Exhibit (d)
This description of KfW and the Federal Republic of Germany is dated May 12, 2022 and appears as Exhibit (d) to the Annual Report on Form 18-K of KfW for the fiscal year ended December 31, 2021.
TABLE OF CONTENTS
1
2
THIS DOCUMENT (OTHERWISE THAN AS PART OF A PROSPECTUS CONTAINED IN A REGISTRATION STATEMENT FILED UNDER THE U.S. SECURITIES ACT OF 1933) DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OF KFW. THE DELIVERY OF THIS DOCUMENT AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
In this description, references to “€”, “euro” or “EUR” are to the single European currency of the member states of the European Union participating in the euro and references to “U.S. dollars”, “$” or “USD” are to United States dollars. See “—The Federal Republic of Germany—General—The European Union and European Integration” for a discussion of the introduction of the euro.
Unless explicitly stated otherwise, financial information relating to KfW Group presented herein has been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (“IFRS”).
Amounts in tables may not add up due to rounding differences.
On May 11, 2022, the euro foreign exchange reference rate as published by the European Central Bank was EUR 1.00 = U.S. dollar 1.0553 (EUR 0.9476 per U.S. dollar).
In this document, references to the “Federal Republic” and “Germany” are to the Federal Republic of Germany and references to the “Federal Government” are to the government of the Federal Republic of Germany. The terms “KfW Group” and “group” refer to KfW and its consolidated subsidiaries.
3
RECENT DEVELOPMENTS
KFW
KfW’s Results for the Three Months Ended March 31, 2022
KfW is not required by law to prepare and publish interim financial statements in conformity with International Financial Reporting Standards as adopted by the European Union (“IFRS”) applicable to interim financial reporting. Accordingly, KfW only prepares selected interim financial information rather than a full set of interim financial statements. The following information is based on this selected unaudited interim financial information prepared by KfW on the basis of the recognition and measurement principles of IFRS applicable to interim financial reporting. This information is not necessarily indicative of the figures of KfW Group for the full year ending December 31, 2022.
KfW Group’s total assets increased by 0.7 %, or EUR 3.8 billion, from EUR 551 billion as of December 31, 2021 to EUR 554.7 billion as of March 31, 2022. KfW Group’s operating result before valuation and promotional activities amounted to EUR 442 million for the three months ended March 31, 2022, compared to EUR 468 million for the corresponding period in 2021. The main driver for KfW Group’s operating result before valuation and promotional activities during the three months ended March 31, 2022, was net interest income. KfW Group’s operating result before valuation and promotional activities is before (i) risk provisions for lending business, (ii) net gains/losses from securities and investments, (iii) net gains/losses from hedge accounting and other financial instruments at fair value through profit or loss, and (iv) expenses relating to promotional activities. These valuation effects consisted mainly of the following:
| | • | | Expenses for risk provisions in an amount of EUR 188 million for the three months ended March 31, 2022, compared to income in an amount of EUR 60 million for the corresponding period in 2021; |
| | • | | Negative effects amounted to EUR 135 million resulting from a decrease in market values of securities and equity investments in the three months ended March 31, 2022, compared to positive effects of EUR 178 million for the corresponding period in 2021; |
| | • | | Net gains in an amount of EUR 88 million for the three months ended March 31, 2022 due to fair value changes of derivatives used exclusively for hedging purposes in closed risk positions, compared to net expenses in an amount of EUR 75 million for the corresponding period in 2021(1); and |
| | • | | Expenses relating to promotional activities in an amount of EUR 100 million for the three months ended March 31, 2022, compared to expenses in an amount of EUR 22 million for the corresponding period in 2021. |
KfW Group’s consolidated result for the three months ended March 31, 2022 amounted to a profit of EUR 60 million, compared to a profit of EUR 569 million for the corresponding period in 2021.
| (1) | KfW generally enters into derivative transactions to economically hedge interest and currency risks in connection with its financing and funding activities. Some economic hedging relationships entered into do not qualify for hedge accounting or the fair value option under IFRS. In these cases, only the fair value changes in the hedging instrument are recognized in the consolidated income statement as net gains/losses from other financial instruments at fair value through profit or loss, whereas fair value changes in the hedged instrument are not. As a result, the economic risk-mitigating effect of such hedging relationships is not reflected in the consolidated income statement. |
4
Promotional Business Volume
The following table sets forth a breakdown of commitments by business sector for the three months ended March 31, 2022, compared to the corresponding period in 2021. KfW has decided to split its former business sector Promotion of developing countries and emerging economies with its two business areas KfW Development Bank and Deutsche Investitions- und Entwicklungsgesellschaft mbH (“DEG”) into two separate business sectors from 2022 onwards.
PROMOTIONAL BUSINESS VOLUMEBY BUSINESS SECTOR
| | | | | | | | | | | | |
| | | Three months ended
March 31, | | | Year-to-Year | |
| | | 2022 | | | 2021 | | | % change | |
| | | (EUR in millions) | | | (in %) | |
| SME Bank & Private Clients (Mittelstandsbank & Private Kunden) | | | 26,164 | | | | 16,992 | | | | 54 | |
| Customized Finance & Public Clients (Individualfinanzierung & Öffentliche Kunden) | | | 10,595 | | | | 2,670 | | | | >100 | |
| KfW Capital | | | 43 | | | | 74 | | | | -42 | |
| Export and Project Finance (KfW IPEX-Bank) | | | 3,310 | | | | 3,363 | | | | -2 | |
| KfW Entwicklungsbank | | | 608 | | | | 925 | | | | -34 | |
| DEG – Deutsche Investitions- und Entwicklungsgesellschaft mbH | | | 139 | | | | 249 | | | | -44 | |
| Financial Markets | | | 126 | | | | 240 | | | | -48 | |
| | | | | | | | | | | | |
Total Promotional Business Volume (1) | | | 40,985 | | | | 24,513 | | | | 67 | |
| | | | | | | | | | | | |
| (1) | Commitments represent the volume of funds committed for loans and other business transactions (with the exception of global funding facilities and program-based global loans to Landesförderinstitute) in the relevant period, including amounts to be disbursed in future periods, and do not include amounts disbursed in the relevant period pursuant to commitments made in prior periods. In the case of global funding facilities and program-based global loans to the Landesförderinstitute, commitments represent the actual volume of funds disbursed in the relevant period. |
KfW’s total promotional business volume increased to EUR 41.0 billion for the three months ended March 31, 2022, compared to EUR 24.5 billion for the corresponding period in 2021. While commitments in KfW’s business sectors SME Bank & Private Clients and Customized Finance & Public Clients increased significantly, this increase was partially offset by a substantial decrease in commitments in the business sectors KfW Entwicklungsbank, DEG as well as Financial Markets and a slight decrease in Export and Project Finance.
Commitments in the SME Bank & Private Clients business sector amounted to EUR 26.2 billion for the three months ended March 31, 2022, compared to EUR 17.0 billion for the corresponding period in 2021. This significant increase was attributable to higher commitments in SME Bank, mainly under the KfW Renewable Energy Program and under the program Federal Funding for Efficient Buildings (Bundesförderung für effiziente Gebäude – “BEG”). Commitments in SME Bank under the KfW Renewable Energy Program amounted to EUR 2.1 billion for the three months ended March 31, 2022 and commitments under the program Federal Funding for Efficient Buildings (BEG) amounted to EUR 5.0 billion for the three months ended March 31, 2022. In addition, commitments in Private Clients increased to EUR 13.4 billion for the three months ended March 31, 2022, compared to EUR 10.9 billion for the corresponding period in 2021, also primarily driven by the program Federal Funding for Efficient Buildings (BEG). For information on the suspension of the program Federal Funding for Efficient Buildings (BEG) in late January 2022 and its re-launch in April 2022, see “—Other Recent Developments—Domestic Business” below.
Commitments in the business sector Customized Finance & Public Clients amounted to EUR 10.6 billion for the three months ended March 31, 2022, compared to EUR 2.7 billion for the corresponding period in 2021. This increase was primarily driven by an increase in loan commitments to energy companies with a commitment volume of EUR 7.5 billion in credit facility agreements as of March 31, 2022. These loan commitments were made under special mandates in accordance with article 2 paragraph 4 of the KfW Law (Zuweisungsgeschäfte) with full government protection of KfW. For more information, see “—Other Recent Developments—Impact of Russia’s Invasion of Ukraine on KfW—Special Mandates of the Federal Government.”
Commitments related to KfW Capital decreased to EUR 43 million for the three months ended March 31, 2022, compared to EUR 74 million for the corresponding period in 2021.
5
Commitments in KfW’s Export and Project Finance business sector for the three months ended March 31, 2022 amounted to EUR 3.3 billion, compared to commitments of EUR 3.4 billion for the corresponding period in 2021. This slight decrease was mainly due to lower commitments made by KfW IPEX-Bank in the infrastructure and maritime industries sectors.
Commitments related to KfW Entwicklungsbank amounted to EUR 608 million for the three months ended March 31, 2022, compared to EUR 925 million for the corresponding period in 2021. This significant decrease was mainly driven by lower commitments with respect to Financial Cooperation Development Loans (FZ-Entwicklungskredite), Financial Cooperation Promotional Loans (FZ-Förderkredite) and Mandates (FZ-Mandatarverträge).
Commitments of DEG declined to EUR 139 million as of March 31, 2022, compared to EUR 249 million as of March 31, 2021. While this development represents a year-on-year decline, it should be noted that the intensity of deal origination usually varies, and may increase, over the course of a year.
Commitments in KfW’s Financial Markets business sector decreased to EUR 126 million for the three months ended March 31, 2022, compared to EUR 240 million for the corresponding period in 2021, with all commitments in KfW’s Financial Markets business sector having been made under KfW’s green bond portfolio.
Sources of Funds
The volume of funding raised in the capital markets for the three months ended March 31, 2022 totaled EUR 37.5 billion, of which 67% was raised in euro, 14% in U.S. dollar and the remainder in 14 other currencies.
Capitalization and Indebtedness of KfW Group as of March 31, 2022
| | | | |
| | | (EUR in millions) | |
Borrowings | | | | |
Short-term funds | | | 56,611 | |
Bonds and other fixed-income securities | | | 401,596 | |
Other borrowings | | | 50,873 | |
Total borrowings | | | 509,080 | |
| |
Equity | | | | |
Paid-in subscribed capital (1) | | | 3,300 | |
Capital reserve | | | 8,447 | |
Reserve from the ERP Special Fund | | | 1,191 | |
Retained earnings | | | 22,086 | |
Fund for general banking risks | | | 200 | |
Revaluation reserve | | | -658 | |
Total equity | | | 34,566 | |
| | | | |
Total capitalization | | | 543,646 | |
| | | | |
| (1) | KfW’s equity capital, 80% of which is held by the Federal Government and the remaining 20% by the Länder, amounted to EUR 3,750 million as of March 31, 2022, of which EUR 3,300 million has been paid in pro rata by the Federal Government and the Länder. |
The capitalization of KfW Group as of March 31, 2022 is not necessarily indicative of its capitalization to be recorded as of December 31, 2022.
KfW Group’s total equity as of March 31, 2022 was EUR 34,566 million, compared to EUR 34,207 million as of December 31, 2021. The increase of EUR 358 million in total equity reflected:
| | (i) | KfW Group’s consolidated profit of EUR 60 million for the three months ended March 31, 2022; and |
| | (ii) | an increase of EUR 299 million of revaluation reserves due to valuation results recognized directly in equity relating to pensions and own credit risk. |
6
In connection with the phase-in of the analogous application of banking supervisory law to KfW, the provisions of the EU Capital Requirements Regulation (Regulation EU No 575/2013, “CRR”), the German Banking Act (Kreditwesengesetz) and the German Solvency Regulation (Solvabilitätsverordnung), which require banks to have adequate own funds (Eigenmittel) for the conduct of their business, have become applicable to KfW by analogy with effect from January 1, 2016. In June 2017, KfW received the approval from the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht) to calculate its regulatory capital requirements following the advanced internal ratings-based approach (“IRBA”) for a large part of its portfolio as of June 30, 2017. In line with regulatory requirements, KfW intends to obtain additional approval for other sub-portfolio segments and models in the future.
Based on the results for the three months ended March 31, 2022, KfW’s total capital ratio amounted to 25.0% and its Tier 1 capital ratio according to Article 92 of the CRR amounted to 24.9%, in each case as of March 31, 2022 (not taking into account the interim profit of the year to date)1. The increase of the total capital ratio and the Tier 1 capital ratio compared to December 31, 2021, when both the total capital ratio and the Tier1 Capital ratio amounted to 23.9%, was mainly due to the recognition of the profit of the second half of 2021.
Other Recent Developments
Domestic Business
On January 24, 2022, the Federal Funding for Efficient Buildings program was suspended by KfW with immediate effect after consultation with the Federal Ministry for Economic Affairs and Climate Action (the “Ministry for Economic Affairs”). This program supports investments in the construction of energy-efficient new buildings and the energy-efficient refurbishment of existing ones and accounted for total commitments of EUR 21.2 billion in KfW’s domestic promotional business in 2021 (EUR 15.2 billion in 2021 in Private Clients, EUR 5.5 billion in SME Bank and EUR 0.5 billion in Public Clients). As a result of the high number of applications in an aggregate amount of more than EUR 20 billion made since November 2021, the federal funds budgeted for the program were depleted and rendered a suspension necessary. On February 1, 2022, the Ministry for Economic Affairs announced that approximately 24,000 applications submitted prior to the program suspension on January 24, 2022, that had not been approved by the time of the suspension, will be examined by KfW based on the program criteria previously in place. If eligible for support, these applications will be approved. On April 5, 2022, the Ministry of Economic Affairs announced the re-launch of the program in three phases. Due to the very high number of applications, the first phase, with a budget of EUR 1.0 billion in federal funds and somewhat modified program conditions, already closed on April 20, 2022, the day of its launch. Phase 2 of the program, with more stringent sustainability criteria, launched on April 21, 2022 and extends until December 31, 2022. Phase 3, to be launched in January 2023, is expected to consist of a new comprehensive program entitled “Climate-friendly construction” (Klimafreundliches Bauen). This program is expected to place a greater emphasis on greenhouse gas emissions in the lifecycle of buildings and is currently being developed by the Ministry of Economic Affairs and the Federal Ministry for Construction (Bundesministerium für Wohnen, Stadtentwicklung und Bauwesen).
Impact of Russia’s Invasion of Ukraine on KfW
Expected impact of Russia’s invasion of Ukraine on KfW’s results. While KfW’s direct exposures in Ukraine and Russia are limited and tightly managed, KfW anticipates that the current developments related to Russia’s invasion of Ukraine will affect KfW’s business and earnings position. For information on KfW’s expectations regarding the impact of Russia’s invasion of Ukraine on KfW’s net assets, financial and earnings position, see note 73 to the financial statements included in Exhibit (e) to this annual report.
