Government deposits held with the Eurosystem are one of the autonomous factors influencing liquidity conditions in the euro area. Autonomous factors are items on the balance sheet of the Eurosystem which are not under the direct control of the ECB’s liquidity management, but have an influence on the aggregate current account holdings of the banking sector. Government deposits are reported under position L 5.1 in the Weekly financial statement of the Eurosystem .
Since 1999, government deposits, aggregated at the euro area level, have continuously been the most volatile autonomous factor, causing a large part of the errors in the forecast of liquidity needs underlying the allotment decisions for the open market operations of the ECB. Broken down by country, in 2006, the highest volatility of government deposits was experienced in Italy, followed by Spain, Ireland and Greece. The institutional agreements prevailing in these four countries are described below. In Belgium, Germany, France, Luxembourg, the Netherlands, Austria, Portugal and Finland, the volatility of government deposits is low. Consequently, the forecast errors in these countries are usually also negligible. The same applies to the forecast errors in Slovenia which only joined the euro area on 1 January 2007.
Institutional arrangements by country
In Ireland, the National Treasury Management Agency (NTMA) is mainly responsible for debt management and holds the government account at the central bank. The NTMA provides the Central Bank and Financial Services Authority of Ireland with a target balance for the government account. This target balance is used for the liquidity forecast. The NTMA then transfers any surpluses/shortfalls vis-à-vis this target balance to/from the market each day. The target balance itself can be changed at any time subject to six working days notice (to take account of the forecasting horizon for the main refinancing operations).
Government deposits are held by the Greek Treasury and other public entities. According to provisions laid down in its Statute, the Bank of Greece acts as the treasurer of these deposits. The Treasury has initiated an active cash management policy by transferring funds from its accounts at the Bank of Greece to credit institutions and vice versa. Placements of funds take the form of fixed-term deposits, while occasionally repos may also be conducted. Government deposits are also held by social security funds and so-called “legal persons in public law”. According to the prevailing legal framework, these deposits are placed on a so-called “Public Entities’ Common Capital Account” with the aim of being invested and managed by the Bank of Greece.
Information regarding government operations in government bonds and Treasury bills (announcements, issue calendar, results of previous auctions and historical data) is available on Reuters' page GR/PDMA01. Further information on public debt and budget implementation is also provided on the Greek Treasury's website ( www.mof-glk.gr ).
The Banco de España acts as a treasurer and financial agent for public debt. In this respect, it may provide cash management services, holding and maintaining the necessary accounts, receiving income and making payments on the governments’ behalf and, in general, engaging in any other banking activity, both domestically and abroad.
With the aim of reducing the volatility and enhancing the predictability of government deposits, the Banco de España transfers the deposits of the Spanish Treasury to the banking system on a daily basis via overnight repos. The distribution of funds between individual banks is determined in a monthly auction. This procedure has greatly reduced the volatility of government deposits, because the main changes in this item - tax collection, redemptions, bond issues, etc. – take place through the Treasury current account. The other deposits from social security funds and state governments are sizeable, but relatively stable.
The Banco de España posts the Public Debt Market Bulletin on its website ( www.bde.es ) on a daily basis, giving information on the outstanding amounts of Treasury bonds and bills, dates of issuance, allotments, coupon payments and other items. Data concerning the Spanish Treasury bond and bill market are also available on Reuters' pages TESORESP01 - TESORESP12 and on the Bloomberg page TESO. Likewise, the Spanish Treasury website ( www.tesoro.es ) provides information on government debt and on the monthly auctions mentioned above.
In Italy, the liquidity effects of government activities are considerable. The main movements in government deposits occur because of the transfer of tax and social security payments to the Government’s account at the Banca d’Italia.
Since July 2002, according to Decree No. 63/2002, Article 1, the major Italian banks (selected on the basis of the amount of taxes collected) have to transfer at least 80% of the tax collected to the Government on the third working day following the day on which payments were made by taxpayers (usually on the 23rd of each month or, if the payment system was closed on the 23rd, on the next business day); the rest has to be transmitted two days later. However, taxes paid by taxpayers through the internet-based collection service of the Tax Collection Agency are transferred to the Government on the fifth day following the payment date.
This means that the main changes in government deposits take place between the 19th (due to calendar effects, sometimes the 20th or the 21st) and the 23rd of each month (due to calendar effects, sometimes the 24th or the 25th). Relevant amounts of liquidity are also absorbed each year by tax payments in June and July (personal income tax) and in August and December (corporate income tax). Conversely, liquidity is provided on the first business day of each month, mainly because of pension and interest payments. The Italian Government sometimes decides to carry out operations such as the issuance of bonds, buybacks and borrowing in the international market and the exact amounts involved are only known at short notice, leading to unexpected liquidity shocks.
On 18 April 2007, the Italian Ministry of Economy and Finance (MEF) started conducting money market operations, also to improve the predictability of the Treasury availability account (Conto Disponibilità del Tesoro) established at the Banca d’Italia. These operations involve the collection of non-collateralised deposits, mainly conducted by auctions. Bilateral transactions undertaken directly between the MEF and counterparties are also possible. The auctions are managed by the Banca d’Italia on behalf of the MEF. They are announced through wire services (see Reuters pages BIUD, BIUE and BIUF) and are carried out, if needed, during the morning of TARGET operating days. Most operations mature overnight. It is envisaged to extend the system to include the possibility of lending funds on a collateralised basis to the market.
The Italian Government provides information on its issuance programme, outstanding debt and money market operations on its website ( www.publicdebt.it ) and through wire services (see, for example, the index on Reuters page TESOROITALIA; only in Italian). The Banca d'Italia also provides information on the conditions of new issues and the results of government bond and Treasury bill auctions (see the index on Reuters page BANKITALIA02; only in Italian). Information on the money market operations can also be found on the website of the Banca d’Italia ( www.bancaditalia.it ).