The public-private road to bankruptcy?

The public-private road to bankruptcy?

The public-private road to bankruptcy?

December 22, 2011
On 9 December 2011 all 17 members of the eurozone and countries aspiring to join agreed on a new EU treaty to put strict caps on government spending and borrowing. This intention may, for many different reasons, end up to be yet another paper tiger. One of them may be that EU authorities fail to address a major hole in the system. The hole´s name is public-private partnerships (PPP). Another is Commission´s culture of feeding wasteful projects, no questions asked. In its February 2004 decision on deficit and debt, the Eurostat recommends that “the assets involved in a public-private partnership should be classified as non-government assets, and therefore recorded off balance sheet for government, if both of the following conditions are met: 1. the private partner bears the construction risk, and 2. the private partner bears at least one of either availability or demand risk.”

This Eurostat´s decision opened wide and large the gates for creative accounting and manipulation of statistics by governments eager to go into ever deeper debts without admitting them. Despite Eurostat's mission ”to be the leading provider of high quality statistics on Europe”, its treatment of PPPs guarantees exactly opposite.

That at least is the case of Slovakia, country, where “we are not the Greeks” rhetoric became so loud it led to the refusal to support measures to bolster the powers of the eurozone bailout fund on October 11, 2011 and collapse of the government. Two days later the main opposition party voted in favour of bailout fund and the „Slovak problem“ was over. Or was it? Many Slovakia´s problems, including high deficits and fast growing debt, are far from over, but that does not make Slovakia any special. What make it noticeable is, that under a „responsible government“ rhetoric, are hidden tricks, that would fully fit into repertoire that brought Greece to effective bankruptcy. Using unaccounted for PPPs is one of them:  a 47 km long motorway Nitra - Hron was built via PPP in Slovakia in 2009-2011. Slovakia will pay for it 3.9 billion euro, starting with first 125 million in 2012. If you think you find this in the government debt, you are wrong: thanks to Eurostat, it is not included.  This one PPP alone however adds to the total debt some 2-3%.

The Eurostat figures show the largest government deficits as a percentage of GDP in 2010: Ireland (32.4%), Greece (10.5%), UK (10.4%), Spain (9.2%), Portugal (9.1%), Poland (7.9%), Slovakia (7.9%). Figure for Slovakia is, of course, without PPP debt. Prognoses released by the European Commission recently predict Slovakia´s deficit to reach 5.8% of GDP in 2011. Again, that is without PPP accounted for. One cannot stop asking: How many other PPPs are there lurking in muddy waters of the EU statistics?

In addition to PPP hidden debts, the European Commission has sad reputation of throwing blind eye on corruption and misuse of EU fund.  In Slovakia alone - a country with just 1% of EU population – EU is suppose to finance 275 million euro construction of 15 km long highway on a road serving 1500 cars per day. That is traffic density between two average Slovak villages. Another 1.7 billion euro – vast majority of it coming from Brussels – should be used for building another motorway with over 10 km tunnels. Alternative route would cost less than half and serve more traffic - but why should Slovakia build cheaper, when the bill is paid by someone else, no questions asked. Can Europe still afford such waste?

Dr. Juraj Mesík is a Slovak civic and environmental activist and university lecturer.