Euro area government debt amounted to 90 % of gross domestic product (GDP) at last count. The debt ratio has thus declined since 2020. However, it is still 4 percentage points higher than in the pre-crisis year of 2019. This article describes how the creditor structure of government debt has evolved in recent years. The focus is on the euro area as a whole and on the four large Member States – Germany, France, Italy and Spain.

The creditor structure of government debt has shifted strongly since 2015 as a result of the extensive asset purchase programmes conducted by the Eurosystem central banks. This reduced, in particular, the share of assets held by euro area commercial banks and by creditors outside the euro area. In response to high inflation, the euro area national central banks then tightened the monetary policy reins and are now shrinking their holdings of government bonds. Nevertheless, as at end-2023 they were still the largest creditor, accounting for 27 %. The weight of creditors outside the euro area and especially of households has increased recently.

In the four large Member States, the creditor structure has evolved very differently since the Eurosystem reduced the envelope of its asset purchase programmes. Foreign creditors, in particular, gained in importance in Germany and France. By contrast, the share of households in Italy and Spain especially rose. The interest rate reversal is weighing on the national central banks’ balance sheets, as, while deposit rates on bank deposits are increasing, interest income from the longer-dated bonds purchased has initially remained unchanged. Most recently, only Banca d’Italia transferred a relatively small amount to its central government.

National banks continue to be a significant creditor group. The Spanish banking system, and in particular the Italian banking system, are most highly exposed to their home country. The fact that capital does not have to be held against many government bonds makes it attractive for banks to hold them. In addition, large exposure limits do not apply; as a result, in some cases very large stocks of a sovereign’s bonds are being held. Should doubts regarding the sustainability of government finances arise, this can rapidly engender additional risks to financial stability. In order to mitigate these risks, it would make sense to curtail regulatory incentives by reducing existing regulatory privileges. That would also facilitate negotiations to complete the banking union by establishing a European deposit insurance scheme. To date, however, political majorities for deprivileging are nowhere in sight. If, even absent this, the European banking union is to be advanced with a single European deposit insurance scheme which envisages a redistribution of risks at the European level, it would need to be assured beforehand through some other method that proper account is taken of the various risks associated with government debt, depending on the desired design.

Euro area countries’ debt amounted to 90 % of GDP

The debt ratios of the four largest Member States vary greatly in terms of level, but have evolved similarly. They have declined in recent years and are now above their level from before the outbreak of the COVID

In terms of maturity structure, medium to long-term liabilities are predominant in the euro area. 3

The debt ratios of the individual Member States vary widely. They range from 20 % in Estonia to 163 % in Greece (see Chart 4.3). Long-term debt securities predominate. Greece alone is the significant exception, as very large long-term assistance loans granted in connection with the 2010‑2015 sovereign debt crisis are still outstanding. 4

The average residual maturity of government securities debt has been relatively high in recent years. However, owing to central banks’ extensive holdings, government finances are less well hedged against interest rate increases than would appear to be case just looking at residual maturities. Chart 4.4 shows the residual maturities for the euro area and the four large Member States. If average residual maturities are higher, interest payments are generally fixed for longer periods. 5

Until the beginning of 2021, the structure 6

From the beginning of 2021, euro area central banks responded to the rapid rise in the inflation rate. They tightened their monetary policy reins by initially purchasing smaller volumes of bonds and are now shrinking their holdings again. Since 2012, asset holdings under the securities market programme (SMP

Up until mid-2022, the share of government debt held by the Eurosystem nonetheless increased further. At the end of June 2022, the Eurosystem was by far the largest creditor group, accounting for 30 %. In addition to debt held by foreign creditors, domestic banks have now recorded the most significant declines since the beginning of 2021 (see left-hand side of Chart 4.5). The shares of domestic insurance corporations and pension funds also declined slightly. The shares of other creditors remained virtually unchanged.