Special mandates of the Federal Government. Against the background of rising energy prices and Germany’s current dependency on imports of energy from Russia, see also “Federal Republic of Germany—Other Recent Developments—Germany’s Response to Russia’s Invasion of Ukraine”, the Federal Government has recently requested that KfW engage in a number of activities under special mandates in accordance with article 2 paragraph 4 of the KfW Law (Zuweisungsgeschäfte) with full protection of KfW. These activities are being, or will be, carried out at the Federal Republic’s economic risk and to date include the following:
| | • | | At the beginning of March 2022, KfW entered into a credit facility agreement of up to EUR 5.5 billion available until December 31, 2022 with the energy company Lausitz Energie Kraftwerke AG. |
| | • | | On January 4, 2022, KfW entered into a credit facility agreement of up to EUR 2.0 billion with the international energy company Uniper SE, which would have expired on April 30, 2022. At the end of March 2022, in view of the ongoing Russian invasion of Ukraine and the associated volatility on the commodity markets, KfW and Uniper agreed as a precautionary measure to extend the facility until April 30, 2023. |
| 1 | According to Article 26(2) CRR. |
7
| | • | | On April 5, 2022, KfW entered into a credit facility agreement of up to EUR 660 million available until April 30, 2023 with the gas and infrastructure company VNG AG. |
| | • | | On April 8, 2022, KfW entered into a credit facility agreement of up to EUR 400 million available until October 31, 2022 with the energy company STEAG GmbH. |
| | • | | In March 2022, KfW signed a memorandum of understanding with Gasunie LNG Holding B.V. and RWE Supply & Trading GmbH regarding a potential 50% equity participation of KfW in German LNG Terminal GmbH and subsequent financings. German LNG Terminal GmbH is a project company that is developing an LNG import facility in Brunsbüttel, Germany. KfW’s potential equity participation and subsequent financings are subject to, inter alia, required approvals and authorizations and the issuance of a special mandate by the Federal Government. |
Depending on further developments with respect to Russia’s invasion of the Ukraine, the Federal Government may in principle request KfW to engage in further activities under special mandates at any time.
KfW Special Program UBR 2022. In April 2022, the Federal Government announced that it seeks to support companies affected by Russia’s invasion of Ukraine and related sanctions. On May 9, 2022, KfW launched a new loan program known as the “KfW Special Program UBR 2022” (KfW-Sonderprogramm UBR 2022, with “UBR” standing for “Ukraine, Belarus and Russia”) in an aggregate amount of up to EUR 7.0 billion to quickly safeguard the liquidity of certain companies demonstrably affected by the war in Ukraine. Mostly privately owned companies of all sizes and from many different sectors can receive access to low-interest loans in an amount of up to EUR 100 million with extensive liability exemption of their regular banks. A syndicate financing alternative with substantial risk assumption is also being offered. For more information on the Federal Government’s support for companies affected by Russia’s invasion of Ukraine and related sanctions as well as other measures taken in response to Russia’s invasion of Ukraine, see “—Federal Republic of Germany—Other Recent Developments—Germany’s Response to Russia’s Invasion of Ukraine”.
8
THE FEDERAL REPUBLIC OF GERMANY
Overview of Key Economic Figures
The following economic information regarding the Federal Republic is derived from the public official documents cited below. Certain of the information is preliminary.
Gross Domestic Product (GDP)
GROSS DOMESTIC PRODUCT
(adjusted for price, seasonal and calendar effects) (1)
| | | | | | | | | | | | | | | | | | |
Reference period | | Percentage change on the
previous quarter | | Percentage change on the same
quarter in previous year |
1st quarter 2021 | | | | | | | | | | | | | | | | -1.7 | | -2.7 |
2nd quarter 2021 | | | | | | | | | | | | | | | | 2.2 | | 10.4 |
3rd quarter 2021 | | | | | | | | | | | | | | | | 1.7 | | 2.9 |
4th quarter 2021 | | | | | | | | | | | | | | | | -0.3 | | 1.8 |
1st quarter 2022 | | | | | | | | | | | | | | | | 0.2 | | 3.7 |
| (1) | Adjustment for seasonal and calendar effects according to the Census X13 method. |
Germany’s gross domestic product (“GDP”) rose by 0.2% in the first quarter of 2022 compared to the fourth quarter of 2021 after adjustment for price, seasonal and calendar effects. Economic performance thus increased slightly in the first quarter of 2022, following the recovery of the German economy in the summer of 2021 and the decline at the end of 2021. This development was mainly due to higher capital formation, whereas the balance of exports and imports had a downward effect on economic growth. The economic consequences of Russia’s invasion of Ukraine have been having a growing impact on the short-term economic development since late February 2022.
Compared to the first quarter of 2021, in which the German economy had been affected by the consequences of the second wave of the COVID-19 pandemic, price- and calendar-adjusted GDP in the first quarter of 2022 increased by 3.7%. Compared to the fourth quarter of 2019, i.e., the quarter before the COVID-19 pandemic began, price-, seasonal- and calendar-adjusted GDP in the first quarter of 2022 declined by 0.9%.
Due to the continuing COVID-19 pandemic and the war in Ukraine, these results are subject to larger uncertainties than usual.
Source: Federal Statistical Office, Gross domestic product in the 1st quarter of 2022 up 0.2% on the previous quarter, press release of April 29, 2022 (https://www.destatis.de/EN/Press/2022/04/PE22_184_811.html).
9
Inflation Rate
INFLATION RATE
(based on overall consumer price index)
| | | | |
Reference period | | Percentage change
on the previous month | | Percentage change
on the same month
in previous year |
April 2021 | | 0.7 | | 2.0 |
May 2021 | | 0.5 | | 2.5 |
June 2021 | | 0.4 | | 2.3 |
July 2021 | | 0.9 | | 3.8 |
August 2021 | | 0.0 | | 3.9 |
September 2021 | | 0.0 | | 4.1 |
October 2021 | | 0.5 | | 4.5 |
November 2021 | | -0.2 | | 5.2 |
December 2021 | | 0.5 | | 5.3 |
January 2022 | | 0.4 | | 4.9 |
February 2022 | | 0.9 | | 5.1 |
March 2022 | | 2.5 | | 7.3 |
April 2022 | | 0.8 | | 7.4 |
The inflation rate in Germany, measured as the year-on-year change in the consumer price index, stood at 7.4% in April 2022, thus reaching an all-time high for the second month in a row since German reunification after the inflation rate had increased to 7.3% in March 2022 mainly due to the development of energy prices. Energy prices, in particular, have increased considerably since Russia’s invasion of Ukraine and have had a substantial impact on the inflation rate. A similarly high inflation rate was last recorded in the Federal Republic of Germany (pre-reunification) in autumn 1981, when petroleum prices had sharply increased as a consequence of the Gulf war between Iraq and Iran. Additional factors include delivery bottlenecks due to interruptions in supply chains caused by the COVID-19 pandemic and significant price increases at upstream stages in the economic process. These factors accelerated price increases for consumers not only for energy, but also other product groups such as food.
Prices of goods (total) increased by 12.2% from April 2021 to April 2022. Energy prices in April 2022 increased by 35.3% compared to April 2021, following a 39.5% increase in March 2022 compared to March 2021. Prices of heating oil (+98.6%) nearly doubled in April 2022 compared to April 2021, and substantial price rises were also recorded for motor fuels (+38.5%) and natural gas (+47.5%). Price increases for other energy products also significantly exceeded the overall inflation rate (e.g., prices of solid fuels (+23.9%) and of electricity (+19.3%)). The increases of energy prices were influenced by several factors, including effects related to Russia’s invasion of the Ukraine, the COVID-19 pandemic and the increase in the CO2 charge from EUR 25 to EUR 30 per ton of CO2. Food prices rose considerably by 8.6% in April 2022 compared to April 2021, which represented a significant acceleration compared to March 2022 (+6.2%). Considerable price rises were recorded for edible fats and oils (+27.3%), meat and meat products (+11.8%), dairy products and eggs (+9.4%) and fresh vegetables (+9.3%). Prices were up not only for energy and food but also for other products such as vehicles (+8.9%) and information processing equipment (+8.0%). The prices of non-durable consumer goods (total) increased by 16.0% and those of durable consumer goods by 5.2% on April 2021. Excluding energy prices, the inflation rate in April 2022 would have been 4.3%; excluding energy and food prices, it would have been 3.8%.
In April 2022, the prices of services (total) increased by 3.2% compared to April 2021. Net rents exclusive of heating expenses, which are important as they account for a large part of household consumption expenditure, rose by 1.6% and thus had a downward effect on the overall inflation rate. In addition, price decreases were observed for telecommunications (-1.1%) and for services of social facilities (-2.6%), the latter being due to the implementation of the long-term care reform adopted in June 2021. However, the prices of some services were markedly up, including maintenance and repair of dwellings and residential buildings (+12.2%) and of vehicles (+6.1%).
Compared to March 2022, the consumer price index rose by 0.8% in April 2022. Food prices, in particular, were noticeably higher (+3.6%), in addition to the seasonal price increases observed for package holidays (+17.6%). Consumers paid more for groceries, particularly for edible fats and oils (+10.2%) and meat and meat products (+7.1%). These price increases were partially offset by lower energy prices. Energy prices overall declined by 3.1% from the previous month, and substantial price decreases were observed for heating oil (-20.3%) and motor fuels (-5.7%).
Sources: Federal Statistical Office, Short-term indicators: Price indices at a glance (consumer prices, retail prices, producer prices, selling prices in wholesale trade, import prices, export prices). Tables with values and rates of change (https://www.destatis.de/EN/Themes/Economy/Short-Term-Indicators/Prices/pre110.html); Federal Statistical Office, Inflation rate at +7.4% in April 2022, press release of May 11, 2022 (https://www.destatis.de/EN/Press/2022/05/PE22_196_611.html).
10
Unemployment Rate
UNEMPLOYMENT RATE
(percent of unemployed persons in the total labor force according to the
International Labour Organization (ILO) definition) (1)
| | | | |
Reference period | | Original percentages | | Adjusted
percentages (2) |
March 2021 | | 4.0 | | 3.9 |
April 2021 | | 3.9 | | 3.8 |
May 2021 | | 3.7 | | 3.7 |
June 2021 | | 3.6 | | 3.6 |
July 2021 | | 3.4 | | 3.5 |
August 2021 | | 3.4 | | 3.5 |
September 2021 | | 3.3 | | 3.4 |
October 2021 | | 3.1 | | 3.3 |
November 2021 | | 3.2 | | 3.2 |
December 2021 | | 3.0 | | 3.2 |
January 2022 | | 3.3 | | 3.1 |
February 2022 | | 3.0 | | 3.0 |
March 2022 | | 2.9 | | 2.9 |
| (1) | The time series on unemployment are based on the German Labour Force Survey. |
| (2) | Trend cycle component (X-13-ARIMA method using JDemetra+; calculation by Eurostat). |
Compared to March 2021, the number of employed persons in March 2022 increased by approximately 725,000 or 1.6%. Compared to February 2022, the number of employed persons increased in March 2022 by approximately 85,000 or 0.2% after adjustment for seasonal fluctuations. On a seasonally adjusted basis the number of persons in employment in March 2022 was up by 0.1%, or 41,000 persons, compared to February 2020, the month before the COVID-19 pandemic began in Germany.
In March 2022, the number of unemployed persons declined by approximately 435,000 or 25.7% compared to March 2021. Adjusted for seasonal and irregular effects, the number of unemployed persons in March 2022 stood at 1.28 million, reflecting a decline of 2.0% compared to February 2022.
It should be noted that according to the employment account and labor force survey concepts, workers in short-time work schemes (Kurzarbeit) are not counted as unemployed persons but as persons in employment.
Sources: Federal Statistical Office, Employment exceeds pre-crisis level in March 2022, press release of May 3, 2022 (https://www.destatis.de/EN/Press/2022/05/PE22_186_132.html); Federal Statistical Office, Genesis-Online Datenbank, Result 13231-0001, Unemployed persons, persons in employment, economically active population, unemployment rate: Germany, months, original and adjusted data (https://www-genesis.destatis.de/genesis/online?sequenz=tabelleErgebnis&selectionname=13231-0001&zeitscheiben=2&leerzeilen=false&language=en#abreadcrumb).
11
Current Account and Foreign Trade
CURRENT ACCOUNTAND FOREIGN TRADE
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (balance in EUR billions) (1) | |
Item | | January–
February 2022 | | | January–
February 2021 | |
Goods | | | | | | | 20.9 | | | | | | | | | | | | | | | | | | | | 33.0 | | | | | | | | | |
Services | | | | | | | 0.2 | | | | | | | | | | | | | | | | | | | | 2.1 | | | | | | | | | |
Primary income | | | | | | | 23.8 | | | | | | | | | | | | | | | | | | | | 20.0 | | | | | | | | | |
Secondary income | | | | | | | -11.5 | | | | | | | | | | | | | | | | | | | | -13.8 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Current account | | | | | | | 33.3 | | | | | | | | | | | | | | | | | | | | 37.1 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| (1) | Figures may not add up due to rounding; cumulated year-to-date figures computed by KfW on the basis of monthly figures. |
Source: Deutsche Bundesbank, Balance of payments statistics, 12-04-2022, I. Major items of the balance of payments (https://www.bundesbank.de/resource/blob/810958/623451630dbc657c8d274cc0ba935348/mL/i-wichtige-posten-data.pdf).
Other Recent Developments
Germany’s Response to Russia’s Invasion of Ukraine
Relief measures relating to rising energy prices. Uncertainties in the energy markets and the tight supply of natural gas before Russia’s invasion of Ukraine have already been contributing to a significant rise of energy prices over the past months. According to the Federal Statistical Office, energy prices, in particular for imported energy (+129.5%), rose strongly at all stages of the economic process, in February 2022 compared to February 2021. Against this background, the Federal Government in February 2022 had already agreed on a package of relief measures benefiting consumers, including particularly vulnerable groups, to be launched in the short term. These measures include the abolition of the Renewable Energy Sources Act levy (EEG-Umlage), which had been included on electricity bills to incentivize the use of energy from renewable sources, and instead financing of energy from renewable sources via the federal budget as of July 1, 2022, certain tax-related measures applicable to income tax as of January 1, 2022, and transfer payments to certain vulnerable groups in the German population (e.g., recipients of benefits and children affected by poverty). Furthermore, on April 27, 2022, the Federal Government adopted a proposal for a supplementary budget for the fiscal year 2022, inter alia to finance additional broad measures to mitigate the effects of Russia’s invasion of Ukraine on energy prices for consumers. Key elements were agreed by the coalition committee of the governing parties on March 23, 2022, and include the introduction of a one-time energy price allowance as a supplement to salary, a family allowance per child, a one-time supplement for recipients of social benefits, the temporary reduction of the energy tax on fuel to the European minimum rate for three months, and reduced-price use of public transport for 90 days.
