ANNUAL REPORT 2008 - Polymer Bank Notes of the World

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Box 6DEVELOPMENTS IN THE ISSUANCE AND YIELD SPREADS OF EURO AREA GOVERNMENT DEBTSECURITIESThe annual growth rate of the outstandingamount of euro area general government debtsecurities stood at 8.0% in 2008. Althoughsignificantly higher than the 2.8% recordedin 2007 (see Table A) 1 , it is comparable tothe figures recorded in previous periods ofslowing economic growth. This growth in thenet issuance of government debt securities,together with the sharp slowdown in GDPgrowth observed in 2008, was also reflectedin the deterioration in the government debt-to-GDP ratio for the euro area, which rose from66.1% in 2007 to 68.7% in 2008. 2Chart A Breakdown of the change in interestpayments for the period 1999-2008(as a percentage of GDP; annual data)change in debtchange in interest ratecross effect0.20.10.0-0.1-0.20.20.10.0-0.1-0.2Looking at the composition of net issuancein 2008, the activity of the euro areashort-term debt securities primary market was-0.3-0.4-0.3-0.4remarkably strong. This partly reflects the fact-0.5that the yield curve became steeper during 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008-0.52008, making short-term financing relatively Source: European Commission (AMECO database).cheaper. This is a feature common to otherepisodes of slower economic growth with declining short-term interest rates. As a result, longtermdebt accounted for around 88.7% of outstanding debt securities in 2008, the lowest levelsince the start of Stage Three of EMU (see Table B).1 Growth rates are calculated on the basis of financial transactions and therefore exclude reclassifications, revaluations, exchange ratevariations and other changes that do not arise from transactions. For details, see the technical notes relating to Sections 4.3 and 4.4 ofthe “Euro area statistics” section of the ECB’s Monthly Bulletin.2 As at January 2009 the potential direct impact of announced government support to the banking sector on euro area general governmentdebt was estimated at €284.6 billion (around 3% of euro area GDP).Table A Annual growth rates of debt securities issued by euro area governments(percentages; end of period)1999 2000 2001 2002 2003 2004 2005 2006 2007 2008Total general government 3.4 2.7 3.3 5.0 5.5 5.8 4.7 2.4 2.8 8.0Long-term 5.6 3.6 2.8 3.9 4.8 6.2 5.5 3.4 2.3 3.6Fixed rate 5.2 5.6 4.6 5.7 6.4 5.4 3.4 2.0 3.6Floating rate -2.5 -13.4 -4.5 -1.6 7.0 8.3 3.0 5.4 3.5Short-term -16.5 -7.1 8.7 18.5 13.6 2.1 -4.0 -8.8 9.5 62.6Source: ECB.ECBAnnual Report200871
Table B Structure of amounts outstanding of debt securities issued by euro area governments(percentages of total debt securities issued by general government; end of period)1999 2000 2001 2002 2003 2004 2005 2006 2007 2008Central government 96.9 96.7 96.3 95.5 94.7 94.3 93.8 93.4 93.2 93.5Long-term securities 89.3 89.8 89.0 87.3 85.9 85.8 86.0 86.5 86.1 82.7Short-term securities 7.6 6.9 7.2 8.2 8.9 8.5 7.8 6.8 7.1 10.8Other general government 3.1 3.3 3.7 4.5 5.3 5.7 6.2 6.6 6.8 6.5Long-term securities 3.0 3.2 3.6 4.4 5.2 5.6 6.0 6.4 6.4 6.0Short-term securities 0.2 0.1 0.1 0.1 0.1 0.1 0.2 0.2 0.4 0.5Total general governmentLong-term 92.3 93.0 92.6 91.7 91.0 91.4 92.1 92.9 92.5 88.7Fixed rate 79.2 81.1 82.5 82.1 82.2 82.7 83.2 84.0 83.3 79.9Floating rate 10.6 10.0 8.8 8.1 7.5 7.6 7.9 8.0 8.2 7.8Short-term 7.7 7.0 7.4 8.3 9.0 8.6 7.9 7.1 7.5 11.3Total general governmentin EUR billions 3,453.4 3,549.1 3,775.5 3,949.4 4,151.7 4,386.7 4,604.8 4,706.6 4,836.7 5,239.6Source: ECB.Chart A breaks down changes in interest payments into: i) an effect stemming fromchanges in government debt, ii) an effect resulting from changes in interest rates andiii) a residual cross effect. 3 Interest expenditure increased by around 0.2 percentage point of GDPin 2008. This was mostly a reflection of the increase in the level of debt, whereas the impact ofthe decline in interest rates and cross effects was marginal.Following the developments triggered by the onset of the financial turmoil in August 2007, thespreads between the yields on long-term euro area government bonds and those on German bondswidened significantly in 2008, particularly over the second half of the year. This is illustratedin Chart B, which shows the spreads against Germany for eight euro area countries (Belgium,Ireland, Greece, Spain, France, Italy, the Netherlands and Portugal). The differences betweengovernment bond yields across euro area countries ultimately reflect differences in credit riskand liquidity premia.First, in response to the intensification of the financial turmoil in the second half of 2008, thesummit of euro area countries in Paris on 12 October announced coordinated rescue packages,including guarantees for bank debt, capital injections for banks and outright purchases of banks’risky assets. The expected fiscal burden of such measures may have increased the perceivedprobability of defaults on sovereign bonds. Credit risk premia increased in all euro area countries,albeit to varying degrees, as illustrated in Chart C, which shows sovereign credit default swapspreads. 