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Ar 2002 tcm16-8014
Ar 2002 tcm16-8014
O e s t e r r e i c h i s c h e Nat i on a l b a n k O e s t e r r e i c h i s c h e Nat i on a l b a n k
E u ro syst e m
A n n ua l R e p ort 2 0 0 2
When Stage Three of Economic and Mon- changeover was somewhat clouded by
etary Union (EMU) commenced in 1999, persistent economic weakness in the wake
many people still thought the new Euro- of the tragic events of September 11,
pean currency a very abstract and remote 2001. Hopes of a sustained recovery in
prospect. This perception changed quickly 2002 were disappointed, as the economy
once the euro banknotes and coins had ac- could not shake the negative effects on
tually been introduced in 2002. The new growth of high oil prices, the slump on
cash was readily adopted as a symbol of world stock markets and pronounced in-
the new Europe. vestor uncertainty. Likewise, the Iraq cri-
The OeNB considers the circumspect sis heightened uncertainty at the global
and comprehensive preparation of the cash level.
changeover a key feature of the operations The economic difficulties of Austrias
success. Above all, the efficient assign- main trade partner Germany further com-
ment of responsibilities among the OeNB pounded the unfavorable economic situa-
and its subsidiaries OeBS, the Austrian tion for Austria. Another factor the econ-
Mint and GSA contributed importantly omy had to contend with was the sluggish
to a smooth execution. The carefully growth of the Italian and Swiss markets,
planned course of action made the switch which weighed on Austrian exports. In
to the new currency easier for Austrians, this gloomy environment, Austrias close
which was reflected by their positive atti- ties to countries in Central and Eastern
tude to the euro and high confidence rat- Europe proved to be a boon. The favorable
ings for the OeNB in surveys. economic conditions in nearly all acces-
The successful changeover has pat- sion countries are a direct advantage for
ently shown Austrians that their central Austrias economy, but more importantly,
bank, the OeNB — which is now part of they demonstrate this regions progress on
the European monetary framework — con- the road to EU accession.
tinues to fulfill a number of key tasks. The At this juncture, Austria has a decisive
OeNB, its management and its staff repre- role to play as a hub of European East-
sent Austrias interests at the international West integration. Our country has the
level; in particular, they have a decisive advantage of long-standing ties with the
role in monetary policymaking within region, enabling it to contribute signifi-
the Eurosystem. One of great strengths cantly to European history in the making.
of the European monetary union is its de- In its own interest and for the benefit of a
centralized structure. This arrangement unified Europe, Austria must rise to the
makes use of the decades of experience challenge its role involves.
the individual national central banks have The OeNB may be a small central
acquired. Moreover, the ESCB/Eurosystem bank, but it has an important mission in
setup is suited to benefiting from national the European integration and enlargement
central banks expertise in their own coun- process. The OeNBs expertise on Eastern
tries to efficiently prepare and implement Europe and its steadfast commitment in
the ESCBs policies. This blend of Euro- cooperating with the accession country
pean orientation, common management central banks is held in great esteem in
and the integration of national structures the Eurosystem.
is a fundamental factor in EMUs success.
The startup of Stage Three of EMU Adolf Wala
and the smooth realization of the euro President
The most outstanding event of the 2002 to be geared towards stability and public
business year was certainly the smooth finance positions need to be sound, not
introduction of euro banknotes and coins least because of the demographic develop-
in Austria and 11 other Member States ments in the euro area. Furthermore,
of the European Union (EU). In the mean- structural reforms in the labor, goods
time, the euro has not only successfully and financial markets that have already
established itself next to the U.S. dollar been launched must be pursued resolutely
as a sound world and anchor currency, to make the euro area more flexible and
but has also become an increasingly famil- resilient to external shocks and to increase
iar means of payment for some 300 mil- potential output, which will improve
lion European citizens in the euro area growth prospects and foster consumer
and thus a tangible expression of Mone- and investor confidence.
tary Union. Peoples feel for the value of In an environment of stiffer competi-
the euro and the new prices has been im- tion, Austria is also called upon to take
proving continuously, and the differences the necessary long-term reform measures
between perceived inflation and the statis- to, inter alia, strategically secure the
tically measured inflation rate, which were attractiveness of Austria as a business loca-
widely discussed in the euro area, have tion and to guarantee the sustainability of
been disappearing gradually. The inde- sound public finances and effective health
pendence of the Eurosystem, its decen- and pension systems. After the successful
tralized structure and the resulting effi- implementation of Monetary Union, the
ciency as well as its appropriate monetary EU is now facing the next big challenge
policy strategy have crucially contributed of integration: its enlargement by ten
to successfully maintaining price stability new Member States. The signing and rat-
since the beginning of Monetary Union. ification of the accession treaties will pave
However, to be able to fully utilize the the way for the acceding countries to join
economic potential of the stability-ori- the EU on May 1, 2004. The prospective
ented monetary policy, the euro area EU members have made impressive prog-
requires responsible fiscal, structural and ress not only in terms of economic transi-
wage policymaking suited to ensuring tion and catching up, but also in terms of
the euro areas ability to cope with in- integration.
creased international competition and, Before the new Member States can
thus, to sustain growth and employment. join Monetary Union, however, they will
Adhering to these objectives is particu- participate in the new exchange rate
larly important in the prevailing difficult mechanism ERM II and strictly and sus-
global economic conditions, as geopoliti- tainably fulfill the legal and economic con-
cal tensions have severely aggravated risks vergence criteria. Legal and institutional
and as the associated uncertainty has led to aspects and the principle of equality of
a further delay in the upswing, an increase all EU Member States as well as economic
in financial market volatility and a decline considerations underpin the case for grad-
in confidence. Stability-oriented policy ual monetary integration.
must meet these challenges at all levels. Monetary Union and the euro have
Therefore, the euro area countries have significantly strengthened the euro areas
to comply strictly with the Stability and position in the dynamic process of global-
Growth Pact, an important part of the in- ization and will continue to play a key role
stitutional framework for Monetary as a catalyst for reform and for the further
Union. The excessive deficit procedures economic and political integration in
recently initiated against some EMU Europe, thus making a vital contribution
member countries in line with the rele- to preserving peace and prosperity in
vant provisions of the Treaty have Europe.
strengthened the credibility of the Stabil-
ity and Growth Pact. Now more than ever, Klaus Liebscher
prudence dictates that fiscal policies need Governor
Abbreviations
ACH automated clearing house IMBA Institut fu‹r Molekulare Biotechnologie
AG Aktiengesellschaft (roughly: stock GmbH
corporation) IMF International Monetary Fund
ARTIS Austrian Real-Time Interbank Settlement IP Internet protocol
(the Austrian RTGS system) IRB internal ratings-based
APSS Austrian Payment Systems Services IT information technology
GmbH JVI Joint Vienna Institute
ASFINAG road construction company M3 broad monetary aggregate M3
A-SIT Zentrum fu‹r sichere Informations- MFI Monetary Financial Institution
technologie Austria — Austrian Secure MoU Memorandum of Understanding
Information Technology Center MO ‹ AG Mu‹nze O ‹ sterreich AG — Austrian Mint
ATM automated teller machine MRO main refinancing operation
BIS Bank for International Settlements MTN Monetary Transmission Network
BSC Banking Supervision Committee NCBs national central banks
BSE bovine spongiform encephalopathy OECD Organisation for Economic Co-operation
CACs collective action clauses and Development
CDG Christian Doppler Research Society OeNB Oesterreichische Nationalbank
CEE Central and Eastern Europe OeBS Oesterreichische Banknoten- und Sicher-
CEECs Central and Eastern European countries heitsdruck GmbH — Austrian Banknote
CESR Committee of European Securities and Security Printing Works
Regulators ‹ AW
O O‹ sterreichische Akademie der Wissen-
CIS Commonwealth of Independent States schaften — Austrian Academy of Sciences
EBA Euro Banking Association ORF O‹ sterreichischer Rundfunk — Austrian
ECB European Central Bank Broadcasting Corporation
Ecofin Council of Economic and Finance POS point of sale
Ministers (EU) QIS Quantitative Impact Study
EDP excessive deficit procedure RTGS Real-Time Gross Settlement
EFC Economic and Financial Committee (EU) SCHIG rail infrastructure financing company
EMAS Eco-Management and Audit Scheme SDR Special Drawing Right (IMF)
EMU Economic and Monetary Union, SDRM Sovereign Debt Restructuring Mechanism
Monetary Union SEPA single European payment area
EPM ECB payment mechanism SME small and medium-sized enterprise
ERM II Exchange Rate Mechanism II (EU) STEP2 Straight Through Euro Payment system
ESA 95 European System of Accounts 1995 STUZZA Studiengesellschaft fu‹r Zusammenarbeit
ESCB European System of Central Banks im Zahlungsverkehr G.m.b.H — Austrian
EU European Union Research Association for Payment
Eurostat Statistical Office of the European Cooperation
Communities S.W.I.F.T. Society for Worldwide Interbank Financial
FDI foreign direct investment Telecommunication
FFF Forschungsfo‹rderungsfonds fu‹r die TARGET Trans-European Automated Real-time
gewerbliche Wirtschaft — Industrial Gross settlement Express Transfer (ESCB)
Research Promotion Fund Treaty Treaty establishing the European
FMA Financial Market Authority Community
FSAP Financial Sector Assessment Program TUG TARGET User Group
FWF Austrian Science Fund — Fonds zur Fo‹r- VaR Value at Risk
derung der wirtschaftlichen Forschung WIFO O‹ sterreichisches Institut fu‹r Wirtschafts-
GDP gross domestic product forschung — Austrian Institute of Eco-
GSA GELDSERVICE AUSTRIA Logistik fu‹r nomic Research
Wertgestionierung und Transportkoordi- WIIW Wiener Institut fu‹r internationale Wirt-
nation G.m.b.H. (cash services company) schaftsvergleiche — The Vienna Institute
HICP Harmonized Index of Consumer Prices for International Economic Studies
IHS Institute for Advanced Studies
State Commissioner,
Personnel Changes
between April 25, 2002 and April 10, 2003
Secretariat of the Governing Board and Public Relations Economic Analysis Division
Wolfdietrich Grau, Head Ernest Gnan, Head
Accounts Division
Otto Panholzer, Head Section
Financial Institutions and Markets
Section Andreas Ittner, Director
Legal Matters and Management of Equity Interests Financial Markets Analysis and Surveillance Division
Bruno Gruber, Director Michael Wu‹rz, Head
Unit
Future Unit
Peter Achleitner, Director
Personnel Division
Section Maria Zojer, Head
Printing Office
Gerhard Habitzl, Technical Manager Section
St. Po‹lten Organization and Internal Services
Roland Mu‹llner, Branch Manager Albert Slavik, Director
Klagenfurt
Gu‹nter Willegger, Branch Manager Section
Linz Statistics
Axel Aspetsberger, Branch Manager1) Aurel Schubert, Director
1 Coordinator of Branches.
2 Environmental Officer.
Report of the
80
60
40
20
0
1999 2000 2001 2002
Source: OeNB.
