Christian Rainero

Financial and Economic Health in European Member States: A Rational Management Theory

The last decades of the European Union have been sprinkled of several instability problems, fluctuating between the growth of some State and crises of some other, without reaching an economic stability unity. Even in the presence of the Stability and Growth Pact (SGP) agreement, most of the States failed to monitor their health and gradually achieve positive results in term of Sovereign Debt exposure, economic growth and population’s happiness and satisfaction. According to the Rational Management Theory, any organization (both private or public, whatever the dimension) can be managed through three specific “rational” macro-phases. A first phase is called “Planning”. In this phase, all the initiatives and actions are forecasted, planned and defined coherently with the vision, the mission, the target and the budget of the organization. In the second phase, named “Execution”, those actions are implemented and performed. In the third phase, titled “Controlling”, is conducted a gap analysis between the deliverable and the achieved performance, therefore corrective actions can be proposed and implemented. The three phases are cyclic and backed by several documents, in particular budgeting statements and reports, accountancy and final balance statement. In this framework, the European Union members can find a map to a better managerial system, even taking into account all the complexity that characterizes a State. To evaluate the financial and economic health gauge of European Union Member States, we propose to verify if some of the most acknowledged managerial tools of financial statement interpretation can provide some gauges for economic and financial health and even predict or enhance the Deficit/GDP Ratio and the other structural ratios of the SGP. The sample is extracted from the European Central Bank Statistical Warehouse, analyzing some of the most critical accounts for the General Governments and comparing them with the most famous structural financial stability measures. The comparison will be conducted on the panel of most of the EU Member States financial and economic data for the last two decades. This contribution intends to foster the improvement and development of a set of supplementary instruments for a better management based on accounting data and strengthened by the European System of Accounts (2010 version).