ANNUAL REPORT 2008 - Polymer Bank Notes of the World

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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
Chart 32 Fiscal developments, 1999-2009(as a percentage of GDP)gross debt (left-hand scale)deficit (right-hand scale)80570460503403022011001999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 0Source: European Commission (AMECO database).Notes: The euro area average includes 16 countries as of1 January 2009; ESA 95 definition; deficit excludes UMTSreceipts.FURTHER FISCAL DETERIORATION EXPECTEDIN 2009The fiscal outlook in euro area countriesis set to deteriorate further in 2009.According to the interim forecast of theEuropean Commission, which includes theavailable stability programme updates at theend of 2008 and the beginning of 2009, theaverage general government deficit in the euroarea is expected to increase by 2.3 percentagepoints to 4.0% of GDP (see Chart 32).Government expenditure is set to increase by2.1 percentage points of GDP, and revenuesto decrease by 0.1 percentage point of GDP.The average government debt ratio in theeuro area is expected to increase in 2009, by4.0 percentage points, to 72.7% of GDP.In all euro area countries except Malta, thegeneral government balance is expected todecline, according to the Commission’s interimforecast. Ireland, Greece, Spain, France, Italy,Portugal and Slovenia are expected to breachor remain above the 3% of GDP referencevalue in 2009, in some cases by a wide margin.Deficits in Belgium and Austria are expected tobe at the 3% reference value and in Germanyand Slovakia to be just below it. There areclear risks that actual outcomes could be evenworse than expected.FOCUS ON FISCAL SUSTAINABILITY ESSENTIALThe reversal in fiscal outcomes and thehighly uncertain outlook pose considerablechallenges to fiscal policy in the euro area.Public finances are coming under pressurefrom four developments. First, deficits arerising significantly as a result of the operationof automatic stabilisers in the macroeconomicslowdown. Second, on top of the unwinding ofrevenue windfalls of recent years, additionalrevenue shortfalls may materialise owing to,among other factors, sharp falls in financialasset prices, as well as a housing slumpin some countries. Third, the governmentinterventions in the financial sector to prevent asystemic banking crisis and much more severemacroeconomic disruption carry substantialfiscal risks. Fourth, stimulus measures tocounter the economic slowdown put the fiscaloutlook under pressure.In this challenging environment, it is crucialthat fiscal discipline and a medium-termperspective are maintained. A preconditionfor maintaining the public’s trust in thesustainability of public finances is to safeguardthe integrity of the rules-based EU fiscalframework. It is therefore essential that allparties involved adhere to their commitmentto fully apply the provisions of the Stabilityand Growth Pact, which provide the necessaryflexibility to deal with adverse economiccircumstances.The substantial stimulus packages adopted in2008 and early 2009 add to fiscal imbalances inthe euro area. To prevent a loss of confidence inthe sustainability of public finances, a crediblecommitment to undo stimulus measures as soonas possible is required. In the implementationof the stimulus packages, careful considerationshould be given to the quality of the measuresto ensure their effectiveness. Determinedefforts in euro area countries to achieveand maintain sound public finances are also76 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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substantial downward revisions in r
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in July, annual inflation in the OE
Page 26 and 27: As regards the Chinese economy, rea
Page 28 and 29: generally tighter financing conditi
Page 30 and 31: were recorded in December, but thes
Page 32 and 33: was driven mainly by developments i
Page 34 and 35: market tensions, particularly for l
Page 36 and 37: anking and financial system. At the
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Page 40 and 41: quarter of 2008 and -0.1% in Decemb
Page 42 and 43: whereby investors’ uncertainty su
Page 44 and 45: September onwards, amid the great u
Page 46 and 47: Chart C Trading volumes for governm
Page 48 and 49: sponsored rescue plans were initiat
Page 50 and 51: The annual growth rate of consumer
Page 52 and 53: end of 2007. By December 2008 this
Page 54 and 55: calculated as the balance between g
Page 56 and 57: commodity prices (see Box 4). Conve
Page 58 and 59: Chart D Longer-term inflation expec
Page 60 and 61: apidly to 1.7% in December, mainly
Page 62 and 63: productivity slowed to 0.2% in the
Page 64 and 65: Table 3 Composition of real GDP gro
Page 66 and 67: Corporate investment, which had exp
Page 68 and 69: Box 5LABOUR MARKET DEVELOPMENTS IN
Page 70 and 71: Chart C Breakdown of employment gro
Page 72 and 73: Box 6DEVELOPMENTS IN THE ISSUANCE A
Page 74 and 75: Chart B Government bond yield sprea
Page 78 and 79: warranted because of the need to co
Page 80 and 81: sharp depreciation of the euro was
Page 82 and 83: prices in the first eight months of
Page 84 and 85: focused more on the production rath
Page 86 and 87: segments and, in turn, affected eur
Page 88 and 89: and Bulgaria registered robust grow
Page 90 and 91: In the remaining non-euro area EU c
Page 92 and 93: Estonian kroon and the Lithuanian l
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
Page 104 and 105: franc funding needs of banks with n
Page 106 and 107: MINIMUM RESERVE SYSTEMCredit instit
Page 108 and 109: with the ample allotments in the fi
Page 110 and 111: 2008. By contrast, the average shar
Page 112 and 113: and SDR holdings increased by aroun
Page 114 and 115: and the ECB). As a result of carefu
Page 116 and 117: cross-CSD settlement. T2S will thus
Page 118 and 119: ELIGIBLE LINKS BETWEEN NATIONAL SEC
Page 120 and 121: Chart 48 Number of euro banknotes i
Page 122 and 123: 3.3 BANKNOTE PRODUCTION AND ISSUANC
Page 124 and 125: 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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