ANNUAL REPORT 2008 - Polymer Bank Notes of the World

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and Bulgaria registered robust growth figures of,respectively, 7.1% and 6.0% in 2008, economicactivity in these countries also slowed morenoticeably towards the end of the year, followinga lengthy period of very high growth fuelled bybuoyant domestic demand and strong credit andwage growth, and supported by sizeable foreigndirect investment inflows.PRICE DEVELOPMENTSAverage annual inflation increased in 2008 inall non-euro area EU Member States (with theexception of Hungary) and, in inflation-targetingcountries, significantly exceeded inflation targets.The increase reflects the initial upward trendin inflation rates in most countries in the firsthalf of the year, which was later reversed. InDecember 2008 inflation was in most countrieslower than at the beginning of the year.The highest inflation rates were recorded inthe Baltic States and Bulgaria, where averageannual HICP inflation ranged between 10.6%and 15.3%. In the Czech Republic, Hungary andRomania, average annual HICP inflation wasbetween 6.0% and 7.9%, while in the remainingcountries – Denmark, Poland, Slovakia, Swedenand the United Kingdom – inflation was between3.3% and 4.2%.One of the main factors behind the broad-basedrise in inflation was common to almost all noneuroarea EU countries, namely a strong increasein the world prices of food and energy. Somecountries also implemented marked increases inadministered prices and indirect taxes, and in anumber of economies currency depreciation alsocontributed to the rise. Finally, in some casesbuoyant domestic demand, increasing capacityconstraints and agricultural supply shocksalso exerted strong upward pressure on wagesand prices.The factors driving the considerablemoderation in inflation later in 2008 werealso common to most countries. First, annualinflation rates started to decline as the effectsof the global commodity price shock of2007 and early 2008 faded and world pricesof oil declined significantly. Second, domesticdemand pressures eased in parallel with thedecline in economic growth in the previouslyfastest-growing economies, and later also inmost other non-euro area EU Member Statesas the financial crisis intensified. Nevertheless,wage pressures remained significant in a numberof countries, where real wage growth continuedto outpace productivity growth, leading tosignificant increases in unit labour costs.Table 7 HICP inflation in the non-euro area EU Member States and the euro area(annual percentage changes)2004 2005 2006 2007 2008 2008Q1Bulgaria 6.1 6.0 7.4 7.6 12.0 12.4 14.0 12.5 9.0Czech Republic 2.6 1.6 2.1 3.0 6.3 7.6 6.7 6.5 4.4Denmark 0.9 1.7 1.9 1.7 3.6 3.2 3.7 4.6 3.0Estonia 3.0 4.1 4.4 6.7 10.6 11.3 11.5 11.0 8.7Latvia 6.2 6.9 6.6 10.1 15.3 16.3 17.5 15.6 11.9Lithuania 1.2 2.7 3.8 5.8 11.1 10.8 12.3 12.0 9.4Hungary 6.8 3.5 4.0 7.9 6.0 6.9 6.8 6.3 4.2Poland 3.6 2.2 1.3 2.6 4.2 4.5 4.3 4.4 3.6Romania 11.9 9.1 6.6 4.9 7.9 8.0 8.6 8.2 6.9Slovakia 7.5 2.8 4.3 1.9 3.9 3.4 4.0 4.5 3.9Sweden 1.0 0.8 1.5 1.7 3.3 3.1 3.6 4.0 2.7United Kingdom 1.3 2.1 2.3 2.3 3.6 2.4 3.4 4.8 3.9EU9 1) 5.3 3.8 3.3 4.2 6.4 6.8 7.0 6.7 5.2EU12 2) 2.6 2.6 2.6 2.9 4.7 4.2 4.9 5.5 4.3Euro area 2.1 2.2 2.2 2.1 3.3 3.4 3.6 3.8 2.3Source: Eurostat.1) The EU9 aggregate comprises the nine non-euro area EU Member States that joined the EU on 1 May 2004 or 1 January 2007.2) The EU12 aggregate comprises the 12 non-euro area EU Member States as at 31 December 2008.2008Q22008Q32008Q4ECBAnnual Report200887