Sources: Federal Statistical Office, Energy prices: high increases at all stages in the economic process, press release of March 29, 2022 (https://www.destatis.de/EN/Press/2022/03/PE22_N016_61.html); Bundesministerium der Finanzen, 10 Entlastungschritte für unser Land, Ergebnis des Koalitionsausausschusses vom 23. Februar 2022 (https://www.bundesfinanzministerium.de/Content/DE/Downloads/Oeffentliche-Finanzen/10-entlastungsschritte-fuer-unser-land.pdf?_blob=publicationFile&v=4); Bundesministerium für Wirtschaft und Klimaschutz, Kabinett bringt Abschaffung der EEG-Umlage auf den Weg, press release of March 9, 2022 (https://www.bmwi.de/Redaktion/DE/Pressemitteilungen/2022/03/20220309-kabinett-bringt-abschaffung-der-eeg-umlage-auf-den-weg.html); Bundesministerium der Finanzen, Steuerentlastungen unterstützen Bürger:innen, press release of March 16, 2022 (https://www.bundesfinanzministerium.de/Content/DE/Pressemitteilungen/Finanzpolitik/2022/03/2022-03-16-steuerentlastungen-unterstuetzen-buergerinnen.html#:~:text=Arbeitnehmer*innen%20werden%20unmittelbar%20und,Januar%202022); Bundesministerium der Finanzen, Schnelle und spürbare Entlastungen, dated March 16, 2022 (https://www.bundesfinanzministerium.de/Content/DE/Standardartikel/Themen/Schlaglichter/Entlastungen/schnelle-spuerbare-entlastungen.html); Bundesministerium der Finanzen, Stabilität sichern, Gestaltungsspielraum bewahren, Zweiter Regierungsentwurf für den Bundeshaushalt 2022, Eckwerte 2023 und Finanzplan bis 2026, press release of March 16, 2022 (https://www.bundesfinanzministerium.de/Content/DE/Pressemitteilungen/Finanzpolitik/2022/03/2022-03-16-bundeshaushalte-2022-2023.html); Bundesministerium für Wirtschaft und Klimaschutz, Ergebnis des Koalitionsausschusses vom 23. März 2022, Maßnahmenpaket des Bundes zum Umgang mit den hohen Energiekosten (https://www.bundesfinanzministerium.de/Content/DE/Downloads/2022-03-23-massnahmenpaket-bund-hohe-energiekosten.pdf?__blob=publicationFile&v=6); Bundesministerium der Finanzen, Bundesregierung bringt zweites Entlastungspaket auf den Weg, press release of April 27, 2022 (https://www.bundesfinanzministerium.de/Content/DE/Pressemitteilungen/Finanzpolitik/2022/04/2022-04-27-zweites-entlastungspaket.html?cms_pk_kwd=27.04.2022_Bundesregierung+bringt+zweites+Entlastungspaket+auf+den+Weg&cms_pk_campaign=Newsletter-27.04.2022); Bundesministerium der Finanzen, Ergänzungshaushalt 2022: Auswirkungen des russischen Angriffskrieges wirksam entgegentreten, press release of April 27, 2022 (https://www.bundesfinanzministerium.de/Content/DE/Pressemitteilungen/Finanzpolitik/2022/04/2022-04-27-ergaenzungshaushalt-2022.html?cms_pk_kwd=27.04.2022_Erg%C3%A4nzungshaushalt+2022+Auswirkungen+des+russischen+Angriffskrieges+wirksam+entgegentreten&cms_pk_campaign=Newsletter-27.04.2022).
12
Measures to reduce Germany’s dependence on imports of energy from Russia. Germany is highly dependent on imports of energy from Russia: Germany covered about 35% of its oil consumption in 2021 with imports from Russia and Russian coal covered about 50% of Germany’s coal consumption. The proportion of Russian gas covering German gas consumption previously amounted to about 55% on average. Since Russia’s invasion of Ukraine, significant progress has been made to reduce the imports of Russian oil, coal and gas, which amounted to 12%, 8% and 35%, respectively, as of May 1, 2022. The Federal Government announced its aim to become virtually independent of Russian oil supply by the end of the year. Accelerating the Federal Government’s plans to become independent of Russian coal, the EU adopted a further package of sanctions on April 8, 2022, which, among others, includes an embargo of coal and other solid fossil fuel imports from Russia effective as of August 2022. The Federal Government further set out to achieve independence from Russian gas by summer 2024. Progress is also being made on changing the system of gas supply, which is a challenging, lengthy process and requires significant investments, e.g., in the construction of terminals for liquid natural gas. The Federal Government is acting ambitiously to expand relevant infrastructure and is in the process of setting up a major energy efficiency program. At the current point in time, the Federal Government estimates that a loss of Russian energy imports, in particular gas, would likely have severe economic and social consequences. Accordingly, the Federal Government is also engaging in precautionary measures to secure the supply of gas to all German gas consumers in order to be ready to cope with a potential deterioration of the supply situation involving Russia. In addition, significant energy policy amendments are currently underway to accelerate the transition to renewable energies. To date, Russia’s embargo on gas supply to Poland and Bulgaria imposed at the end of April 2022 has not had any impact on the secure supply of gas to Germany.
For information on KfW’s involvement in the Federal Government’s efforts, see “—KfW—Other Recent Developments—Impact of Russia’s Invasion of Ukraine on KfW—Special mandates of the Federal Government.”
Sources: Bundesministerium für Wirtschaft und Klimaschutz, Fortschrittsbericht Energiesicherheit, dated March 25, 2022 (https://www.bmwi.de/Redaktion/DE/Downloads/Energie/0325_fortschrittsbericht_energiesicherheit.pdf?__blob=publicationFile&v=10); Federal Ministry for Economic Affairs and Climate Action, Minister Habeck: „Germany is quickly cutting its dependence on Russian energy. But we still need to act prudently”, press release of March 25, 2022 (https://www.bmwi.de/Redaktion/EN/Pressemitteilungen/2022/03/20220325-minister-habeck-germany-is-quickly-cutting-its-dependence-on-russian-energy-but-we-still-need-to-act-prudently.html); Council of the EU, EU adopts fifth round of sanctions against Russia over its military aggression against Ukraine, press release of April 8, 2022 (https://www.consilium.europa.eu/en/press/press-releases/2022/04/08/eu-adopts-fifth-round-of-sanctions-against-russia-over-its-military-aggression-against-ukraine/); Federal Ministry for Economic Affairs and Climate Action, Federal Ministry and Climate Action announces early warning level of the Emergency Plan for Gas – security of supply still ensured, press release of March 30, 2022 (https://www.bmwi.de/Redaktion/EN/Pressemitteilungen/2022/03/20220330-bmwk-announces-early-warning-level-of-the-emergency-plan-for-gas-security-of-supply-still-ensured.html). Federal Ministry for Economic Affairs and Climate Action appoints Bundesnetzagentur as fiduciary for Gazprom Germania - Acquisition of Gazprom Germania GmbH by JSC Palmary provisionally invalid, press release of April 4, 2022 (https://www.bmwi.de/Redaktion/EN/Pressemitteilungen/2022/03/20220404-bmwk-appoints-bundesnetzagentur-as-fiduciary-for-gazprom-germania.html); Bundesministerium für Wirtschaft und Klimaschutz, Habeck: „Das Osterpaket ist der Beschleuniger für die erneuerbaren Energien“, press release of April 6, 2022 (https://www.bmwi.de/Redaktion/DE/Pressemitteilungen/2022/04/20220406-habeck-das-osterpaket-ist-der-beschleuniger-fur-die-erneuerbaren-energien.html); Bundesministerium für Wirtschaft und Klimaschutz, Habeck legt zweiten Fortschrittsbericht Energiesicherheit vor – Abhängigkeit von russischen Energieimporten weiter reduziert, press release of May 1, 2022 (https://www.bmwk.de/Redaktion/DE/Pressemitteilungen/2022/05/20220501-habeck-legt-zweiten-fortschrittsbericht-energiesicherheit-vor.html); Bundesministerium für Wirtschaft und Klimaschutz, Versorgungssicherheit in Deutschland gewährleistet – Lage wird aber genau beobachtet – Enge Abstimmung innerhalb der EU erfolgt, press release of April 27, 2022 (https://www.bmwk.de/Redaktion/DE/Pressemitteilungen/2022/04/20220427-versorgungssicherheit-in-deutschland-gewaehrleistet.html).
Support for companies affected by Russia’s invasion of Ukraine and related sanctions. On April 8, 2022, the Federal Government adopted a proposal for a comprehensive package of measures to support companies affected by Russia’s invasion of Ukraine and related sanctions. The EU’s Temporary Crisis Framework, described below under “—EU Response to Russia’s Invasion of Ukraine”, subject to necessary state aid approvals, offers the necessary basis for state support to assist affected companies. At present, the main goal is to secure affected companies’ liquidity in the short term and, accordingly, the Federal Government intends to primarily provide companies with liquidity support measures. These measures include the KfW Special Program UBR 2022 described under “—KfW—Other Recent Developments—Impact of Russia’s invasion in Ukraine on KfW—KfW Special Program UBR 2022,” which launched on May 9, 2022. In addition, certain expansions of Federal—Federal State—guarantee programs (Bund-Länder-Bürgschaftsprogramme) introduced during the COVID-19 pandemic are being continued for companies demonstrably affected by Russia’s invasion of the Ukraine. In addition, the Federal Government is preparing supplemental measures, in case the economic situation of the companies deteriorates. Such planned supplemental measures are to include cost allowances limited in time and scope to temporarily alleviate the impact of increases in gas and energy prices for particularly affected companies, a financing program of up to EUR 100 billion for companies at risk due to high margin requirements consisting of credit facilities backed by a guarantee of the Federal Republic to be extended by KfW based on standardized criteria as well as an option to extend targeted equity and hybrid capital support measures to stabilize companies of particular systemic importance, for individual cases in the first instance through special mandates of KfW.
13
Sources: Bundesministerium für Wirtschaft und Klimaschutz, Bundesregierung beschließt Schutzschild für vom Krieg betroffene Unternehmen, press release of April 8, 2022 (https://www.bmwi.de/Redaktion/DE/Pressemitteilungen/2022/04/20220408-bundesregierung-beschliesst-schutzschild.html); Bundesministerium für Wirtschaft und Klimaschutz/Bundesministerium der Finanzen/KfW, Schutzschild der Bundesregierung für von Kriegsfolgen betroffene Unternehmen startet Schritt für Schritt, joint press release dated May 3, 2022 (https://www.bmwk.de/Redaktion/DE/Pressemitteilungen/2022/05/20220503-schutzschild-der-bundesregierung-fur-von-kriegsfolgen-betroffene.html).
Special Fund for the Federal Armed Forces. In response to Russia’s invasion of Ukraine, the Federal Government plans to establish a Special Fund for the Federal Armed Forces (Sondervermögen Bundeswehr), with its own credit authorization of up to EUR 100 billion on a one-off basis. The one-off credit authorization is to be exempted from the debt ceiling of the “debt brake”. The Special Fund would be intended to supplement the defense section of the Federal Budget to achieve the goal of the North Atlantic Treaty Organization (NATO) of spending at least 2% of GDP for defense each year.
Source: Bundesministerium der Finanzen, Sondervermögen Bundeswehr: Investitionen in unsere Freiheit, press release of March 16, 2022 (https://www.bundesfinanzministerium.de/Content/DE/Pressemitteilungen/Finanzpolitik/2022/03/2022-03-16-sondervermoegen-bundeswehr.html?cms_pk_kwd=16.03.2022_Sonderverm%C3%B6gen+Bundeswehr+Investitionen+in+unsere+Freiheit&cms_pk_campaign=Newsletter-16.03.2022).
EU Response to Russia’s Invasion of Ukraine
In response to Russia’s invasion of Ukraine, the EU has taken comprehensive measures to support Ukraine and the Ukrainian people, including the reception of refugees, humanitarian aid, civil protection support, an agreement to set up a Ukraine Solidarity Trust Fund, support in an amount of EUR 17.0 billion for EU Member States hosting refugees, an emergency macro-financial assistance operation of EUR 1.2 billion to foster stability in Ukraine and support for the Ukrainian armed forces in an amount of EUR 1.0 billion under the European Peace Facility, a new instrument established in March 2021 and financed outside the EU budget with a financial ceiling of EUR 5.0 billion in 2018 prices for the period from 2021 to 2027.
Furthermore, the EU has adopted extensive restrictive measures against Russia in addition to the sanctions which were progressively imposed after the illegal annexation of Crimea in 2014. Individual sanctions have been imposed on specific persons and entities because their actions are considered to have undermined Ukraine’s territorial integrity, sovereignty and independence include asset freezes and travel bans. The economic sanctions, which target exchanges with Russia in specific economic sectors, include restricted access to EU capital markets for certain Russian banks and companies, a ban on transactions with the Russian Central Bank and the Central Bank of Belarus, a SWIFT ban for a number of Russian and Belarusian banks, a prohibition on the provision of euro-denominated banknotes to Russia and Belarus, a ban on the overflight of EU airspace and on access to EU airports by Russian carriers of all kinds, a ban on exports to Russia of goods and technology in various sectors, a ban on export to Russia of dual-use goods for military use and an export and import ban on arms. On April 8, 2022, the EU adopted further sanctions, including, among others, a ban of coal and other solid fossil fuel imports from Russia as of August 2022, a ban of vessels registered under the flag of Russia from accessing EU ports and the imposition of a full transaction ban on four key Russian banks representing 23% of market share in the Russian banking sector. The EU is currently considering the adoption of a further package of sanctions, including a ban on imports of oil from Russia.
To mitigate the economic impact of the war on EU Member States, the EU Commission also adopted a temporary crisis framework for state aid measures in March 2022 (the “Temporary Crisis Framework”) to support the economy in the context of Russia’s invasion of Ukraine. Apart from allowing the set-up of schemes for grants for companies affected by the crisis, EU Member States are permitted to provide liquidity support in form of state guarantees and subsidized loans for investments and working capital needs. In addition, EU Member States may partially compensate companies, in particular intensive energy users, for additional costs resulting from the current exceptional gas and electricity price increases, including through direct grants. The measures extended are subject to certain limits. The Temporary Crisis Framework has been put in place until December 31, 2022 and may be extended if deemed necessary by the European Commission.
14
Sources: Council of the EU, EU response to Russia’s invasion of Ukraine, accessed on April 8, 2022
(https://www.consilium.europa.eu/en/policies/eu-response-ukraine-invasion/); Council of the EU, EU support to Ukraine: Council doubles funding under the European Peace Facility, press release of March 23, 2022
(https://www.consilium.europa.eu/en/press/press-releases/2022/03/23/eu-support-to-ukraine-council-doubles-funding-under-the-european-peace-facility/?utm_source=dsms- auto&utm_medium=email&utm_campaign=EU+support+to+Ukraine%3a+Council+doubles+funding+under+the+European+Peace+Facility); Council of the EU, European Peace Facility, accessed on April 8, 2022 (https://www.consilium.europa.eu/en/policies/european-peace-facility/); Council of the EU, EU restrictive measures in response to the crisis in Ukraine, accessed on April 8, 2022 (https://www.consilium.europa.eu/en/policies/sanctions/restrictive-measures-against-russia-over-ukraine/); Council of the EU, EU adopts fifth round of sanctions against Russia over its military aggression against Ukraine, press release of April 8, 2022 (https://www.consilium.europa.eu/en/press/press-releases/2022/04/08/eu-adopts-fifth-round-of-sanctions-against-russia-over-its-military-aggression-against-ukraine/); European Commission, Speech by President von der Leyen at the EP Plenary on the social and economic consequences for the EU of the Russian war in Ukraine – reinforcing the EU’s capacity to act, May 4, 2022 (https://ec.europa.eu/commission/presscorner/detail/en/speech_22_2785); European Commission, State aid: Commission adopts Temporary Crisis Framework to support the economy in context of Russia’s invasion of Ukraine, press release of March 23, 2022 (https://ec.europa.eu/commission/presscorner/detail/en/statement_22_1949).
