This article describes how government debt and its creditor structure in the euro area have developed in recent years. It follows on from an article in the July 2022 edition of the Monthly Report (see Deutsche Bundesbank (2022)), which discussed developments up to the end of 2021. The set of available data has changed. Data for the creditor structure of Maastricht debt are now available, whereas some other previously available data no longer exist. The data used for this article and their statistical definitions are explained in the Annex. They are available for the period from the beginning of 2021. Alongside Member States’ direct debt, there is also joint debt at the level of the European Union ( EU ). At the end of 2023, it is likely to have reached 1.4% of EU GDP . Since 2021, it has increased considerably, particularly as a result of the off-budget entity NextGenerationEU ( NGEU ), and is expected to increase further in the years to come. However, this article only addresses national debt and its creditor structure. For more details on the Maastricht debt of the EU institutions recently published by Eurostat , see Deutsche Bundesbank (2024a). Classification into short-term and long-term liabilities is carried out here according to Eurostat ’s Government Finance Statistics: short-term liabilities with original maturities of up to one year, long-term liabilities with original maturities of more than one year or without details on maturity. Greece was also granted bilateral assistance loans by other euro area Member States (Greek Loan Facility). In addition, the Member States most affected by the sovereign debt crisis received financial assistance from the European Commission (under the European Financial Stabilisation Mechanism, EFSM ) and the International Monetary Fund. In individual cases, variable interest rates may also have been agreed for long maturities. In Germany, this largely applies only to inflation-indexed Bunds. Debtors can also secure fixed interest rates beyond the residual maturity via derivatives, or exchange long-term fixed rates for variable ones. For the Federal Government, the Federal Ministry of Finance also publishes information on the residual maturity, into which derivatives are factored. In the last reporting year, derivatives had no appreciable net effect. See Federal Ministry of Finance (2023). For more on the structure of government debt holdings in the euro area and selected Member States from the end of 2013 to the end of 2021, see Deutsche Bundesbank (2022). The Eurosystem purchased public sector bonds on a large scale through the public sector purchase programme ( PSPP ) from March 2015 and the pandemic emergency purchase programme ( PEPP ) from March 2020. National central banks predominantly acquired bonds issued by their own Member State. For information on the rationale behind and the design of the programmes, see the Official Journal of the European Union L 39 (2020a) and the Official Journal of the European Union L 91 (2020b). The Eurosystem is referred to collectively here in order to illustrate the sector’s weight. Liability for the majority of the acquired debt instruments remains with the home country’s central bank. See European Central Bank (2023). Under the government purchase programmes the Eurosystem central banks purchased bonds issued by development banks and other national public undertakings as well as government bonds. The former are not included in the ratios unless they are counted as part of national government debt. This should be borne in mind in the case of Germany especially. See the notes in the Annex . The figures relative to GDP also diverge across Member States on account of the fact that purchases under the PSPP and PEPP are based on the Eurosystem capital key. This is made up of the respective share of a Member State in the total population and euro area GDP in previous years, whereby both have equal weighting. This means that purchases of Italian and Spanish debt instruments are comparatively higher than if purchases were based solely on the share of GDP . Developments in Italy are likely to have been encouraged by the issuance of specially designed debt securities. Since June 2023, Italy has been issuing BTP Valore, a type of bond tailored to investors who prefer to hold assets without restructuring their portfolio. Investors opting for BTP Valore have to make a minimum purchase order of €1,000 and receive fixed coupon payments that increase gradually over time (based on market conditions at the time of issue). Those who buy on the day of issue and hold the bond to maturity benefit from an additional premium of 0.7% on the original purchase amount. For more details, see Ministero dell'Economia e delle Finanze (2024). The Eurosystem agreed on full risk sharing for purchases under the SMP . For purchases under the PSPP and PEPP , it agreed that 20% of purchases would be subject to risk sharing. These are the ECB ’s purchases of government bonds reported above, as well as bonds issued by development banks and other public undertakings. However, purchases by the national central banks of bonds issued by supranational institutions are also subject to risk sharing (10% in each instance). Interest income on holdings subject to risk sharing is distributed between the national