Recovery of financial market issues in 2009
The financial markets look back on three turbulent years of alternating stagnation and upswings. For instance, in the course of 2007 uncertainty about the creditworthiness of banks, among investors and banks alike, increased and net bond issues by banks dried up. In fact, in the second half of 2008 redemptions amounted to EUR 15 billion net. It was not until the first half of 2009 that, thanks to state-backed guarantees, a recovery of issues set in, to nearly EUR 40 billion. The crisis was also noticeable in bond issues by special purpose vehicles, for the financing of mortgages transferred to these entities by affiliated banks. In 2007 and 2008 these issues on average were some EUR 70 billion higher than in the years just prior to or after that period, in part because banks bought the bonds themselves as collateral for any additional loans in case of liquidity shortage. Indirectly, the problems at banks were also apparent in the government bond issuance of almost EUR 60 billion in the second half of 2008 for the financing of support measures.
However, 2009 saw a tentative return of confidence. The issuing activity recovered, also at non-financial institutions, although investors initially did ask for additional risk premiums. Part of the state support (EUR 31 billion) was now paid back, but the government later that year again had to resort to issuing bonds, this time to finance the government deficit meanwhile contracted as a result of the economic crisis. The share of short-term debt remained high for both government and banks, due to an increased preference for short-term paper, which had become cheaper following interest rate cuts by the ECB.
The financial support measures in public finance statistics
In a large number of countries, within and outside the European Union, governments announced extensive support measures to protect the financial sector from the consequences of the financial crisis which broke out in the autumn of 2008. These measures influence the fiscal balance and public debt. As a result of agreements within the EU that these variables must not exceed specific limits, the correct statistical valuation of these transactions has gained particular importance. In the Netherlands, the financial support measures had a considerable impact on public debt, but only to a limited extent on the government deficit. The Dutch State realised positive returns on most support measures. However, carry-forwards of losses meant that the support measures on balance had a negative effect of 0.4% of GDP in 2008 and 2009. Consequently, the financial support measures only contributed marginally to the strong turnaround in the government deficit between 2008 (a surplus of 0.3% of GDP) and 2009 (deficit of 4.9% of GDP). The overrun of the limit of 3% in 2009 was mainly due to the drop in government income and the increase in spending because of the economic crisis. The financial support measures did, however, push up public debt strongly in 2008 (by 13.5% of GDP) to a value of 58.2% of GDP. In 2009, the financial support measures had a reducing effect (of 3.5% of GDP) on government debt because redemptions were higher than new support measures. Nevertheless, due to the high deficits, public debt increased further to 61.8% of GDP, exceeding the limit of 60%. However, against the increase of public debt was a strong rise in the possession of financial assets.
Indexation of pensions lags wage and price increases
In 2010, pension entitlements and benefits are expected to rise by 0.4% on average to correct for wage and price increases. As a consequence, the size of the indexation lags behind the ambition of pension funds, which is based on the wage and price increases realised in the previous year. The financial position of pension funds does not allow for a larger indexation as yet. Since the summer of 2007, this position has been affected by the depreciation of investments and the lower interest rates. Still, recovering stock market prices made 2009 a better year for pension funds than 2008. The overall nominal funding ratio rose from 95 to 109 per cent. In 2010, combined pension contributions by employers and employees in 2010 will rise from 16.0 to 16.4 per cent of employee remuneration.
Changes in the international position of Dutch banks
External claims of Dutch banks at the end of September 2009 amounted to EUR 1,100 billion. This was 35% less compared to two years earlier, partly as a result of the split-up of ABN Amro, partly because of the financial crisis. For example, external claims on South-America decreased 71% as a result of the sale of Banco Real, and on the United States halved to EUR 200 billion. With EUR 700 billion, Europe continued to be the largest market, despite a 29% drop in claims, primarily as a result of a halving in France. Although in Belgium, too, the decline was large, Dutch banks in particular remained strongly represented there compared to banks from other countries. Acquisitions and expansions from local branches meant that Turkey and Poland were growth markets.
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