Shadow debt

Shadow debt ( English hidden debt ) is called in a household , particularly a state budget , not immediately recognizable implicit stress that a future economy can get.

General

The compound shadow debt suggests with the - mostly negatively connotated - term "shadow" (as in the shadow economy , shadow budget or shadow banks ) a debt which is not immediately recognizable and which in any case largely eludes statistical recording.

In households, the explicit expenditure such as social spending and obligations such as government bond liabilities are immediately recognizable . However, there are only future expenses and liabilities that are not apparent from the current budget, but can or will burden later households. This gives rise to future payment obligations for which there is no disclosure in the state core budget for the period in which they arise. This lack of transparency is favored by the cameralistics in the federal budget, because the depreciation of the federal assets is only reflected in the change in capital assets , while the much greater depreciation requirement for public infrastructure is not taken into account. On the other hand, the Doppik requires that provisions be made in the balance sheet for future expenses and for assumed liabilities under certain conditions .

Against the background of the euro crisis, the European Central Bank (ECB) is now warning of the consequences of shadow debt in the euro countries. The guarantees for other EU member states and its own banks could increase Germany's debts by 11.2% to a national debt ratio of around 90% of gross domestic product (GDP). To the official German national debt of 1.7 trillion euros (as of December 2011) around 5 trillion euros of hidden debts must be added. In order to pay off both types of debt, either tax revenue would have to be increased by 12% or transfer payments would have to be reduced by 11%. The federal government justifies this shadow debt by saying that Germany is one of the winners of the euro because of its exports to the euro area . The replies Franz Schuster that an extensive since the introduction of the euro in January 2002, export of capital has taken place, by which the net investment ratio in Germany was lower than in all other OECD countries. There is therefore no economic justification for the sharp rise in German shadow debt.

Implicit encumbrances

Implicit burdens are expenses or liabilities that are not or only indirectly identifiable from the current budget. The disproportion between the development of expenditure and revenue in public budgets in the context of demographic development is called implicit government debt and reflects the extent by which the explicit government debt will mathematically increase if the current budget policy is continued. These include, above all, the expenses for pensions and statutory health insurance , which arise as the population ages, as well as the contingent liabilities assumed from state guarantees and other state guarantees, such as in connection with the activities of the European Stabilization Mechanism (ESM).

Pension payments

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The burden for future generations from the age structure is referred to in the specialist literature as generation accounting. The often practiced procedure of the local authorities to finance the pension expenses for civil servants from the current tax revenues, leads to a shadow indebtedness in public budgets, if the revenues are not sufficient in the future. Implicit liabilities can arise from payment entitlements that can only be asserted at a later point in time, such as pension payments and other age-related public expenditure, if they cannot be financed from contributions. This not only applies to the public service , but also to the German pension insurance . Since in most countries the state pension insurance cannot fully finance itself through contributions , it is dependent on state payments to compensate for the deficits .

On the one hand, these payments serve to finance non-insurance benefits , but can also serve to finance a deficit that consists of the gap between pension payments and contribution income, which in turn depends on the age tree and the future demographic development on which it is based. This reflects demographic change . Although the majority of the age-related additional costs in many euro countries will not actually arise until after 2020, if the previously rather limited cost increases are taken into account, the now sustainable development of debt might no longer be sustainable.

Since the statutory health insurances cannot fully finance themselves through the contributions, their deficits must also be covered from the state budget. This also applies to statutory long-term care insurance . In future, both will be dependent on subsidies from the state, which are also not derived from the current budget or are used to finance non-insurance benefits.

Contingent liabilities

Contingent liabilities are assumed state guarantees that only become real liabilities when a certain event occurs . In the euro area , this primarily includes sureties / guarantees that the states assumed for financial institutions during the financial crisis from 2007 onwards . The accumulated state contingent liabilities from guarantees to the banking sector are in many countries in the euro area at a significantly higher level and could rise even further, so that the agreed higher upper limits would be reached or even exceeded. The contingent liabilities that have arisen or may arise in connection with the mechanism to deal with the European sovereign debt crisis also include cross-border obligations such as the guarantees provided under the European Financial Stability Facility (EFSF) and the European Stability Mechanism (ESM) of the euro rescue package have been and will be made available. Since these guarantees had to be assumed in favor of highly indebted EU member states , the use of these guarantees is associated with a high probability and would require the formation of provisions in the double.