3.5
Forecast
3.0
2.5
2.0
1.5
1.0
0.5
0.0
1998 1999 2000 2001 2002 2003 2004
Unemployment rate
Unemployment in % of the labor force
10
Forecast
0
1998 1999 2000 2001 2002 2003 2004
HICP inflation
Annual change in %
2.5
Forecast
2.0
1 The Eurosystem is composed
1.5 of the ECB and the NCBs
1.0
of the EU Member States
which have adopted the
0.5 euro. The Eurosystem and
0.0
the NCBs of the other EU
1998 1999 2000 2001 2002 2003 2004 Member States constitute
the European System
Source: 2003: Eurostat; 2004: European Commission.
of Central Banks (ESCB).
of the one member, one vote prin- of the EU Member States to follow
ciple. In this capacity, the Governor the precepts of the Stability and
is independent and not bound by Growth Pact even under difficult
any instructions. Apart from being business conditions. Furthermore, in
an integral part of the Eurosystem, October 2002 the Eurogroup finance
the OeNB is also a link to Austrian ministers decided that all member
economic policymakers. countries whose budgets are not in
balance would commit themselves
Inflation declines to reducing their cyclically adjusted
with economic growth moderate deficits by a minimum of 0.5 percent-
The single monetary policy with its age point a year starting in 2003.
primary objective of price stability
makes the euro a highly stable cur- The Eurosystems
rency. Euro area inflation subsided Monetary Policy Strategy
to 2.2% in 2002. After the consider- in the Light of the
able setback in GDP growth in 2001 Interest Rate Cut in 2002
in the wake of plummeting stock pri- Forward-looking monetary policymaking
ces and the terrorist attacks of Sep- The primary objective of the Euro-
tember 11, ongoing geopolitical ten- systems monetary policy is the main-
sion further weakened the euro area tenance of price stability. The Euro-
economy. Consequently, economic system defines price stability as a
growth was sluggish at +0.8% in year-on-year increase in the Harmon-
2002. With economic momentum ized Index of Consumer Prices
anemic, unemployment in the euro (HICP) of below 2%, which is to be
area augmented to an average of maintained over the medium term.
8.4% in 2002, which, however, is In order to ensure the forward-look-
still below the average of the 1990s. ing nature of monetary policy, it was
Monetary Union fosters the integra- based on a two-pillar framework. In
tion of the goods and financial mar- the context of the first pillar of the
kets, thus helping to boost the strategy, monetary growth was ac-
growth potential of the euro area. corded an important role. The an-
To be able to benefit fully from the nouncement by the ECBs Governing
opportunities EMU provides, the Council of a quantitative reference
euro area countries need to imple- value for the growth rate of the broad
ment further structural reforms in monetary aggregate M31) underlines
the labor, goods and capital markets the importance of monetary aggre-
and to secure the sustainable consoli- gate growth. The rationale for this
dation of public finances. reference value is that there is a stable
The Stability and Growth Pact long-term relationship between mon-
introduced in connection with EMU etary aggregate growth and the
has already brought about a major im- change in the price level. Empirical
1 The broad monetary provement of budgetary positions in research has provided sufficient evi-
aggregate M3 includes many euro area countries, among dence of this link. The reference
currency in circulation, them Austria. Adverse cyclical condi- value is calculated on the basis of an
overnight and other short- tions in 2002 put the Stability and assumption for trend potential out-
term deposits as well as
money market fund shares/
Growth Pact to a hard test in the euro put growth of between 2% and
units, money market paper area. The initiation of excessive defi- 2.5% and for the trend decline in
and debt securities issued cit procedures against Portugal and M3 velocity of between 0.5% and
by MFIs. Germany demonstrated the resolve 1.0% a year. On these assumptions,
12
10
0
1999 2000 2001 2002
Reference value M3 M1
Source: ECB.
an annual M3 growth rate of 4.5% is the existing value on the grounds that
consistent with the objective of price the evidence continued to support
stability. However, if M3 growth be- the assumptions for trend potential
gins to deviate from this reference growth in the euro area and for a
value, the Governing Council of the trend decline in M3 income velocity
ECB does not automatically take which formed the basis for the
steps to counteract these deviations. derivation of the reference value.
Much rather, the impact on price The attainment of higher potential
structures of the monetary aggregate growth in the euro area remained
and its components and counterparts conditional on further progress in
(such as credit expansion) are thor- structural reforms in the labor and
oughly analyzed. goods markets, noted the Governing
Council. The Governing Council
The Governing Council of the ECB stressed that the reference value for
confirms reference value for M3 growth monetary growth was a medium-
A forward-looking monetary policy term concept, as short-term move-
must take into account a number of ments in M3 were often caused by
other factors that could influence temporary factors, and that devia-
price stability in addition to mone- tions of M3 from the reference value
tary growth. These factors are sub- had to be analyzed in conjunction
sumed under the second pillar of with other real and financial indica-
the monetary policy strategy. Aggre- tors in order to understand their
gates such as GDP growth, wages implications for price stability.
and productivity, yield curves, the Hence, M3 growth rates in excess
exchange rate and cost indices are of the reference value of 4.5% from
used to gauge pressure on prices. the third quarter of 2001 onward
The Eurosystems forecasts of price had to be assessed in the context of
changes constitute another important large portfolio reallocations in the
element of the second pillar. euro area. In 2002, M3 growth came
At its meeting of December 5, to 7.2%, mainly as a result of the
2002, the Governing Council re- high level of uncertainty and distress
viewed the reference value for mone- in financial markets and notably be-
tary growth. It decided to reconfirm cause of the unprecedented decline
The Monetary Transmission Network (MTN), a forum that included OeNB experts, conducted research on the monetary policy
transmission mechanism in the euro area. The research network came to the following conclusions:
The research was based on the premise of a temporary and unexpected interest rate increase of 100 basis points and exam-
ined the impact of this move on other economic variables. As a rule, short-term money market rates react immediately, as do other
prices in financial markets, such as stock prices. Growth and inflation expectations should adjust immediately following the interest
rate decision and should then have an impact on wage and price formation. However, expectations are difficult to measure, and
were not taken into account in the project as a consequence.
The empirical results show that GDP begins to contract significantly two quarters after the interest rate hike. One year after
the increase, GDP growth is down by 0.2% to 0.4%; two years later, GDP growth is 0.3% to 0.7% lower. As a result of rigidities,
prices respond with a considerable lag. In the first one and a half years following the interest rate boost, the level of consumer prices
hardly changes; only then do consumer prices begin to sink somewhat. After three years, prices have dropped by 0.2% to 0.4%.
The reason for the marked time lag in the reaction of prices to monetary policy decisions is that these decisions are transmitted
via the goods and labor markets, i.e. via real economy imbalances that lead to delayed price and wage adjustments. Following
this argumentation, a decline in the rate of inflation invariably entails real economic costs in the form of reduced output in the
short run.
Monetary policy is transmitted to domestic demand through different channels, the interest rate channel and the credit
channel. Monetary policy decisions impact on the structure of market interest rates and on assets through the interest rate channel.
A temporary increase in real interest rates makes it more rewarding for households to increase saving. Thus they postpone a part of
consumption, which diminishes current demand for consumer goods. An interest rate hike also makes the acquisition of new capital
more expensive and hence reduces the demand for capital goods (cost-of-capital channel). Finally, unexpected interest rate
decisions as a rule impact on assets, e.g. bonds and equities, and therefore reduce household wealth. Households react by
trimming their spending on consumer goods (wealth channel).
The second group of transmission channels (credit channels) arises as a result of incomplete and asymmetric information in
financial markets. An increase in key interest rates may, for instance, cause the volume of bank lending to contract because the
value of collateral necessary for borrowing operations declines. Two consequences are possible: either a credit is not extended, or
the cost of external financing rises, making financing projects unprofitable (balance sheet channel). The cost of obtaining external
finance may also augment because banks themselves have problems with their balance sheets and have to restrict lending (bank
lending channel).
Finally, monetary policy decisions also have an effect on the exchange rate. In theory, tightening of monetary policy should
cause the domestic currency to appreciate, which translates into a decline in foreign demand for domestic goods and makes
imports cheaper. Both of these effects act as a damper on prices. However, empirical evidence shows that the link between
monetary policy and the exchange rate is uncertain.
As the euro area is a largely closed economy, aggregate demand is composed mostly of demand for consumer and capital
goods, whereas exports play a lesser role. Consequently, the relative importance of these two demand channels for monetary policy
was examined. In the euro area, the decline in investment demand plays a much larger role in moderating output growth than
consumer demand. The situation in the United States is exactly opposite, as output is influenced above all by a decrease in
consumer demand. This is explained by the fact that the wealth effect, which dampens consumer demand, is much more
pronounced in the U.S.A. than in the euro area. Both the greater importance of the stock market and more widespread stock
ownership in the U.S.A. support this argument. In the euro area, liquid investment vehicles predominate private investment, which
explains the limited importance of consumer demand for the transmission mechanism there.
Research on the role of the different channels suggests that the cost-of-capital channel is the dominant transmission channel.
The findings of the MTN appear to indicate that the credit channel is not of central importance in shaping the transmission of
monetary policy under crisis-free conditions.
The project results also confirm that monetary policy appears to have a different impact on the various economic sectors
according to the state of the economic cycle. An interest rate change feeds through to output much more strongly during a weak
cyclical phase than during an upturn. (For more details see OeNB: Aspects of the Transmission of Monetary Policy, Focus on Austria
3—4/2001, and ECB: Recent findings on monetary policy transmission in the euro area, Monthly Bulletin October 2002.)
in stock prices. Numerous retail in- The indicators under the second
vestors saw fit to reduce their hold- pillar confirmed the judgment that
ings of relatively risky assets such as inflationary pressure had eased. The
stocks and to opt increasingly for rel- most recent output growth data avail-
atively liquid and low-risk assets able at the time, which were close to
partly contained in M3. the lower end of the forecast, sig-
naled that the accumulation of sub-
Eurosystem cuts interest rate stantial liquidity would not cause pri-
by 50 basis points on December 5, 2002, ces to rise in the short run. Also, in
At its December 5 meeting, the particular consumer confidence data
Governing Council of the ECB also did not indicate that moderate GDP
decided to reduce the minimum bid growth would gain considerable
rate on the main refinancing opera- momentum in the coming months.
tions, the interest rate on the mar-
ginal lending facility and the interest and by 25 basis points on March 6, 2003
rate on the deposit facility by 0.50 At its meeting of March 6, 2003, the
percentage point each to 2.75%, Governing Council trimmed interest
3.75% and 1.75%, respectively. This rates by another 25 basis points.
decision was explained by the The minimum bid rate on the main
strengthened evidence of a decline refinancing operations was lowered
in inflationary pressure. Analyzing to 2.50%, the interest rate on the
the first pillar, deviations of M3 from marginal lending facility was cut to
the reference value were seen as 3.50% and the interest rate on the
having been caused by special factors deposit facility was reduced to
that did not pose a threat to price 1.50%. The Governing Council justi-
stability in the medium term. The fied the interest rate cuts with the
moderation of the growth in loans improvement of the outlook for price
to the private sector supported this stability over the medium term in
assessment. recent months, owing in particular
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
1999 2000 2001 2002 2003
Marginal lending facility Allotment rate (fixed rate tender) or minimum bid rate (variable rate tender) in MROs
Deposit facility
Source: ECB.
to the subdued pace of economic sions are more effective. The in-
growth and the appreciation of the creased standing of transparency for
exchange rate of the euro. The eco- central banks is reflected, among
nomic outlook as assessed under the other things, by the IMFs Code of
two pillars of the monetary policy Good Practices on Transparency in
strategy had hardly changed from Monetary and Financial Policies.
the December 2002 date of the last
interest rate reduction. The most Transparency and independence
recent available forecasts indicated The view that a central bank whose
that economic growth would not pick primary objective is to maintain price
up noticeably in the first half of 2003. stability must be able to act inde-
Therefore, the Governing Council pendently of all other economic
assumed that the outlook for eco- policymakers prevails in the current
nomic growth in the euro area in monetary policy debate. This opera-
2003 had weakened compared with tional independence includes the
expectations voiced in fall 2002. freedom from any instruction by
Above all, the geopolitical tensions political institutions. In the past, the
and the associated rise in oil prices long-term orientation of monetary
dampened expectations for a rapid policy was frequently sacrificed for
and sustained upturn. The pro- other political aims that were deter-
nounced volatility in oil markets mined by the life of a parliament,
made it difficult to forecast short- which risked compromising the price
term inflation developments. How- stability goal. The ECB and the NCBs
ever, more fundamental factors actively assume the obligation of ac-
should dominate price developments countability resulting from a properly
once these markets had normalized understood concept of independ-
somewhat. First, the significant ap- ence. This means that the Eurosystem
preciation of the nominal effective clearly justifies its actions to euro
exchange rate of the euro over the area citizens. This transparency ena-
past year was expected to continue bles the public to monitor every deci-
to feed through the economy into sion the Eurosystem takes, raising
consumer prices, via import and pro- acceptance of these decisions.
ducer prices. Second, the moderate
pace of economic growth should also Monetary policy
reduce inflationary pressures. predictability reduces uncertainty
Transparency is important not just
Transparency of for the reasons linked to central bank
Monetary Policymaking independence, but above all because
More effective monetary policy it makes monetary policy more effec-
The ECB and the euro area NCBs are tive. For one thing, having a clearly
intent on ensuring a suitable degree defined monetary policy objective
of transparency. In the context of makes it possible for other market
monetary policy, transparency means participants to check whether deci-
that a central bank informs the public sions are consistent with objectives,
about its mandate, strategy, assess- which is a fundamental prerequisite
ments and decisions in an appropriate for central bank credibility. If central
manner. A central bank that displays banks make public the monetary pol-
continuity in its public relations gains icy strategy and verifiably abide by
credibility and ensures that its deci- this strategy, market participants can
4.0
3.0
2.0
1.0
0.0
1.0
2.0
1999 2000 2001 2002
Final consumption expenditure of households and nonprofit organizations serving households
Gross fixed capital formation
Final consumption expenditure by government
Net exports (goods and services)
GDP
Source: Eurostat.