central banks in accordance with the Eurosystem’s capital key. 80% of purchases under the PSPP and PEPP are excluded from risk sharing. These are purchases by the national central banks of securities issued by regional and local governments, development banks and other public undertakings within the national central banks’ jurisdiction. For these ratios, total bonds purchased by the Eurosystem with risk sharing under the government purchase programmes were allocated to the respective Member States according to the capital key. These are the holdings under the SMP and the ECB ’s country-specific purchases under the PSPP and PEPP of bonds issued by the home country, as well as by development banks and public undertakings domiciled there. Again, the figures in relation to GDP also diverge on account of the fact that purchases under the PSPP and PEPP were based on the Eurosystem capital key. In addition, central banks also receive income from non-domestic securities and bonds issued by supranational institutions for purchases of which risk sharing has been agreed. As a percentage of national GDP , the Eurosystem central banks’ holdings of this nature amounted to around 5% for the Bundesbank and Banque de France and around 6% for the Banca d’Italia and the Banco de España. The data were taken from the balance sheets of the national central banks for the 2023 financial year. These figures concern all euro-denominated investments, not just national government bonds. Table 2 shows, in particular, balance sheet items 7.2. (Other securities not held for monetary policy purposes) and 11.3 (Other financial assets). Supplementary information in the annual reports has been taken into account. See Banca d’Italia (2024), Banco de España (2024), Banque de France (2024) and Deutsche Bundesbank (2024b). The Bundesbank has no holdings of this kind. The Banque de France has holdings of €52.6 billion and the Banco de España holdings of €26.8 billion. In its annual report on other investment in euro area government bonds, the Banca d’Italia reported a figure of €122.9 billion. It was decided that 80% of purchases under the PSPP and PEPP would not be subject to risk sharing. These are purchases by the national central banks of securities issued by regional and local governments, development banks and other public undertakings within the national central banks’ jurisdiction. In highly simplified terms, interest payments on the purchased securities do go to the national central banks but, as bond purchases grew, so did commercial banks’ deposits at central banks. The national central banks pay interest on these (the deposit facility rate). The difference between income from bond holdings and expenditure on the deposit facility affects central bank profit. While this does affect public finances, the impact can be spread over time through provisions and loss carryforwards. For more information, see Deutsche Bundesbank (2021a). Due to a tax refund of €2.3 billion, Banca d’Italia reported a net distributable profit of 0.8 billion. Own funds of the domestic banking sector are defined as capital and reserves according to the ECB ’s balance sheet statistics. These values may differ from bank to bank. Deviations from Table 1 arise from the valuation approach used in balance sheet statistics, which report bond holdings at book values. By contrast, they are reported at face values in the SHSS holdings statistics. Bonds accounted for 33% of domestic banks’ total claims on their home country for Germany, 51% for France, 59% for Italy and 73% for Spain at the end of 2023. Of all the euro area Member States, only Croatia’s banking sector still has a comparable level of claims on its home country, at just under 19% of GDP . The respective aggregate domestic banking sector is considered here. The situation of individual banks may vary considerably. With a figure of 127%, Croatia’s domestic banking sector has significantly larger claims on its home country than Spain at the end of 2023. The banking sectors of Greece and Slovakia also recorded high figures (93% each). At 73%, Belgium has a similar level of exposures to the euro area as a whole. All other Member States are below the euro area average – in some cases noticeably so. For the definition up until 2021, see the far more complex explanatory notes on the presentation of the creditor structure in Deutsche Bundesbank (2022). See Deutsche Bundesbank (2018). Based on the Agreement on Net Financial Assets, Eurosystem central banks can also purchase securities for their own portfolios without this serving monetary policy purposes. For a more detailed explanation, see Deutsche Bundesbank (2016). This also has an impact on the data for the individual euro area Member States. For the latter, too, the foreign share (including in other euro area countries) is the residual. In order to provide financial assistance to Member States that were hit especially hard by the financial and debt crisis, euro area countries jointly borrowed through the EFSF . In the figures reported for individual Member States in this article, this share was allocated to debt held by foreign creditors.
Government debt in the euro area: current developments in creditor structure Monthly Report – April 2024
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