## _cr10276 ## Source details **Canonical URL:** [_cr10276](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr10276.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr10276.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr10276.pdf.json) --- ### Executive summary: focus, near-term outlook, vulnerabilities - Focus and purpose - Consultation focused on ways to restore public finances, ensure financial stability, and enhance sources of future growth as Austria emerges from the recession with worsened public finances, vulnerabilities in the banking sector, and weaker medium-term growth prospects. - Background and near-term outlook - Government interventions: fiscal stimulus and financial sector support packages, including nationalization of some smaller banks. - Recovery: With global demand picking up, the recovery is underway, but external uncertainties are significant. - GDP contracted by 3.9 percent in 2009; industrial production shrunk by about 12 percent in 2009. - Growth forecast: GDP growth is expected to reach about 1.5 percent in 2010 and 2011. - Inflation: Given slack in the economy, inflationary pressures should remain limited despite the depreciation of the euro. - External dependence and vulnerabilities - Exports represent more than 50 percent of GDP. - Germany and CESEE countries take up one third and one fifth of total exports, respectively. - Foreign bank claims amount to 140 percent of GDP, half of which are to the CESEE. - About 13 percent of the labor force in Austria is foreign-born. - Austria is particularly exposed to growth and financial shocks in the euro area and CESEE; renewed tensions in some CESEE countries could affect funding costs and profitability of Austrian banks and domestic credit supply. ### Fiscal outlook, consolidation design, and key fiscal measures - Fiscal deterioration and staff position - General government deficit expected to reach respectively 4¾ percent and debt 70 percent of GDP in 2010. - General government deficit and debt set to rise to respectively 4.8 and 70 percent of GDP in 2010, from 0.5 percent and 59 percent in 2007. - Discretionary stimulus measures totaled almost 2 percent of GDP in cumulative terms in 2010 and were mostly designed to be permanent. - Staff supported continued fiscal stimulus in 2010 given the fragility of the recovery and lack of evident imbalances. - Recommended reducing the deficit to below 3 percent of GDP by 2013 and continuing consolidation in 2014 and beyond to put debt on a declining path from 2014 onwards. - Under the authorities’ planned consolidation (annual structural steps of about ½ percent of GDP), general government debt would increase to around 75 percent of GDP by 2013 before decreasing. - Staff stressed the need to identify early the measures to achieve consolidation and to be ready to take additional measures if market pressures emerge. - Authorities’ consolidation choices and specific measures - Authorities decided a 60/40 percent split between expenditure and revenue measures. - Central government actions: - Parliament approved new medium-term expenditure ceilings, "4 percent lower than previous year’s ceilings", binding for each ministry in 2011. - Performance-based budgeting to be introduced by 2013. - Structural measures underpinning expenditure reductions "would be included in the 2011 budget to be transmitted to Parliament in December 2010." - Specific quantified measures: - Public health insurance companies expected to save a total of 1.7 billion euro over 2010–13, implying a potential cumulative deficit-reducing impact of some 0.2 percent of GDP. - A bank levy is expected to yield 500 million euro (close to 0.2 percent of GDP). - Fiscal projections (Staff baseline and Authorities' adjustment scenario; percent of GDP) - Staff Baseline Scenario — Overall balance: -0.5, -0.5, -3.5, -4.8, -4.1, -3.9, -3.7, -3.7, -3.6 (2007–2015); Gross debt: 59.2, 62.4, 67.1, 70.1, 72.5, 74.2, 75.8, 76.8, 77.6; Real GDP growth: 3.7, 2.2, -3.9, 1.5, 1.6, 1.7, 1.8, 1.8, 1.8. - Authorities' Adjustment Scenario — Overall balance: -0.5, -0.5, -3.5, -4.7, -4.0, -3.3, -2.7, -2.3, - ; Gross debt: 59.2, 62.4, 67.1, 70.2, 72.6, 73.8, 74.3, 74.2, - ; Real GDP growth (Stability Programme Jan 2010): 3.7, 2.2, -3.9, 1.5, 1.5, 1.9, 2.0, - , -. - Note: Staff baseline "assumes implementation of expenditure ceilings at the federal level in 2011." - Spending composition and efficiency: identified saving areas - Subsidies: exceed the average; more than half go to public enterprises (notably railways and hospitals). - Health: spending higher than euro area average; Austria ranks among the top two in the EU in hospital beds and hospital visits per inhabitant. - Social protection: spending adds up to some 20 percent of GDP; share of pensions is relatively high (around 2/3 against an average of 60 percent). - Education: spending roughly in line with the average; low tertiary enrollment rates but spending per student higher than average. ### Fiscal federalism and institutional reforms - Structure and shortcomings - Federal government, nine states (Laender), and some 2,350 municipalities. - Sub-national governments spend almost one third of general government outlays but have very limited taxing power. - Fiscal equalization law regulates intergovernmental fiscal relations; current law valid for 2008–13 if not renegotiated. - Internal stability pact sets annual numerical targets but prior to crisis federal over-achievement often compensated Laender under-performance and no sanctions were enforced; pact off track since 2009. - Staff recommendations on federalism - Overhaul fiscal federal arrangements to disentangle responsibilities and better align taxing with spending powers. - Revisit the internal stability pact to reduce procyclicality — including by adopting expenditure ceilings at the Laender level — and improve compliance through binding sanctions. - Set ceilings on local government guarantees where guarantees exceed financial abilities. ### Financial sector: support, capital, asset quality, and supervisory framework - Public support, capitalization, and deleveraging - Public capital injections to large banks totaled 7.4 billion euro, complemented in some cases by private capital. - Deleveraging amounted to 13 percent of assets so far. - Regulatory capital to risk-weighted assets: 2009 15.0 (percent). Regulatory Tier I capital to risk-weighted assets: 2009 11.1 (percent). - Return on assets: 2009 0.1 (percent). Return on equity: 2009 1.5 (percent). Total assets (EUR billions, memorandum): 2009 1,034.0. Total loans (EUR billions): 2009 756.5. Total deposits (EUR billions): 2009 636.0. - Asset quality and provisioning - Loan loss provisioning increased to 2.8 percent as of end-2009 for Austrian non-bank customers, and 5.2 percent for subsidiaries in CESEE and CIS. - Nonperforming loans at end-2009: average of 2.3 percent of all loans in Austria; 9.7 percent of non-bank customer loans in CESEE and CIS. - For the largest banks at end-June 2010: Erste Bank NPL ratio increased from 6.6 percent at end-2009 to 7.3 percent at end-June 2010; Bank Austria NPL ratio increased from 3.5 percent at end-2009 to 4.1 percent at end-June 2010. - Funding, maturity risks, and levies - High share