In a study carried out in 2011, the European Commission estimated the default probabilities of banks and incorporated the estimated burdens that could result from defaults on the national budget into the assessment of debt sustainability. In September 2011, the European Commission classified the rescue measures for banks in Ireland , Great Britain , Denmark , Belgium , the Netherlands , Austria and Germany as a serious burden on public finances. These contingent liabilities become dangerous when they reach a certain level in relation to the total budget and no provisions have been made for them. However, the probability of default of the rescued banks is less high than that of the highly indebted EU member states, so that the creation of provisions for liabilities in favor of the banking industry would be less compelling from a double point of view.

Extra households

The financial statistic delimitation understands under extra budget the outsourcing of the regional authorities to independent legal persons . Under the extra budgets fall as government-owned enterprises, state enterprises , municipal municipal enterprises , special funds, legal entities of public law (eg. As universities ) and investments of the public sector to private sector company (so-called public company ). A problem with extra budgets can be that it makes it more difficult to assess the financial position of a regional authority, including its outsourcing, since in cameralistics the annual financial statements of the core administration of a regional authority are not merged with the financial statements of the outsourced units (“Group municipality”). This problem does not exist in the double or commercial bookkeeping because the preparation of consolidated financial statements is required by law. At the local level this problem is that on the Accounting Law builds new municipal financial management into account. In the European System of National Accounts (ESA), extra budgets are allocated to the state. This makes it understandable, for example, that in a highly indebted regional authority like Bremen, only around a third of the full-time units tend to be allocated to the core administration in terms of personnel , while an increase can be recorded in the mostly private-sector investments. Since the debt statistics 2010, the extra budgets of the municipalities / municipal associations have been made up of the municipal special-purpose associations of the state sector, insofar as they are non-market producers, as well as of other legal persons involved in inter-municipal cooperation, insofar as they perform municipal tasks instead of municipal bodies.

Relationship between explicit and implicit national debt

Explicit ( ) and implicit public debt ( ) together form the total debt ( ) of a state that for determining the measure of the debt load capacity must be used. ${\displaystyle E_{v}}$ ${\displaystyle I_{v}}$ ${\displaystyle G_{v}}$

${\displaystyle G_{v}}$ ${\displaystyle =}$ ${\displaystyle E_{v}}$ ${\displaystyle +}$ ${\displaystyle I_{v}}$

The comparison of the years 2010 and 2011 at the federal level - in each case in% of GDP - looks as follows:

Art	2010 budget	2011 budget
${\displaystyle E_{v}}$	83.2%	80.4%
${\displaystyle I_{v}}$	147.0%	146.4%
${\displaystyle G_{v}}$	230.2%	226.8%

The implicit national debt is about 1.77 times larger than the explicit, which means 2 trillion euros (explicit) or 3.54 trillion euros (implicit) in absolute terms. In both years, to compensate for the implicit national debt, either tax revenue would have had to be increased by 11% or expenditure had to be reduced by 9.3% or 9.4%, which is politically and economically not feasible. This means that Germany's debt ratio is significantly higher than the (explicit) debt ratio of Greece and - despite the more favorable growth in gross domestic product - can be classified as difficult to sustain.

Shadow debt and debt sustainability

Since the national debt in most EU member states is increasing due to the addition of shadow debt, the debt sustainability indicator has to be adjusted. An obvious inadequacy of the previous debt sustainability analysis is that usually only the explicit liabilities of the state are considered, ignoring the fact that the state debt can be influenced by contingent and implicit liabilities as well as by other payment obligations from extra budgets. The systematic inclusion of these pension costs in the medium-term debt sustainability analysis would thus usefully expand the assessment framework.

In the case of Greece , the self-reinforcing interactions between liquidity risks and market doubts about debt sustainability were particularly evident. However, the long average maturity of government debt currently limits the risk that temporarily higher interest rates on the primary markets will have a lasting effect on debt sustainability. The debt sustainability of public budgets is viewed more differently than at the beginning of monetary union. This represents a certain correction of previous misjudgments.

Shadow debt and debt brake

The shadows debt is in the constitutional debt limit of Art. 109 para. 3 GG ignored, because the budgets of federal and state governments are "balance principle without income from loans". However, since the shadow debt is not reflected in the households, the federal and state debt brake has no effect on shadow debt. Only the taking out of credits and the assumption of sureties, guarantees or other warranties, which may lead to expenses in future accounting years, require a specific or determinable authorization by federal law ( Article 115.1 of the Basic Law). However, if the authorization has been granted, no budgetary booking is made as a contingent liability.