10
0
1999 2000 2001 2002
Total lending Loans to households
Source: ECB.
Note: In December 2002 loans to households accounted for 69.2% of total lending.
In the euro area stock prices contracted by over a third in 2002 as measured by the decline in the Dow Jones EURO STOXX index.
In the same period, equities lost about 17% of their value in the U.S.A. A negative change in stock prices impacts on the real
economy via different channels. For one thing, the wealth effect restricts household consumption expenditure. The share of
privately held stocks in disposable income and the propensity to consume income from stockholdings determine the size of this
effect. On the other hand, the value of stocks and mutual fund shares equaled 66% of disposable income in the euro area;
the figure was 122% for the U.S.A. The percentages augmented markedly in both regions from 1997 to 2000.
No euro area estimates are available for the effect of stock wealth increases on consumption. In an analysis, the IMF (2002)1)
made such estimates for a number of countries. Depending on the structure of their financial market, countries were classified
under one of two categories of financial systems — bank-based or market-based. The marginal propensity to consume out of equity
wealth (i.e. the increase in consumer spending associated with an increase in wealth) in countries with bank-based systems come to
0.009 for the period 1984 to 2000, which translates into a cut in household spending in these countries of 0.9 cent for every
permanent decline of EUR 1 in equity wealth. At 0.043, this value is clearly higher for the United States; accordingly, a decline
in equity wealth by USD 1 reduces consumer spending by 4.3 cents.
These results reflect macroeconomic relationships and not actual spending by individual households. One reason the propen-
sity to consume is significantly lower in the euro area than in the United States may well be that equity holdings are less widespread
in the former region. 10% of German and 13% of French households had equity holdings in 2002 compared to 19% of all U.S.
households in 1998. According to Poterba (2000)2) declining stock prices reduce spending even of consumers who do not own
stocks, because confidence in future economic developments declines (confidence channel of asset effects).
In theory, stock price changes also have an effect on the cost of equity to finance investment. Declining stock prices reduce the
ratio between a firms market value to the replacement cost of capital tied up in the firm, which diminishes the incentive for further
investment. However, empirical evidence of the link between gross fixed capital formation and stock prices is negligible for the euro
area. This phenomenon is likely to be a result of the bank-based financial structure of euro area countries, where companies
procure debt finance from bank loans.
The year 2002 began with unex- two years. Between July and October
pectedly robust first-quarter GDP 2002, the rate of price increase in
growth in the United States, but in- the euro area mounted to reach
vestor confidence, which had already 2.3% in October. The prime compo-
been fragile because of the stock mar- nent pushing up inflation was energy:
ket slump and the terrorist attacks of Whereas energy prices had been an
September 11, 2001, was further important damper on prices between
eroded by accounting scandals. The September 2001 and July 2002, this
geopolitical situation, above all the effect all but dissipated in August
war in Iraq, compounded the uncer- and September and kicked in again
tainty of economic agents. In the face for the first time in October. In
of listless household expenditure, November inflation dipped to 2.2%
marginally rising government spend- and ended the year at 2.3% in
ing and slightly positive net trade, in- December 2002. Over the year,
vestment continued to stagnate. The HICP inflation averaged 2.2%, 0.3
U.S. economy expanded by 2.4% percentage point less than in the pre-
year on year in real terms in 2002. vious year.
While Japan posted 0.3% growth
in 2002, consumer spending did not Euro exchange rate up against the U.S. dollar
get off the ground, as the saving ratio The euro exchange rate appreciated
remained high and unemployment noticeably from December 2001 to
surged. Deflation, a large budget def- December 2002; the nominal effec-
icit and high government debt as well tive exchange rate advanced by an
as the unresolved banking crisis per- average 8.8% in 2002. In view of
sist as dampers on the economy. the increasing tension over the Iraq
situation, international investors in-
Inflation at 2.2% in the euro area in 2002 creasingly flocked to the euro as a
Euro area HICP inflation picked up safe haven; concerns about the ele-
temporarily at the beginning of vated U.S. current account deficit
2002 to diminish from February to are also likely to have played a role.
June 2002. In June HICP inflation Also, the interest rate differential be-
stood at 1.8%, having fallen below tween the euro and the U.S. dollar
the 2% mark for the first time in appears to have contributed to the
Development of the Exchange Rate of the Euro against the U.S. Dollar
1.15
1.10
1.05
1.00
0.95
0.90
0.85
0.80
1999 2000 2001 2002 2003
Source: Datastream.
rise in the euros exchange rate. The transfers declined from EUR 51 bil-
nominal effective appreciation of lion to EUR 45 billion.
the euro against a number of curren- The euro area financial account
cies should help dampen inflation by closed with net capital exports of
lowering the price of imports to the EUR 171.3 billion in 2002, an in-
euro area somewhat in the medium crease compared to 2001. In a break-
term. down by subbalances, net FDI out-
According to preliminary data for flows contracted from EUR 101.5 bil-
the calendar year 2002, the euro area lion in 2001 to EUR 21 billion
current account switched from a def- in 2002. In the category of debt secur-
icit of EUR 14 billion in 2001 to a ities, capital exports in 2001 switched
surplus of EUR 62 billion in the year into capital imports of EUR 11.3 bil-
under review. All subbalances con- lion in the reporting year.
tributed to this positive outcome.
The surplus on goods augmented by Weak business activity hampers compliance
EUR 76 billion to EUR 133 billion. with euro area fiscal targets
In more detail, the euro areas ex- Weak economic activity in 2002 im-
ports widened by about 2.5%, peded fiscal consolidation in the euro
whereas imports shrank by roughly area. The aggregate budget deficits of
3.5% (both in nominal terms). The all euro area countries came to 2.2%
surplus on services climbed from of GDP in 2002 following 1.5% in
EUR 1 billion in 2001 to EUR 13.5 2001. This deterioration may be
billion in the review year. The in- traced primarily, though not exclu-
come subaccount closed with a deficit sively, to the sluggishness of business
of EUR 39.5 billion, nearly un- activity. The cyclically adjusted
changed from the 2001 result, budget deficit enlarged from 2% in
whereas the shortfall on current 2001 to 2.2% in 2002.
90 12
80 10
70 8
60 6
50 4
40 2
30 0
20 2
10 4
0 6
10 8
1999 2000 2001 2002
Net trade (right-hand scale)
Exports (left-hand scale)
Imports (left-hand scale)
Source: Eurostat.
The greatest concerns focused on deficit still stood at 3.4%. The most
the budgetary situation in Germany recent estimates put Germanys
and Portugal: In the case of Portugal, budget deficit at 3.8% in 2002. As a
a revision in July 2002 indicated that consequence, the European Commis-
the deficit ratio for 2001 came to sion initiated excessive deficit proce-
4.1% of GDP rather than the origi- dures against Portugal and Germany.
nally envisaged 2.2%; in 2002 the
ECOFIN Council Decision-Making Process
on the Existence of an Excessive Deficit
Member States
Deficit > 3% of GDP send budgetary data Deficit < 3% of GDP
Step 1 and/or debt > 60% of GDP to the and/or debt < 60% of GDP
European Commission.
Cont.
Follow-Up of the Ecofin Council Decision
that an Excessive Deficit Exists
The Ecofin Council considers whether effective action has been taken in response to its
Step 6 recommendations and bases its decision on publicly announced decisions made by the government
of the Member State concerned; the decision is taken on a recommendation of the European
Commission by a qualified majority excluding the vote of the representative of the Member State
concerned.
Measures prove to be
inadequate, the excessive
The excessive deficit is
Step 10 deficit persists: the Ecofin
corrected: the procedure
Council applies sanctions
is concluded.
to the participating
Member State.
2000 2001 2002 4th qu. 1st qu. 2nd qu. 3rd qu. 4th qu.
2001 2002 2002 2002 2002
Annual change in % Quarterly change annualized in %
Gross domestic product þ3.5 þ0.7 þ1.0 0.0 þ0.8 þ0.5 þ0.1 0.1
in percentage points
growth manifestly either because aus- ure. The rise in the number of regis-
terity measures were implemented tered vacancies, a reliable leading in-
within the framework of budget con- dicator for the labor market, slowed
solidation. As in 2001 net exports markedly in the course of 2002.
were the mainspring of GDP growth.
While export growth suffered a strik- Inflation returns to well below the 2% mark
ing decline, imports augmented at an Inflation decelerated substantially in
even slower rate than exports. 2002. The increase in the HICP came
to 1.7% (2001: +2.3%). The rate of
Unemployment mounts; price increase peaked in August at
employment stagnates 2.1% and subsequently let up to
The labor market reacted to the eco- end the year at 1.7% in December.
nomic slowdown with a time lag. The Services, an important subcompo-
jobless rate went up by 0.5 percent- nent of the HICP with a weight of
age point on average in 2002 accord- 45%, were the main factor contribu-
ing to Eurostat to 4.1%; according to ting to inflation. The upward trend in
the national definition, it widened by the price of services was surprisingly
0.8 percentage point to 6.9%. The persistent in the course of the year
unemployment rate continued to rise and slowed only toward the end of
until December. Slack business activ- 2002. Energy costs, typically domi-
ity in the second half of 2002 may af- nated by the price of crude oil, dis-
fect the labor market again in 2003, played a different trend. Their contri-
however. Moreover, the decline in bution to inflation was initially nega-
dependent employment (adjusted tive, but turned positive in the course
for persons in compulsory military of the second half of the year when
service and persons on paid childcare crude oil prices gained pace. The de-
leave) stopped accelerating in the sec- velopment of food prices reflects the
ond half of the review year. At the fact that increases related to the BSE
end of the year, the number of de- crisis and foot-and-mouth disease
pendently employed persons was were dropping out of the calculation.
down by 20,000 on the end-2001 fig- At the beginning of 2002, a supply
Percentage points
2.5
2.0
1.5
1.0
0.5
0.0
0.5
1.0
1998 1999 2000 2001 2002 2003
Nonenergy industrial goods Energy
Services Overall index
Food
7 Ø 19701980 p.a.
5 Ø 19601970 p.a.
4 Ø 19801990 p.a.
Ø 19602002 p.a.
3 Ø 19992002 p.a.
2
Ø 19911998 p.a.
0
1960 1965 1970 1975 1980 1985 1990 1995 2000
Source: Statistics Austria, OeNB.
month to month, enhancing consumers purchasing power. In turn, electricity and gas prices were
deregulated gradually, and gas and power supply markets are now beginning to show the impact of
substantial price reductions.