of bonds maturing in next few years; "26 billion euro in 2011 alone" highlighted. - Anticipated bank levies could dent profitability; bank levy expected to yield 500 million euro (close to 0.2 percent of GDP). - Mission advised bank taxes be properly designed and coordinated to enhance resilience. - Supervision, cross-border issues, and resolution - OeNB responsible for fact finding; FMA responsible for decision making. Supervisory capacity and number of inspections increased, including cross-border, but more than 800 small banks imply reliance on off-site assessments. - Authorities lack ability to undertake on-site inspections in some non-EU Member states (Ukraine, Kazakhstan, Russia) comprising 9 percent of all CESEE exposures; staff support efforts to remedy this. - Staff recommended extending FMA’s early intervention powers and introducing a specific bank resolution framework (mandating early remedial action; powers to restructure banks; explicit recognition of purchase and assumption, bridge banks, mergers). - Staff concurred with authorities to keep the financial sector support package in place for the time being and recommended limiting distortions with tighter access costs and conditions; EC approval obtained to extend banking stabilization package until end-2010. ### Foreign-currency lending, CESEE exposures, and cross-border supervision - Foreign-currency lending exposures and policies - Slightly less than a fourth of banks’ loan exposure on an unconsolidated basis at end-2009 was foreign currency lending. - In spring 2009, some three fourths of bullet loans with repayment vehicles were directly exposed to market risk. - Tighter FMA guidelines in 2010; OeNB to assess compliance via on-site inspections. - Domestic policy: bullet loans with repayment vehicles should no longer be available; fx loans only if customer has natural hedge or highest credit rating. - CESEE subsidiaries: about half of lending was in foreign currency at end-2009; Austrian banks requested to avoid non-euro denominated fx lending abroad. - CESEE exposures and macro linkages - Total CESEE exposures at 12/31/09 is approximately $293 Billion. - Exposure on CESEE was $242 billion (as reported elsewhere in the text). - Direct exposure to Southern euro area countries (excluding Italy) and Ireland was about $25 billion at end-2009 (6.8 percent of GDP). Exposure on Italy alone was about $25 billion. - By 2007, the CESEE region accounted for nearly half of the total stock of Austrian FDI, or close to 19 percent of GDP. - Exports to CESEE represented one fifth of total Austrian exports; over 40 percent of Austrian exports to CESEE (around 4 percent of GDP) went to formerly booming (FB) economies. - Macro spillovers from lower CESEE growth (Box 1.2 and OeNB summary) - Effect on Austria's GDP growth could range between 0.1 and 0.2 percentage points each year. - Effect on the current account balance could be around 0.4 percent of GDP. - OeNB staff summary (Impact 2011–2015, more severe scenario): lower AUT export (growth) to CESEE: -4pp p.a; lower gross income growth: -10pp; lower net trade contribution of CESEE to AUT GDP growth: -0.2pp p.a; effect on current account balance: from lower net trade contribution -0.2pp p.a, from lower gross income -0.25 pp p.a (combined about -0.45 pp p.a). - Alternative (less severe) scenario: lower AUT export (growth) to CESEE: -2pp p.a; lower net trade contribution: -0.1 pp p.a; effect on current account balance from lower net trade contribution: -0.1 pp p.a. ### Growth, labor market, and structural reforms - Potential growth and projections - Potential growth estimated to have diminished from around 2 percent in the years preceding the crisis to 1.7 percent by 2014. - GDP growth projections (percent): 2010 1.5; 2011 1.6; 2012 1.7; 2013 1.8; 2014 1.8; 2015 1.8. - Potential output (growth in percent): 2010 1.1; 2011 1.2; 2012 1.4; 2013 1.5; 2014 1.7; 2015 1.7. - CESEE slowdown impacts: GDP growth could be lower by about 0.1 to 0.2 percentage points and the current account balance reduced by 0.3–0.5 percent of GDP over the projection period (as summarized in the Executive Summary). - Labor market priorities and weaknesses - Employment outcomes weak for older workers: 41 percent of workers aged 55–64 employed vs. EU average 46. - Low-skilled employment: below 50 percent relative to 60–65 percent in some other European countries. - Female employment: an above average share is part-time; absence of full-day pre-school child care and schools hampers female participation. - Effective retirement age is well below legal age due to early and partial retirement schemes and disability benefits; around a third of the workforce enters disability benefits at an average age of 51. - Structural reform recommendations - Raise the effective retirement age and eliminate special schemes and long transition periods undermining the 2003 pension reforms. - Improve health of workers and reduce early retirement misuse. - Introduce compulsory and free pre-school education for 5-year olds to improve employment conditions for women and the socially disadvantaged. - Strengthen competition in services and utilities; strengthen the Federal Competition Authority and reduce administrative burdens; postal market law to remove remaining monopoly on letters weighting less than 50 grams (entering into force January 2011); transposition of the EU Services directive in process; transposition of the EU directive on nondiscriminatory network access in energy markets should be effective by 2011–12. ### Scenarios for debt dynamics and selected external projections - Debt dynamics scenarios - Baseline (expenditure ceilings 2011 & health insurance package 2009): debt increases until about 2013 then declines thereafter. - Full adjustment (1/2 pp reduction of structural deficit starting 2011 until balance is achieved): earlier stabilization and lower peak debt (time series charts provided in source). - Selected external account projections (percent of GDP) - Current account: 2010 2.1; 2011 2.2; 2012 2.1; 2013 2.1; 2014 2.1; 2015 2.1. - Exports: 2010 49.8; 2011 50.6; 2012 51.7; 2013 53.1; 2014 54.8; 2015 57.0. - Imports: 2010 46.0; 2011 46.8; 2012 48.1; 2013 49.6; 2014 51.4; 2015 53.6. ### Governance, AML/CFT, and concluding staff appraisal - Governance and compliance - Steps taken to prevent unlawful use of the financial system are welcome. - Recommendation: further strengthen compliance with FATF recommendations. - Staff appraisal and overall judgment - Decisive policy action is needed to preserve Austria’s strengths and address weaknesses unearthed by the crisis. - Key priorities: determined fiscal consolidation, strengthened financial sector resilience, and structural measures to support potential growth. - Next Article IV consultation proposed on the standard 12-month cycle. ### Key statistics and selected fiscal/financial indicators (as reported) - Real GDP (change in percent): 3.6 3.7 2.2 -3.9 1.5 1.6 - Domestic demand (change in percent): 2.2 2.5 1.3 -2.3 0.5 1.0 - CPI (period average, percent change): 1.7 2.2 3.2 0.4 1.5 1.7 - Unemployment rate (in percent): 4.8 4.4 3.8 4.8 4.5 4.5 - General government balance (ESA 95 basis, percent of GDP): -1.6 -0.5 -0.5 -3.5 -4.8 -4.1 - General government debt (percent of GDP): 62.1 59.2 62.4 67.1 70.1 72.5 - Financial sector (2009): Regulatory capital to risk-weighted assets 15.0 (percent); Regulatory Tier I capital to risk-weighted assets 11.1 (percent); Nonperforming loans to total gross loans 2.3 (percent); Loan-loss provisions to nonperforming loans 73.8 (percent); Total assets (EUR billions) 1,034.0; Total loans (EUR billions) 756.5; Total deposits (EUR billions) 636.0; Return on assets 0.1 (percent); Return on equity 1.5 (percent). - Fund position (as of June 30, 2010): Holdings of currency (percent of quota) 76.4; Holdings of SDRs (percent of allocation) 100.8; Quota (millions of SDRs) 1,872.3. *Source: _cr10276 — IMF staff report extract (Executive Summary and selected sections).