FISCAL POLICIESThe fiscal situation in the non-euro area EUMember States evolved very heterogeneouslyin 2008. Only Bulgaria, Denmark and Swedencontinued to record fiscal surpluses; theremaining countries registered in some caseshigh fiscal deficits (see Table 8). The deficitratio rose to above 3% of GDP in Latvia,Romania and the United Kingdom and wasclose to this level in Lithuania. Hungaryreduced its deficit from 5.0% of GDP in 2007to 3.3% in 2008. In the Baltic States, Romaniaand the United Kingdom, and to a lesser extentin Sweden, budgetary outcomes for 2008 failedto meet the targets contained in the updatedconvergence programmes submitted at theend of 2007 or the beginning of 2008. For theBaltic States as well as for the United Kingdom,this was partly the result of the considerablyworsening macroeconomic conditions, whichrendered planned continued expenditure growthand therefore the 2008 budget unsustainable.Table 8 Fiscal positions in the non-euro area EU Member States and the euro area(as a percentage of GDP)General government surplus (+) / deficit (-)2007 convergenceprogramme updates2009 EuropeanCommission forecast2005 2006 2007 2008 2008Bulgaria 1.9 3.0 0.1 3.0 3.2Czech Republic -3.6 -2.7 -1.0 -2.9 -1.2Denmark 5.2 5.2 4.5 3.0 3.1Estonia 1.5 2.9 2.7 1.3 -2.0Latvia -0.4 -0.2 0.1 0.7 -3.5Lithuania -0.5 -0.4 -1.2 -0.5 -2.9Hungary -7.8 -9.3 -5.0 -4.0 -3.3Poland -4.3 -3.8 -2.0 -2.5 -2.5Romania -1.2 -2.2 -2.5 -2.9 -5.2Slovakia -2.8 -3.5 -1.9 -2.3 -2.2Sweden 2.4 2.3 3.6 2.8 2.3United Kingdom -3.4 -2.7 -2.7 -2.9 -4.6EU9 1) -3.7 -3.5 -2.0 -2.4 -2.6EU12 2) -2.3 -1.8 -1.5 -1.8 -2.8Euro area -2.5 -1.3 -0.6 -0.9 -1.7General government gross debt2007 convergenceprogramme updates2009 EuropeanCommission forecast2005 2006 2007 2008 2008Bulgaria 29.2 22.7 18.2 18.3 13.8Czech Republic 29.8 29.6 28.9 30.3 27.9Denmark 36.4 30.7 26.3 21.6 30.3Estonia 4.5 4.3 3.5 2.3 4.3Latvia 12.4 10.7 9.5 8.3 16.0Lithuania 18.4 18.0 17.0 17.2 17.1Hungary 61.7 65.6 65.8 65.8 71.9Poland 47.1 47.7 44.9 44.2 45.5Romania 15.8 12.4 12.7 13.6 15.2Slovakia 34.2 30.4 29.4 30.8 28.6Sweden 50.9 45.9 40.6 34.8 34.8United Kingdom 42.3 43.4 44.1 44.8 50.1EU9 1) 38.5 37.4 35.5 35.6 36.6EU12 2) 41.9 41.4 40.5 39.6 43.4Euro area 70.0 68.3 66.1 65.1 68.7Sources: European Commission data (for 2005-08), 2007 convergence programme updates and 2009 European Commission interimforecast (for 2008), and ECB calculations.Notes: Data are based on ESA 95 definitions. The 2008 figures in the convergence programmes are estimated by national governments andhence could differ from the final outcomes.1) The EU9 aggregate comprises the nine non-euro area EU Member States that joined the EU on 1 May 2004 or 1 January 2007.2) The EU12 aggregate comprises the 12 non-euro area EU Member States as at 31 December 2008.88 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
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As regards the Chinese economy, rea
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generally tighter financing conditi
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were recorded in December, but thes
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was driven mainly by developments i
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market tensions, particularly for l
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anking and financial system. At the
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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 76 and 77: Box 7STATISTICAL ACCOUNTING CONSEQU
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 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
Page 126 and 127: iii) payments statistics and iv) de
Page 128 and 129: 5 ECONOMIC RESEARCHThe main functio
Page 130 and 131: were organised to disseminate resea
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Page 134 and 135: on the Banque centrale du Luxembour
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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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