Euro Changeover: The Public Perceived Price Rises when Inflation in Fact Declined
Actual overall economic developments did not confirm fears that the euro cash changeover would
entail a surge in inflation. In Austria, a number of different factors kicked in to effectively counter-
act price rises in the wake of the introduction of euro notes and coins:
— Market forces (intensified competition in the exposed and sheltered sectors of the economy,
enterprises absorption of changeover costs through temporary reductions of profit margins,
greater transparency of prices across the euro area) broadly counterbalanced price increases.
— Soft cyclical conditions weighed on household demand and reduced sales in some sectors.
— Legal standards such as the Euro-Related Pricing Act, which prescribed dual pricing, and the
threat of sanctions induced companies not to step out of line with unjustifiable price hikes.
— The Euro Price Commission, consumer advocacy organizations and the general public care-
fully monitored rounding of converted prices.
2'5
2'0
1'5
1'0
0'5
0'0
1997 1998 1999 2000 2001 2002 2003
Perceived inflation
Expected inflation
Actual inflation
Source: FESSEL-GfK, European Commission, OeNB.
All of these factors ultimately brought HICP inflation in Austria down markedly from 2.3% in
2001 to 1.7% in 2002. Although the euro changeover scarcely had an effect on prices across all
goods and services, a breakdown reveals that some service providers, above all the restaurant and
catering business, hairdressers, repairs, in fact lifted prices. On the whole, however, the price im-
pact of the cash changeover is likely to have amounted to no more than around 0.1 percentage
point to 0.2 percentage point.
In the course of 2002, perceived inflation deviated more from price increases actually meas-
ured than in the past. Partly, this phenomenon stemmed from consumers tendency to be familiar
with the price of goods and services they buy frequently whereas they are less attentive to changes
in the price of purchases they make at greater intervals or of services they use regularly (rent, for
example). What in fact happened is that the price of some less expensive goods was boosted dis-
proportionately, while the price of expensive and very high-cost goods advanced more moderately
or even declined. With people gaining a feel for the euro and becoming used to euro pricing struc-
tures, the gap between their perception of inflation and actually registered price hikes began to
narrow toward the end of 2002; in the end it will disappear. A gratifying factor is that inflationary
expectations remained stable and low.
1
2
3
4
5
6
7
19921) 19931) 19941) 19951) 19961) 19971) 19981) 19991) 20001) 20012) 20023)
Source: OeNB.
1) Final data.
2) Revised data.
3) Provisional data.
decline in the deficit may be pin- than disinvestment of EUR 2.72 bil-
pointed to substantially higher in- lion in 2002.
flows of other investment income Portfolio investment closed with
(credits, bank deposits, foreign re- net capital flows abroad of EUR
serves). Moreover, the balances on 5.51 billion (January through Decem-
portfolio investment and direct in- ber 2001: net capital inflows of EUR
vestment income improved. At 5.96 billion). Austrian investors pur-
—EUR 1.68 billion, net current trans- chases of securities abroad totaled
fer outflows outpaced the —EUR 1.36 EUR 25.59 billion net (January
billion recorded in the same period of through December 2001: EUR
2001. At EUR 0.56 billion, the defi- 12.71 billion), with the vigorous ex-
cit on capital transfers exceeded the pansion of their external claims fo-
comparable 2001 result. cused above all on long-term debt
securities and money market instru-
Outward and inward FDI ments. Net purchases by foreign
develop along different lines investors dropped to EUR 20.08 bil-
Austrian investors dynamic foreign lion from EUR 18.68 billion in 2001;
direct investment (FDI) abroad in debt securities remained the main
2002 resulted in net capital exports type of investment.
of EUR 5.74 billion. At EUR 7.37 Capital flows resulting from de-
billion, Austrian gross outward FDI posits and lending, which are sub-
surpassed the like result of 2001; sumed under other investment flows,
disinvestment ran to just EUR 1.63 closed with net capital imports on the
billion. By contrast, gross inward order of EUR 2.19 billion, and trans-
FDI by nonresidents amounted to actions reduced reserve assets by
EUR 4.47 billion, only a bit more EUR 1.81 billion.
EUR 10.64 billion by private and in- framework under which banks have
stitutional investors. At the close of to report data to the OeNB for proc-
December 2002, the 22 Austrian in- essing has been left in place. A clause
vestment companies managed a total explicitly requiring the provision of
of EUR 102.7 billion in the 1,837 in- mutual administrative assistance en-
vestment funds they operated. EUR sures the exchange of information be-
70.0 billion were managed by retail tween the OeNB and the FMA. Its
funds, EUR 32.7 billion by institu- close operational involvement in pru-
tional funds. Debt securities make dential supervision enables the OeNB
up the bulk of investments in Aus- to play a more active role in this field
trian mutual funds (64%), followed at the Eurosystem level as well.
by mutual fund shares (16%), and
by stocks and equity securities Financial Market Committee established
(14%). The reform included the establish-
ment of the Financial Market Com-
The OeNBs Role mittee at the Federal Ministry of
in Prudential Supervision Finance to foster cooperation and
The OeNBs involvement the exchange of views and to provide
in banking supervision for consultation on supervision issues
On April 1, 2002, a comprehensive between the bodies responsible for
reorganization of prudential supervi- maintaining financial stability. The
sion in Austria took effect. The new committee consists of representatives
Financial Market Authority (FMA) of the FMA, the OeNB and the
was established as a single regulator Federal Ministry of Finance. The
responsible for banks, insurance OeNB considers the Financial Market
firms, securities and pension funds. Committee to be crucial to the effec-
The reform also entailed amend- tiveness of prudential supervision.
ments to substantive prudential law,
including, for instance, changes to OeNB activities in supervisory bodies
supervisory procedures. In the period under review, the
Regardless of the transfer of pru- OeNB continued and intensified its
dential responsibilities from the Fed- close cooperation with other central
eral Ministry of Finance to the FMA, banks and supervisors within the
which now represents the statutory ESCB and in international organiza-
integrated financial sector supervi- tions and was represented on inter-
sory agency, the OeNB is closely in- national supervisory bodies. Since
volved in the supervision of credit in- June 2002, the vice governor of the
stitutions in performing its tasks set OeNB has held the chair of the EU
out in the Banking Act. Under the Banking Advisory Committee, and
new legislation, it is mandatory for at the end of 2002, the OeNB became
the FMA to commission the OeNB a member of the Groupe de Contact,
with on-site examinations of banks a group of EU banking supervisory
market and credit risk; furthermore, authorities. The OeNBs inter-
the FMA may commission the OeNB national commitment is key to the
with other on-site examinations (e.g. exchange of information, the analysis
inspections in connection with of international trends as well as the
money laundering). The OeNBs ob- reinforcement and analysis of the
ligation to draw up expert opinions supervisory framework.
has remained in effect. Also, the
tered some 1,350 calls. More than In July 2002, the Basel Commit-
90% of the incoming requests were tee reached agreement on the follow-
answered within 24 hours. Apart ing changes: reduced risk weights for
from handling data requests directly, exposures to SMEs (with less than
the Statistics Hotline passes requests EUR 50 million in annual sales), no
for information on to both OeNB mandatory maturity adjustments
staff and external providers. under the foundation IRB (internal
In an effort to acquaint new po- ratings-based) approach and the op-
tential customers with its broad spec- tion to exempt enterprises with less
trum of statistics products and serv- than EUR 500 million in annual sales
ices, the OeNB in early 2002 launched from the maturity framework under
a website presenting a different finan- the advanced IRB approach, as well
cial indicator every two weeks com- as the increased recognition of the
plemented by easily comprehensible risk-mitigating effect of collateral.
explanatory notes; the website The Basel Committee also outlined
(www.dieaktuellezahl.oenb.at) is the schedule until the finalization
available in German only. The num- and implementation of the new capi-
ber of Austrian and foreign subscrib- tal adequacy framework by Decem-
ers to this service came to more than ber 31, 2006.
280 in March 2003.
Third quantitative impact study launched
The OeNB In October 2002, the Basel Commit-
as a Dialogue Partner tee launched the third quantitative
in the Basel II Process impact study (QIS 3). In the course
Revision of Basel Capital Accord in full swing of QIS 3, around 300 participating
In 2002, preparatory work for the banks worldwide calculated their
new capital adequacy framework minimum capital requirements on
for banks and investment firms the basis of the new provisions to
(Basel II) continued at a vigorous compare the results with the capital
pace. Early in the year, the focus charges calculated on the basis of
was on assessing the comments on the existing framework. After the
the working papers published by the conclusion of QIS 3 at the end of
Basel Committee on Banking Super- the first quarter 2003, the Basel
vision in the fall of 2001 and the Committee is to publish its third con-
results of the quantitative impact sultative paper. It is expected that the
study of November 2001. The review new paper will require only minor
showed that the proposed structure further adjustments so that the New
of the new capital adequacy frame- Basel Capital Accord will be adopted
work and the system of risk weights at the end of 2003.
are in principle consistent with The European Commission also
the main objectives of international continued its work on new capital re-
supervisors, which comprise risk- quirements. The technical working
based capital charges for assets, no groups analyzed the changes in the
increase (on average) of capital proposals of the Basel Committee
charges for banks under the stand- and incorporated them in an advance
ardized approach and moderate draft directive. This document was
capital incentives for banks applying published in November 2002 as the
advanced risk management ap- basis for the preconsultative dialogue
proaches. exercise with the financial industry.
status. With regard to the free move- Parliament has to give its assent. The
ment of capital, transitional arrange- Accession Treaty is scheduled to be
ments were made for the removal of signed in Athens on April 16, 2003,
all capital controls, which will be and will then have to be ratified both
valid beyond EU entry. These ar- in the old and in the new Member
rangements do not, however, refer States. Following the presentation of
to the movement of financial capital, the results of the Convention on the
since no accession country had sub- Future of Europe slated for the
mitted a request to that effect, but Thessaloniki European Council of
primarily to the acquisition of (agri- June 19 and 20, 2003, an Intergov-
cultural) land. ernmental Conference will take place
in 2003 to 2004 to draft the new
Costs of enlargement Constitutional Treaty with full partic-
With regard to the financial implica- ipation of the ten new Member States
tions of the upcoming enlargement, (and Bulgaria and Romania as observ-
the Presidency Conclusions of the ers). On May 1, 2004, the acceding
Copenhagen European Council refer countries are to enter the EU, with
to annual ceilings for enlargement- Commissioners from the new Mem-
related expenditures in the EU ber States joining the Commission
budget from 2004 to 2006 which from the day of accession. This is to
are below the ceilings determined be followed by the signing of the
by the European Council in Berlin Constitutional Treaty.
in March 1999. From 2004 to
2006, aggregate appropriations for Observer status in ESCB
commitments may reach a maximum To enhance the integration of the ac-
of EUR 37.6 billion (1999 prices); cession countries into the ESCB, the
the Berlin financial framework had Governing Council of the ECB de-
pegged this ceiling at EUR 42.6 bil- cided already in September 2002 to
lion. On the other hand, the acceding invite the governors of the accession
countries will have to contribute fully country central banks to its meetings
to the EU budget already during their as observers following the signing of
first year of membership. To ensure the Accession Treaty. Furthermore,
that they will not become net payers the Governing Council decided to
and that no acceding country will be grant observer status to experts from
in a worse financial position than be- the accession country central banks in
fore accession, two additional expen- the ESCB committees, whenever
diture headings (budgetary compen- these meet in ESCB composition.
sation, cash flow facility) totaling
EUR 3.3 billion (1999 prices) were Growth in most central European accession
created. countries still higher than in the EU
Like in the EU, the pace of economic
Road map for enlargement expansion decelerated in the central
The Presidency Conclusions also European accession countries in the
spell out the milestones of the road first half and in the summer of
map for enlargement and for the 2002, but growth remained strong
new Constitutional Treaty. Once the on balance compared to that in the
Accession Treaty has been completed EU. With the exception of Poland,
and submitted to the European Com- whose real GDP edged up by some
mission for its opinion, the European 1.4% in the first three quarters of
2002 year on year, the central Euro- of inflation. At the end of 2002 and
pean countries posted economic the beginning of 2003, the Czech
growth rates of between 2.6% and Republic and Poland showed the low-
3.9%. In the face of the economic est inflation rates: in the former,
slowdown in the EU, the main trad- inflation had even decelerated in
ing partner, domestic demand re- January 2003, and in the latter,
mained the chief source of growth year-on-year price growth came to
in the central European countries. less than 1%.