General Considerations Relating to the COVID-19 Pandemic
According to the European Center for Disease Prevention and Control, at the end of the week ended May 1, 2022 (“week 17”), overall transmission was falling in most countries in the EU and the European Economic Area (“EU/EEA”), as evidenced by both overall case notification rates and case rates among people aged 65 years and older. While decreasing overall, transmission in the 65 years and older age group is still high (64% of the pandemic maximum for the EU/EEA). It is therefore important to continue monitoring the disease burden in older age groups. The 14-day COVID-19 death rate has been decreasing for three weeks. Of the total population in EU/EEA countries, 72.6% had been fully vaccinated, i.e., received a primary course of vaccinations, and 51.6% had received an additional booster dose, whereas 75.4% had received at least one vaccine dose as of the end of week 17.
In Germany, the peak of the current wave of the COVID-19 pandemic has clearly passed, many hospitalization indicators and the number of deaths are declining, but infection pressure remains high. Omicron continues to be the dominant variant, accounting for more than 99% of infections. Compared to previous waves, the number of severe COVID-19 cases during the current wave has been significantly lower. The burden on capacity in the public health care system due to restricted availability of medical personnel associated with infection-related absences is decreasing, in particular in the area of in-patient and intensive care. The number of deaths associated with Omicron in relation to new infections is lower than during previous waves, as a result of increased immunity in the German population, especially due to the very effective vaccine, combined with the basically lower proportion of severe infections associated with Omicron. The vaccination rate in the German population has remained more or less unchanged over the past few weeks, with mainly second booster doses being administered. Of the total German population, 75.8% had been fully vaccinated, 59.5% had received a first booster dose and 5.3% a second booster dose, whereas 77.6% had received at least one vaccine dose as of May 10, 2022. As of April 2, 2022, most containment measures related to the COVID-19 pandemic have been lifted, with basic protective measures such as the wearing of facial masks in hospitals and nursing homes remaining in place. At the same time, stricter, locally restricted rules may be imposed if required by the local infection situation and if resolved by the parliament of the relevant Federal State.
Sources: European Centre for Disease Prevention and Control, Country overview report: week 17 2022, produced on May 6, 2022 (https://www.ecdc.europa.eu/en/covid-19/country-overviews); Robert Koch Institut, Wöchentlicher Lagebericht des RKI zur Coronavirus-Krankheit-2019 (COVID-19), May 5, 2022 (https://www.rki.de/DE/Content/InfAZ/N/Neuartiges_Coronavirus/Situationsberichte/Wochenbericht/Wochenbericht_2022-05-05.pdf?__blob=publicationFile); Bundesministerium für Gesundheit, Impf-Dashboard, as of May 11, 2022 (https://impfdashboard.de/); Bundesregierung, Mehr Normalität im Alltag, March 30, 2022 (https://www.bundesregierung.de/breg-de/aktuelles/infektionsschutzgesetz-2013038).
15
KFW
GENERAL
Overview
KfW is a public law institution (Anstalt des öffentlichen Rechts) serving domestic and international public policy objectives of the Federal Government (“Federal Government”) of the Federal Republic of Germany (“Federal Republic”). KfW promotes its financing activities under the umbrella brand name KfW Bankengruppe (“KfW Group”).
With total assets of EUR 551.0 billion as of December 31, 2021, including loans and advances of EUR 440.6 billion, KfW is Germany’s flagship promotional bank and ranks among Germany’s largest financial institutions. KfW’s promotional business volume amounted to EUR 107.0 billion in 2021. For more information on KfW’s promotional business volume, see the table “Promotional Business Volume by Business Sector” in “Business—Introduction.”
KfW conducts its business in the following business sectors:
| | • | | SME Bank & Private Clients (Mittelstandsbank & Private Kunden): offers highly standardized products primarily for small and medium-sized enterprises (“SMEs”), business founders, start-ups, self-employed professionals and private individuals; |
| | • | | Customized Finance & Public Clients (Individualfinanzierung & Öffentliche Kunden): provides individual financing solutions for municipal and social infrastructure, and offers corporate loans and project financing as well as customized financing for financial institutions and Landesförderinstitute; |
| | • | | KfW Capital: KfW Capital GmbH & Co. KG (“KfW Capital”) invests in German and European venture capital and venture debt funds with the aim of improving access to capital for innovative, technology-oriented growth companies in Germany through professionally managed funds. KfW Capital is a legally independent entity wholly owned by KfW; |
| | • | | Export and Project Finance: KfW IPEX-Bank GmbH (“KfW IPEX-Bank”) offers customized financing for exports and project and corporate financing worldwide. KfW IPEX-Bank is a legally independent entity wholly owned by KfW; |
| | • | | Promotion of Developing Countries and Emerging Economies: KfW Entwicklungsbank (“KfW Development Bank”) is responsible for KfW’s public sector development cooperation activities, and DEG – Deutsche Investitions- und Entwicklungsgesellschaft mbH (German Investment and Development Company, “DEG”) finances private-sector investments in developing countries. DEG is a legally independent entity wholly owned by KfW; and |
| | • | | Financial Markets: comprises KfW’s treasury, funding, asset management and other capital markets-related activities. |
KfW’s offices are located at Palmengartenstraße 5-9, 60325 Frankfurt am Main, Germany. KfW’s telephone number is 011-49-69-74310. KfW also maintains branch offices in Berlin and Bonn, Germany, as well as a liaison office to the EU in Brussels, Belgium.
Ownership
The Federal Republic holds 80% of KfW’s subscribed capital, and the German federal states (each, a “Land” and together, the “Länder”) hold the remaining 20%. The Law Concerning KfW (Gesetz über die Kreditanstalt für Wiederaufbau, or the “KfW Law”) does not provide for shareholders’ meetings; instead, the Board of Supervisory Directors assumes the responsibilities of a shareholders’ meeting. For more information on the Board of Supervisory Directors, see “Management and Employees—Board of Supervisory Directors.”
16
Shares in KfW’s capital may not be pledged; they may not be transferred to entities other than the Federal Republic or the Länder. Capital contributions have been, and are expected to continue to be, made to KfW in such proportions as to maintain the relative shares of capital held by the Federal Republic and the Länder.
Legal Status
KfW is organized under the KfW Law as a public law institution with unlimited duration. As a public law institution serving public policy objectives of the Federal Government, KfW itself is not subject to corporate taxes (although certain of its subsidiaries are), and as a promotional bank, KfW does not seek to maximize profits. KfW does, however, seek to maintain an overall level of profitability that allows it to strengthen its equity base in order to support its promotional activities. KfW is prohibited under the KfW Law from distributing profits, which are instead allocated to statutory reserves and to separately reportable reserves. KfW is generally also prohibited under the KfW Law from taking deposits or engaging in the financial commission business.
Relationship with the Federal Republic
Guarantee of the Federal Republic
The KfW Law expressly provides that the Federal Republic guarantees all existing and future obligations of KfW in respect of money borrowed, bonds and notes issued and derivative transactions entered into by KfW, as well as obligations of third parties that are expressly guaranteed by KfW (KfW Law, article 1a). Under this statutory guarantee (the “Guarantee of the Federal Republic”), if KfW fails to make any payment of principal or interest or any other amount required to be paid with respect to securities issued by KfW, or if KfW fails to make any payment required to be made under KfW’s guarantee when that payment is due and payable, the Federal Republic will be liable at all times for that payment as and when it becomes due and payable. The Federal Republic’s obligation under the Guarantee of the Federal Republic ranks equally, without any preference, with all of its other present and future unsecured and unsubordinated indebtedness. Holders of securities issued by KfW or issued under KfW’s guarantee may enforce this obligation directly against the Federal Republic without first having to take legal action against KfW. The Guarantee of the Federal Republic is strictly a matter of statutory law and is not evidenced by any contract or instrument. It may, however, be subject to defenses available to KfW with respect to the obligations covered.
Institutional Liability (Anstaltslast)
KfW is a public law institution (Anstalt des öffentlichen Rechts). Accordingly, under the German administrative law principle of Anstaltslast, the Federal Republic, as the constituting body of KfW, has an obligation to safeguard KfW’s economic basis. Under Anstaltslast, the Federal Republic must keep KfW in a position to pursue its operations and enable it, in the event of financial difficulties, through the allocation of funds or in some other appropriate manner, to meet its obligations when due. Anstaltslast is not a formal guarantee of KfW’s obligations by the Federal Republic, and creditors of KfW do not have a direct claim against the Federal Republic. Nevertheless, the effect of this legal principle is that KfW’s obligations, including the obligations to the holders of securities issued by it or issued under KfW’s guarantee, are fully backed by the credit of the Federal Republic. The obligation of the Federal Republic under Anstaltslast would constitute a charge on public funds that, as a legally established obligation, would be payable without the need for any appropriation or any other action by the German Parliament.
Understanding with the European Commission
In order to clarify that the Federal Republic’s responsibility for KfW’s obligations was and is compatible with EU law prohibitions against state aid, the German Federal Ministry of Finance and the European Commissioner for Competition held discussions which were formalized in an understanding reached on March 1, 2002. In the understanding with the European Commission, it was agreed that, in respect of the promotional activities for which KfW is responsible, KfW will continue to benefit from Anstaltslast and the Guarantee of the Federal Republic. The understanding acknowledged that KfW’s role in providing financing for, in particular, SMEs, risk capital, environmental protection, technology/innovation, infrastructure and housing, as well as its cooperation with developing countries, is of a promotional nature and thus compatible with EU rules.
17
In the business sector of Export and Project Finance, the understanding with the European Commission required KfW to transfer to a legally independent subsidiary that portion of export finance and domestic and international project finance activities which the European Commission deemed to fall outside the scope of the promotional activities of KfW. The transfer of such activities was to be effected by December 31, 2007, and as from that date, KfW has not been permitted to fund the subsidiary at other than market rates of interest or to extend to the subsidiary any benefits of Anstaltslast or the Guarantee of the Federal Republic.
KfW continues to be permitted, however, to engage directly in the following promotional export and project finance activities:
| | • | | implementation of international promotional programs, such as the interest-rate subsidized CIRR (Commercial Interest Reference Rate) and ASU (Aircraft Sector Understanding) schemes, which are recognized as promotional activities in accordance with the Organization for Economic Cooperation and Development (“OECD”) consensus; |
| | • | | participation in syndicated financing activities outside the EU, the European Economic Area and countries holding the status of official candidate for EU membership, subject to certain conditions, and sole financing activities in countries in which sufficient sources of financing do not exist; and |
| | • | | participation in projects in the interest of the EU that are co-financed by the European Investment Bank or similar European financing institutions. |
The European Commission transformed the understanding into a decision, which the Federal Republic formally accepted. In August 2003, a part of the Promotional Bank Restructuring Act (Förderbankenneustrukturierungsgesetz) implemented the understanding with the European Commission and amended the KfW Law accordingly.
On January 1, 2008, KfW IPEX-Bank, a limited liability company (Gesellschaft mit beschränkter Haftung) formed as a wholly owned subsidiary of KfW, commenced operations as a legally independent entity, thus satisfying the requirements set forth in the understanding with the European Commission. KfW IPEX-Bank conducts those export and project finance activities which the European Commission deemed to fall outside the scope of KfW’s promotional activities directly and on its own behalf. For more information on KfW IPEX-Bank, see “Business—Export and Project Finance (KfW IPEX-Bank).”
Supervision and Regulation
Supervision
The Federal Ministry of Finance, acting in consultation with the Federal Ministry for Economic Affairs and Climate Action, exercises legal supervision (Rechtsaufsicht) over KfW, i.e., it supervises KfW’s compliance with applicable laws and may adopt all necessary measures to ensure such compliance. Legal supervision primarily comprises supervision of compliance with the KfW Law and KfW’s Bylaws, but also with all other applicable laws and regulations, except for certain provisions of bank regulatory law referenced in the following paragraph and described in “Regulation.” The relevant Federal Ministers are represented on KfW’s Board of Supervisory Directors, which supervises KfW’s overall activities. See below “Management and Employees—Board of Supervisory Directors.”
In addition to being subject to legal supervision by the Federal Ministries, in October 2013, KfW became subject to banking-specific supervision exercised by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, or “BaFin”). This supervision was established by a ministerial regulation (KfW–Verordnung, or “KfW Regulation”), which implements an amendment to the KfW Law that became effective in July 2013. The KfW Regulation, while maintaining KfW’s general exemption from bank regulatory law, specifies those provisions of bank regulatory law which are to apply to KfW by analogy and assigns the supervision of compliance with these provisions to BaFin. In exercising its supervision, BaFin cooperates with the German Central Bank (“Deutsche Bundesbank”) in accordance with normal bank supervisory procedures. For further details, see “Supervision and Regulation—Regulation.”
18
In addition to compliance with the financial reporting and auditing standards generally applicable to banks in Germany, KfW, under the KfW Law, is subject to special auditing standards for government-owned entities set forth in the Budgeting and Accounting Act (Haushaltsgrundsätzegesetz). These special auditing standards require that KfW’s annual audit, above and beyond its normal scope, cover the proper conduct of KfW’s business by its management. The resulting auditor’s report is to enable the Board of Supervisory Directors, the responsible Federal Ministries and the Federal Court of Auditors (Bundesrechnungshof) to form their own opinion and to take action if required.
Finally, as a government-owned entity, KfW is subject to audits by the Federal Court of Auditors with regard to its economical use of funds pursuant to the Budgeting and Accounting Act.
Regulation
Overview of KfW’s Regulatory Status. KfW is generally exempt from bank regulatory laws and regulations, as it qualifies neither as a “credit institution” or “financial services institution” within the meaning of the German Banking Act (Gesetz über das Kreditwesen, or “KWG”), nor as a “credit institution” within the meaning of relevant EU directives and regulations, including in particular the EU Capital Requirements Directive (Directive 2013/36/EU, as amended) (“CRD”) and the EU Capital Requirements Regulation (Regulation (EU) 575/2013, as amended) (“CRR”). However, by operation of the KfW Regulation, considerable portions of the KWG and the CRR, including relevant implementing rules and regulations, apply by analogy to KfW. The analogous application of banking supervisory law to KfW has been phased in gradually, with the majority of the rules, regulations and enforcement powers described above having become applicable as of January 1, 2016. The KfW Regulation takes into account KfW’s special status as an entity not generally engaged in deposit taking, characterized by a low-risk profile in its lending business and benefiting from the Guarantee of the Federal Republic. It therefore provides for certain modifications and exceptions in connection with the analogous application of the relevant rules and regulations.