* ### Executive Summary ### Executive Summary ### Focus and purpose - Consultation focused on ways to restore public finances, ensure financial stability, and enhance sources of future growth as Austria emerges from the recession with worsened public finances, vulnerabilities in the banking sector, and weaker medium-term growth prospects. ### Background and near-term outlook - Government interventions: fiscal stimulus and financial sector support packages, including nationalization of some smaller banks. - Recovery: With global demand picking up, the recovery is underway, but external uncertainties are significant. - GDP: GDP contracted by 3.9 percent in 2009; industrial production shrunk by about 12 percent in 2009. - Growth forecast: GDP growth is expected to reach about 1.5 percent in 2010 and 2011. - Inflation: Given slack in the economy, inflationary pressures should remain limited despite the depreciation of the euro. - External dependence: - Exports represent more than 50 percent of GDP. - Germany and CESEE countries take up one third and one fifth of total exports, respectively. - Foreign bank claims amount to 140 percent of GDP, half of which are to the CESEE. - About 13 percent of the labor force in Austria is foreign-born. - Vulnerabilities: Austria is particularly exposed to growth and financial shocks in the euro area and CESEE; renewed tensions in some CESEE countries could affect funding costs and profitability of Austrian banks and domestic credit supply. ### Three main policy challenges - Fiscal consolidation - Consolidation should start, as planned, in 2011, to bring debt on a declining path after 2013. - Government planned a 60/40 split between expenditure and revenue measures. - Staff view: a mostly expenditure-based consolidation with participation of all levels of government would help minimize effects on growth and enhance sustainability. - Financial stability - Capital positions have strengthened, but remaining weaknesses in a number of banks need to be addressed. - Despite improvements to the supervisory framework, important gaps in supervisory and resolution powers still need to be filled. - Structural reforms to raise potential growth - Potential growth affected by weaker investment, ageing population, and lower growth in some CESEE countries. - Authorities were considering measures to raise the effective retirement age. ### Fiscal outlook and recommendations - Fiscal deterioration: - General government deficit expected to reach respectively 4¾ percent and debt 70 percent of GDP in 2010. - General government deficit and debt set to rise to respectively 4.8 and 70 percent of GDP in 2010, from 0.5 percent and 59 percent in 2007. - Discretionary stimulus measures totaled almost 2 percent of GDP in cumulative terms in 2010 and were mostly designed to be permanent. - Staff position: - Supported continued fiscal stimulus in 2010 given the fragility of the recovery and lack of evident imbalances. - Recommended reducing the deficit to below 3 percent of GDP by 2013 and continuing consolidation in 2014 and beyond to put debt on a declining path from 2014 onwards. - Under the authorities’ planned consolidation (annual structural steps of about ½ percent of GDP), general government debt would increase to around 75 percent of GDP by 2013 before decreasing. - Staff stressed the need to identify early the measures to achieve consolidation and to be ready to take additional measures if market pressures emerge. - Fiscal packages (cumulative effect on deficit, in percent of GDP): - Decisions of Parliament of 24th Sept 2008: 0.3 (2008), 1.5 (2009), 1.9 (2010), 1.8 (2011), 1.8 (2012), 1.7 (2013). - Breakdown of measures listed by category in source (no additional numerical aggregation beyond totals provided). ### Financial sector issues - Legacy effects from CESEE boom-bust: Austrian banks weakened by bursting credit bubbles in some CESEE countries face rising nonperforming loans. - Public support schemes are to gradually unwind. - Credit conditions: tightened; larger firms increased recourse to bond financing. Loan spreads to SMEs increased in line with past recessions; surveys suggest investment reacted more to depressed demand than to tighter financing conditions. - Staff advice: address remaining weaknesses in banks, fill gaps in supervisory and resolution powers, and remain prepared to act if market pressures threaten targets. ### Medium-term growth and labor market - Potential growth: - Estimated to have diminished from around 2 percent in the years preceding the crisis to 1.7 percent by 2014. - CESEE slowdown impacts: GDP growth could be lower by about 0.1 to 0.2 percentage points and the current account balance reduced by 0.3–0.5 percent of GDP over the projection period. - Labor market priorities: - Better utilization of labor resources is a priority. - Employment outcomes weak for older workers (41 percent of workers aged 55–64 employed vs. EU average 46), low-skilled (below 50 percent relative to 60–65 percent in some other European countries), and foreign-born workers (unemployment high). - Female employment: an above average share is part-time; absence of full-day pre-school child care and schools hampers female participation. - Effective retirement age is well below legal age due to early and partial retirement schemes and disability benefits; around a third of the workforce enters disability benefits at an average age of 51. - The 2003 pension reform increases incentives for later retirement but its introduction is very gradual; some recent measures have lowered participation rates of older workers. - Policy suggestions include raising the effective retirement age, improving health of workers, introducing compulsory and free pre-school education for 5-year olds to improve employment conditions for women and the socially disadvantaged, and stronger implementation of EU directives to boost competition in services. - Structural reform areas: - Improve utilization of labor (increase effective retirement age, reduce early retirement misuse). - Strengthen competition in services and utilities; plans to strengthen the Federal Competition Authority and reduce administrative burdens; postal market law to remove remaining monopoly on letters weighting less than 50 grams (entering into force January 2011); transposition of the EU Services directive in process; transposition of the EU directive on nondiscriminatory network access in energy markets should be effective by 2011–12. ### Scenarios