Above all, private consumption, but
also government consumption were Currencies hit by appreciation pressure
leading the way together with, nota- In the first half of 2002, significant
bly, state financed infrastructure in- inward FDI coupled with a modest
vestments; here, the Slovak Republic current account deficit imposed
and Hungary, where elections were strong appreciation pressure on the
held in 2002, were cases in point. Czech koruna. Massive foreign ex-
Apart from that, investment re- change intervention by the Ćeska«
mained subdued, though. The eco- Na«rodnı« Banka and reductions of the
nomic stagnation in Poland was at- key interest rates — at times even to
tributable primarily to the marked below the euro area interest rate
decline in capital accumulation. This level — helped alleviate the upward
reflected reduced corporate profits pressure toward mid-2002. The
and economic prospects that contin- Polish zloty, by contrast, depreciated
ued to be modest in combination in nominal terms in the first six
with persistently high real interest months of the reporting year, reach-
rates. ing the level of early 2000. In the
fourth quarter of 2002 and in early
Disinflation progresses 2003, the Polish zloty, the Slovak
In 2002, almost all central European koruna and, especially, the Hungarian
accession countries registered a fur- forint came under considerable ap-
ther drop in inflation from record preciation pressure, not least on
lows. Even Slovenia, which had previ- account of the political decisions in
ously achieved only moderate disin- favor of EU enlargement. Magyar
flation, saw a pronounced reduction Nemzeti Banks defense of the
S e l e c t e d E c o n o m i c I nd i c a t o r s f o r th e A c c e d i n g C o u n t r i e s
GDP growth Inflation rate EUR exchange rate1)
Cyprus þ5.2 þ4.1 þ2.0 4.9 2.0 2.8 0.57 0.58 0.58
Czech Republic þ3.3 þ3.1 þ2.0 3.9 4.7 1.8 35.61 34.08 30.81
Estonia þ7.1 þ5.0 þ5.6 3.9 5.8 3.6 35.60 34.70 30.80
Hungary þ5.2 þ3.8 þ3.3 9.8 9.2 5.3 260.04 256.68 242.97
Latvia þ3.8 þ7.9 þ6.1 0.9 2.5 1.9 3.70 3.58 3.46
Lithuania þ6.8 þ5.9 þ5.9 2.6 1.3 0.3 0.56 0.56 0.58
Malta þ6.1 0.8 þ3.0 2.4 2.9 2.2 0.40 0.40 0.41
Poland þ4.0 þ1.0 þ1.3 10.1 5.5 1.9 4.01 3.67 3.86
Slovenia þ4.6 þ3.0 þ3.1 10.9 9.4 7.5 205.03 217.19 226.22
Slovak Republic þ2.2 þ3.3 þ3.9 12.0 7.1 3.3 42.59 43.31 42.70
Source: Eurostat, WIIW.
1
) Cyprus pound, Czech koruna, Estonian kroon, Hungarian forint, Latvian lat, Lithuanian litas, Maltese lira, Polish zloty, Slovenian tolar, Slovak
koruna.
% of GDP
Cyprus
Czech Republic
Estonia
Hungary
Lithuania
Latvia
Malta
Poland
Slovenia
Slovak Republic
10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 1.0 2.0
Source: European Commission.
1) These figures are essentially based on national data in line with ESA 95.
The OeNB publication Focus on Austria 2/2002 investigated in particular the effects of EU
enlargement to the east.1) OeNB as well as external experts reflected on the likely consequences
of enlargement on the accession and euro area countries, notably Austria. Their conclusions may
be summarized as follows:
— An in-depth analysis of the EU institutions and decision-making process revealed that the EUs
current setup needs to undergo further adjustments to ensure its efficiency and effectiveness
beyond enlargement. The results of the Convention on the Future of Europe will largely deter-
mine the reform measures to be taken.
— The enlargement of the EU will entail positive growth effects both for the current and for the
future EU Member States, which will increase over time.
— Migration and stepped-up trade will impact wage levels in the EU and in Austria depending on
age, qualifications and gender. The positive effects are shown to increase with the workforces
level of qualification.
— The CEE banking sector being so small, the possible effects on the EU banking industry are
considered to be low. However, Austria is in a different position because it has invested heavily
in CEE. Altogether, eastern enlargement will reduce the risks for Austrian banks in these coun-
tries and will drive up the growth potential. Owing to Austrian banks strong presence in this
market, the effects are significant not only for individual banks, but also have an impact on the
entire Austrian banking sector.
— Upon EU entry, the eastern European bond markets will lose their emerging market status
and will be integrated into general European bond benchmarks. Enlargement will hardly affect
the equity markets of the current Member States. However, Austrias stock market could
receive an impulse in the wake of EU enlargement.
1 This issue of Focus on Austria may be retrieved from http://www2.oenb.at/publikationen/bestu0202_p.htm.
Courses typically last from 1 week to signed a MoU on the JVI in Vienna.
14 weeks, depending on the course This MoU documents the agreement
program. reached between the Republic of
On March 13, 2002, the Manag- Austria and the IMF to share the cost
ing Director of the IMF, Horst of running the JVI and to relocate it
Ko‹hler, the Austrian Federal Minister to new premises, thus extending the
of Finance, Karl-Heinz Grasser, and life of the JVI and confirming its
OeNB Governor Klaus Liebscher location in Vienna.
other shared platform with any other All efforts at the European level
central bank willing to do so. are directed at establishing a
The single shareable platform Europe-wide clearing infrastructure
available from the start of TARGET2 — an endeavor which is very likely
will be an integral part of the struc- to take several years (see the options
ture of TARGET2. It will not be im- proposed by the European Payments
plemented until the central banks Council for creating a SEPA1)).
which are in principle interested in To comply with the requirements
joining it have finally decided to do of the European Commission for es-
so. The design of the shareable plat- tablishing a single payment area, it
form should allow each NCB which is necessary to swiftly draw up a
joins it to preserve the business rela- migration plan with the commercial
tionships with its banks, including banks to ensure their integration into
monetary policy and lender of last a European infrastructure. Such a
resort relationships. plan should provide banks with
With a view to specifying the appropriate transitional solutions
business, service features and inter- and should also support timely in-
faces of TARGET2 as well as gover- creases in efficiency designed to ad-
nance, financing and pricing issues vance the establishment of a single
in greater detail, the ECB launched market.
a public consultation on Decem- Among the various initiatives for
ber 16, 2002. launching a European clearing mech-
Following this initiative geared anism, STEP22) represents a highly
towards structurally enhancing the promising project with an ambitious
TARGET system in order to achieve schedule. With STEP2, the Euro
economies of scale and harmonizing Banking Association (EBA) intends
the large-value payment infrastruc- to offer a Europe-wide clearing house
ture, OeNB experts have embarked for cross-border noncritical pay-
on in-depth analyses and a selection ments. The OeNB has started prepa-
1 Options of the European
Payments Council on
process. The OeNB is committed to rations to secure availability of STEP2
building a single European contributing actively to the design in Austria.
payment area (SEPA): of the next generation of TARGET
1. a single automated to ensure that Austrian interests are Activities Related to the
clearing house (ACH) given due consideration. Austrian Payment Systems
for the euro, Services (APSS) GmbH
2. a pan-European Interbank Payments
clearing house In the face of stiffening international
connecting banks and EBA STEP2 competition on the domestic market,
potentially substituting Like Finland, Austria is one of the the successful expansion of Austrian
some of the domestic few European countries which does banks in Central and Eastern Europe
ACHs, not offer a national automated clear- and the dramatic surge in cashless,
3. a hybrid linkage routing
hub connecting existing
ing house (ACH) but uses bilateral in- card-based payments, the Austrian
domestic ACH systems, terbank arrangements for the clear- banking community decided in 2002
4. ACH direkt linkages, an ing and settlement of domestic pay- to reposition the Austrian Payment
exchange system ments. Systems Services (APSS) GmbH in
connecting existing Cost effectiveness in clearing and the noncash business. Once again tap-
domestic ACH systems,
5. bilateral exchanges,
settlement is driven above all by ping into synergies, the OeNB and
6. use of card networks. centralization or volume concentra- the Austrian banks jointly established
2 Straight Through Euro tion and a consolidation of infra- an efficient infrastructure for settling
Payment system. structures. card payments.
claims on the IMF) of the Member tions with their foreign exchange
States. All foreign reserves of the working balances, above a certain
NCBs of the participating Member limit, be subject to approval by the
States recorded in the NCBs balance ECB to ensure consistency with the
sheets on January 1, 1999, became exchange rate and monetary policies
foreign reserves of the Eurosystem. of the Community. Furthermore,
The Eurosystem has the sole right Article 101 of the Treaty prohibits
of disposal. Since holding and manag- the NCBs and the ECB from trans-
ing reserve assets is a quintessential ferring central bank funds exceeding
task of the ESCB, there is no leeway, the annual distribution of profit to
for example, to outsource part of the governments or other public author-
foreign reserves into a special-pur- ities (prohibition of monetary financ-
pose fund. ing). Also, the ECB is entitled to
effect further calls of foreign reserve
and includes decision making assets. The margin call for a further
on the appropriate level of foreign reserves EUR 1.2 billion from the OeNBs
According to Article 108 of the foreign reserve holdings has already
Treaty, the ECB and the NCBs are been agreed; this decision does not
not permitted to seek or take rule out further calls beyond this
instructions when exercising the amount. The share of OeNB foreign
powers and carrying out the duties reserves holdings which the IMF
conferred upon them. The Commun- may draw on amounts to EUR 2.6
ity institutions and bodies as well as billion.
the governments of the Member
States are obliged to respect this prin- International comparisons
ciple and not to seek to influence the are not a viable argument
decision-making bodies of the ECB Reserve assets are a public good;
and the NCBs in the performance of thus, common private sector criteria
their tasks. As regards reserve assets, do not apply. In tranquil times, for-
this provision applies to their man- eign reserve assets tend to be rated
agement and to the decision on the excessive, but in more troubled
appropriate level of foreign reserve times, they are considered insuffi-
holdings necessary for the ESCB to cient. Furthermore, it should be
be able to fulfill its tasks. This does borne in mind that the conditions of
not imply that the level of the ESCBs EMU are untested waters. Compari-
foreign reserve assets was laid down sons with the levels of foreign re-
once and for all. The ESCB can adjust serves held by the Bank of Japan or
the level of foreign reserve assets to the U.S. Federal Reserve System are
changing monetary and exchange rate not viable, owing to the different
policy requirements. legal, institutional, historical and
economic conditions in these econo-
Provisions for international commitments mies.
