ANNUAL REPORT 2008 - Polymer Bank Notes of the World

Box 7STATISTICAL ACCOUNTING CONSEQUENCES OF THE FINANCIAL CRISIS ON GOVERNMENT DEFICIT ANDDEBTIn response to the global financial crisis and its consequences for European financial institutions,European governments, central banks and other public authorities are implementing measures tostabilise the financial markets and the economy in general. These government operations include(partial) nationalisations, capital injections (recapitalisations), the purchase and/or exchange offinancial assets and the provision of guarantees (on deposits and new debt issuances by banks, aswell as on interbank lending).The government deficit and debt, which are the key fiscal variables monitored under the Stabilityand Growth Pact, are recorded in accordance with the European statistical accounting rules knownas the European System of Accounts 1995 (“ESA 95”) and the ESA 95 Manual on deficit and debt.The European Commission (Eurostat) has further developed methodological guidance on recordingthe above-mentioned government operations, on the basis of the ESA 95 and the Manual, in order toensure that the compilation of government deficit and debt statistics is carried out consistently andhomogeneously across Member States. In this process, Eurostat has consulted the Committee onMonetary, Financial and Balance of Payments Statistics (in which the national statistical institutesand the national central banks of the EU Member States, as well as the European Commission and theECB, are represented) to determine how the accounting rules should be applied. In each individualcase a number of questions will need to be answered, to decide on the appropriate recording:––––––Do the entities created to recapitalise financial institutions or provide guarantees to financialinstitutions belong to the government sector in national accounts? If so, their deficit and debtwill augment the government deficit and debt.Have governments bought shares in financial institutions at market prices, which indicatethat a financial asset has been acquired (without an impact on the deficit), or should part ofthe amount injected into financial institutions be considered as a capital transfer (a subsidy)?If the government lends money to a financial institution, does the financial institution havean obligation to pay interest and to repay the loan? If not, it should be recorded as a capitaltransfer and not as a financial transaction.If the government takes over part of a financial institution’s liabilities and obtains a stake inthe financial institution in return, is the stake worth the same as the liabilities? If not, (partof) the takeover of liabilities is considered a capital transfer with a negative impact on thegovernment budget balance.At what point are government guarantees very likely to be called, so that they may have animpact on the deficit and debt at the moment they are granted? Normally guarantees have animpact on the deficit and debt only at the time when they are called.If a financial institution is fully nationalised, should it be reclassified to the governmentsector? As a general rule, it will become a public corporation, but not a governmental body.However, if a special unit is set up by government to acquire shares in a financial institution,this unit may need to be classified within the government sector if it is not autonomous or if itis not deemed to be engaged in a market activity.Eurostat will publish the preliminary statistics on the government deficit and debt of the EUMember States for 2008 in the second half of April 2009.ECBAnnual Report200875