for debt dynamics - Baseline vs. full adjustment scenarios (debt as percent of GDP): - Baseline (expenditure ceilings 2011 & health insurance package 2009) shows debt increasing until about 2013 then declining thereafter. - Full adjustment (1/2 pp reduction of structural deficit starting 2011 until balance is achieved) would result in earlier stabilization and lower peak debt (exact time series figures provided in source charts). *Source: _cr10276 - Executive Summary* ### 14. The authorities have decided a 60/40 percent split between expenditure and ### _cr10276 - 14. The authorities have decided a 60/40 percent split between expenditure and ### Fiscal consolidation: measures, scope, and sequencing - Authorities decided a 60/40 percent split between expenditure and revenue measures. - Central government actions: - Parliament approved new medium-term expenditure ceilings, "4 percent lower than previous year’s ceilings", binding for each ministry in 2011. - Performance-based budgeting to be introduced by 2013. - Authorities committed that structural measures underpinning expenditure reductions "would be included in the 2011 budget to be transmitted to Parliament in December 2010." - Specific quantified measures: - Public health insurance companies expected to save a total of 1.7 billion euro over 2010–13 on medical and related fees, implying a potential cumulative deficit-reducing impact of some 0.2 percent of GDP. - A bank levy is expected to yield 500 million euro (close to 0.2 percent of GDP). - Staff assessment: - Staff welcomed the actions but stressed that envisaged expenditure reductions need to be underpinned by structural measures to be sustainable. - Staff recommended a mainly expenditure-based consolidation at all levels of government, noting room for rationalization and that expenditure-based consolidations are more sustainable. ### Fiscal projections and key statistics (Staff baseline and Authorities' adjustment scenario) - Staff Baseline Scenario (percent of GDP unless otherwise indicated) - Overall balance: -0.5, -0.5, -3.5, -4.8, -4.1, -3.9, -3.7, -3.7, -3.6 (for 2007–2015 as tabulated) - Gross debt: 59.2, 62.4, 67.1, 70.1, 72.5, 74.2, 75.8, 76.8, 77.6 - Real GDP growth: 3.7, 2.2, -3.9, 1.5, 1.6, 1.7, 1.8, 1.8, 1.8 - Note: "1/ Assumes implementation of expenditure ceilings at the federal level in 2011." - Authorities' Adjustment Scenario - Overall balance: -0.5, -0.5, -3.5, -4.7, -4.0, -3.3, -2.7, -2.3, - - Gross debt: 59.2, 62.4, 67.1, 70.2, 72.6, 73.8, 74.3, 74.2, - - Real GDP growth (Stability Programme Jan 2010): 3.7, 2.2, -3.9, 1.5, 1.5, 1.9, 2.0, - , - - Data sources noted in text: "Source: Eurostat (until 2009); authorities and staff projections." ### Spending composition and efficiency (Box 3) - Identified areas for potential savings and efficiency gains: - Subsidies: - Subsidies exceed the average; more than half go to public enterprises (notably railways and hospitals). - Improving administration and transparency should help identify savings. - Health: - Health spending is higher than the euro area average. - Life expectancy and healthy-life years are around average. - Hospital spending has a particularly high share; Austria ranks among the top two in the EU in terms of hospital beds and hospital visits per inhabitant. - Rationalization would require increased coordination across Laender; potential references: OECD Economic Surveys (2005, 2009) and WIFO “Optionen zur Konsolidierung der oeffentlichen Haushalte in Oesterreich” (2010). - Social protection: - Spending adds up to some 20 percent of GDP. - Share of pensions is relatively high (around 2/3 against an average of 60 percent), even though the old-age dependency ratio is close to average. - Education: - Education spending is roughly in line with the average. - Low tertiary enrollment rates but spending per student is consistently higher than average; mixed results (PISA), implying scope to increase efficiency. ### Fiscal federalism and the Austrian Stability Pact (Box 4) - Institutional setup: - Federal government, nine states (Laender), and some 2,350 municipalities. - Sub-national governments spend almost one third of general government outlays but have very limited taxing power (municipal level only: communal tax based on enterprises payroll and real estate tax). - Resources to sub-national levels come mostly from transfers, co-financing, and shared taxes (notably personal income, corporate taxes, and VAT). - Numerous extra-budgetary entities exist at all levels. - Fiscal equalization law regulates intergovernmental fiscal relations; current law valid for 2008–13 if not renegotiated. - Shortcomings of the internal stability pact: - Pact sets annual numerical targets for headline deficit of central government, Laender, and municipalities. - Prior to crisis, federal over-achievement often compensated Laender under-performance; no sanctions were enforced. - Nominal deficit targets may be procyclical; some leeway exists for temporary deviation. - Room for improvement in information exchange and coordination; pact supposed to be valid 2008–2013 is off track since 2009. - Staff recommendations: - Overhaul fiscal federal arrangements to disentangle responsibilities and better align taxing with spending powers. - Revisit the internal stability pact to reduce procyclicality — including by adopting expenditure ceilings at the Laender level — and improve compliance through binding sanctions. - Set ceilings on local government guarantees where guarantees exceed financial abilities. - Authorities indicated discussion between government levels would take place in the fall. ### Revenue options and constraints - Staff saw little scope for increasing revenues overall: - Austria has one of the highest overall tax-to-GDP ratios and labor-tax wedges in the EU. - Some taxes are low or nonexistent: general wealth, inheritance, and gift taxes. - Targeted revenue options endorsed by staff: - Raise the real estate tax, currently yielding 1/4 percent of GDP and based on outdated valuations (EU-15 property taxes average around 2 percent of GDP). - Raising it would improve municipalities’ taxing power. - Increase fuel taxes, which are lower than in neighboring countries, including most recent EU Member states. - Staff advised against large tax increases but saw scope for targeted tax increases to complement expenditure consolidation. ### Financial sector: support measures, risks, and capital/liquidity - Public support and market pressures: - Public financial support, together with EU/IMF-supported programs in some CESEE countries, reduced market pressures; CDS spreads declined. - Government capital injections, asset guarantees, and guarantees on issuances at national level, plus increased ECB liquidity, contributed to stabilization. - Some banks (KommunalKredit and Hypo Group Alpe Adria) nationalized and to be restructured, including cross-border. - Exposures: - Banks broadly maintained exposures to Vienna Initiative economies; exposure to CIS countries was reduced by more than a third. - Direct exposure to Southern euro area countries (excluding Italy) and Ireland was about $25 billion at end-2009 (6.8 percent of GDP). - Exposure on Italy alone was about $25 billion. - Exposure on CESEE was $242 billion. - Capitalization and deleveraging: - Public capital injections to large banks totaled 7.4 billion euro, complemented in some cases by private capital. - Deleveraging amounted to 13 percent of assets so far. - Tier 1 ratios: charts indicate improvement but ratios currently "appear to be slightly below peers" with wide heterogeneity across banks. - Mission recommended closely monitoring individual banks and reinforcing capital buffers if needed. - Profitability and asset quality: - Return on assets after taxes registered a slight increase in 2009; trading income increased substantially. - Loan loss provisioning increased to 2.8 percent as of end-2009 for Austrian non-bank customers, and 5.2 percent for subsidiaries in CESEE and CIS. - At end-2009, for the largest banks: - Nonperforming loans reached an average of 2.3 percent of all loans in Austria. - 9.7 percent of non-bank customer loans in CESEE and CIS. - Heterogeneity across countries and banks; some banks restructuring loans in expectation of recovery. - Funding and maturity risks: - High share of bonds maturing in next few years; "26 billion euro in 2011 alone" highlighted. - Sustainability of earnings may be challenged as favorable environment subsides and provisioning needs rise. - Anticipated bank levies could dent profitability; authorities concerned about multiple taxation if neighboring countries introduce levies. - Mission advised bank taxes be properly designed and coordinated to enhance resilience. - Basel requirements: - Banks saw proposed December 2009 Basel liquidity requirements as overly demanding. - Minority interests represent 25 percent of Tier 1 capital in Austrian banks, causing sensitivity to Tier 1 definition. - No validated quantitative estimates of Basel impact were available (quantitative impact study not completed). - Staff stressed need to strengthen capital and liquidity positions while recognizing calibration concerns. - Recommendation on financial support package: - Staff concurred with authorities to keep the financial sector support package in place for the time being; EC approval obtained to extend banking stabilization package until end-2010. - Staff agreed to limit distortions with tighter access costs and conditions while maintaining support until the sector is stronger. ### Foreign-currency lending and cross-border supervision - Foreign-currency lending: - Slightly less than a fourth of banks’ loan exposure on an unconsolidated basis at end-2009 was foreign currency lending. - In spring 2009, some three fourths of bullet loans with repayment vehicles (often associated with fx lending) were directly exposed to market risk. - Tighter FMA guidelines in 2010; OeNB to assess compliance via on-site inspections. - Domestic policy: bullet loans with repayment vehicles should no longer be available; fx loans only if customer has natural hedge or highest credit rating. - CESEE subsidiaries: about half of lending was in foreign currency at end-2009; Austrian banks requested to avoid non-euro denominated fx lending abroad. - Authorities hope the European Systemic Risk Board will help coordinate supervisor solutions. - Staff supported efforts to reduce fx lending vulnerability while avoiding excessive undermining of CESEE financing. - Supervision and cross-border challenges: - OeNB responsible for fact finding (off-site and on-site); FMA responsible for decision making (licensing and enforcement). - Clear responsibilities and communication channels established and reflected in a joint report. - Supervisory capacity and number of inspections increased, including cross-border, but more than 800 small banks imply reliance on off-site assessments. - Authorities currently lack ability to undertake on-site inspections in some non-EU Member states (Ukraine, Kazakhstan, Russia) comprising 9 percent of all CESEE exposures; staff support efforts to remedy this. - FMA willingness to impose greater financial penalties and supervise non-bank activities welcomed by staff. - Early intervention and resolution framework recommendations: - Staff recommended extending FMA’s early intervention powers and introducing a specific bank resolution framework. - Suggested a system mandating early remedial action with powers for FMA to restructure banks when needed. - Authorities expressed reservations about frameworks relying on hard triggers. - Staff noted existing resolution options are limited (receivership and insolvency under standard company law); recommended explicit recognition of other methods (purchase and assumption, bridge banks, mergers). ### Insurance sector and pensions - Insurance sector recovery: - Overall results of insurance companies recovered in 2009. - FMA stress tests at end-2009 showed clear improvement; two biggest companies passed all EU-level stress tests. - Pensions and retirement provision: - Pension companies were unable to generate sufficient revenue in 2008 and requested additional payments from employers "close to 0.3 percent of GDP" to meet defined benefit payouts (30 percent of the plans). - Often need to reduce pension payouts for defined contribution schemes. - In state-sponsored retirement provision (Zukunftsvorsorge), minimum investment requirement in stocks was decreased in January 2010 to 30 percent and a life-cycle model introduced, in line with FSAP recommendations. ### Key policy recommendations (as presented in the text) - Favor mainly expenditure-based consolidation across government levels; underpin cuts with structural reforms. - Implement and enforce expenditure ceilings (federal level implemented in 2011 assumed in staff baseline; staff recommended adopting ceilings at Laender level as well). - Overhaul fiscal federal arrangements to align taxing with spending responsibilities and reduce fragmentation and overlaps. - Revisit the internal stability pact to reduce procyclicality and introduce binding sanctions and improved information exchange. - Set ceilings on local government guarantees where they exceed financial abilities. - Pursue targeted revenue measures (e.g., raise real estate tax, increase fuel taxes) rather than large across-the-board tax increases. - Keep financial sector support package in place until sector is stronger, while tightening access conditions to limit distortions. - Closely monitor banks individually and reinforce capital buffers where needed; design and coordinate bank levies carefully. - Strengthen supervision: extend FMA early intervention powers, create specific bank resolution framework, increase on-site inspection capacity (including in non-EU host countries), and augment supervisory tools for non-bank activities. - Continue efforts to reduce foreign-currency lending exposures, coordinate with other supervisors, and avoid undermining CESEE financing. *IMF staff report extract as provided in the source content.