The NCBs are subject to a range of le-
gal constraints resulting from the Emergency reserve
Treaty and legal instruments derived Evidently, the NCBs of the Euro-
therefrom as well as from interna- system no longer intervene in the
tional obligations. First, Article markets to support their individual
31.2 of the Statute of the ESCB stip- national currencies. Monetary Union
ulates that Member States transac- has also reduced the potential need
for foreign reserves to cover interna- costs of the central bank. The bulk
tional liabilities. However, a range of of the OeNBs profit (93%) is trans-
essential reasons to hold reserve as- ferred to the federal government
sets still apply. They continue to be budget. In the financial year 2002,
a vital reserve for emergency situa- the transfers (profit share and corpo-
tions also in the future. rate tax) to the federal government
came to EUR 1.4 billion, which
Reserve assets are an anchor roughly equals the entire amount of
of credibility for the euro government funding for research
Backing for money in circulation in and development in that year. Since
the form of assets not subject to gov- the start of Stage Three of EMU,
ernment influence still represents a the OeNB has transferred EUR 5.7
crucial anchor of credibility for a cur- billion in profits and corporate tax
rency and its acceptance by the pub- to the federal government.
lic. The central bank needs to cover
the liabilities in its balance sheet. This Reserve transactions impact
is particularly true for the euro and on financial markets
the Eurosystem, which are both very If the Eurosystem for monetary and
young from a historical perspective. exchange rate policy reasons decided
It will take many years until the to restructure its balance sheet to re-
euro has fully established itself as an duce its reserve assets, a cautious and
international currency. The new cur- gradual approach would have to be
rency has yet to stand the test of taken. Otherwise, the amounts of
time. The public (both in Austria liquidity involved could have an un-
and abroad) and the international for- desired effect on foreign currency
eign exchange and financial markets markets. The sterilization of liquid-
will watch closely whether the euro ity-absorbing foreign currency sales
can maintain its stability over eco- by expansionary domestic money
nomic cycles, in the face of unex- market operations is not without
pected political or financial shocks problems for large amounts. Further-
and in an enlarged EMU. Political more, if foreign government bond
pressure for reducing what is called holdings were reduced abruptly, re-
excess foreign reserves would percussions on European bond yields
openly violate the provisions of the could not be ruled out.
Treaty stipulating central bank inde-
pendence and would undermine the Monetary policy requirements
credibility of the Eurosystem. have priority
It is vital that in the debate on the fu-
High transfers of profits ture of the Eurosystems and the
to the government OeNBs foreign reserves the priority
Apart from providing a cover to the of the Eurosystems monetary policy
currency, foreign reserves underpin requirements be recognized and
the credibility and the independence compliance with the legal and institu-
of monetary policy also in so far as tional rules including the independ-
the revenues from reserve asset in- ence of the Eurosystem in fulfilling
vestment ensure the financial inde- its tasks be ensured. Decisions on
pendence of the Eurosystem. Only a the level and the composition of re-
small share of the income on reserve serve assets must take into account
assets is used to cover the operating long-term, strategic considerations,
period; at the end of 2002, the The OeNB is one of those central
OeNBs gold holdings amounted to banks which have started to use de-
approximately 317 tons. The OeNB rivative instruments relatively early.
stepped up its activities in gold in- In risk management they are a highly
vestment, for instance by creating liquid and cost effective alternative
the appropriate legal framework to conventional hedging instru-
(e.g. for pledge agreements) and by ments.
taking advantage of the shape of the Apart from the usual set of invest-
gold interest rate curve, and thus in- ment instruments of public and pri-
creased its revenues without incur- vate borrowers, the OeNB seeks to
ring additional credit risk. achieve additional revenues, for in-
stance via securities lending activ-
Despite difficult market conditions, ities; special importance is attached
the OeNB increased its profits to a firm legal basis and adequate risk
while implementing management.
appropriate risk control measures
Despite difficult market conditions Continuous improvements and adjustments
characterized by significant uncer- of the treasury infrastructure
tainties and nervous markets, the In line with international standards,
OeNB again posted a well above- the trading, settlement, controlling
average result in 2002. and accounting functions at the
This performance can be traced OeNB are strictly separate. Adequate
largely to shifts of foreign currency IT systems are a crucial prerequisite
reserves into euro-denominated re- for the OeNB to perform its tasks
serves, which, like in the two pre- in an efficient and secure manner;
vious years, yielded substantial addi- recently, market dynamics increased
tional profits in 2002. In addition, requirements both in trading and
the smaller exchange rate risk — in IT systems. Therefore, the OeNB
which had diminished thanks to these decided to implement a new trading
transactions — was also reflected in and analysis system which fits into
the amount of risk provisions. the existing system framework while
In line with common practice at accommodating the requirements of
international commercial banks, the trading in the medium term. In
OeNB manages its U.S. and Canadian 2002, the system was subjected to a
dollar-denominated reserves in the thorough trial run; since the begin-
respective time zones, i.e. in Vienna ning of 2003, it has been opera-
and at the representative office in tional.
New York.
T he O e NB s T a s k : A n Ov e r vi ew
— participation of the OeNBs Governor in the Governing Council and in the General Council of
the ECB;
— close involvement in a range of Eurosystem, ESCB and EU bodies;
— macroeconomic research and analysis, especially as a contribution to the monetary policy
decisions of the Governing Council of the ECB;
— contacts between the Eurosystem, Austrian economic policymakers and the general public;
— provision of conclusive, high-quality statistics (above all monetary, balance of payments, inter-
est rate and prudential statistics);
— handling of transactions with banks focused on implementing the Eurosystems monetary
policy with its prime objective of price stability;
— participation in foreign exchange market intervention to smooth extraordinary and undesir-
able market fluctuations;
— management of the OeNBs own reserve assets and of the OeNBs share of the ECBs foreign
reserves;
— conduct of minimum reserve operations and monitoring of minimum reserve holdings;
— provision and promotion of reliable cross-border payment systems in Austria (ARTIS,
TARGET);
— provision of cash to Austrian businesses and consumers;
— analysis of financial markets and banks with a view to risks;
— participation in the prudential supervision of Austrian banks and payment system oversight to
secure financial market stability;
— international monetary policy cooperation and participation in international financial institu-
tions (IMF, BIS).
The O eN B i n I nternati onal Or ganizati ons a nd as an Int ernati onal Pa rtner i n Di alo gu e
MANDATE
CUSTOMER PERSPECTIVE
Cash
Cash production Cash processing
Münze Österreich AG (MÖAG) GELDSERVICE AUSTRIA
minting, distribution and withdrawal Logistik für Wertgestionierung
of divisional and negotiable coins und Transportkoordination G.m.b.H. (GSA)
production and sale of items cash processing
made of noble and other metals supply of banknotes and coins
engineering and consulting services logistics
Oesterreichische Banknoten-
und Sicherheitsdruck GmbH (OeBS)
banknote and security printing
print product business
research and development services
Cashless payments
Production of payment instruments Provision of infrastructure
AUSTRIA CARD- and reliable services
Plastikkarten und Ausweissysteme Austrian Payment Systems Services
Gesellschaft m. b. H. (APSS) GmbH
production and sale of forms, credit cards establishment and development of ATM
and card systems as well as of machinery for and POS terminal services
the production and use of card systems IT services
production and sale of ID systems
A-Trust Gesellschaft für Sicherheitssysteme
im elektronischen Datenverkehr GmbH
certification services in the area
of electronic signatures
technologies and products. The OeBS ble element in securing the future of
(innovations in the field of security Austrian science and research.
features, production processes, coun- In 2002 the OeNB again ear-
terfeit recognition) and AUSTRIA marked the lions share of its net
CARD (software developments for profit, EUR 70 million, for research
chip card applications) range among promotion. The amount paid out
the pioneers. for economics-oriented research in
the reporting year came to about
Changes in equity holdings EUR 65 million. These funds mainly
in the review year served to finance 146 economics-
The OeNB sold minority interests in oriented research projects via the
GSA in 2002 to more banks which Austrian Industrial Research Promo-
wished to use the companys services, tion Fund (Forschungsfo‹rderungs-
expanding the group of GSA share- fonds fu‹r die gewerbliche Wirtschaft
holders. — FFF) and the Austrian Science Fund
The electronic signature certifica- (Fonds zur Fo‹rderung der wirtschaft-
tion services of A-Trust were merged lichen Forschung — FWF). In addi-
with another firms signature services tion, the OeNBs Anniversary Fund
in 2002. The restructuring of share- provided funding for six laboratories
holdings in the process resulted in a of the Christian Doppler Research
marginal reduction of the OeNBs Society (Christian-Doppler-For-
equity stake in A-Trust. schungsgesellschaft — CDG), five
At the request of the other share- payment instruments/systems and
holders, the OeNB raised its equity cash services research projects, Insti-
participation in APSS from 10% to tut fu‹r Molekulare Biotechnologie
38% in 2002. GmbH (IMBA) at the Austrian Acad-
emy of Sciences (O ‹ sterreichische
Implementation of market-oriented Akademie der Wissenschaften —
group management control O‹ AW) and three economic research
The economic control approach ap- institutes (WIFO, IHS and WIIW).
plied to the intercompany provision The OeNB directly granted funds
of goods and services between the of approximately EUR 12.4 billion
OeNB and its subsidiaries was rein- for 227 research projects in econom-
forced in 2002 in the course of a proj- ics, medicine, social sciences and the
ect, and professional intercompany humanities, focusing in particular on
accounting management was further stepping up its promotion of eco-
improved. nomics. At regular intervals, selected
project results are presented to an ex-
Promotion of Science, pert public via the platform Forum
Research and Culture Jubila‹umsfonds. With these funding
Research promotion activities, the OeNB has contributed
Since its foundation in 1966, the significantly to the promotion of in-
OeNBs Anniversary Fund for the novation and technological develop-
Promotion of Scientific Research ment as well as the improvement of
and Teaching has provided grants for Austrias appeal as a business location
scientific projects in basic and applied and the international competitiveness
research, with funds totaling around of the Austrian economy.
EUR 568 million. The Anniversary
Fund has thus become an indispensa-
Financial Statements
Asse ts
December 31, 2002 December 31, 2001
euro euro
33,673,225,145.27 31,300,658,601.33
1
) Only an ECB balance sheet item.
Liabilities
December 31, 2002 December 31, 2001
euro euro
1
) Only an ECB balance sheet item.
1,514,766,477.62 1,641,429,870.39
999,745,875.23 1,083,343,714.46
is below the value established accord- terest income of the profit and loss
ing to the banknote allocation key, account.
the difference is recorded under as-
sets item 9.4 Net claims related to Accounting Policies
the allocation of euro banknotes The financial statements were pre-
within the Eurosystem. If the value pared in conformity with the ac-
of the euro banknotes issued is above counting policies adopted by the
the value designated in the banknote Governing Council of the ECB2). Said
allocation key, the difference is re- accounting policies, which govern the
corded under liabilities item 10.3 accounting and reporting operations
Net liabilities related to the alloca- of the Eurosystem, follow accounting
tion of euro banknotes within the principles harmonized by Commun-
Eurosystem. ity law and generally accepted inter-
Monetary income accrues to the national standards. The key policy
national central banks in the per- provisions are summarized below.
formance of the Eurosystems mone- — Economic reality and transpar-
tary policy functions. The ESCB/ ency,
ECB Statute provides for the pooling — prudence,
of this income and its redistribution — recognition of post-balance sheet
among the national central banks in events,
proportion to their paid-up shares — materiality,
in the ECBs capital. Banknotes in cir- — a going-concern basis,
culation are taken into account in the — the accruals principle,
calculation of monetary income from — consistency and comparability.
2002. From 2002 to 2007 the intra- Transactions in financial assets
Eurosystem balances arising from and liabilities are reflected in the ac-
the allocation of euro banknotes are counts on the basis of the date on
adjusted in order to avoid significant which they were settled.
changes in national central banks rel- Foreign currency transactions
ative income positions as compared whose exchange rate is not fixed
to previous years.1) The adjustments against the accounting currency were
are effected by taking into account recorded at the euro exchange rate
the differences between the average prevailing on the day of the trans-
value of banknotes in circulation of action.
each national central bank in the pe- At year-end both financial assets
riod from July 1999 to June 2001 and liabilities were revalued at cur-
and the average value of the bank- rent market prices/rates. This applies
notes that would have been allocated equally to on- and off-balance sheet
to them during that period under the transactions. The revaluation took
ECBs capital key. This adjustment place on a currency-by-currency basis
1 Decision of the European
Central Bank of 6 December
will be reduced in annual stages until for foreign exchange positions and on
2001 on the allocation of the end of 2007, after which income a code-by-code basis for securities.
monetary income of the on banknotes will be allocated fully in Securities held as permanent invest-
national central banks of proportion to the national central ment (financial fixed assets) which
participating Member States banks paid-up shares in the ECBs are shown under Other financial
from the financial year
2002 (ECB/2001/16).
capital. The interest income and ex- assets were valued at cost.
