to be kept in line with structural economic changes in order to maintain their relevance. At the same time, there is also a need to provide more timely information to users of this data.

This adaptation of the system of accounts is not only European, but world-wide. Europe's ESA 2010 is the sister of the UN's 2008 System of National Accounts, which is in the process of being implemented all around the world. The USA implemented it in August 2013. And Europe has now implemented it, in a coordinated way.

What are the main changes that ESA 2010 has introduced?

The main methodological changes made under ESA 2010 are:

  1. Recognition that expenditure on research and development has the nature of investment. Research and development expenditure is recorded as gross fixed capital formation and no longer as current expenditure. The identification and treatment of research and development expenditure as investment is very important in the context of the Europe 2020 strategy.

  2. Recognition that expenditure on weapon systems has the nature of investment. Because of their potential destructive nature, the previous ESA recorded them as immediately consumed. The new system realistically recognises their productive potential for the external security of a country, over several years. This identifies them as gross fixed capital formation.

  3. The value of goods sent abroad for processing will no longer impact gross exports and imports figures. ESA 2010, in the light of globalisation, uses a change in ownership approach, rather than one based on physical movements. ESA 2010 just records export and imports of processing services. This will slightly reduce the level of exports and imports, but will not affect the overall current account balance.

  4. A more detailed analysis of pension schemes is presented. A compulsory supplementary table will transparently show the liabilities of all pension schemes, including those of government whether unfunded or funded, in order to improve comparability between countries.

  5. ESA 2010 should significantly improve the measure of the contribution of insurance services to GDP. Under the previous system, this contribution was based on the difference between premiums and claims. As the level of claims may be quite volatile, in particular in the case of catastrophic events, the result was itself volatile. In ESA 2010, the formula of calculation of the non-life insurance output has been amended in order to smooth the level of this output.

  6. The new ESA 2010 transmission programme will allow an improved monitoring of economic changes over the next 15 years. More complete balance sheet data will be available, also more quarterly variables, with improved timeliness and seasonal adjustment, and a complete new set of data on potential obligations of government.

Are there other changes being made at the same time?

While all Member States have implemented the ESA 2010 methodology, there are further changes that occurred in many Member States at the same time. Firstly, Member States used this opportunity to also carry out additional statistical improvements, for example updates of data sources. Secondly, as part of the process of harmonising methodology across the EU, many Member States introduced improvements in the way they account for certain illegal activities in GDP.

Why are illegal activities being included in GDP calculations?

It must be stressed that this is nothing new. Those Illegal activities that can be considered as market transactions have been required to be counted in GDP calculations for decades, under international standards. The changes today are simply a refinement of the methodology for measuring these activities.

GDP is about measuring all economic activity. Both declared and undeclared (which includes illegal) activities need to be taken into account in order to have a full and accurate picture of the value of production/consumption in a given period.

There was a need, however, to agree on standards on how to measure illegal activities. Therefore, common methodological guidelines have been agreed between the European Commission and the Member States to ensure consistency in the way that all Member States measure these activities for statistical purposes. These guidelines concern prostitution, the production and trafficking of drugs, and alcohol and tobacco smuggling. By 22 September 2014 all Member States are required to comply with these guidelines. These methodological recommendations have no direct relation with ESA 2010.

How does the implementation of ESA 2010 affect the government debt and deficit figures?

Three main methodological changes introduced by the ESA 2010 methodology impact on the level of the government deficit:

  1. A change in the criteria used to determine the scope of the general government sector, which may lead to the reclassification of entities into the general government sector.

  2. A change in the recording of lump sums paid to government in relation to transfer of pension funds.

  3. The removal of an adjustment made for net interest flows associated with swaps and forward rate agreements.

In addition, for certain Member States a clarification of the treatment of licences (e.g. for mobile phones) will also have an impact on the deficit.

The level of the government debt is mainly impacted by the first of these changes: the inclusion of some entities into the general government sector.

In addition, the ratios of government deficit and debt to GDP are impacted by the revisions in the level of GDP. However, whether the overall effect is an increase or a decrease in the ratios depends upon the relative size of the changes in debt and deficit and in GDP.

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