The analogous application of EU and national bank regulatory law imposed by the KfW Regulation is without prejudice to KfW’s status as a “public sector entity” within the meaning of article 4 paragraph 1 no. 8 of the CRR. This status confers certain advantages to KfW’s refinancing activities given the fact that exposures to public sector entities held by banks are privileged as to capital requirements, large exposures limitations and liquidity measurement under EU and national bank regulatory law. Securities issued by KfW, such as bonds and notes, are eligible in the EU as level 1 assets pursuant to article 10 paragraph 1 lit. (c) (v) of the Commission Delegated Regulation (EU) 2015/61 of October 10, 2014 (“Delegated Regulation”), subject to all other requirements stated in the Delegated Regulation being met.
Bank Regulatory Rules and Regulations Applied by Analogy. By operation of the KfW Regulation, bank regulatory requirements for corporate governance set forth in Sections 25c through 25d of the KWG apply to KfW by analogy. To comply with these requirements, certain adjustments were made to the committee structure of KfW’s Board of Supervisory Directors in 2014. For more information on the committee structure of KfW’s Board of Supervisory Directors, see “Management and Employees—Board of Supervisory Directors.”
Since January 1, 2018, the bank regulatory requirements for remuneration policies set forth in Section 25a of the KWG and further specified in the German Remuneration Regulation for Credit Institutions (Institutsvergütungsverordnung, or “IVV”) apply to KfW.
The capital adequacy regime set forth in part 2 titles I through III and part 3 titles I through VI of the CRR has become applicable by analogy virtually in its entirety to KfW with effect from January 1, 2016, including the calculation of regulatory own funds and own funds requirements on a consolidated basis. KfW is also subject to the capital buffers regime introduced by CRD and transposed into national law in Sections 10c through 10i of the KWG. In June 2017, KfW received approval from BaFin to calculate its regulatory capital requirements in accordance with the advanced IRBA for the vast majority of its portfolio as of June 30, 2017. In line with regulatory requirements, KfW intends to seek additional approval for other sub-portfolio segments and models in the future. KfW’s total capital ratio as well as its Tier 1 capital ratio according to article 92 of the CRR amounted to 23.9%, both as of December 31, 2021 (not taking into account the interim profit of the year 2021)1. The decrease of the total capital ratio as well as of the Tier 1 capital ratio compared to the figures as of December 31, 2020, which amounted to 24.3% and 24.1%, respectively, was mainly due to the implementation
| 1 | According to article 26(2) CRR. |
19
of changes under the CRR, methodical adjustments (especially due to regulatory IRBA requirements) as well as the reclassification of certain structured funds as securitizations. Until KfW receives full approval as an advanced IRBA institution, sub-portfolios that have not yet been approved will continue to be valued following the generally more capital-intensive standardized approach for credit risks.
In connection with the application of the appropriate requirements of the capital adequacy regime, the overall capital requirement for KfW Group’s total capital ratio as of December 31, 2021 was 16.1%, consisting of a total supervisory review and evaluation process capital requirement (“TSCR”) of 12.5% plus a Capital Conservation Buffer, a buffer for Other Systemically Important Institutions (O-SIIs) in Germany (“OSII Buffer”) and a Countercyclical Capital Buffer. The TSCR for KfW Group includes a 2.75% supervisory review and evaluation process (“SREP”) surcharge. A SREP surcharge is generally meant to reflect the specific risk situation of an individual bank. In addition, the TSCR for KfW Group includes an additional surcharge in an overall amount of 1.75% for certain IT-, internal auditing- and operational risk management-related findings. This surcharge, resulting in a temporary increase of the TSCR of KfW Group, was imposed by BaFin in 2018 and reduced in 2020 and 2021 against the following background:
In connection with standard audits of KfW conducted by Deutsche Bundesbank and BaFin in 2016, the banking supervisory authorities reported findings related to KfW’s IT. As a consequence, in 2017, BaFin imposed an IT-related surcharge. The need for a modernization of KfW’s IT architecture had already been identified before the standard audits were conducted and major projects to address the need for IT-related updates and improvements have been underway at KfW for some time. In 2017, the banking supervisory authorities also conducted standard audits related to KfW’s outsourcing management and internal audit procedures, which resulted in certain additional findings. In June 2018, BaFin notified KfW that temporary capital requirements would be imposed in relation to these IT-, internal auditing- and operational risk management-related findings. The surcharge of 2.75% imposed at the time was to remain in place until the underlying issues had been resolved. In 2019, the supervisory authorities conducted a follow-up audit of KfW’s IT, resulting in the imposition of an updated surcharge of 2.25% in 2020. As a result of a further follow-up audit of KfW’s Internal Auditing conducted in 2020, the supervisory authorities imposed an updated surcharge of 1.75% in 2021.
In 2018, BaFin had also notified KfW that it would be required to maintain an OSII Buffer of 1%, which would be phased in over a period of three years, starting with an OSII Buffer of 0.33% for 2019. For 2020 and 2021, the OSII Buffer amounts to 0.66% and 1%, respectively. With respect to the result of an IRBA model change supervisory audit, BaFin imposed risk-weighted asset (RWA) multipliers for specific exposure classes, effective as of December 31, 2021. KfW’s capital ratios for 2020 and 2021 already take these multipliers into account.
As of January 1, 2016, KfW became, by analogy, subject to the large-exposures regime of part IV of the CRR as supplemented by the KWG and relevant implementing rules and regulations. Under this regime, exposures to any one client or group of connected clients are limited to 25% of eligible own funds and exposures exceeding 10% of eligible own funds are subject to special internal monitoring requirements and a reporting obligation to the German bank supervisory authorities.
In addition, KfW has been applying the provisions concerning leverage ratio with effect from January 1, 2016 by analogy. Under this regime, the ratio of KfW’s Tier 1 capital to the carrying value of assets and off-balance sheet exposures is calculated on a consolidated basis. The leverage ratio is monitored internally and has been part of the prudential requirements since June 2021.
According to a decision made by BaFin in December 2015, certain provisions of the CRR such as own funds requirements, large exposures and leverage need only be considered at the group level (i.e., on a consolidated basis) and not at the entity level.
Although it was already subject to the German Anti-Money Laundering Act (Geldwäschegesetz), on January 1, 2016 KfW also became subject to the provisions of the KWG concerning money laundering, terrorist financing and other criminal offences at the group and entity levels.
Finally, the bank regulatory requirements for risk management systems set forth in the KWG and in the German Minimum Requirements for Risk Management (Mindestanforderungen an das Risikomanagement, or “MaRisk”) became applicable to KfW by analogy with effect from January 1, 2016, and provide for sound systems for risk strategy planning, the implementation of risk management and financial and operational
20
controls as well as requirements for credit decision-making processes. Certain exemptions are granted in this context for KfW’s assigned business (Zuweisungsgeschäft) in accordance with article 2 paragraph 4 of the KfW Law, i.e., those activities which KfW carries out as requested by the Federal Government, usually at the Federal Republic’s economic risk.
The KfW Regulation does not encompass the application of the liquidity regime set forth in the CRR and the KWG. On the same grounds, KfW is generally exempt from EU and national disclosure requirements and from the EU Bank Recovery and Resolution Directive.
Supervisory Structure and Enforcement Powers. The supervision of KfW’s compliance with bank regulatory laws and regulations is assigned to BaFin in cooperation with Deutsche Bundesbank in accordance with BaFin’s general risk-oriented supervisory review and evaluation process. In this context, Deutsche Bundesbank undertakes the ongoing audit and analysis of banks with regard to both their financial stability and the adequacy of their internal governance and risk-management systems. Deutsche Bundesbank receives and preprocesses relevant data, while final decision-making and the exercise of enforcement powers are reserved for BaFin.
For purposes of supervision, the KfW Regulation subjects KfW by analogy to the reporting and information requirements generally applicable to banks in Germany, with the exception of the automated access to client account details, with effect from January 1, 2016. Until KfW implemented a system to comply with these reporting and information requirements, KfW provided the supervisory authorities with relevant reports and information, the form of which was agreed with the supervisory authorities. As agreed with the supervisory authorities, KfW has implemented a fully-fledged regulatory reporting system as of January 1, 2020.
In addition, the KfW Regulation subjects KfW by analogy to certain enforcement powers of BaFin, which comprise, among other matters, the right to demand, under certain circumstances, increases of regulatory own funds and/or a reduction of regulatory risk, or to demand changes in the senior management of KfW.
Since KfW does not qualify as a regulated entity under national or EU bank regulatory law, KfW did not become subject to the changes in the national and EU bank supervisory structure that have taken effect in recent years. In particular, KfW is not subject to supervision by the European Central Bank (“ECB”) pursuant to Council Regulation (EU) No. 1024/2013 establishing the European Single Supervisory Mechanism (“SSM”). KfW IPEX-Bank was included in the ECB’s comprehensive assessment of large banks conducted in 2014 in cooperation with national supervisory authorities of member states participating in the SSM. According to a decision made by the ECB in September 2014, KfW IPEX-Bank did not qualify as a significant credit institution and to date it has not been qualified as such in connection with subsequent annual reviews of large German financial institutions conducted by the ECB. Accordingly, KfW IPEX-Bank is currently not supervised directly by the ECB, but continues to be supervised by BaFin in cooperation with Deutsche Bundesbank. Depending on KfW IPEX-Bank’s business growth, KfW IPEX-Bank may qualify as a significant credit institution in the course of the next years, which would lead to direct supervision by the ECB. For more information on KfW IPEX-Bank, see “Business—Export and Project Finance (KfW IPEX-Bank).” For more information on the SSM, see “Federal Republic of Germany—Monetary and Financial System—Financial System—European Financial System—European System of Financial Supervision and European Banking Union.”
Corporate Background
KfW was established in 1948 by the Administration of the Combined Economic Area, the immediate predecessor of the Federal Republic. Originally, KfW’s purpose was to distribute and lend funds of the European Recovery Program (the “ERP”), which is also known as the Marshall Plan. Even today, several of KfW’s programs to promote the German and European economies are supported using funds for subsidizing interest rates from the so-called “ERP Special Fund.” KfW has expanded and internationalized its operations over the past decades. In 1994, following the reunification of the Federal Republic and the former German Democratic Republic (“GDR”), KfW assumed the operations of the former central bank of the GDR (Staatsbank), which was located in Berlin, Germany.
In September 2001, KfW acquired DEG from the Federal Republic. DEG is a limited liability company that acts as the German development finance institution for the promotion of private enterprises in developing countries and emerging economies. For more information on DEG, see “Business—Promotion of Developing Countries and Emerging Economies—DEG – Deutsche Investitions- und Entwicklungsgesellschaft mbH.”
21
In 2003, Deutsche Ausgleichsbank (“DtA”), which was based in Bonn, Germany, merged into KfW. DtA was formed in 1950 as a public law institution and promotional bank, and was particularly active in the area of lending to SMEs and start-up businesses. The merger was accomplished through the Promotional Bank Restructuring Act and was designed to restructure and simplify promotional banking in the Federal Republic and harmonize it with the understanding reached with the European Commission.
Sustainable Promotion
KfW Group has set sustainable promotion as its primary strategic objective and aims to improve economic, social and environmental conditions around the world, with an emphasis on promotion of the German economy. For more information on KfW’s strategic objectives, see “Combined Management Report — Basic information on KfW Group — Strategic Objectives 2026” included in Exhibit (e) to this annual report. Against this background, KfW supports the sustainability goals of the Federal Republic, the EU and the international community and is taking action to help implement the Federal Government’s National Sustainable Development Strategy, achieve the United Nations’ Agenda 2030 objectives together with its Sustainable Development Goals (“SDGs”) and put the Paris Agreement into practice. In addition, the “Declaration by KfW Bankengruppe on the consideration of human rights in its business operations” reflects the crucial importance of human rights for all of KfW’s activities. Apart from financing investments for a sustainable economy, KfW, on its own initiative and in cooperation with other financial market participants, strives to set benchmarks and standards for credit and capital markets, to act as a driving force for national and international initiatives and to offer its expertise to political decision-makers in Germany, Europe and worldwide.
KfW’s sustainability mission statement, which reflects a holistic approach to addressing the challenge of transitioning to a sustainable society, lays out the framework for KfW’s five sustainability action areas: banking business, bank operation, sustainability management, sustainability communications and employee relations. For more information on KfW’s approach to employee relations, see “Management and Employees—Employees.”
Banking Business
In its financing activities, KfW focuses on the social and economic megatrends of “climate change and the environment”, “globalization”, “social change”, as well as “digitalization and innovation.” Due to the particular importance of the “climate and environment” megatrend, KfW has been aiming to maintain an environmental ratio of at least 38% for its new commitments since 2020 as part of its strategic management system. In 2021, the environmental ratio was 53% (compared to 33% in 2020), and would have been 58% excluding COVID-19 related loan facilities (compared to 50% in 2020). The main drivers for the increase of the environmental ratio were the decrease of commitments under COVID-19 related loan facilities as well as the high volume of commitments under KfW’s program for Energy-Efficient Construction and Refurbishment, which was succeeded by KfW’s benchmark program Federal Funding for Efficient Buildings (BEG) in July 2021. For more information on these programs see “Business – Domestic Promotional Business – SME Bank & Private Clients.” KfW’s environmental ratio reflects the percentage of KfW’s loan commitments for activities in the fields of climate protection (such as renewable energy, energy-efficient projects, sustainable mobility or climate change adaptation) and the protection of resources and environment (such as waste avoidance, wastewater treatment, air pollution control or noise protection) in relation to KfW’s overall new loan commitments for a certain period. To qualify for the calculation of the environmental ratio, the loan commitments taken into account also have to fulfill certain minimum requirements, for example in terms of CO2 or energy reductions to be achieved by the projects which are financed with these commitments.
In addition, KfW is committed to contributing to the achievement of each of the 17 SDGs, which are part of the United Nations’ Agenda 2030 for Sustainable Development, under its promotional and financing mandate. To create transparency, KfW has developed a group-wide reporting method by mapping new commitments to the SDGs. While new commitments in 2021 contributed to all 17 SDGs, the most significant contributions were made to SDG 7 “Affordable and Clean Energy”, SDG 11 “Sustainable Cities and Communities” and SDG 13 “Climate Action.”
In terms of customers, important target groups for KfW’s activities include Germany’s small- and medium-sized enterprises, private households, municipalities, developing countries, as well as export and project finance borrowers. KfW takes ecological and social factors into account in every financing decision based on specific sustainability guidelines, which are in place for all its business sectors. In the case of promotional and project financing in developing countries and emerging economies, as well as in all export and
22
project finance activities around the world, KfW regularly applies internationally recognized environmental and social standards (Environmental and Social Impact Assessment). KfW refuses to fund projects that could conceivably cause unacceptable environmental or social harm and the group-wide Exclusion List of KfW Group applies to all new financing and promotional activities. In 2021, KfW introduced science-based sector guidelines in accordance with the targets of the Paris Climate Agreement as an additional element to steer KfW’s new financing activities in particularly greenhouse gas-intensive sectors.