4Second, for most of 2008 the changes in euro area government bond yields also reflected flightto-qualitybehaviour on the part of investors. This process was also characterised by increaseddiscrimination among investors with regard to their flight-to-quality destinations. German3 The change in the nominal interest payments, I, can be broken down as follows:Δ I = Δ B × i + Δ i × B + Δ B × Δ iEffect via{ {change indebtEffect viachange ininterest rateCross effect(residual)where B is the nominal general government debt and i is the average implicit interest rate (I/B).4 Sovereign credit default swap spreads have the advantage of not being distorted by changes in the benchmark bonds of the countriesconcerned, of not being affected by any maturity mismatches, and of tending to be more responsive to market changes.72 ECBAnnual Report2008
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EN2008EUROPEAN CENTRAL BANK ANNUAL
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© European Central Bank, 2009Addre
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CHAPTER 4FINANCIAL STABILITY AND IN
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7 Statistical accounting consequenc
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ABBREVIATIONSCOUNTRIESOTHERSBE Belg
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in the course of the year, in line
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currencies, T2S will be a major ste
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CHAPTER 1ECONOMICDEVELOPMENTS ANDMO
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Chart 1 ECB interest rates and mone
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Despite moderating, the annual grow
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Page 26 and 27: As regards the Chinese economy, rea
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Page 46 and 47: Chart C Trading volumes for governm
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Page 50 and 51: The annual growth rate of consumer
Page 52 and 53: end of 2007. By December 2008 this
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Page 56 and 57: commodity prices (see Box 4). Conve
Page 58 and 59: Chart D Longer-term inflation expec
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Page 64 and 65: Table 3 Composition of real GDP gro
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Page 68 and 69: Box 5LABOUR MARKET DEVELOPMENTS IN
Page 70 and 71: Chart C Breakdown of employment gro
Page 74 and 75: Chart B Government bond yield sprea
Page 76 and 77: Box 7STATISTICAL ACCOUNTING CONSEQU
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Page 80 and 81: sharp depreciation of the euro was
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Page 90 and 91: In the remaining non-euro area EU c
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Page 94 and 95: Table 10 Official monetary policy s
Page 96 and 97: the Bank of England and Sveriges Ri
Page 98 and 99: CHAPTER 2CENTRAL BANKOPERATIONSAND
Page 100 and 101: Box 10MONETARY POLICY OPERATIONS DU
Page 102 and 103: Chart A Liquidity supply through op
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Page 106 and 107: MINIMUM RESERVE SYSTEMCredit instit
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Page 114 and 115: and the ECB). As a result of carefu
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Page 118 and 119: ELIGIBLE LINKS BETWEEN NATIONAL SEC
Page 120 and 121: Chart 48 Number of euro banknotes i
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3.3 BANKNOTE PRODUCTION AND ISSUANC
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4 STATISTICSThe ECB, assisted by th
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iii) payments statistics and iv) de
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5 ECONOMIC RESEARCHThe main functio
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were organised to disseminate resea
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the Financial Collateral Directive,
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on the Banque centrale du Luxembour
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standards by individual Eurosystem
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CHAPTER 3ENTRY OF SLOVAKIAINTO THE
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Table 13 Main economic indicators f
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As of January 2009 Slovakia is thus
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3 OPERATIONAL ASPECTS OF THE INTEGR
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4 THE CASH CHANGEOVER IN SLOVAKIATH
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Willem F. Duisenberg accepting the
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1 FINANCIAL STABILITYThe Eurosystem
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With regard to merger and acquisiti
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with the principles set out in Octo
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2.2 BANKINGCAPITAL REQUIREMENTS DIR
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3 FINANCIAL INTEGRATIONThe Eurosyst
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The market for short-term paper in