2 Decision of the European pense on these balances is cleared Gains and losses realized in the
Central Bank of 5 December through the accounts of the ECB course of transactions were taken to
2002 (ECB/2002/10). and disclosed under item 1 Net in- the profit and loss account. For gold,
the quarter after acquisition and con- — equipment, furniture and plant in
tinuing over the expected economic building (10 years)1),
lifetime of the assets, namely: — buildings (25 years).
— computers, related hardware and Fixed assets costing less than EUR
software, and motor vehicles (4 10,000 were written off in the year of
years), purchase.
Capital Movements
Movements in Capital Accounts in 2002
For details of the various changes, please refer to the notes to the respec-
tive balance sheet items.
326.830 per fine ounce (i.e. EUR Closing balance Dec. 31, 2002 8,964.563
Closing balance Dec. 31, 2001 13,979.832
10,507.827 per kg of fine gold), the
Change — 5,015.269
OeNBs gold holdings were worth —35.9%
EUR 3,336.169 million at the bal-
ance sheet date. These claims consist of receiv-
The year-on-year change results ables from the International Mone-
from sales (30 tons worth EUR tary Fund — including the receivables
306.116 million) as offset by unreal- from the IMF, holdings of Special
ized revaluation gains on the order Drawing Rights (SDR) and other
of EUR 54.673 million and by net claims against the IMF — and claims
price gains of EUR 68.494 million denominated in foreign currency
realized at sale. against non-euro area countries, i.e.
The gold sales (forward transac- counterparties resident outside the
tions concluded in 2001) complied euro area.
with the Central Bank Gold Agree- The receivables from the IMF
ment concluded by 14 national comprise the following items:
central banks — among them the
1 Pursuant to federal law as Drawings of SDRs on behalf of versely, repayments by members re-
promulgated in Federal Law IMF members and the revaluation of duced the receivables from the IMF
Gazette No. 309/1971,
the OeNB assumed the entire
euro holdings by the IMF as well as by a total of EUR 158.989 million.
Austrian quota at the IMF transfers by the IMF boosted the re- Revaluation losses (—EUR 241.907
on its own account on behalf ceivables from the IMF1) by a to- million) reduced these claims,
of the Republic of Austria. tal of EUR 240.591 million. Con- whereas realized exchange rate gains
and book value reconciliation (+EUR mand in exchange for SDRs. Mem-
1.859 million) enlarged them. bers designated by the IMF may use
The national IMF quota remained SDRs up to the point at which the
unchanged at SDR 1,872.3 million in OeNBs holdings of SDRs are three
2002. times as high as its net cumulative al-
The IMF remunerates participa- location. The OeNBs current net cu-
tions in the Fund at a rate of remu- mulative allocation is SDR 179.045
neration that is updated weekly. In million.
2002 this rate hovered between Other claims against the IMF
1.9% and 2.3% per annum, mirror- comprise the OeNBs other contribu-
ing the prevailing SDR rate. tions to loans under special borrow-
The holdings of Special Draw- ing arrangements. In the financial
ing Rights1) were recognized in statements for 2002 this item relates
the balance sheet at EUR 176.367 exclusively to claims arising from
million on December 31, 2002, contributions (over SDR 30 million)
which is equivalent to SDR 136 mil- to the Poverty Reduction and Growth
lion. The reduction of holdings by Facility (PRGF). The PRGF is a spe-
EUR 87.640 million on balance re- cial initiative designed to support
sulted above all from the sale of SDRs the IMFs aims by granting the poor-
equivalent to EUR 88.072 million. est countries credits at highly conces-
Interest credited, above all remuner- sional terms in order to finance eco-
ations of the participation in the IMF, nomic programs targeted at fostering
boosted holdings by EUR 18.153 economic growth and ensuring a
million. strong, sustainable recovery of the
No purchases arising from desig- balance of payments.
nations by the IMF were effected in Balances with banks, secur-
2002. Principally the OeNB contin- ity investments, external loans
ues to be obliged under the IMFs and other external assets cover
statutes to provide currency on de- the following subitems:
Balances with banks outside the The change in this item reflects 1 Pursuant to federal law as
euro area include foreign currency above all government transactions promulgated in Federal Law
Gazette No. 440/1969,
deposits on correspondent accounts, and reclassifications to the own funds the OeNB is entitled to
deposits with agreed maturity and portfolio. participate in the SDR
overnight funds. Securities relate to system on its own account on
instruments issued by non-euro area behalf of the Republic of
residents. As a rule, operations are Austria and to enter the
SDRs purchased or allocated
carried out only with financially gratuitously on the assets
sound counterparties. side of the balance sheet as
The other external assets com- cover for the total
prise only non-euro area banknotes. circulation.
2002 all main refinancing operations 2002. The first operation was con-
were carried out in the form of vari- ducted to meet higher liquidity needs
able rate tenders. during the cash changeover. The fine-
The main refinancing operations tuning operations were conducted as
are the most important open market variable rate tenders with minimum
operations conducted by the Euro- bid rates of 3.3% and 2.8% per an-
system, playing a pivotal role in sig- num.
naling the stance of monetary policy.
They provide the bulk of liquidity to 5.4 Structural reverse operations
the financial sector. The ECB may use structural re-
verse operations to adjust the
5.2 Longer-term refinancing operations structural position of the ESCB
Longer-term refinancing opera- vis-a‘-vis the financial sector. In 2002
tions are regular liquidity-providing no such operations were carried out.
reverse transactions with a monthly
frequency and a maturity of three 5.5 Marginal lending facility
months. They are aimed at providing Counterparties may use the mar-
longer-term refinancing to the finan- ginal lending facility to obtain
cial sector and are executed through overnight liquidity from national
standard tenders by the national cen- central banks at a prespecified inter-
tral banks. All longer-term refinanc- est rate against eligible assets. The
ing operations conducted in 2002 facility is intended to satisfy counter-
were carried out in the form of vari- parties temporary liquidity needs.
able rate tenders. Under normal circumstances, the in-
terest rate on the facility provides a
5.3 Fine-tuning reverse operations ceiling for the overnight interest rate.
Fine-tuning reverse operations The marginal lending facility was
are executed on an ad-hoc basis with accessed numerous times in 2002.
a view to managing the liquidity sit-
uation in the market and steering 5.6 Credits related to margin calls
interest rates, in particular to smooth Credits related to margin calls
the effects on interest rates caused by arise when the value of underlying as-
unexpected liquidity fluctuations in sets regarding credit extended to
the market. The choice of instru- credit institutions increases beyond
ments and procedures depends on collateral requirements, obligating
the type of transaction and the under- the central bank to provide counter-
lying motives. Fine-tuning operations parties with additional credit to offset
are normally executed by the national the value in excess of requirements. If
central banks through quick tenders such credit is provided not by the
or through bilateral operations. It is return of securities but rather by an
up to the Governing Council of the entry on an account, a claim on the
ECB to empower the ECB to conduct counterparty is recorded in this sub-
fine-tuning operations itself under item. No claims were recorded under
exceptional circumstances. this item in 2002.
In 2002 the OeNB participated in
two Eurosystem fine-tuning opera-
tions comprising EUR 69.027 million
(January 4 to 6) and EUR 88.317
million (December 18 to 23) in
On January 1, 2002, initial claims Closing balance Dec. 31, 2002 351.366
Closing balance Dec. 31, 2001 287.632
on credit institutions recorded al-
Change + 63.734
ready in September 2001 in respect +22.2%
of euro starter kits totaling EUR
179.685 million were increased by This balance sheet item subsumes
EUR 10,030.693 million for front- the claim on the Austrian Federal
loaded euro banknotes and coins, Treasury from silver commemorative
with banknotes accounting for EUR coins issued before 1989, based on
9,744.042 million of this amount the 1988 Coinage Act as promul-
and coins accounting for EUR gated in Federal Law Gazette
286.651 million. The total claim on No. 425/1996.
credit institutions resulting from In theory, the maximum federal
frontloaded euro cash — EUR liability is the sum total of all silver
10,210.378 million — was debited in commemorative coins issued before
banks respective accounts with the 1989, minus any coins returned to
OeNB in three tranches (on January and paid for by the central govern-
2, January 21 and January 30, 2002) ment, minus any coins directly with-
according to the linear debiting drawn by the Austrian Mint. Repay-
model. ment of the maximum federal liabil-
ity of EUR 1,270.108 million is ef-
7. Securities fected by annual installments of
of euro area residents EUR 5.814 million out of the central
denominated in euro governments share of the OeNBs
profit. The proceeds from metal re-
EUR million covery, including the interest on the
Closing balance Dec. 31, 2002 2,015.083 investment of these proceeds by the
Closing balance Dec. 31, 2001 1,742.631
Austrian Mint, are designated for re-
Change + 272.452
+15.6%
payment by the contractual deadline
(every year on December 15). Any
This item covers all marketable amount outstanding on December
securities (including government se- 31, 2040, will have to be repaid in
curities stemming from before the five following years (2041 to
EMU) denominated in constituent 2045) in five equal installments.
currencies of the euro that are not The silver commemorative coins
used in monetary policy operations returned to the central government
and that are not part of investment in the course of 2002 had a total face
portfolios that have been earmarked value of EUR 89.482 million. The re-
for specific purposes. demptions made out of the central
governments share in the OeNBs
profit for the year 2001 plus the pro-
Cost incurred Purchases Sales in 2002 Accumulated Book value Book value Annual
until Dec. 31, 2001 in 2002 depreciation on Dec. 31, on Dec. 31, depreciation
2002 2001 in 2002
EUR million
Net asset value Purchases Sales in 2002 Book value Book value Annual Revaluation
on Dec. 31, 2001 in 2002 on Dec. 31, on Dec. 31, depreciation in 2002
2002 2001 in 2002
EUR million
ments is in the form of life insurance Closing balance Dec. 31, 2002 10,237.504
Closing balance Dec. 31, 2001 10,172.302
plans.
Change + 65.202
Advances to the Austrian Mint to +0.6%
prefinance the production of euro
coins in 1998 were offset against the This item comprises the OeNBs
OeNBs liability from assuming deliv- share of the euro banknotes in circu-
ery of the euro starter kits and settled lation calculated by applying the
between the parties on January 2, banknote allocation key, which is
2002. 2.68% in the case of the OeNB. This
Own holdings of euro starter kits corresponds to 92% of the OeNBs
disclosed on December 31, 2001, re- Eurosystem capital key share, which
flects the value of undistributed euro is 2.9130% in the case of the OeNB
starter kits. Starter kits continued to (see also notes on the representation
be sold during the beginning of Janu- of banknotes in circulation in section
ary 2002. The stock remaining at the Accounting Fundamentals and Legal
balance sheet date was subsumed Framework). Moreover, this item
under coin holdings. for the last time includes schilling
Other claims in 2002 came to banknotes in circulation, which came
EUR 40.265 million and mainly com- to EUR 629.195 million.
prised advances, accounts receivable
and claims arising from day-to-day
business.
Banknotes in Circulation 1 )
Calendar-day volumes, EUR billion
14.0
2000
13.0 1999
12.0
11.0
10.0 2001
2002
19.0
18.0
17.0
Jan. Feb. March April May June July Aug. Sept. Oct. Nov. Dec.
Source: OeNB.
1) From January 1, 2002, the OeNB's share includes:
1. euro banknote liabilities (the 2.68% share of total euro banknotes in circulation allocated to the OeNB as on January 1, 2002 as at the end of
the month plus cumulative transactions made by the OeNB between cut-off dates);
2. schilling banknotes in circulation.
Federal Act on the International Fund Closing balance Dec. 31, 2002 92.138
Closing balance Dec. 31, 2001 308.727
for the Clearance of the Fairway of
Change —216.589
the Danube (Federal Law Gazette I —70.2%
No. 70/2000), the Danube Commis-
sions funds, 85% of which are pro- 8. Liabilities
vided by the European Commission to non-euro area
and 15% of which are provided by residents denominated
neighboring countries and other do- in foreign currency
nors, are deposited on an interest-
bearing account maintained by the EUR million
OeNB.