Sustainability also plays an important role in KfW’s various capital market activities, be it in its role as a green bond issuer and investor or in connection with the sustainable management of its liquidity portfolio. For more information, see “Business—Financial Markets.”
KfW is conscious of the fact that environmental and climate risks, as well as risks arising from poor governance and insufficient social considerations, can have a significant impact on its credit risk positions, as well as on economic and financial systems in general. As a consequence, KfW strives to continuously improve the assessment of its risk positions with a view to gaining a clear picture of the significance of environmental, climate, governance and social aspects as risk drivers.
KfW’s Sustainability Report 2021, which was published in April 2022, complies with the Core option of the Global Reporting Initiative (GRI) standards and also contains KfW Group’s non-financial report in accordance with the German Commercial Code (Handelsgesetzbuch). Based on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), the report includes a special chapter outlining KfW’s climate-related risks and associated processes in a transparent manner.
Banking Operations
The regulatory framework applicable to KfW’s activities explicitly includes compliance with legal rules and regulations relating to environmental, social and economic matters, as well as the prevention of money laundering, terrorist financing, corruption, fraud, breaches of data protection, insider trading and embargo provisions. In addition, as a public law institution, KfW adheres to the principles of the Federal Government’s Public Corporate Governance Code. Furthermore, KfW is a corporate member of Transparency International and DEG represents KfW Group in its capacity as a supporting member of the Extractive Industries Transparency Initiative. While adverse environmental impacts caused by KfW’s bank operations are limited, KfW strives to reduce the ecological footprint of its banking operations, including by aiming to achieve climate-neutral operations. Among other matters, KfW’s procurement guidelines require that suppliers and potential subcontractors comply with the prohibition of child and forced labor and afford protection against inhumane working conditions. Within the scope of possibilities provided by public procurement law, KfW includes social and ecological requirements in its contract conditions for Europe-wide tenders.
Sustainability Management System and Sustainability Communications
KfW’s sustainability management system establishes responsibilities and procedures to further develop sustainability matters within KfW Group. Overall responsibility for the group’s sustainability strategy and communication rests with the Chief Sustainability Officer—KfW’s Chief Executive Officer—who is supported by sustainability officers and managers at the group, business sector, central unit and site levels. Specific sustainability guidelines for the business sectors and relevant central units set out detailed rules. To ensure continuous progress of the group-wide sustainability commitment, KfW’s strategic objectives define KfW’s ranking as one of the top five national and international promotional banks in relevant sustainability ratings as one of the key targets. KfW regularly interacts openly with its stakeholders about aspects of its business activity related to sustainability with a view to refining its own sustainability goals and enabling stakeholders to address relevant topics. In this context, KfW’s Sustainability Report, which also fulfills statutory requirements, and KfW’s Sustainability Portal are important communication channels.
Financial Statements and Auditors
The consolidated financial statements of KfW included in Exhibit (e) to this annual report have been prepared in accordance with IFRS as adopted by the EU and the additional requirements of German commercial law pursuant to § 315e (1) of the German Commercial Code (Handelsgesetzbuch) and supplementary provisions of the KfW Law. IFRS differs in certain significant respects from accounting principles generally accepted and financial reporting practices followed in the United States (“U.S. GAAP”), and, as a result, KfW’s consolidated
23
financial statements included in Exhibit (e) to this annual report may differ substantially from financial statements prepared in accordance with U.S. GAAP.
Pursuant to the KfW Law, the annual financial statements of KfW are examined by a Wirtschaftsprüfer (Certified Public Accountant) who is appointed by the Federal Minister of Finance at the proposal of the Board of Supervisory Directors in consultation with the Federal Court of Auditors (Bundesrechnungshof). KfW’s external auditor for the fiscal year ended December 31, 2021 is Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft (“EY”).
The annual audit is conducted in accordance with German Generally Accepted Auditing Standards.
The auditor’s report of EY for the fiscal year ended December 31, 2021, dated March 8, 2022, refers to a combined management report (zusammengefasster Lagebericht). The examination of, and the auditor’s report upon, this combined management report are required under German generally accepted accounting principles. This examination was not made in accordance with U.S. generally accepted auditing standards (“U.S. GAAS”) or U.S. attestation standards. Therefore, EY does not provide any opinion on such examination, on the combined management report or on the financial statements included in Exhibit (e) to this annual report in accordance with U.S. GAAS or U.S. attestation standards. A reprint of the auditor’s report can be found starting on page 190 of Exhibit (e) to this annual report.
KfW’s external auditor for the fiscal year 2022 will be Deloitte GmbH Wirtschaftsprüfungsgesellschaft, Munich, Germany.
24
BUSINESS
Introduction
KfW conducts its business in the following business sectors:
| | • | | SME Bank & Private Clients (Mittelstandsbank & Private Kunden); |
| | • | | Customized Finance & Public Clients (Individualfinanzierung & Öffentliche Kunden); |
| | • | | Export and Project Finance (KfW IPEX-Bank); |
| | • | | Promotion of Developing Countries and Emerging Economies (KfW Entwicklungsbank and DEG – Deutsche Investitions- und Entwicklungsgesellschaft mbH); and |
The following table sets forth the relative size of each of the business sectors in terms of commitments for each of the years indicated.
PROMOTIONAL BUSINESS VOLUMEBY BUSINESS SECTOR
| | | | | | | | | | | | |
| | | Year ended
December 31, | | | Year-to-Year | |
| | | 2021 | | | 2020 | | | % change | |
| | | | | | | | | | |
| | | (EUR in millions) | | | (in %) | |
SME Bank & Private Clients (Mittelstandsbank & Private Kunden) | | | 72,980 | | | | 86,274 | | | | -15 | |
Customized Finance & Public Clients (Individualfinanzierung & Öffentliche Kunden) | | | 9,465 | | | | 19,213 | | | | -51 | |
KfW Capital | | | 502 | | | | 871 | | | | -42 | |
Export and project finance (KfW IPEX-Bank) | | | 13,644 | | | | 16,584 | | | | -18 | |
Promotion of developing countries and emerging economies | | | 10,145 | | | | 12,394 | | | | -18 | |
of which KfW Entwicklungsbank | | | 8,611 | | | | 10,983 | | | | -22 | |
of which DEG – Deutsche Investitions- und Entwicklungsgesellschaft mbH | | | 1,534 | | | | 1,411 | | | | 9 | |
Financial markets | | | 527 | | | | 400 | | | | 32 | |
| | | | | | | | | | | | |
Total promotional business volume (1) (2) | | | 107,050 | | | | 135,269 | | | | -21 | |
| | | | | | | | | | | | |
| (1) | Total promotional business volume for the full year ended December 31, 2021 has been adjusted for commitments of EUR 212 million, compared to EUR 468 million for the corresponding period in 2020, made by KfW IPEX-Bank relating to export and project finance and refinanced under certain promotional programs of SME Bank. |
| (2) | Commitments represent the volume of funds committed for loans and other business transactions (with the exception of global funding facilities and program-based global loans to Landesförderinstitute) in the relevant period, including amounts to be disbursed in future periods, and do not include amounts disbursed in the relevant period pursuant to commitments made in prior periods. In the case of global funding facilities and program-based global loans to the Landesförderinstitute, commitments represent the actual volume of funds disbursed in the relevant period. |
The following table shows the relative size of each of the six business sectors in terms of percentage of commitments outstanding and economic capital required at year-end 2021. In general, a lower percentage in economic capital required compared to the percentage of commitments outstanding illustrates a below average risk associated therewith. The percentage of economic capital required of the business sector Financial Markets also includes the economic capital required for treasury activities.
25
RELATIVE SIZEOF EACH BUSINESS SECTOR
| | | | | | | | | | | | | | | | | | |
| | | | | | As of December 31, 2021 | | | |
| | | | | | Commitments
outstanding | | | | | | | Economic capital
required (1) | | | |
SME Bank & Private Clients | | | | | | | 54 | % | | | | | | | 42 | % | | |
Customized Finance & Public Clients | | | | | | | 13 | % | | | | | | | 3 | % | | |
KfW Capital | | | | | | | 0 | % | | | | | | | 1 | % | | |
Export and Project Finance (KfW IPEX Bank) | | | | | | | 14 | % | | | | | | | 8 | % | | |
Promotion of Developing Countries and Emerging Economies (KfW Entwicklungsbank and DEG – Deutsche Investitions- und Entwicklungsgesellschaft mbH) | | | | | | | 8 | % | | | | | | | 7 | % | | |
Financial Markets | | | | | | | 9 | % | | | | | | | 3 | % | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | |
Total (in EUR billions) | | | | | | | 599.4 | | | | | | | | 15.3 | | | |
| | | | | | | | | | | | | | | | | | |
| (1) | The balance of economic capital required relates to group functions. The economic capital required has been calculated on a solvency level of 99.90%. For more information concerning economic capital required of KfW Group, see “Combined management report—Risk report—Risk management approach of KfW Group—Internal capital adequacy assessment process—Economic risk-bearing capacity” included in Exhibit (e) to this annual report. |
Domestic Promotional Business
General
To support the economic and policy objectives of the Federal Government, KfW offers a broad range of financing programs in Germany and, to a limited extent, elsewhere in Europe, as well as grants funded from the federal budget for domestic promotional purposes. KfW’s predominant domestic finance activities are conducted by the business sectors SME Bank & Private Clients, Customized Finance & Public Clients, and by KfW Capital. Certain further promotional activities targeting the domestic market are reported under the Financial Markets business sector.
Under the KfW Law, KfW must generally involve banks or other financing institutions when granting financing. Therefore, KfW involves commercial banks in the handling of its loans by extending loans to commercial banks, which, in turn, on-lend the funds to the ultimate borrowers. To a limited extent, however, KfW is allowed to grant financing directly to ultimate borrowers (e.g., for the financing of municipalities). By lending to commercial banks, KfW, in principle, insulates itself from credit exposure to ultimate borrowers and gains the benefit of the commercial banks’ knowledge of their customers as well as their administrative and servicing expertise. KfW monitors its exposures to, and the credit standing of, each bank or other financing institution to which it lends. As of December 31, 2021, KfW had extended loans to approximately 160 commercial banks in its domestic business sectors. In 2021, 61 % (2020: 61%) of KfW’s total interbank exposure (exposure at default) was attributable to KfW’s ten largest banking group counterparties. Most of this exposure relates to KfW’s on-lending business, while the portion deriving from other business transactions – including derivatives, securities, money market and global loan transactions – is much more limited.
KfW offers two different models for processing KfW loans to commercial banks. KfW’s traditional and most important model for handling its lending business is based on individual loan applications by each borrower within the framework of specified loan or mezzanine capital instruments. Under the other model, KfW extends global funding facilities and program-based global loans to Landesförderinstitute, as well as non-program-based global loans to selected financial institutions in Germany and Europe.
Individual Loans. KfW defines detailed formal eligibility requirements for each loan that it extends to a commercial bank, as well as for each loan the commercial bank on-lends to the ultimate borrower under each of its lending programs. Borrowers in general do not apply directly to KfW, but may only apply for a KfW loan through a commercial bank. This intermediate bank appraises the financial and business situation of the applicant, takes collateral for the loan and assumes liability for repayment to KfW. KfW loans on-lent by commercial banks are normally collateralized by liens on real property or other assets, or are guaranteed by the Federal Republic or by one of the Länder. The processing of individual loans within KfW’s lending programs is characterized by two formally separate loan approvals – first by the intermediate bank and then by KfW. KfW’s loan approval, however, in most cases depends solely on a review of the individual loan application in order to assess compliance with the requirements defined for each respective lending program.
26
In recent years, KfW has modernized its application and approval process for loans with the aim of attaining a more efficient, automated and accelerated process. For this purpose, KfW has developed a digital online platform for its standardized loan programs. The online platform provides immediate feedback as to KfW’s approval of loans in the form of electronic confirmations for most applications, and electronic confirmations after manual processing by KfW for more complex products (for instance, environmental programs for SMEs, municipal enterprises, businesses, and non-profit organizations). Since the beginning of 2020, all of KfW’s standardized domestic, commercial and non-direct municipal products are offered exclusively via the online platform. All intermediate banks have access to the online platform and use it for their application processes.
KfW applies different pricing models for granting loans: a fixed-rate pricing model and a risk-adjusted pricing model. Under the fixed-rate pricing model, the commercial banks to which KfW lends are permitted to on-lend these funds at fixed spreads over the applicable interest rate payable to KfW. This fixed-rate pricing model is applied to housing investment and some lending programs for start-up financing. Moreover, it is also applied to education lending programs. Under the risk-adjusted pricing model, KfW establishes pricing categories based on a combination of the borrower’s creditworthiness and the collateral securing the loan. Under each lending program, KfW sets maximum interest rates for each pricing category. The on-lending banks assess the risk profile of the ultimate borrower and the collateral securing the loan to determine the applicable pricing category for each loan and the applicable maximum interest rate for the pricing category. KfW’s role in the pricing process is limited to verifying that banks derive the appropriate maximum interest rate from the ultimate borrower’s creditworthiness and the collateral provided.
Under KfW’s traditional SME lending programs, the on-lending banks are liable to KfW and bear the risk of customer default as described above. In recent years, KfW has constantly been reworking and renewing its SME financing programs to increase its support for SMEs. Under some of those lending programs, to which the risk-adjusted pricing model applies, KfW offers the option of a partial exemption from liability to on-lending banks. If the on-lending bank applies for an exemption from liability, KfW bears the risk not retained by the bank and the risk margin is shared pro rata between KfW and the bank. The risk-adjusted pricing model applies, amongst others, to SME Bank & Private Clients’ largest and most important lending program, the KfW Unternehmerkredit (Entrepreneurial Loan program). In addition, mezzanine capital offered by SME Bank & Private Clients and its special programs for investments by micro- enterprises are designed so that KfW assumes direct exposure to the credit risk of the ultimate borrowers, which in turn is covered or compensated in different ways: by means of risk premiums included in the interest rate charged to the ultimate borrowers, or by means of guarantees from the Federal Government or the European Investment Fund.
Global Loans and Global Funding Facilities. Global loans and global funding facilities differ from KfW’s individual loans primarily in terms of simplified processing, the lack of a requirement for formal loan approval by KfW with respect to each individual ultimate borrower and, in general, a higher degree of flexibility for the on-lending Landesförderinstitute and selected financial institutions. KfW expects the receiving institutions to on-lend funds within a reasonable period of time. In contrast to KfW’s individual loans, global loans and global funding facilities offer greater loan-structure flexibility. As a result, these instruments, when compared with KfW’s traditional lending programs, carry lower administrative costs for both KfW and the on-lending institutions. Accordingly, ultimate borrowers generally benefit from favorable interest rates.
KfW offers different kinds of global loans and global funding facilities: program-based global loans and global funding facilities to Landesförderinstitute and non-program-based global loans to selected financial institutions in Germany and Europe. Most Landesförderinstitute are independent public law institutions and benefit from explicit statutory guarantees by the respective Land. Each Landesförderinstitut is responsible for promotional matters within its federal state.
