The recent huge revisions witnessed in Greek data have raised concerns also about the credibility of the EU’s fiscal data reporting system. This column argues that initially published fiscal-deficit figures tend to be to revised towards an increased deficit at subsequent publication dates, and that the proximity of elections and the business cycle explain data revisions. It says that the EU should strengthen the role of Eurostat, the EU’s statistical agency, in auditing individual countries’ fiscal accounts and encourage EU countries to adopt more stringent fiscal rules.

At the February 2011 European Council meeting, Angela Merkel and Nicolas Sarkozy called on their Eurozone counterparts to sign up to a new pact for closer economic coordination. This column argues that introducing constitutional fiscal rules across Europe would be an important step towards fiscal sustainability, but that their rigidity should be offset by a more flexible economic design.

Though Germany’s 2006 fiscal rule was designed to achieve fiscal sustainability, it could be a valuable “exit” mechanism from the crisis-linked build-up of public debt. Contradicting criticisms of the new rules as too constricting, this column argues there are few constraints on the ongoing counter-cyclical fiscal policy, and provisions allow for future flexibility. Ironically, the more serious risk is that the flexibility could weaken implementation.