Shadow debt also in municipalities

The problem of shadow debt continues at lower levels. At the municipal level, the rating agency Fitch Ratings discovered in February 2009 that it was missing important financial data such as cross-border leasing and interest rate derivatives for a complete analysis of German municipalities . Fitch considers these financial instruments to be “disadvantageous” for municipalities and assumes that they “have and will have resulted in not inconsiderable contingent liabilities and an additional burden for the already desolate households”. In addition, municipal subsidiaries are outsourced from the municipal core budget and form a shadow budget . It is the task of the external municipal annual financial statement analysis to compile and take into account these financial data not contained in the municipal core budget.

Demarcation

The shadow debt is to be distinguished from the hidden national debt . The latter are liabilities in which the state is not the debtor, but third debtors that can be assigned to it from an economic point of view. Shadow debt, on the other hand, is real government debt. Legal transactions similar to credit are not part of public sector debt but are considered to be hidden government debt. However, they are not part of the implicit debts, but represent explicit debts due to the legal entitlement to them. The hidden government debt is "a borrowing that is initiated by a government budget, which is economically attributable to it, but is not budgeted for it".

International

The shadow debt has reached dramatic proportions across Europe. In 2014 Ireland had the highest hidden public debt at 1064% of gross domestic product (GDP), followed by Luxembourg (961%), Spain (493%), Belgium (472%), Slovenia (464%), and Great Britain (410%) ) and Finland (396%). In Germany this rate was 75% and almost exactly corresponded to the explicit debt (74%). Ireland, for example, would have to use its GDP exclusively to repay this implicit debt for 10 years and should not have any other government spending during this period , while Germany would need just under a year for this.

Individual evidence

1. ^ Franz Schuster : Europa im Wandel , 2013, p. 89
2. ↑ Bernd Raffelhüschen / Stefan Moog, Honorable States ?, The German Generation Balance Sheet in International Comparison , Arguments on Market Economy and Politics No. 110, May 2012, p. 4
3. ↑ Franz Schuster, Europa im Wandel , 2013, p. 90
4. ↑ Franz Schuster, Europa im Wandel , 2013, p. 90
5. ^ Hans Stolley, Der Generationenkonflikt. Will demographic change lead to the decline of Germany? , 2012, p. 29
6. ↑ Matthias Heidler, Reforms of the Statutory Pension Insurance , 2009, p. 35
7. ↑ Gisela Färber / Melanie Funke / Steffen Walther, Sustainable Financing of Civil Service Provision , 2011, p. 54
8. ↑ Monthly Report of the ECB, Analysis of Public Debt Sustainability in the Euro Area , April 2012, p. 72
9. ↑ European Commission (Directorate General Economy and Finance), Public finances in EMU - 2011 , Part IV , Debt Sustainability in the EU , in: European Economy 3, September 2011, p. 129 ff.
10. ↑ European Commission (Directorate-General for Economy and Finance), Public finances in EMU - 2011 , Part IV , Debt Sustainability in the EU , in: European Economy 3, September 2011, p. 141
11. ^ Josef Isensee / Paul Kirchhof, Kai von Lewinski, Handbook of Constitutional Law of the Federal Republic of Germany , Volume 10, 2012, p. 463
12. ↑ Free Hanseatic City of Bremen: Personnel reports with key figures on the personnel structure and personnel expenditure , accessed on November 15, 2018
13. ^ Hans Stolley, Der Generationenkonflikt. Will demographic change lead to the decline of Germany? , 2012, p. 30
14. ↑ Monthly Report of the ECB, Analysis of the Sustainability of Public Debt in the Euro Area , April 2012, pp. 63 ff.
15. ↑ Deutsche Bundesbank, Financial Stability Report 2012 , November 2012, p. 23
16. ↑ Deutsche Bundesbank, Financial Stability Report 2012 , November 2012, p. 35
17. ↑ Fitch Ratings of February 19, 2009, International Public Finance: Germany Special Report, German municipalities - an important role in the federal system , p. 5
18. ↑ Nicolas Gatzke, Public Private Partnerships and Public Debt , 2010, p. 101
19. ↑ Christian Smekal , Hidden National Debt - Escape from the Public Budget? , in: Das Wirtschaftsstudium H 1/1996, p. 67
20. ↑ Statista The Statistics Portal, European Union: Official and hidden national debt in the member states in 2014 in relation to gross domestic product (GDP), 2016