The state has taken on additional debts of 45 billion euros over the past two years. This does not result in an additional budget burden due to debt servicing. On the contrary: the republic has to pay back around four billion less than it borrowed.
Yesterday, the Managing Director of the Federal Financing Agency (OeBFA), Markus Stix, thanked the European Central Bank: The massive increase in debt “was supported by the ECB with a very favorable interest rate environment, so that it is really affordable for the states,” said Stix yesterday in the Club of Business Journalists in Vienna.
Negative yields on bonds
The average interest rate on all newly taken out debt in 2021 was minus 0.34 percent. “It is the third time in Republic history that all of the year’s issues were issued at an average negative interest rate, and it is also the second time that all Bund issues were negative,” Stix said.
The average portfolio return, i.e. the return on all outstanding bonds, also fell further in the previous year, from 1.47 percent in 2020 to 1.17 percent. In addition, the average term was further increased to 10.6 years, which means that the more favorable conditions are secured for a longer period.
Stix put it into perspective that the level of debt has risen massively to 253.57 billion euros and that at some point the day will come when it will have to be repaid. Government debts are not repaid, but serviced. That is, interest is payable, and when a bond matures, it is refinanced, meaning it is replaced with a new bond or an increase in existing bonds.
The average maturity of the bonds of 10.6 years means that the entire debt is effectively “turned over” in this period. The OeBFA tried to spread the additional debt over all maturities. “The 50-year and 100-year government bonds were also increased,” said Stix. This means that there is no “lump” in the form that extremely high refinancing would be necessary in one year.
It is no coincidence that Austria is in such a comfortable position as a debtor. In 2019, the level of debt was actually reduced, and the debt ratio has also fallen from 85 to 70 percent of economic output in recent years. “Investors have registered this very precisely. Not least because of this, they feel they are in good hands with us,” said Stix.
The investors include banks, insurance companies and pension funds, not only from the euro zone, but also from Switzerland and Norway. The ECB was also a major net buyer recently. 114 billion euros or around 40 percent of Austrian government bonds “are on the books of the ECB,” said Stix.
But large international corporations are also “customers” of the OeBFA, said Stix. They appreciated the possibility of “parking” excess liquidity with us in the short term. There is a simple reason for that too. We are rated as creditworthy as the Germans, because the market for Austrian government bonds is narrower than the German one, we would have to pay 0.3 percentage points more. “That’s a lot of money for big investors,” Stix said.
Source: Nachrichten
