11 March 2021

SUERF: Who has purchased euro area debt since the start of the health crisis?

The coronavirus crisis and the decline in economic activity led to a steep rise in the need for financing. As a result, net issuance of public and private debt securities in the euro area has increased to unprecedented levels. The main buyers are central banks and banking institutions, and, to a lesser extent, non-euro area residents.

On the supply side, the crisis has led to a surge in debt securities issues

Chart 1: Public and private debt issuance has reached record levels in the euro area
(Seasonally adjusted data, EUR billions)

Source: European Central Bank (author’ s calculations).
Note: Net debt issuance in the euro area, by issuing sector (six-month moving sums).

The public and private financing needs associated with the decline in activity since March 2020 have led not only to a sharp rise in bank credit in the euro area, but also to an intensification of debt issuance. This brief focuses exclusively on debt securities issued in the market, and not on bank credit.

In the euro area, all sectors combined have issued a net total of EUR 1,116 billion of debt securities since the start of the coronavirus crisis (i.e. in the six months from March to August 2020; see Chart 1). Long-term securities, with a maturity greater than one year, made up three quarters of this amount (EUR 821 billion), while short-term securities account for EUR 295 billion. Issuance has increased across all sectors, although with some variations that reflect the specificities of the health crisis.

General government issuance in the euro area has risen to unprecedented levels, reaching a total of EUR 874 billion in the six months from March to August 2020 (equivalent to the total amount of net issuance in the 18 months following the financial crisis, from September 2008 to February 2010). This borrowing activity has been triggered by the need to cover the huge financing gap caused by the historic drop in activity during the lockdown. 78% of total net issuance over the period has been by general government.

Non-financial corporations (NFCs) raised a net EUR 122 billion between March and August 2020, nearly twice as much as the previous record set in the six months after December 2012 (EUR 70 billion). 95% took the form of long-term securities. This probably reflects borrowing by companies to cover their cash needs, as well as precautionary behaviour in the face of the economic and health risks (Bank for International Settlements, 2020).

In the financial sector (banks, insurers, pension and investment funds), debt securities issues has also increased since March 2020, but to a far lesser extent than during the 2008 financial crisis (EUR 107.5 billion in 2020 compared with EUR 409 billion in the six months following the collapse of Lehman Brothers in September 2008). A possible explanation is the large amount of liquidity provided to banks by the Eurosystem as well as the overall better financial conditions of the financial sector in 2020 as compared to 2008.

The rise in total net issuance can be observed in all euro area countries (see Chart 2). However, if we take net issuance over the period as a share of GDP, France ranks first in the region with issues equivalent to 13.0% of GDP, while the Netherlands ranks second at 12.9%. France’s high issuance-to-GDP ratio is attributable to short-term general government borrowing, especially by social security funds (38% of euro area short-term public debt issuance between March and August 2020, Banque de France). France also ranks first for outstanding debt securities issued by the NFC sector. French NFCs raised EUR 63 billion (2.8% of GDP) in the debt markets over the period, compared with EUR 17 billion for Dutch NFCs (2.2% of GDP) and EUR 32 billion for German NFCs (0.9% of GDP). This can notably be explained by the structurally higher use of market financing by French and Dutch companies. It should also be noted that, as in the rest of the euro area, but to a greater extent, the sharp rise in French NFC debt has also been accompanied by almost an equivalent rise in their cash holdings (Banque de France).

Chart 2: France has issued more net debt than the rest of the euro area since the start of the crisis

Sources: ECB, IMF.

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