* ### 30. In May 2010, the Republic of Austria acquired the OeNB’s remaining shares ### _cr10276 - 30. In May 2010, the Republic of Austria acquired the OeNB’s remaining shares ### Staff appraisal: overall judgment - Decisive policy action is needed to preserve Austria’s strengths and address weaknesses unearthed by the crisis. - Key priorities: determined fiscal consolidation, strengthened financial sector resilience, and structural measures to support potential growth. - Next Article IV consultation proposed on the standard 12-month cycle. ### Fiscal outlook and consolidation recommendations - Projected fiscal path and targets: - General government deficit should start decreasing in 2011, be brought below 3 percent by 2013, and continue to decrease thereafter. - Debt-to-GDP ratio expected to rise until 2013 even with the planned consolidation; a clear commitment to lasting consolidation and sustainability is required. - Recommended design of consolidation: - Well-designed and mostly expenditure-based consolidation, with participation of all government levels, to minimize effects on growth and enhance sustainability. - Target savings where spending is high and outcomes not commensurate (health) or where spending could be better targeted (subsidies, social benefits). - Strengthen participation of sub-national levels; strengthen the “internal stability pact” and introduce ceilings to local governments’ debt and guarantees issuance. - Across-the-board tax increases should be avoided. - Selected fiscal figures (ESA95 basis, from the medium-term tables): - Revenue projections: 2010 47.5, 2011 47.6 (percent of GDP). - Expenditure projections: 2010 52.3, 2011 52.3 (percent of GDP). - Balance projections: 2010 -4.8, 2011 -4.1 (percent of GDP). - Structural Balance: 2010 -4.3, 2011 -3.7 (percent of GDP). - Gross debt (end of period): 2009 67.1, 2010 70.1, 2011 72.5 (percent of GDP). ### Growth, potential output, and structural reform priorities - Growth and potential: - GDP growth projections (percent): 2010 1.5; 2011 1.6; 2012 1.7; 2013 1.8; 2014 1.8; 2015 1.8. - Potential output (growth in percent): 2010 1.1; 2011 1.2; 2012 1.4; 2013 1.5; 2014 1.7; 2015 1.7. - Structural reform recommendations: - Eliminate special schemes and long transition periods undermining the 2003 pension reforms. - Raise the effective retirement age to enhance sustainability and growth. - Step up competition in the services sector, including effective transposition of the EU Services Directive. ### Financial sector resilience and policy - Overall situation: - The overall situation of banks has improved but vulnerabilities remain. - Some banks have weaker capital positions and strong dependence on wholesale and market funding. - Monitoring and corrective action: - Authorities should closely monitor individual banks, including based on stress test results, and ensure appropriate timely action. - Exit policy and new measures: - Extension of the current financial support package is appropriate. - Ensure proposed measures and regulatory changes enhance resilience, through proper design and assessment of combined effects. - Supervision: - Supervision should be further strengthened; FMA powers should be stepped up. - Implement a system mandating early remedial action and establish a proper resolution framework. - Financial sector data highlights (selected indicators): - Regulatory capital to risk-weighted assets: 2009 15.0 (percent). - Regulatory Tier I capital to risk-weighted assets: 2009 11.1 (percent). - Nonperforming loans to total gross loans: 2009 2.3 (percent). - Loan-loss provisions to nonperforming loans: 2009 73.8 (percent). - Total assets (EUR billions, memorandum): 2009 1,034.0. - Total loans (EUR billions): 2009 756.5. - Total deposits (EUR billions): 2009 636.0. - Return on assets: 2009 0.1 (percent). - Return on equity: 2009 1.5 (percent). ### External exposures and CESEE region - Challenge: - Providing continued financing to the CESEE region while reducing the share of foreign exchange loans will be a key challenge. - Policy actions: - Authorities’ efforts to implement and enforce tighter fx-lending standards in coordination with other supervisors are welcome. - External account projections: - Current account (percent of GDP): 2010 2.1; 2011 2.2; 2012 2.1; 2013 2.1; 2014 2.1; 2015 2.1. - Exports (percent of GDP): 2010 49.8; 2011 50.6; 2012 51.7; 2013 53.1; 2014 54.8; 2015 57.0. - Imports (percent of GDP): 2010 46.0; 2011 46.8; 2012 48.1; 2013 49.6; 2014 51.4; 2015 53.6. ### Governance, anti-money laundering, and compliance - Steps taken to prevent unlawful use of the financial system are welcome. - Recommendation: further strengthen compliance with FATF recommendations. *Source: IMF staff report content as contained in the provided chapter/section.* ### 27. Austrian ban ks exp anded h eavily in the reg ion. ### 27. Austrian ban ks exp anded h eavily in the reg ion. ### Austrian integration with CESEE - By 2007, the CESEE region accounted for nearly half of the total stock of Austrian FDI, or close to 19 percent of GDP. - Exports to CESEE represented one fifth of total Austrian exports. - Trade surpluses with the region averaged about 2 percent of GDP between 2004 and 2008. - Gross investment income from CESEE averaged around 2.7 percent of GDP (2004–2008). - In 2004–09, up to half of Austrian banks’ profits came from the CESEE. - Share of services in total exports to CESEE has been fluctuating around 22 percent; transportation and travel each account for around one third of services exports. - Table A1: Financial and Real Linkages Austria-CESEE (as reported) - Billion euro51.12821.95.96.92.3 - % of total49.919.316.45530 46 - % of GDP 18.710.98.42.22.70.9 ### Banking exposures and risks - Total CESEE exposures at 12/31/09 is approximately $293 Billion. - Austrian banks established subsidiaries and in many countries control large parts of financial intermediation. - Austrian banks' CESEE exposures (BIS data converted into million euros): Sept-08 and Dec-09 series shown for multiple countries (figures in source charts). - Austria's share in total foreign claims of BIS reporting banks on CESEE (December-09) is shown by country in the source charts. - Austrian banks' loan-deposit ratios in CESEE and Austria (Percent) tracked 2002Q1–2010Q1. - The average NPL ratio of Austrian banks’ subsidiaries in CESEE stood at just under 10 percent at end-2009. - OeNB simulations suggest a further, but limited overall decline in financial sectors’ operating results by about 7 percent by 2011 relative to end-2009 in the baseline scenario; renewed stresses could double the amount of shrunk profits. - Credit conditions: credit standards stopped tightening in 2009 Q3; spreads on loans to SMEs relative to large loans remained in-line with historical standards. - Lending rates on new business to non-financial corporations: separate series for loans up to and including EUR 1 million and loans over EUR 1 million shown in source charts. - Selected financial market indicators through July 22, 2010: equities (Erste Bank, Raiffeisen, Euro area banks, ATX), Credit Default Swaps (5 year), Sovereign CDS (5 year), 10 Year Sovereign Spread with German Bund (basis points), Government Interest Rates (10 year, 2 year), Interbank Money Market Rates (Overnight, 3 month) — time series shown in source charts. ### Macro and trade linkages - Domestic demand in CESEE’s formerly booming (FB) economies is projected by Spring 2010 WEO to be well below levels and pace before the crisis. - The level of domestic demand in FB countries in 2015 is projected to be about 30 percent less than what a simple continuation