Huhne warns of Enron-style liabilities in EU

Date: 18/04/02

By Laurence Frost

GROWING use of public-private partnerships (PPPs) is generating Enron-style 'off-balance-sheet' liabilities for governments that could undermine EU economic credibility, a leading MEP has warned.

Chris Huhne, who drafted the Parliament's report on financial prospectuses, is calling on the European Commission to pay closer attention to PPPs and their longer-term implications for countries' finances.

Governments typically use PPPs to raise private funding for costly infrastructure projects such as hospitals, schools and roads, in exchange for guarantees of minimum revenues for investors in subsequent years.

But member states do not include those future cash pledges in their annual budgets submitted to the Commission - just as bankrupt energy trader Enron used its own partnerships to keep debts off the accounts.

'There is a comparison with Enron to be made in the sense that it's pushing stuff off the balance sheet,' said UK Liberal Huhne, 'although of course it's not so serious that any EU government is likely to explode in a puff of smoke.'

However, he added, 'it does raise serious issues for the stability and growth pact' on budgetary discipline, and could damage both governments' ability to raise finance and the value of the euro.

'By calling into question the integrity of the figures, the markets would become more sceptical about other figures, and more sceptical about targets within the stability and growth pact,' said Huhne. 'That has an effect on bond market rates and on the euro.'

Responding to Huhne's concerns, Pedro Solbes, the economic and monetary affairs commissioner, said the EU executive was 'closely following developments' in member states according to its existing accounting rules, which he called a 'comprehensive system of national accounting'.

But Huhne said the Commission was not even collecting information on PPPs, and called on Solbes to produce estimates of member states' exposure through the schemes.

'Governments are accepting very substantial long-run liabilities, which give rise to long-run payments, and the Commission says it doesn't know about them,' he said. 'I think that's absolutely astonishing.'

The use of PPPs has advanced much further in the UK than in other EU countries, but is fast catching on elsewhere in the bloc.

Eurostat, the Commission's statistical office, has meanwhile begun drafting new rules on other new accounting devices used by governments to massage budgets and flatten deficits.

Officials are particularly concerned about Greece and Italy, which have both 'securitised' future lottery revenues, selling them as bonds to inject cash into current budget lines. Greece has even done the same with expected payments from EU structural funds.

The Eurostat taskforce aims to recommend new rules by July.

Growing use of public-private partnerships (PPPs) is generating Enron-style 'off-balance-sheet' liabilities for governments that could undermine EU economic credibility, MEP Chris Huhne has warned.