Auditors flag Commission's 'weak' handling of rescue plans

The EU Commission's handling of the financial crisis was "generally weak", the European Court of Auditors i (ECA) said Tuesday (26 January) in a report assessing assistance programmes in five EU countries.

The guardian of EU finances said that Hungary, Ireland, Latvia, Portugal and Romania "were not treated in the same way".

"In some programmes, the conditions for assistance were less stringent, which made compliance easier. The structural reforms required were not always in proportion to the problems faced, or they pursued widely different paths. Some countries’ deficit targets were relaxed more than the economic situation would appear to justify," the report says.

The auditors also flag "limited quality control, weak monitoring and shortcomings in documentation".

Despite this criticism, they also conclude that "the programmes did meet their objectives".

"The revised deficit targets were mostly met. Structural deficits improved, although at a varying pace. Member states complied with most conditions set in their programmes, albeit with some delays," the report says.

'Not auditing political decisions'

While pointing at the shortcomings in the management of the programmes, the ECA stopped short of expressing an assessment of the rescue plans themselves.


"We are not auditing political decisions," an auditor said.

Auditors did not either assess the work of the troika, comprised of the commission, the European Central Bank and the International Monetary Fund, nor controversial issues like debt sustainability.

The report is more focused on process than on actual choices made and policies implemented. But despite the plaudits granted to the rescue programmes, the auditors' recommendations include leads as to what went wrong.

In the future, the ECA says, the commission should: include variables in the memoranda of understanding which it can collect with short time-lags; distinguish conditions by importance and target the truly important reforms; make the debt management process more transparent; further analyse the key aspects of the countries’ adjustment after programme closure.

Among problems, the report mentions "significant forecasting errors, such as double counting of some variables, use of incorrect amounts in foreign reserves or unrealistically high assumptions of debt rollover rates".

"Discovery of the errors … could have resulted in a different set of policies to close the financing gap," the report says.

Auditors also found that when reporting on the programmes to the EU Council, the commission did not use the same methods for the fives countries.

"Only for Portugal and, in part, for Hungary, Latvia and Ireland, did the commission systematically report on the member state’s compliance with structural conditions," they write.

"Non compliance was rarely reported. Only for a very small number of conditions (4 percent in the Portuguese programme) did the commission clearly state 'non observed'; although almost half of the conditions were not complied [with] in time."

'Steep learning curve'

"Despite existing warning signs, the commission did not predict and was not prepared to deal with a crisis of such a magnitude, Baudilio Tomé Muguruza, the auditor responsible for the report, told reporters in Brussels.

"That explains the significant initial weaknesses we found in the initial management process. The commission had to design and implement assistance programmes under extreme time pressure."

But Muguruza assured that "the commission has already improved its procedures".

"If they implement our recommendations, we think [they] will be in a better position to design and manage programmes in the future," he said.

The crisis was unprecedented and policymakers faced a steep learning curve and acute resource constraints, EU spokeswoman Annika Breidthardt said in reaction to the report.

"The commission accepts there were weaknesses in the management of the early programmes. It will focus on improving processes even further," she told reporters.

The ECA report is the first of a series on the management of the financial crisis and the rescue plans by the commission.

Next month a first part of an audit on the response to the Greek crisis should be presented.