Since mid-2022, the share of government debt held by the Eurosystem has declined. At 27 %, however, the Eurosystem was still by far the largest creditor group at the end of 2023. The shares of the other creditor groups assumed different trajectories over the same period (see right-hand side of Chart 4.5). Debt held by foreign creditors and, in particular, indebtedness to euro area households played a greater role. Euro area households increased their holdings of government bonds by more than two and a half times, yet, at 3 %, they remain a relatively insignificant creditor group. Domestic banks reduced their share somewhat further.

In all four countries, the creditor structure exhibited a clear shift towards the Eurosystem central banks in the period up to mid-2022, owing to the extensive government bond purchases. There were differences in terms of the sectors from which borrowing was channelled away, though. Germany and France primarily saw a decline in indebtedness to non-resident creditors (hereinafter referred to as foreign creditors, including other euro area countries). To begin with, they still constituted the largest group of creditors in both countries. In addition, domestic banks also ceded some of their share, as did – in France – the comparatively weighty insurance corporations and pension funds. By contrast, Italian and Spanish government debt was mainly in the hands of domestic creditors from the outset. In Italy, the central bank’s purchases initially meant smaller shares for all other groups of creditors. In Spain, the proportion held by domestic banks, in particular, contracted (see Deutsche Bundesbank (2022)). Table 1 provides detailed information on the creditor structure for the period 2021‑2023, for which consistent data are available. The table shows developments from 2021 to mid-2022 and from mid-2022 to the end of 2023. It shows holdings of the creditor groups both in relation to total debt and in relation to national GDP

From the beginning of 2021, the further increase in the Eurosystem share in all four countries was accompanied by a decline in debt held by foreign creditors (see Chart 4.7). In Germany, France and Spain, however, domestic banks also ceded further shares, as did insurance and pension funds in France, Italy and Spain. Italy and to a somewhat lesser extent Spain increasingly made use of EU

In mid-2022, the share of government debt held by the central banks of the Eurosystem peaked in all countries. After that, it went down. The shares of the remaining creditor sectors followed divergent paths (see Chart 4.8). In Germany and France, foreign creditors were alone in regaining significant ground. In Italy and Spain, meanwhile, that group’s share changed only marginally. These two countries chiefly saw an increase in the weight of households: in Spain the share of households recorded a moderate rise, whilst in Italy the rise was strong and took the share to around 10 %, making this the second largest domestic creditor group now. 10

Italy and Spain pay marked risk premia on their debt. These mainly flow to domestic creditors. The creditor structure can thus be used to determine the extent to which government interest expenditure remains within a country or goes beyond its borders. This also applies to the risk premia being paid on government debt. If interest payments are being made to domestic recipients, there will ultimately be no outflow of resources abroad. Interest payments remain as income in the national economic cycle (and can be taxed, for example, as investment income). In this sense, even comparatively high interest rates place less of a strain on macroeconomic developments than extensive borrowing from foreign creditors.

The volume of securities held abroad (as measured by GDP

Placed in relation to the respective national GDP

When it comes to the government bonds being held by their national central bank, Member States are effectively no longer paying the government bond interest rate and are instead paying the risk-free monetary policy rate on them. This is due to the decision that the vast majority of the large-scale bond purchases would not be subject to risk sharing. 14

The varying interest rates on holdings of government bonds issued by the home country are reflected in the national central banks’ balance sheets. The central banks of Germany, France and Spain did not record any profit in 2023 and, as such, did not make any tax payments or distribute any profit to their respective governments. In the case of Italy, by contrast, tax refunds were due. As a result, the central bank recorded a slight profit on its balance sheet and proceeded to make a small profit transfer. 16

In the euro area, the domestic banking system is the second-largest creditor sector to governments after central banks. The banking system is of particular importance in terms of financial stability. Problems with government finances and in the banking system can quickly become mutually reinforcing and pose a threat to financial stability. In view of this, changes in national banking sectors’ claims on their home countries are of particular interest.