of the trend observed in 2000–08 would have suggested. - For other countries the difference is only 10 percent. - Over 40 percent of Austrian exports to CESEE (around 4 percent of GDP) went to FBs, with Hungary and Romania accounting for the bulk. - Simple correlations suggest a decline of nominal export growth to the region to 10 percent in 2010–15, down from close 14 percent in the four year period leading up to the 2009 recession. - Exports to CESEE are concentrated in intermediary and investment goods; an increase in consumption goods share noted. - High import content of exports and intra-industry trade resulting from outsourcing may mitigate the impact of weaker CESEE demand. - Gross investment income from CESEE and domestic demand growth in CESEE are shown in source charts; correlation indicates income from CESEE could be growing just over half the rate recorded in 2004–08 under projections. ### Credit conditions and domestic activity (Austria) - MFI Loans to Households (annual growth, in percent): Austria and Euro area series plotted 2004M1–2010M1; lending to households stabilised year on year. - MFI Loans to Nonfinancial Corporations (annual growth, in percent): Austria and Euro area series shown 2004M1–2010M1. - Loans to private sector nominal GDP growth series plotted 2002Q1–2010Q1: loans followed the contraction in activity. - Credit standards and demand for loans (enterprises): credit standards and demand tracked quarterly; credit standards stopped tightening in 2009 Q3. - Financing of Non-Financial Corporations (Bil. Euros) components: Other accounts payable, Equity, Loans, Debt securities shown in source charts. - Some large firms substituted bank with market finance as banks faced higher financing costs. ### Fiscal position and public debt dynamics - Austria’s fiscal deficits increased during the crisis but not as much as elsewhere. - Overall fiscal balance series for Austria-baseline, Germany, Euro area shown 2002–2014 (percent of GDP). - Overall deficit 2010 vs. 2007 and General government debt 2010 vs. 2007 series shown by country in source charts. - Debt dynamics: baseline vs. full adjustment (debt as percent of GDP) projected 2009–2019: - Baseline (expenditure ceilings 2011 & health insurance package 2009) - Full adjustment (1/2 pp reduction of structural deficit starting 2011 until balance is achieved) - General government expenditure, revenue and deficit series shown 1999–2015. - Deficit increases since 2007 decomposed by Tax measures, Other measures, Non-discretionary increase (2010–2013 series in source charts). - Continued consolidation is necessary to bring debt levels down again. - Deficit increases reflect a high share of non-temporary fiscal stimulus measures. ### Projected impacts and scenario notes - Simple projections based on past correlations: - Nominal export growth to CESEE: projected 10 percent in 2010–15 (down from close 14 percent pre-crisis four-year period). - Investment income from CESEE: correlation with demand growth implies income could grow just over half the 2004–08 rate. - OeNB and IMF assessments indicate losses in the financial sector are expected to rise further but should remain manageable in a scenario of ongoing economic recovery in the region. - IMF GFSR Spring projections: NPLs in CESEE expected to keep rising in 2010 and to improve only gradually in 2011. ### Policy implications and mitigation factors - Continued fiscal consolidation is necessary to reduce public debt levels. - The negative repercussions on Austria of weaker CESEE demand could be mitigated by: - High import content of Austrian exports to CESEE (intra-industry trade, outsourcing). - Demand for Austrian products depending also on supply performance in CESEE and third-country demand. - Bank-sector resilience notes: - Credit standards stopped tightening in 2009 Q3. - Spreads on loans to SMEs remained in-line with historical standards. - Further monitoring of NPL evolution and capital adequacy remains important given CESEE exposures. *Sources: Austrian authorities; Eurostat; IHS; WIFO; Haver; WEO; REO; IMF staff estimates; Austrian National Bank; BIS; IMF, IFS; ECB; Thomson Financial/DataStream; Bloomberg; OeNB; CEPII; Chelem Database.* ### Box 1.2, Chapter “Non-performing loans in Central and Eastern Europe–Is it different this time?” ### Box 1.2, Chapter “Non-performing loans in Central and Eastern Europe–Is it different this time?” ### Overview of macroeconomic spillovers from lower CESEE growth - The effect on GDP growth could range between 0.1 and 0.2 percentage points each year. - The effect on the current account balance could be around 0.4 percent of GDP. - Note: Trade elasticities used by OeNB would imply a roughly similar result. ### OeNB staff summary of effects on Austria (Impact 2011–2015) Assumptions: Spring WEO + past correlations; OeNB assumptions on import content. /1 Relative to pre-crisis period. /2 OeNB assumptions on import content. - Lower domestic demand (CESEE) in 2011-15 relative to pre-crisis: - Lower AUT export (growth) to CESEE: -4pp p.a - Lower gross income growth: -10pp - Lower net trade contribution of CESEE to AUT GDP growth: -0.2pp p.a - Effect on current account balance as % of GDP: - From lower net trade contribution: -0.2pp p.a - From lower gross income: -0.25 pp p.a - Alternative (less severe) scenario: - Lower AUT export (growth) to CESEE: -2pp p.a - Lower net trade contribution of CESEE to AUT GDP growth: -0.1 pp p.a. - Effect on current account balance as % of GDP: - From lower net trade contribution: -0.1 pp p.a ### Financial sector resilience and asset-quality developments - CEBS stress tests (published in July) indicated that participating Austrian banks were able to maintain a tier 1 capital ratio well above 6 percent in the stressed scenarios; results were consistent with earlier national tests run by the Austrian central bank. - Developments in regulatory capital standards: - In July 2010 the Group of Governors and Heads of Supervision of the Basel Committee reached broad agreement that Austrian banks will still need to strengthen capital positions compared with previous (Basel II) requirements, but the required increase will be more limited than implied by the December 2009 proposals. - The Committee will allow some partial recognition of minority interests in core capital. - The Governors and Heads of Supervision were expected to finalize the calibration and transition arrangements in September. - Reported non-performing loans (NPL) of Austrian banks have continued to rise: - Erste Bank NPL ratio: increased from 6.6 percent at end-2009 to 7.3 percent at end-June 2010. - Bank Austria NPL ratio: increased from 3.5 percent at end-2009 to 4.1 percent at end-June 2010. ### Key implications - Lower growth in CESEE is projected to modestly reduce Austria’s GDP growth during 2011–2015, with effects concentrated through lower exports to CESEE and reduced gross income growth. - The current account balance is projected to deteriorate modestly, with combined effects from lower net trade and lower gross income totaling around -0.45 pp p.a in the more severe scenario (sum of -0.2pp and -0.25 pp p.a as reported). - Banking-sector stress tests suggest sufficient capital buffers under the tested scenarios, but rising NPL ratios point to ongoing asset-quality pressures that warrant monitoring and potential capital strengthening under forthcoming Basel calibrations. *Source: Box 1.2, Chapter “Non-performing loans in Central and Eastern Europe–Is it different this time?” (excerpt), IMF staff report for the 2010 Article IV Consultation—Austria, July 29, 2010.