© Statistisches Bundesamt, III B, Albert Braakmann the Global financial crisis: Impact on GDP and Government deficit in Germany OECD Working Party on National Accounts, Paris, November 04-06, Draft -

© Statistisches Bundesamt, IIIB, Albert Braakmann Folie 2 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 Folie 3

© Statistisches Bundesamt, IIIB, Albert Braakmann Folie 4 Change of financial assets Due to saving …Due to holding gains/losses

© Statistisches Bundesamt, IIIB, Albert Braakmann Folie

© Statistisches Bundesamt, IIIB, Albert Braakmann Folie 6 Part 2 Impact on General Government Deficit

© Statistisches Bundesamt, IIIB, Albert Braakmann Folie 7 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)

© Statistisches Bundesamt, IIIB, Albert Braakmann Folie 8 Special Fund on Stabilization of financial markets (SOFFIN)* 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 (BGBL. 2008, Teil I, p ff.) and later amendments. 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 Goal:Central government unit to stabile financial markets by overcoming liquidity shortages and strengthening the equity capital base of financial enterprises

© Statistisches Bundesamt, IIIB, Albert Braakmann Folie 9 Quelle: Der Spiegel 46/2008, S. 61 (

© Statistisches Bundesamt, IIIB, Albert Braakmann Folie 10 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

© Statistisches Bundesamt, IIIB, Albert Braakmann Folie 11 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.

© Statistisches Bundesamt, IIIB, Albert Braakmann Folie 12 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

© Statistisches Bundesamt, IIIB, Albert Braakmann Folie 13 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)

© Statistisches Bundesamt, IIIB, Albert Braakmann Folie 14 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)

© Statistisches Bundesamt, IIIB, Albert Braakmann Folie 15 Capital injection / Recapitalisation 1.Shares and other equity not listed  Transactions in shares and other equity of corporations and quasi- corporations, 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)

© Statistisches Bundesamt, IIIB, Albert Braakmann Folie 16 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).

© Statistisches Bundesamt, IIIB, Albert Braakmann Folie 17 Purchase of impaired assets Purchase of securities (other than equity) and derivatives  Purchaser price = Market value  Purchaser price > Market value No impact on net lending/borrowing of GG; but normally impact on its gross debt (the purchaser price). Impact on net lending/borrowing (difference between purchaser price and market value) of GG (and normally on gross debt of GG via purchaser price.)

© Statistisches Bundesamt, IIIB, Albert Braakmann Folie 18 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

© Statistisches Bundesamt, IIIB, Albert Braakmann Folie 19 Impact of financial markets stabilization measures on net lending/borrowing of General Government in 2008 ItemMill. EUR Revenue352 Guarantee fees receivable52 Dividends and interests receivable0 Capital transfers received300 Expenditure3 671 Interest payable21 Capital transfers payable(3 650) Capital injections recorded as deficit-increasing2 150 Calls on guarantees0 Other (impaired assets)1 500 Net lending/ borrowing of GG-3 319

© Statistisches Bundesamt, IIIB, Albert Braakmann Folie 20 Impact of financial markets stabilization measures on gross debt of general Government 2008 Item Gross debt Mill. EUR Loans Securities other than shares Total N.B. Guarantees by GG (contingent liabilities) ( )

© Statistisches Bundesamt, IIIB, Albert Braakmann Folie 21 Impact on GDP Part 3

© Statistisches Bundesamt, IIIB, Albert Braakmann Folie 22 Real Gross Domestic Product unadjusted figures in %

© Statistisches Bundesamt, IIIB, Albert Braakmann Folie 23 Real Gross Domestic Product + Employees in % to previous year

© Statistisches Bundesamt, IIIB, Albert Braakmann Folie 24 Real Gross Domestic Product + Hours worked in % to previours year

© Statistisches Bundesamt, IIIB, Albert Braakmann Folie 25 Employees + Hours worked in % to previous year

© Statistisches Bundesamt, IIIB, Albert Braakmann Folie 26 Real Gross Domestic Product 08/09 and 1st estimate in % to previous year

© Statistisches Bundesamt, III B, Albert Braakmann Many thanks for Your attention Albert Braakmann Federal Statistical Office, Wiesbaden, Germany