Landesförderinstitute use KfW’s program-based global loans to finance specified investments relating to SMEs, housing projects and municipal infrastructure projects in their respective Land within the framework of cooperative loan programs of the respective Landesförderinstitut and KfW. The conditions of each cooperative loan program are required to comply with the conditions of the relevant KfW program. The funds to Landesförderinstitute are generally extended in the form of lump sums, which are then broken down and granted to ultimate borrowers as individual loans.
Moreover, KfW extends global funding facilities exclusively to Landesförderinstitute for their own promotional funding purposes, thus offering flexibility with respect to the use of funds extended in their promotional business without a direct link to any of KfW’s lending programs.
27
KfW also extends non-program-based global loans to selected financial institutions in Germany and elsewhere in Europe, which these institutions on-lend as individual loans and leases to finance SMEs, housing projects and energy efficiency projects.
KfW measures to mitigate the economic impact of the COVID-19 pandemic in Germany
KfW Special Program. In March 2020, KfW, in close coordination with the Federal Government, launched the KfW Special Program (KfW-Sonderprogramm, initially named KfW-Sonderprogramm 2020) with the primary goal of providing liquidity to enterprises in Germany affected by the COVID-19 pandemic, including companies of all sizes as well as self-employed and freelance professionals. In view of the ongoing COVID-19 pandemic and associated governmental measures, the Federal Government initially decided to extend the deadline for commitments under the KfW Special Program from December 31, 2020 to December 31, 2021. From April 1, 2021, onwards, in accordance with EU state aid rules, the maximum loan amounts available to the various categories of borrowers were increased considerably. At the end of 2021, the Federal Government decided to again extend the deadline for applications to the KfW Special Program until April 30, 2022. From January 1, 2022, onwards, in accordance with EU state aid rules, the maximum loan amounts available to the various categories of borrowers were increased again.
The KfW Special Program was implemented through different loan programs: (1) the KfW Entrepreneurial Loan (KfW-Unternehmerkredit) for enterprises established on the market for more than five years, (2) the ERP Loan for Start-ups (ERP-Gründerkredit – universell) for enterprises established on the market for less than 5 years, (3) the KfW Syndicated Loan (Direktbeteiligung für Konsortialfinanzierung) for larger-scale financings targeted at larger companies, and (4) the KfW Instant Loan 2020 (KfW-Schnellkredit 2020). Options (1) and (2) involve commercial banks in the handling of the loans by means of the on-lending principle which applies to the majority of KfW’s loan programs. However, the COVID-19 related facilities, which are designated by adding “Corona” to the loan programs’ names, include a partial exemption from liability for on-lending banks of 80% to 90%. With option (3), KfW offers a syndicated loan approach, designed as an individually structured direct loan program for larger companies. Financing is provided directly to beneficiaries by KfW together with a consortium of private banks to meet investment and working capital needs of the beneficiaries. KfW’s financing share in these syndicated loans is limited to 80%. Loans under option (4), the KfW Instant Loan 2020 program, include a general waiver of the usual risk assessment and a full exemption from liability for on-lending commercial banks or financing partners involved, which means that the entire credit risk of any loans granted under the KfW Instant Loan 2020 program remains with KfW. These modifications are aimed at facilitating and accelerating the granting of loans by the on-lending commercial banks and other financing partners.
Within the KfW Special Program, KfW also facilitates the financing of charitable and social organizations via global loans to Landesförderinstitute.
Pursuant to separate guarantee declarations, the Federal Republic has undertaken to bear all financial risks incurred by KfW in connection with the KfW Special Program.
Additional support measures targeted at particular customer groups. Over the course of 2020, KfW and the Federal Government established additional COVID-19 support measures in order to provide financing to particular customer groups, which are currently still in place.
With respect to start-ups, venture capital is being mobilized via private fund managers, with the associated measures operationalized by KfW Capital. In addition, equity and equity-like capital for start-ups and small SMEs is provided via global loans to Landesförderinstitute.
With respect to the KfW Student Loan Program, two temporary measures were implemented in close coordination with the Federal Government. First, the interest rate under this program has been set to 0% for all loans that are in the disbursement phase, including all new applications. The cost incurred in connection with this interest rate subsidy will be covered by the Federal Ministry of Education and Research during the period from May 1, 2020 to September 30, 2022. Second, the group of applicants for the KfW Student Loan Program was temporarily extended to all foreign citizens who met the general eligibility criteria for the period from July 1, 2020 to March 31, 2021.
28
Pursuant to a separate guarantee declaration, the Federal Republic will bear the financial risks KfW incurs in connection with the temporary extension of the KfW Student Loan Program to foreign applicants (excluding a portfolio of 300 loans).
SME Bank & Private Clients
KfW’s SME Bank & Private Clients business sector supports SMEs, large-scale enterprises, business founders, start-ups and self-employed professionals, and offers financing for various purposes to companies in different stages of development. Additionally, this business sector extends housing-related loans and grants as well as financing for education to private individuals. Financing is provided primarily by means of loan programs (2021: EUR 61.8 billion, 2020: EUR 81.8 billion), mezzanine programs (2021: EUR 0.1 billion, 2020: EUR 0.1 billion) and grant-based programs (2021: EUR 11.1 billion, 2020: EUR 4.3 billion).
In 2021, SME Bank & Private Clients committed financing to improve social living conditions and to support the German economy in an amount of EUR 73.0 billion (2020: EUR 86.3 billion). The following table shows commitments by fields of promotional activity for each of the years indicated.
SME BANK & PRIVATE CLIENTS COMMITMENTS
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Year ended December 31, | | | | | | | Year-to-Year |
| | | | | 2021 | | | | | | | | | 2020 | | | | | | | % change |
| | | | | (EUR in billions) | | | | | | (in %) | | |
SME Bank | | | | | 29.6 | | | | | | | | | | 48.1 | | | | | | | | | -38 | | |
Start-up financing and general investment | | | | | 16.2 | | | | | | | | | | 39.7 | | | | | | | | | -59 | | |
Innovation | | | | | 1.1 | | | | | | | | | | 0.8 | | | | | | | | | 38 | | |
Environmental investment | | | | | 12.3 | | | | | | | | | | 7.6 | | | | | | | | | 62 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Private Clients | | | | | 43.4 | | | | | | | | | | 38.2 | | | | | | | | | 14 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Housing investment programs | | | | | 6.1 | | | | | | | | | | 8.8 | | | | | | | | | -31 | | |
Education programs | | | | | 2.0 | | | | | | | | | | 2.5 | | | | | | | | | -20 | | |
Environmental investment | | | | | 35.3 | | | | | | | | | | 26.9 | | | | | | | | | 31 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Total commitments (1) | | | | | 73.0 | | | | | | | | | | 86.3 | | | | | | | | | -15 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (1) | Commitments represent the volume of funds committed for loans and other business transactions in the relevant year, including amounts to be disbursed in future years, and do not include amounts disbursed in the relevant year pursuant to commitments made in prior years. |
In 2021, commitments in SME Bank decreased significantly compared to 2020. This decrease was primarily attributable to lower commitments in the KfW Special Program.
Since July 1, 2021, KfW has been able to pass on negative interest rates to its financing partners in its on-lending promotional business. While interest rates for the ultimate borrowers will remain positive, they nevertheless benefit from significant interest rate reductions. The ability to pass on negative interest rates also increases KfW’s ability to differentiate interest rates more strongly by promotional objectives such as digitalization and climate action.
Furthermore, on July 1, 2021 KfW launched the benchmark program Federal Funding for Efficient Buildings (BEG) in cooperation with the Federal Ministry for Economic Affairs and Energy (now named Federal Ministry for Economic Affairs and Climate Action), which was designed to replace the KfW Program for Energy-Efficient Construction and Refurbishment, which was discontinued as of June 30, 2021. For information on the suspension of the program Federal Funding for Efficient Buildings (BEG) in late January 2022 and its re-launch in April 2022, see “Recent Developments — KfW — Other Recent Developments — Domestic Business”.
SME Bank
According to a representative KfW survey in the German SME sector, known as KfW SME Panel, Germany had an estimated 3.8 million SMEs (defined for the purposes of the survey as companies with an annual group turnover of up to EUR 500 million) in 2020.
29
SME Bank primarily offers loan programs. Under some loan programs, SME Bank offers a partial exemption from liability to on-lending banks. If an on-lending bank applies for an exemption from liability, KfW bears the risk not retained by the bank and the risk margin is shared pro rata between KfW and the bank.
SME Bank also extends mezzanine capital in the form of unsecured subordinated loans, which contain equity-like elements combining characteristics of debt and equity capital. In these financings, on-lending banks are not liable to SME Bank for the subordinated loans. The interest rate of these loans takes into account the prevailing rates in the capital markets as well as the borrower’s credit standing and collateral securing the loans. The borrower’s creditworthiness is first assessed by the on-lending bank. However, as KfW assumes the credit risk of the loan, it reserves the right to review and, if necessary, to revise the on-lending bank’s assessment by applying KfW’s own rating standards.
Start-up Financing and General Investment Programs
SME Bank provides start-up financing and financial support for general investments for a wide range of purposes, such as investments in property and buildings, in plants or in machinery and equipment. In 2021, commitments in this field amounted to EUR 16.2 billion compared to EUR 39.7 billion in 2020. This was primarily due to a significantly reduced demand for financings extended under the KfW Special Program. Commitments under the KfW Entrepreneurial Loan Corona (KfW-Unternehmerkredit Corona) decreased to EUR 5.5 billion (2020: EUR 28.3 billion), commitments under the ERP Loan for Start-ups Corona (ERP-Gründerkredit – Corona) decreased to EUR 0.5 billion (2020: EUR 1.4 billion), and commitments under the KfW Instant Loan 2020 (KfW-Schnellkredit 2020) decreased to EUR 3.0 billion (2020: EUR 5.9 billion).
Innovation Programs
SME Bank provides financing for innovations by extending funds for research, development and digitalization activities, either by providing loans or mezzanine capital. Commitments in the field of innovation financing increased to EUR 1.1 billion in 2021 (2020: EUR 0.8 billion), with the ERP Promotion for Innovation and Digitalization program being the main driver for this increase.
Environmental Investment Programs
SME Bank finances environmental protection projects, in particular for measures aiming at increasing energy and resource efficiency, reducing greenhouse gas emissions, or intensifying the use of renewable energy sources. Commitments under SME Bank’s environmental investment programs in 2021 increased significantly (EUR 12.3 billion in 2021 compared to EUR 7.6 billion in 2020). While the commitment volume under KfW’s Renewable Energy Program remained approximately at the prior year level (EUR 3.9 billion in 2021 compared to EUR 3.7 billion in 2020), other programs soared. In particular, the new Federal Funding for Efficient Buildings (BEG) program that was launched on July 1, 2021, started out with high demand: committed volumes in 2021 amounted to EUR 2.8 billion for loans and EUR 2.7 billion for grants.
Commitments under the Federal Funding for Energy and Resource Efficiency program amounted to EUR 380 million in 2021, making it an important program of KfW for reducing CO2 emissions in the industrial sector.
The SME Climate Protection Facility (KfW-Klimaschutzoffensive für den Mittelstand), which was launched in March 2020, further contributed to the overall growth in 2021 (EUR 296 million in 2021 compared to EUR 68.3 million in 2020).
In November 2021, the Federal Ministry for Digital and Transport and KfW launched a new grant program to promote the procurement and construction of new charging points available to charge electric vehicles used on a commercial basis and to charge electric vehicles of employees. The program offers an investment grant in the amount of EUR 900 for each charging point installed. Commitments under this program amounted to EUR 31 million in 2021.
30
Private Clients
Housing Investment Programs
Housing investment programs in Private Clients provide funds for the promotion of home ownership and for the improvement of the security of, and the accessibility to or within, existing homes. Some of these programs are subsidized through interest rate reductions paid for by federal funds. Commitments in 2021 decreased to EUR 6.1 billion (2020: EUR 8.8 billion), of which EUR 4.0 billion (2020: EUR 5.8 billion) were granted for home ownership promotion programs. Commitments under the Baukindergeld program, which aims to promote home ownership for families with children and for single parents, amounted to EUR 1.8 billion in 2021 (2020: EUR 2.6 billion).
Education Programs
Private Clients supports students and employees in higher education and advanced occupational training with direct loans. Some of these programs are covered by a credit guarantee of the Federal Government and Länder. In 2021, commitments decreased to EUR 2.0 billion (2020: EUR 2.5 billion). In 2021, commitments in the KfW Student Loan amounted to EUR 0.8 billion (2020: EUR 1.3 billion). The primary reason for lower new student loan commitments in 2021 compared to 2020 was that the temporary extension of the KfW Student Loan to all foreign citizens expired in March 2021. A second reason for lower demand was that it was easier again for students to find side jobs in 2021 compared to 2020, so their financing needs decreased.
Environmental Investment Programs
The sector of energy-efficient investments registered a significant increase. Commitments under the benchmark program Federal Funding for Efficient Buildings (BEG) for Private Clients that was launched in July 2021 amounted to EUR 10 billion for loans and EUR 5.2 billion for grants. The program supported investments in the construction of energy-efficient new buildings and the energy-efficient refurbishment of existing ones. Its predecessor, the KfW program for Energy-Efficient Construction and Refurbishment, was discontinued on June 30, 2021. In the first six months of 2021, commitments under the program amounted to EUR 19.3 billion compared to EUR 26.8 billion in 2020 (full year). For information on the suspension of the program Federal Funding for Efficient Buildings (BEG) in late January 2022 and its re-launch in April 2022, see “Recent Developments — KfW — Other Recent Developments — Domestic Business”.
Commitments under the grant-based program Private Charging Infrastructure (Private Ladeinfrastruktur) that was launched in November 2020 to support the purchase and installation of private charging stations for electric cars at residential buildings amounted to EUR 728 million in 2021 (2020: EUR 149 million). The program was discontinued at the end of October 2021.
Customized Finance & Public Clients
KfW’s Customized Finance & Public Clients (Individualfinanzierung & Öffentliche Kunden) business sector provides individual financing solutions for municipal and social infrastructure projects, offers corporate loans and project financing and grants global funding instruments to the Landesförderinstitute and other financial institutions.