In the euro area as a whole, the nexus between banks and their respective home countries has weakened moderately compared with the levels observed prior to the outbreak of the COVID

In relation to domestic banks’ own funds, claims on the home country also declined moderately. Compared with the end of 2019, this figure fell from 77 % to 73 % (see Chart 4.12). 17

The claims of Spanish and especially of Italian banks on their home countries remain very high relative to GDP

In Italy and Spain, banks’ claims on their respective home countries are particularly high, even relative to their own funds. 20

Overall, it is clear that in some cases banks continue to be very closely interconnected with their home countries and exposed to the fiscal risks of those home countries. Euro area banks’ claims on their own Member States are mostly only moderately lower than before the outbreak of the COVID

The fact that many government bonds do not need to be backed by capital makes them attractive to banks, but this is associated with risk. In addition, large exposure limits do not apply; as a result, in some cases very large stocks of a sovereign’s bonds are being held. Should doubts regarding the sustainability of domestic government finances arise, this can rapidly engender additional risks to financial stability. In order to mitigate these risks, it would make sense to curtail regulatory incentives by reducing existing privileges. That would also facilitate negotiations to complete the banking union by establishing a European deposit insurance scheme. To date, however, political majorities for deprivileging are nowhere in sight. If, even absent this, the European banking union is to be advanced with a single European deposit insurance scheme which envisages a redistribution of risks at the European level, it would need to be assured beforehand through some other method that proper account is taken of the various risks associated with government debt, depending on the desired design.

This article draws on a range of data sources in order to paint as comprehensive a picture as possible. The stream of data has been consistent since spring 2021, while the data for the end of 2023 still contain estimates in some cases (see below). However, the data up until the end of 2020 are not always fully compatible and uniformly defined, resulting in ambiguities in some instances. 22

The data on the volume and structure of government debt stem from Eurostat’s Government Finance Statistics (GFS

Data on the creditor structure of securities from the beginning of 2021 stem from the ECB

These securities data are supplemented by data on the creditor structure of banks’ credit claims (nominal values) from the ECB

The euro area creditor structure statistics used here do not explicitly record government bonds held abroad. This is because securities depositories from non-euro area countries are not subject to reporting requirements. 25

Further restrictions relate to the national allocation of Eurosystem central banks’ bond holdings under risk-sharing. Publications from the ECB

For the depiction of the interconnectedness between governments and their national banking system, data on banks’ securities holdings and credit claims were taken from the ECB

Banca d’Italia (2024), Annual Accounts – Ordinary Meeting of Shareholders 2023 – 130th Financial Year, 28 March 2024.

Banco de España (2024), Cuentas Anuales Del Banco De España 2023, 27 March 2024.

Banque de France (2024), Rapport Annuel 2023, 15 March 2024.

Deutsche Bundesbank (2024a), Annual Report 2023, 23 February 2024.

Deutsche Bundesbank (2024b), Commentary: The Maastricht debt of the EU

Deutsche Bundesbank (2022), Government debt in the euro area: developments in creditor structure, Monthly Report, July 2022, pp. 77‑89.

Deutsche Bundesbank (2021a), Government finances: Central bank bond purchases increase sensitivity to interest rate changes, Monthly Report, June 2021, pp. 39‑45.

Deutsche Bundesbank (2021b), Planned refinement of the European resolution regime, Financial Stability Review 2021, pp. 72‑74.

Deutsche Bundesbank (2018), Maastricht debt: methodological principles, compilation and development in Germany, Monthly Report, April 2018, pp. 57‑78.

Deutsche Bundesbank (2016), The role and effects of the Agreement on Net Financial Assets (ANFA

European Central Bank (2023), Monetary policy decisions of 15 June 2023, Press release, Monetary policy decisions (europa.eu)

Federal Ministry of Finance (2023), Kreditaufnahmebericht des Bundes 2022, p. 72.

Ministero dell'Economia e delle Finanze (2024), Frequently asked Questions – BTP Valore

Official Journal of the European Union L 39 (2020a), Decision (EU

Official Journal of the European Union L 91 (2020b), Decision (EU