the Global financial crisis: Impact on GDP and Government deficit in Germany

the Global financial crisis:

Impact on GDP and

Government deficit in

Germany

OECD Working Party on National Accounts,

Paris, November 04-06, 2009

- Draft -

© Statistisches Bundesamt, III B, Albert Braakmann

1. INTRODUCTION

Ingredients of the global financial crisis:

- Subprime loans

- Securitisation and structured financial products

- Mismatch: short-term financing of long-term securities

- Decreasing house prices

© Statistisches Bundesamt, IIIB, Albert Braakmann

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Change of financial assets


Due to saving … Due to holding gains/losses

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9 - 15


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Part 2

Impact on General Government Deficit


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Governments‘ support measures for banks:

Industrie- und Kreditbank, IKB

Sachsen LB

West LB

Commerzbank AG

Bayern LB

Aareal Bank

LB Baden-Württemberg

HSH-Nordbank

Hypo Real Estate (HRE)


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Special Fund on Stabilization of financial markets (SOFFIN)*

Goal: Central government unit to stabile financial markets by overcoming liquidity shortages and strengthening the equity capital base of financial enterprises

Instruments : a) Garantees on liabilities of financial enterprises (against fee)

-> up to 400 mrd. Euro (provision for calls: 20 mrd Euro) b) Capital injections (against interests ) c) Purchase of impaired assets

-> b) + c) up to 80 mrd. Euro

Conditions: The use of the instruments is usually subject to conditions imposed by central government, concerning for instance the business policy, the salaries of managers, dividend payments.

*Founded by the Financial markets stabilization law of 17.10.2008 (BGBL. 2008, Teil I, p. 1982 ff.) and later amendments.


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Quelle: Der Spiegel 46/2008, S. 61 (10.11.2008

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Frequent measures of stabilization



Foundation of special economic entities



Special Fund on Stabilisation of Financial Markets



Special puposes entities (SPE)



Guarantees



Capital injections, recapitalisation



Purchase of impaired assets



Nationalisation


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Background: Budget surveillance in the EU

Eurozone

-

Excessive Deficit procedure (Maastricht Treaty 1993):

- max. 3% deficit ratio,

- max. 60% debt ratio.

Stability and Growth pact (1998) re-inforces deficit ratio.

Data transmission based on:

- European System of National Accounts (ESA) 1995,

- Uniform interpretation by Eurostat decisions.


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Sector allocation of economic units :

1.

Institutional unit (ESVG para. 2.12) ?



Ownership of / exchange of goods and assets,



Take economic decisions / responsibility,



Incur liabilities and other obligations and commitments, as well as entering into contracts,



Keep accounting records

2.

Controlled by general government ?

3.

Market- or non-market producer (50% criteriuon)?

Example : German SOFFIN


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Special case: SPEs like Bad banks

• a) Government-owned SPEs,

If they conduct specific government policies without autonomy of decision , they are inside the General Government sector.

b) Privately owned SPEs, if their sole purpose is to address the financial crisis,

+ if they are created during the financial crisis with a finite life,

+ if the expected losses are expected to be small for government,

= are outside the general government sector

(even in case of a GG guarantee)


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Garantees

A. General principles of ESA 1995:



In ESA 1995 a guarantee represents a contingent liability, which generally is not booked at the moment when agreed (ESA para. 5.05).



The call of a guarantee, on the other hand, is booked as capital transfer when the call occurs ( ESA para. 5.16, 4.165f) .

Impact on net lending/borrowing of GG when called (and normally on gross debt of GG)


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Capital injection / Recapitalisation

1.

Shares and other equity not listed



Transactions in shares and other equity of corporations and quasicorporations, which are not listed on stock markets, are to be treated as financial transactions:



The investor receives assets of the same value.



The investor receives a market rate of return (EU state aid rules).

Impact on net lending/borrowing of GG depends on circumstances (but normally impact on gross debt of

GG)


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2.

Shares and other equity listed



Compare Purchaser price = market value

Depending on the test, there may be an impact on net lending/ borrowing (as well as on gross debt of GG).


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Purchase of impaired assets

Purchase of securities

(other than equity) and derivatives



Purchaser price = Market value

No impact on net lending/borrowing of GG; but normally impact on its gross debt (the purchaser price).



Purchaser price > Market value

Impact on net lending/borrowing (difference between purchaser price and market value) of GG

(and normally on gross debt of GG via purchaser price.)


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Nationalisation

Nationalisation = Aquisition of majority equity by General

Government.

Cf. Capital injections and purchase of assets

N.B.: Seizure = Expropriation by general government

- with compensation

- uncompensated


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Impact of financial markets stabilization measures on net lending/borrowing of General Government in 2008

Item

Revenue

Guarantee fees receivable

Dividends and interests receivable

Capital transfers received

Expenditure

Interest payable

Capital transfers payable

Capital injections recorded as deficit-increasing

Calls on guarantees

Other (impaired assets)

Net lending/ borrowing of GG

Mill. EUR

352

52

0

300

3 671

21

(3 650)

2 150

0

1 500

-3 319


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Impact of financial markets stabilization measures on gross debt of general Government 2008

Item

Loans

Securities other than shares

Total

N.B. Guarantees by GG (contingent liabilities)


Gross debt

Mill. EUR

17 500

36 019

53 519

( 66 300 )

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Part 3

Impact on GDP


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Real Gross Domestic Product unadjusted figures in %

6,0

4,0

2,0

0,0

– 2,0

– 4,0

– 6,0

– 8,0

1 Vj. 2 Vj. 3Vj. 4 Vj. 1 Vj. 2 Vj. 3Vj. 4 Vj. 1 Vj. 2 Vj. 3Vj. 4 Vj. 1 Vj. 2 Vj.

Quelle: FS 18,

2006

Reihe 1.2


2007 2008

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Real Gross Domestic Product + Employees in % to previous year

6,0

4,0

2,0

0,0

– 2,0

– 4,0

– 6,0

– 8,0

1 Vj. 2 Vj. 3Vj. 4 Vj. 1 Vj. 2 Vj. 3Vj. 4 Vj. 1 Vj. 2 Vj. 3Vj. 4 Vj. 1 Vj. 2 Vj.

2006 2007

Real Gross Domestic Product

2008

Employees

2009


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6,0

Real Gross Domestic Product + Hours worked in % to previours year

4,0

2,0

0,0

– 2,0

– 4,0

– 6,0

– 8,0


2006 2007 2008 2009

Real Gross Domestic Product Hours worked by employees


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Employees + Hours worked in % to previous year

4,0

3,0

2,0

1,0

0,0

– 1,0

– 2,0

– 3,0

– 4,0

– 5,0

– 6,0


2009 2006 2007 2008

Employees Hours worked by employees


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Real Gross Domestic Product

08/09 and 1st estimate in % to previous year

6,0

4,0

2,0

0,0

-2,0

-4,0

-6,0

-8,0


2006 2007

1. VÖ Stand: 08/09


2008

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Many thanks for Your attention

Albert Braakmann

Federal Statistical Office, Wiesbaden, Germany

© Statistisches Bundesamt, III B, Albert Braakmann

the Global financial crisis: Impact on GDP and Government deficit in Germany

the Global financial crisis:

Impact on GDP and

Government deficit in

Germany

1. INTRODUCTION

Part 2

Impact on General Government Deficit

Nationalisation

Part 3

Impact on GDP

Many thanks for Your attention

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the Global financial crisis: Impact on GDP and Government deficit in Germany