* ### 6. A Memorandum of Understanding on financial supervision is being concluded ### 6. A Memorandum of Understanding on financial supervision is being concluded with Russia. ### Background and outlook - Austria experienced a severe recession with limited effects on unemployment. - Contraction driven by international trade decline and the financial crisis; investment declined sharply while consumption cushioned the recession supported by tax cuts, labor market measures, and large increases in real wages. - A gradual export-led recovery is underway; GDP growth expected to reach 1½ percent in 2010 and 2011, after a 3.9 percent contraction in 2009. - Elevated uncertainties mainly center on developments in the international financial environment. - Medium-term potential growth is unlikely to return to pre-crisis levels, affected by population ageing and ongoing weakness in investment, partly due to lower growth prospects in some Central, Eastern and South Eastern European (CESEE) countries. ### Fiscal position and consolidation - Austria’s fiscal position weakened significantly in recent years, though less than the euro area average. - Stimulus measures of around 2 percent of GDP (mainly permanent tax cuts) contributed to deterioration. - General government deficit and debt levels expected to reach respectively 4¾ percent and 70 percent of GDP in 2010. - Executive Directors welcomed the authorities’ plan to embark on decisive fiscal consolidation beginning in 2011 and found the planned pace broadly appropriate. - Recommendations from Directors: - Set out concrete commitments and measures early. - Focus consolidation mostly on expenditure and involve all levels of government to minimize effects on growth and enhance sustainability. - Given the high overall tax burden, revenue measures should be well targeted. - Strengthen the current fiscal framework (“internal stability pact”) and introduce ceilings to local governments’ debt and guarantees issuance. - Authorities’ stance (Johann Prader): - General government deficit at 3.5 % and 4.7 % of GDP in 2009 and 2010 reflects the biggest stimulus package ever and automatic stabilizers. - Government committed to decisive consolidation starting in 2011; current plans provide for a fiscal deficit of 2.3 % of GDP in 2014. - New budget framework law sets expenditure ceilings to 2014; spending ministries developing instruments to cope with ceilings for implementation in the 2011 federal budget. - Consolidation should focus more on expenditure but also requires revenue measures. ### Financial sector resilience and risks - Public support and EU/IMF-supported programs helped reduce market pressures on Austrian banks; credit default swap spreads declined. - Capitalization improved via capital increases and deleveraging, but marked heterogeneity across banks; nonperforming loans have yet to peak. - Particular risk: extent of foreign currency loans by subsidiaries in CESEE. - Executive Directors’ recommendations: - Strengthen resilience of the financial system; extension of current financial support package appropriate while avoiding distortions. - Design regulatory changes and other measures carefully. - Consider a system mandating early remedial action and a proper resolution framework for financial institutions. - Monitor individual banks closely in light of stress-test results and be ready to act as appropriate. - Enforce tighter foreign-exchange lending standards in cooperation with other supervisors; reducing the share of foreign exchange loans while providing continued financing to CESEE will be challenging. - Welcome the authorities’ action plan to address FATF recommendations. - Authorities’ view (Johann Prader): - Market confidence in Austrian banks restored in 2009 due to public support, central bank liquidity operations, and EU/IMF programs in CESEE. - Banking sector showed recovery in bottom-line profitability and improved capitalization; new Basel requirements will necessitate further capital strengthening. - OeNB stress tests and CEBS stress testing confirmed resilience; Austrian banks faced a more severe CESEE scenario than competitors. - Disclosure of sovereign portfolios showed comparatively low direct exposure to Euro area countries under market scrutiny. - Austrian banks remain committed long-term investors in CESEE and have contributed to solutions such as guidelines to curb risky foreign currency lending in CESEE and participation in the “Vienna Initiative Plus”. - Domestic measures in 2010 included a de-facto ban on foreign currency loans to un-hedged private households in Austria. - Authorities agree on importance of keeping the financial sector support package in place and closely monitoring withdrawal of monetary stimulus, given challenges including refinancing of maturing bonds, unfolding credit risks in Austria and CESEE, sustainability of current operating profitability, and regulatory changes. ### Structural and labor market recommendations - With lower medium-term potential growth, Directors welcomed efforts to: - Raise labor participation among older, low skilled, and foreign-born workers. - Boost product market competition, including revisiting special schemes and long transition periods in the implementation of the 2003 pension reform that undermine increases in the effective retirement age. - Increase competition in the services sector, including through effective transposition of the EU Services Directive. ### Key statistics and projections (as presented) - Real GDP (change in percent): 3.6 3.7 2.2 -3.9 1.5 1.6 - Domestic demand (change in percent): 2.2 2.5 1.3 -2.3 0.5 1.0 - CPI (period average, percent change): 1.7 2.2 3.2 0.4 1.5 1.7 - Unemployment rate (in percent): 4.8 4.4 3.8 4.8 4.5 4.5 - Gross national saving (percent of GDP): 25.1 26.7 26.4 23.6 22.6 22.8 - Gross domestic investment (percent of GDP): 22.3 23.2 23.2 21.3 20.5 20.6 - General government balance (ESA 95 basis): -1.6 -0.5 -0.5 -3.5 -4.8 -4.1 - General government balance (EDP definition) 1/: -1.5 -0.4 -0.4 -3.5 -4.8 -4.1 - General government debt: 62.1 59.2 62.4 67.1 70.1 72.5 - Three-month interbank rate: 3.1 4.3 4.6 0.7 ...... - 10-year government bond: 3.8 4.3 4.3 3.6 ...... - Trade balance (goods) (percent of GDP): 0.1 0.5 -0.2 -0.8 -0.1 0.1 - Current account balance (percent of GDP): 2.8 3.5 3.3 2.3 2.1 2.2 - Fund position (as of June 30, 2010): Holdings of currency (percent of quota) 76.4; Holdings of SDRs (percent of allocation) 100.8; Quota (millions of SDRs) 1,872.3 - Exchange rate regime: Member of euro area - Euro per U.S. dollar: 0.80 0.73 0.68 0.69 ...... - Nominal effective rate (2000=100): 105.5 107.0 107.9 108.3 ...... - Real effective rate (1990=100) 2/: 105.9 106.7 107.6 109.9 ...... *International Monetary Fund — Public Information Notice No. 10/126, September 8, 2010.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr10276.pdf_