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de France and the Banca d’Italia.
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and the Eurosystem’s business con
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4.2 RETAIL PAYMENT SYSTEMS ANDINSTR
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for Clearing and Settlement, and th
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Willem F. Duisenberg at his farewel
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1 EUROPEAN ISSUESIn 2008 the ECB co
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for financial institutions, to faci
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1.3 DEVELOPMENTS IN AND RELATIONS W
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On a number of occasions in 2008, t
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countries have voiced support for t
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Former Italian President Carlo Azeg
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1 ACCOUNTABILITY VIS-À-VIS THE GEN
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implementation of the steps foresee
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CHAPTER 7EXTERNALCOMMUNICATION
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2 COMMUNICATION ACTIVITIESThe ECB a
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Panel at the Fifth ECB Central Bank
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1 DECISION-MAKING BODIES AND CORPOR
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Council decided on the main aspects
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1.3 THE EXECUTIVE BOARDThe Executiv
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1.4 THE GENERAL COUNCILThe General
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The Eurosystem/ESCB committees have
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members of the Executive Board. 13
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for their current position. On the
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statistical office (Statistisches B
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4 ANNUAL ACCOUNTS OF THE ECB212 ECB
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function, and by the Governing Coun
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BALANCE SHEET AS AT 31 DECEMBER 200
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PROFIT AND LOSS ACCOUNT FOR THE YEA
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mid-market prices on 30 December 20
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The defined benefit obligation is c
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NOTES ON THE BALANCE SHEET1 GOLD AN
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Eurosystem (see “Banknotes in cir
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(see “Banknotes in circulation”
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values at which the transactions we
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15 CAPITAL AND RESERVESCAPITALPursu
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epresenting the remainder of its ca
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NOTES ON THE PROFIT AND LOSS ACCOUN
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individual circumstances. Basic sal
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5 CONSOLIDATED BALANCE SHEET OF THE
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ANNEXES
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Number Title OJ referenceECB/2008/1
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Number Title OJ referenceECB/2009/1
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Number 2 Originator SubjectCON/2008
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Number 4 Originator Subject OJ refe
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oth the marginal lending facility a
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OVERVIEW OF THE ECB’S COMMUNICATI
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y the respective NCBs will also be
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OPEN MARKET OPERATIONS BY CURRENCYE
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USD operationsType oftransaction 1)
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DOCUMENTS PUBLISHED BY THEEUROPEAN
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95 “Financial stability challenge
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1012 “Petrodollars and imports of
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GLOSSARYThis glossary contains sele
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Economic analysis: one pillar of th
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Financial stability: condition in w
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MFIs (monetary financial institutio
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Reserve base: the sum of the eligib
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ANNUAL REPORT 2008 - Polymer Bank Notes of the World

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