Closing balance Dec. 31, 2002 583.590
Closing balance Dec. 31, 2001 985.659
Change —402.069
—40.8%
12.3 Sundry
This item is composed of the follow-
ing subitems:
Provisions for
schilling banknotes without an exchange deadline — — 306.945 306.945
Corporate income tax — — 105.967 105.967
Exchange rate risks — — 9.000 9.000
Accounts payable 5.850 5.805 1.339 1.384
Repatriation of banknotes 1.182 1.182 — —
Premises management 1.636 0.111 0.638 2.163
Accounts payable to subsidiaries 0.389 0.389 0.590 0.590
Other 2.496 2.186 1.271 1.581
746
900 covering unrealized foreign currency
750 773
losses. Thus, in compliance with Ar-
500 ticle 69 paragraph 1 of the National-
250
bank Act, these losses did not have
573 558 515
474 443 an impact on profit. Moreover, this
0
item reflects the offsetting of unreal-
1998 1999 2000 2001 2002
ized losses on security price losses
Transfer to the pension reserve pursuant against the reserve for nondomestic
to Article 69 paragraph 2 NBA
Profit for the year and price risks. As a result of the risk
Transfer to the general reserve fund assessment of nondomestic assets to
Central governments share of profit
Corporate income tax be performed under Article 69 para-
Source: OeNB.
graph 4 Nationalbank Act, a provision
for exchange rate risks of EUR 9 mil-
lion had to be made.
Fundamentals and Legal Frame-
work). 4. Income from equity
shares and participating
2. Net result of financial interests
operations, writedowns This item contains the interim distri-
and risk provisions bution of profit arising from the
Realized gains or losses from day-to- ECBs seigniorage income on its 8%
day financial operations resulted from share of euro banknotes in circulation
— receivable or payable — differences (according to the banknote allocation
between the acquisition cost and the key); this income is distributed to the
market value of gold, foreign cur- national central banks the same finan-
rency, securities or other trans- cial year it accrues to the ECB1). This
actions. Among other things, these ECB income is distributed in full
gains include price gains from the sale among the national central banks in
of 30 tons of gold. proportion to their paid-up shares
Net realized gains contracted in the subscribed capital of the ECB
by EUR 132.545 million (—13.3%) unless the ECBs net profit for the
to EUR 863.200 million. EUR year is less than its income earned
739.299 million (—EUR 12.984 mil- on euro banknotes in circulation.
lion) stem from gold and foreign cur- The OeNBs income share of EUR
rency operations, EUR 124.032 mil- 17.653 million for 2002 is shown in
lion (—EUR 116.958 million) from this item. Moreover, this item in-
securities transactions. cludes income from the distributions
The writedowns on financial of profit for 2001 made by the ECB
assets and positions largely reflect (EUR 42.456 million), Oesterreichi-
the decline in market prices of bal- sche Banknoten- und Sicherheits- 1 Decision of the European
ance sheet items as at December 31, druck GmbH (EUR 1.000 million), Central Bank
2002, below the average cost of the AUSTRIA CARD-Plastikkarten und of November 21, 2002
respective currencies or securities. Ausweissysteme Gesellschaft m.b.H. (ECB/2002/9).
(EUR 1.170 million) and Austrian the financial year 2002 resulted in a
Payment Systems Services (APSS) net claim of EUR 0.199 million for
GmbH (EUR 0.215 million). Also, the OeNB.
it records dividend payments by the
BIS in Basel (EUR 2.071 million) 7. Staff costs
and Mu‹nze O ‹ sterreich AG, the Aus- Salaries, severance payments and the
trian Mint (EUR 178.000 million). employers social security contribu-
Of the dividend payment by the Aus- tions and other statutory or contrac-
trian Mint, EUR 58.000 million were tual social charges fall under this
for the financial year 2001 and EUR heading. Staff costs were reduced by
120.000 million were for the finan- recoveries of salaries and employees
cial year 2002. This twin dividend pension contributions.
payment occurred for the first time; As of January 1, 1997, the pen-
the dividend for 2002 reflects that sion contributions of employees who
part of the Austrian Mints annual joined the OeNB after March 31,
profit for 2002 which was identified 1993, and who qualify for a Bank
as definite. pension, were raised from 5% of
their total basic pay to 10.25% of that
5. Net result of pooling part of their basic salaries which is
of monetary income below the earnings cap on social se-
The net result of the pooling of mon- curity. A rate of 2% applies to income
etary income, i.e. the OeNBs share above the earnings cap.
for 2002, will be calculated by multi- With effect from May 1, 1998,
plying its liability base with the mar- new entrants are enrolled into the na-
ginal allotment of the final main refi- tional social security system and in
nancing operations rate of 2002 as re- addition are covered by a defined
duced by the applicable expenses.1) contribution pension plan. The
The liability base is essentially com- OeNB opted for this approach in or-
posed of the following balance sheet der to bring its retirement plan in
items: liabilities item 1 Banknotes line with the retirement provision
in circulation; liabilities item 2 Li- systems prevailing in Austria, where
abilities to euro area credit institu- the statutory state pension is the first
tions related to monetary policy op- pillar and occupational and private
erations denominated in euro; liabil- pension funds are the second and
ities item 10.2 Liabilities related to third pillars.
promissory notes backing the issu- Salaries net of pension contribu-
ance of ECB debt certificates; liabil- tions collected from staff members
ities item 10.3 Net liabilities related grew by EUR 4.382 million or
to the allocation of euro banknotes 5.5% to EUR 83.800 million. This
within the Eurosystem; liabilities rise is attributable primarily to the
item 10.4 Other liabilities within wage increase negotiated for the
the Eurosystem (net). The total banking sector and bonus payments
1 Decision of the European pooled monetary income of all na- and overtime connected to the suc-
Central Bank of 6 December tional central banks is distributed cessful introduction of euro cash.
2001 on the allocation of among the national central banks at The OeNBs outlays were reduced
monetary income of the
national central banks of
the end of each financial year in pro- by recoveries of salaries totaling
participating Member States portion to their paid-up shares in the EUR 9.840 million for staff members
from the financial year subscribed capital of the ECB. The on secondment to the subsidiaries
2002 (ECB/2001/16). distribution of monetary income for and foreign institutions.
We have audited the accounting records and the financial statements of the
Oesterreichische Nationalbank for the year ending December 31, 2002, and
have found that they are presented in accordance with the provisions of the
Federal Act on the Oesterreichische Nationalbank 2002 as amended and as
promulgated in Federal Law Gazette I No. 60/1998. The financial statements
were prepared in conformity with the accounting policies defined by the
Governing Council of the European Central Bank, as set forth in the Guideline
of the European Central Bank of 5 December 2002 on the Legal Framework
for Accounting and Financial Reporting in the European System of Central
Banks (ECB/2002/10), in conformity with Article 26.4 of the Protocol on
the Statute of the European System of Central Banks and the European Central
Bank. In our opinion the accounts provide a true and fair picture of the
OeNBs financial position and the results of its operations. The annual report
complies with the provisions of Article 68 paragraph 1 and paragraph 3 of the
Nationalbank Act as amended and as promulgated in Federal Law Gazette I
No. 60/1998 and corresponds with the financial statements.
With the statutory allocation of EUR 899.771 million (2001: EUR 975.009
million) of the OeNBs profit to the central government having been made
in conformity with Article 69 paragraph 3 of the Nationalbank Act (item
13 of the profit and loss account), the balance sheet and the profit and loss
account show a
Profit for the year 2002 of EUR 100,092,976.09.
On March 26, 2003, the Governing Board endorsed the following proposal
to the General Council for the appropriation of profit:
to pay a 10% dividend
on the OeNBs capital stock of EUR 12 million EUR 1,200,000.
to allocate to the Leopold Collection EUR 4,232,498.26
to allocate to the OeNB Anniversary Fund
for the Promotion of Scientific Research
and Teaching:
Earmarked funds EUR 70,250,000.
Reserves of the OeNB Anniversary Fund EUR 24,232,716.58 EUR 94,482,716.58
to carry forward a retained profit of EUR 177,761.25
EUR 100,092,976.09
Publications,
Imprint
Periodical Publications
Published
Gescha‹ftsbericht annually
External Sector
Distinguishing Current Account Transactions
from Financial Flows — An Analysis of Austrias Current
and Financial Transactions with Countries and Regions 4/2002
Austrias Portfolio Investment Position —
The Globalization of Securities Investment
and its Impact on Austria 4/2002
Austrias International Investment Position annually
Austrian Outward and Inward Direct Investment annually
Balance of Payments quarterly
Overview of Studies Published in Focus Issues
Focus on Austria (issue 2/2001)
The New Framework for Fiscal Policy
Fiscal Policy Design in the EU
Measures and Strategies for Budget Consolidation in EU Member States
Distributive Aspects of Economic Policy in EMU —
An Analysis from an Employee Perspective
Problems Relating to the Taxation of Cross-Border Capital Income
Austrias Sovereign Debt Management Against the Background
of Euro Area Financial Markets
Cyclically Adjusted Budgetary Balances for Austria
Focus on Austria (issue 3—4/2001)
Aspects of the Transmission of Monetary Policy
The Transmission Mechanism and the Role of Asset Prices in Monetary Policy
Asymmetric Transmission of Monetary Policy through Bank Lending —
Evidence from Austrian Bank Balance Sheet Data
Balance Sheet and Bank Lending Channels:
Some Evidence from Austrian Firms
Financial Innovation and the Monetary Transmission Mechanism
Transmission Mechanism and the Labor Market: A Cross-Country Analysis
Monetary Transmission and Fiscal Policy
Principles for Building Models
of the Monetary Policy Transmission Mechanism
Working Papers
2001
No. 43 The Bank, the States, and the Market:
An Austro-Hungarian Tale for Euroland, 1867—1914
No. 44 The Euro Area and the Single Monetary Policy
No. 45 Is There an Asymmetric Effect of Monetary Policy over Time?
A Bayesian Analysis Using Austrian Data
No. 46 Exchange Rates, Prices and Money. A Long Run Perspective
No. 47 The ECB Monetary Policy Strategy and the Money Market
No. 48 A Regulatory Regime for Financial Stability
No. 49 Arbitrage and Optimal Portfolio Choice with Financial Constraints
No. 50 Macroeconomic Fundamentals and the DM/$ Exchange Rate:
Temporal Instability and the Monetary Model
No. 51 Assessing Inflation Targeting after a Decade of World Experience
No. 52 Beyond Bipolar: A Three-Dimensional Assessment
of Monetary Frameworks
No. 53 Why Is the Business-Cycle Behavior of Fundamentals Alike
Across Exchange-Rate Regimes?
No. 54 New International Monetary Arrangements and the Exchange Rate
No. 55 The Effectiveness of Central Bank Intervention in the EMS:
The Post 1993 Experience
2002
No. 56 Asymmetries in Bank Lending Behaviour. Austria During the 1990s
No. 57 Banking Regulation and Systemic Risk
No. 58 Credit Channel and Investment Behavior in Austria:
A micro-econometric approach
No. 59 Evaluating Density Forecasts with an Application
to Stock Market Returns
No. 60 The Empirical Performance of Option Based Densities
of Foreign Exchange
No. 61 Price Dynamics in Central and Eastern European
EU Accession Countries
Other Publications
Architektur des Geldes —
Vom klassizistischen Palais zum zeitgeno‹ssischen Geldzentrum
The Architecture of Money — From the Classicistic Bank Palace
to the Modern Money Center
The Austrian Financial Markets —
A Survey of Austrias Capital Markets — Facts and Figures
Guidelines on Market Risk (six volumes)
The Single Financial Market: Two Years into EMU —
Results of the 29th OeNBs Economics Conference
Competition of Regions and Integration in EMU —
Results of the 30th OeNBs Economics Conference
Vienna 2003