The art of “contingent liabilities” in the Eurozone

On February 10, Eurostat released a new data collection for government finance statistics (First time release of data on contingent liabilities and non-performing loans in EU Member States). Germany has the worst numbers under “Liabilities of government controlled entities classified outside general government” a whopping 126.26% of its GDP! So what the heck are “government liabilities classified outside government”? Eurostat says:

Liabilities of government controlled entities classified outside general government (public corporations) are defined as the stock of liabilities at the end of the year, based on the business accounts of corporations. Those government controlled entities are classified outside general government due to their behaviour as market units.

So if the state semi-privatizes public corporations or becomes co-owner of a public corporation by rescuing them from bankruptcy then any government liabilities resulting from these actions are classified outside the government because these liabilities are inside entities that behave like market units. Is it then, one can be legitimized to ask, a method of creative accounting? Allow me to call these liabilities hidden (they were hidden before these Eurostat data). I took all Eurozone members on the list that joined the Eurozone before 2002 (to include the old members and include Greece) and regressed their public Debt and their “hidden” liabilities. I excluded Luxemburg and Finland who seem to be doing well along both variables. The rest gives a new meaning to public debt!

Hidden liabilities vs Public Debt