The following table shows Customized Finance & Public Clients’ commitments by field of promotional activity for each of the years indicated:
CUSTOMIZED FINANCE & PUBLIC CLIENTS COMMITMENTS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Year ended December 31, | | | | | | | | Year-to-Year | |
| | | | | 2021 | | | | | | | | | | | 2020 | | | | | | | | % change | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | (EUR in millions) | | | | | | | | (in %) | | | | |
Municipal infrastructure programs | | | | | 4,605 | | | | | | | | | | | | | | 4,769 | | | | | | | | | | | | | | -3 | | | | | |
Corporate loans and project finance | | | | | 323 | | | | | | | | | | | | | | 9,323 | | | | | | | | | | | | | | -97 | | | | | |
Global funding facilities to Landesförderinstitute | | | | | 2,007 | | | | | | | | | | | | | | 3,177 | | | | | | | | | | | | | | -37 | | | | | |
Global loans to support start-ups and small enterprises (1) | | | | | 243 | | | | | | | | | | | | | | 619 | | | | | | | | | | | | | | -61 | | | | | |
31
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Year ended December 31, | | | | | | | Year-to-Year |
| | | | | 2021 | | | | | | | | | 2020 | | | | | | | % change |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | (EUR in millions) | | | | | | (in %) | | |
Program for the refinancing of export loans | | | | | 766 | | | | | | | | | | 1,075 | | | | | | | | | -29 | | |
Global loans to selected financial institutions | | | | | 1,520 | | | | | | | | | | 250 | | | | | | | | | 508 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Total commitments (2) | | | | | 9,465 | | | | | | | | | | 19,213 | | | | | | | | | -51 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (1) | Global loans to Landesförderinstitute as part of the COVID-19 support measures. |
| (2) | Commitments represent the volume of funds committed for loans and other business transactions (with the exception of global funding facilities and program-based global loans to Landesförderinstitute) in the relevant period, including amounts to be disbursed in future periods, and do not include amounts disbursed in the relevant period pursuant to commitments made in prior periods. In the case of global funding facilities and program-based global loans to the Landesförderinstitute, commitments represent the actual volume of funds disbursed in the relevant period. |
Commitments in the business sector Customized Finance & Public Clients decreased to EUR 9.5 billion in 2021 from EUR 19.2 billion in 2020. This decrease was primarily driven by a significantly lower demand for COVID-19 support measures which amounted to EUR 0.4 billion in 2021 compared to EUR 9.5 billion in 2020. In particular, demand for the KfW Syndicated Loan program decreased by EUR 8.3 billion compared to 2020.
Commitments under other programs of the business sector decreased by EUR 0.6 billion in 2021. This decrease was mainly due to reduced credit demand, especially with respect to the global funding facilities to Landesförderinstitute, but was to a large extent offset by a strong increase in commitments under the program Global loans to selected financial institutions.
Municipal Infrastructure Programs
Customized Finance & Public Clients provides financing for investments in municipal and social infrastructure, either as direct loans to municipalities (i.e., local and municipal authorities and municipal special-purpose associations) or through KfW’s ordinary on-lending scheme involving commercial banks. The latter is used for infrastructure investments by private companies that are majority-owned by municipal authorities and social investments made by non-profit organizations. Some of the municipal infrastructure programs are subsidized by federal funds. In total, commitments for municipal infrastructure programs decreased to EUR 4.6 billion in 2021 from EUR 4.8 billion in 2020. The decrease was due to Global loans to refinance charitable and social organizations as part of the COVID-19 support measures, which recorded commitments of EUR 486 million in 2020 compared to no commitments in 2021. Not taking into account the effects related to the COVID-19 support measures, commitments under the remaining municipal infrastructure programs recorded an increase of more than 8%.
Global Loans and Global Funding Facilities
The following table shows Customized Finance & Public Clients’ commitments designated to global loans and global funding facilities for each of the years indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Year ended December 31, | | | | | | | Year-to-Year |
| | | | | 2021 | | | | | | | | | 2020 | | | | | | | % change |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | (EUR in millions) | | | | | | | | | (in %) | | |
Global funding facilities to Landesförderinstitute | | | | | 2,007 | | | | | | | | | | 3,177 | | | | | | | | | -37 | | |
Global loans to support start-ups and small enterprises (1) | | | | | 243 | | | | | | | | | | 619 | | | | | | | | | -61 | | |
Global loans to refinance charitable and social organizations (1) | | | | | 0 | | | | | | | | | | 486 | | | | | | | | | n.a. | | |
Program-based global loans to Landesförderinstitute | | | | | 674 | | | | | | | | | | 546 | | | | | | | | | 23 | | |
Non program-based global loans to selected financial institutions in Germany and Europe | | | | | 1,520 | | | | | | | | | | 250 | | | | | | | | | 508 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Total commitments (2) | | | | | 4,444 | | | | | | | | | | 5,078 | | | | | | | | | -12 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (1) | Global loans to Landesförderinstitute as part of the COVID-19 support measures. |
| (2) | Commitments represent the volume of funds committed for loans and other business transactions (with the exception of global funding facilities and program-based global loans to Landesförderinstitute) in the relevant period, including amounts to be disbursed in future periods, and do not include amounts disbursed in the relevant period pursuant to commitments made in prior periods. In the case of global funding facilities and program-based global loans to the Landesförderinstitute, commitments represent the actual volume of funds disbursed in the relevant period. |
32
Customized Finance & Public Clients also grants global loans to selected financial institutions in Germany in order to refinance leasing contracts to SMEs, as well as to selected financial institutions in Europe in order to cooperate in the field of SME financing in Europe. The financial institutions in turn break down the global loans and extend individual loans and leases to SMEs. In 2021, global loans to selected financial institutions in Germany and Europe increased to EUR 1.5 billion (2020: EUR 0.3 billion). This amount is mainly attributable to the refinancing of leasing contracts. The demand for the refinancing of leasing contracts in Germany increased significantly in 2021, offsetting the COVID-19 related sharp decline in 2020. In addition, one global loan transaction with a European financial institution was closed in 2021.These developments were driven by an increased investment appetite in the SME sector.
The decrease in Global Funding Facilities to Landesförderinstitute was due to lower refinancing needs and high liquidity in capital markets. Alternative refinancing options also played a role, e.g. own capital market presence of Landesförderinstitute, TLTRO (targeted longer-term refinancing operations of the Eurosystem, as defined below) or the expansive money policy of ECB.
Program for the Refinancing of Export Loans
Customized Finance & Public Clients offers commercial banks long-term refinancing of export loans covered by an official export credit guarantee of the Federal Government referred to as “Hermes Cover.” These guarantees are managed by Euler Hermes Aktiengesellschaft (“HERMES”) on behalf and for the account of the Federal Government. For more information on HERMES, see “Business—Export and Project Finance (KfW IPEX-Bank)—Business.” In 2021, KfW made commitments of EUR 0.8 billion (2020: EUR 1.1 billion) under this program. The decrease of commitments in 2021was mainly due to larger export projects having been completed in 2020.
Corporate Loans and Project Finance
Customized Finance & Public Clients provides corporate loans, project financing and some equity financing.
Overall, the commitments in corporate loans and project financing were characterized by a normalized credit demand. Accordingly, the decrease from EUR 9.3 billion in 2020 to EUR 323 million in 2021 was mainly driven by a significant decrease of EUR 8.3 billion in connection with the COVID-19 support programs under the KfW Syndicated Loan program.
KfW Capital
KfW Capital, KfW’s venture capital subsidiary, was incorporated as a legally independent entity on August 31, 2018. KfW Capital’s general partner, KfW Capital Verwaltungs GmbH, is wholly-owned by KfW Capital and was incorporated on August 9, 2018. KfW acts as the limited partner and ultimately is the sole owner of KfW Capital. In the course of 2021, KfW Capital obtained a license as a Class 2 investment firm, i.e. a medium-sized investment firm (Mittleres Wertpapierinstitut) pursuant to German Securities Institution Act (Wertpapierinstitutsgesetz, WpIG), the German law based on the EU Investment Firm Directive 2019/2034 (IFD) and Investment Firm Regulation 2019/2033 (IFR). As medium-sized investment firm, KfW Capital is subject to this specific regulatory regime.
The business objective of KfW Capital is to invest in German and European venture capital and venture debt funds with the aim of improving access to capital for innovative technology-oriented growth companies in Germany through professionally managed funds with a minimum fund size of EUR 50 million. KfW Capital only invests in funds and does not invest directly in companies. For the coming years, the targeted average investment volume is around EUR 400 million per year. KfW Capital intends to invest up to a maximum of EUR 75 million into a fund’s capital and to acquire a maximum of 19.99% of a fund’s capital and voting rights. Additionally, KfW Capital is also mandated on behalf of the Federal Government to promote future technologies, referred to as the “Future Fund” (Zukunftsfonds).
Commitments related to KfW Capital amounted to EUR 502 million in 2021, compared to EUR 871 million in 2020. This decrease was mainly driven by significantly lower commitments under the Corona Matching Facility and no new commitments under the Corona Liquidity Facility in 2021 due to both facilities’ discontinuation. The Corona Matching Facility and the Corona Liquidity Facility were part of the Federal Government’s COVID-19 support package for start-ups and small enterprises. In 2021, commitments of KfW
33
Capital mainly reflected commitments of EUR 187 million via the ERP Venture Capital Fund investment program and additional commitments of EUR 111 million through the expansion of the fund-of-funds investments via the ERP/Zukunftsfonds Growth Facility. Moreover, the German Future Fund (GFF) – EIF Growth Facility started as the first module of the Future Fund with commitments of EUR 183 million. The Corona Matching Facility, the Corona Liquidity Facility and the Future Fund are guaranteed by the Federal Republic and funding through these facilities is refinanced by KfW.
The following table shows the commitments of KfW Capital for each of the years indicated:
COMMITMENTS KFW CAPITAL*
| | | | | | | | | | | | |
| | | Year ended December 31, | | | Year-to-Year | |
| | | 2021 | | | 2020 | | | % change | |
| | | | | | | | | | |
| | | (EUR in millions) | | | (in %) | |
High-Tech Start-up Funds | | | 1 | | | | 2 | | | | -43 | |
ERP Venture Capital Fund Investments | | | 187 | | | | 184 | | | | 2 | |
ERP/Zukunftsfonds Growth Facility | | | 111 | | | | 0 | | | | n.a. | |
Corona Matching Facility / Corona Liquidity Facility | | | 20 | | | | 685 | | | | -97 | |
GFF – EIF Growth Facility | | | 183 | | | | 0 | | | | n.a. | |
| | | | | | | | | | | | |
Total commitments (1) | | | 502 | | | | 871 | | | | -42 | |
| | | | | | | | | | | | |
| * | Amounts in the table may not add up due to rounding differences. |
| (1) | Commitments represent the volume of funds committed for loans and other business transactions in the relevant year, including amounts to be disbursed in future years, and do not include amounts disbursed in the relevant year pursuant to commitments made in prior years. |
Export and Project Finance (KfW IPEX-Bank)
Corporate Background
KfW IPEX-Bank conducts export and project finance activities which the European Commission deemed to fall outside the scope of KfW’s promotional activities directly and on its own behalf, while it conducts the promotional export and project finance activities in its own name on behalf of KfW on a trust basis. KfW provides funding for KfW IPEX-Bank at market rates based on the ratings assigned to KfW IPEX-Bank by international rating agencies. As of January 1, 2008, and in accordance with the understanding reached between the European Commission and the Federal Republic, KfW IPEX-Bank commenced operations as a legally independent entity wholly-owned by KfW. For more information, see “General—Relationship with the Federal Republic—Understanding with the European Commission.”
Total assets of KfW IPEX-Bank (IFRS, before consolidation) amounted to EUR 28.9 billion as of December 31, 2021 (December 31, 2020: EUR 29.6 billion). Total outstanding loans and guarantees (including promotional activities) for KfW’s business sector Export and Project Finance amounted to EUR 57.1 billion as of December 31, 2021 (December 31, 2020: EUR 58.1 billion). KfW IPEX-Bank is headquartered in Frankfurt am Main, Germany, and maintains a branch office in London, United Kingdom and representative offices in nine locations outside Germany. As of December 31, 2021, KfW IPEX-Bank employed 897 persons, excluding managing directors but including temporary personnel (December 31, 2020: 852).
In accordance with the understanding with the European Commission, KfW IPEX-Bank has obtained a banking license and is subject to the KWG and the corporate tax regime. KfW IPEX-Bank is approved as an IRBA (internal ratings-based approach) bank under the Basel II rules by the relevant German supervisory authorities – BaFin and the Deutsche Bundesbank. With respect to the SSM, KfW IPEX-Bank currently does not qualify as a significant credit institution and is therefore not directly supervised by the ECB, but rather continues to be supervised by BaFin in cooperation with Deutsche Bundesbank. Depending on KfW IPEX-Bank’s business growth, KfW IPEX-Bank may qualify as a significant credit institution in the course of the next years, which would lead to direct supervision by the ECB. For additional information on KfW IPEX-Bank and the SSM, see “KfW—General—Supervision and Regulation— Regulation—Supervisory Structure and Enforcement Powers.” For more information on the SSM, see “Federal Republic of Germany—Monetary and Financial System—Financial System—European Financial System—European System of Financial Supervision and European Banking Union.”
34
KfW IPEX-Bank (controlled company) signed a profit transfer agreement with KfW Beteiligungsholding GmbH (controlling company) in order to form a corporate income tax (“CIT”) fiscal unity. Under this profit transfer agreement, KfW IPEX-Bank is required to transfer its entire annual profit under applicable German commercial law to KfW Beteiligungsholding GmbH effective from the end of the fiscal year ended December 31, 2016.
Business
KfW IPEX-Bank focuses on supporting the internationalization and the competitiveness of internationally active German and European companies and offers project, export and trade financing. It provides medium and long-term investment and export financing in the form of amortizing loans, guarantees or leasing financing as well as project, object and acquisition financing. KfW IPEX-Bank also offers derivative instruments to allow its clients to hedge interest and currency risk and instruments for short-term trade financing, such as participations in letters of credit.
With the consent of the Federal Government, KfW delegated the mandate of the management of the Shipping CIRR Program and the ERP (European Recovery Program) Export Financing Program to KfW IPEX-Bank. Both programs are executed by KfW IPEX-Bank, applying strict “Chinese Walls.” The programs offer fixed interest rate loans to buyers based on the CIRR (Commercial Interest Reference Rate), which is a minimum interest rate prescribed by the OECD for officially supported financings in order to ensure competitive neutrality. The Shipping CIRR Program is open to banks financing ships built in German shipyards and offers a refinancing option through KfW. The ERP Export Financing Program supports lending for German exports to emerging and developing countries combined with fixed refinancing through KfW. These loans are supported through the ERP. In the past, lending of CIRR based loans in the ERP Program was provided through KfW IPEX-Bank and via AKA Ausfuhrkredit-Gesellschaft mit beschränkter Haftung, both as lenders of record. Since January 2017, all banks eligible for buyer credit cover (Hermes cover) may directly apply to the ERP Export Financing Program.
KfW, on behalf of the Federal Ministry for Economic Affairs and Energy (now named Federal Ministry for Economic Affairs and Climate Action), has launched the Africa CIRR export financing program (“Africa CIRR”). The program aims to strengthen economic cooperation with Africa. Specifically, Africa CIRR is designed to support loans to finance large-volume German exports and to promote the economy in African buyer countries. All credit institutions eligible to apply for buyer credit cover from the Federal Republic of Germany (so-called Hermes cover) are eligible for the Africa CIRR. The Federal Republic of Germany mandated KfW and KfW designated KfW IPEX-Bank to administer the program.
KfW IPEX-Bank’s principal customers are German and European companies (and their customers) with international operations and larger medium-sized companies in basic and manufacturing industries as well as in the retail, health, telecommunications, power/renewables, water, shipping, aviation, rail, transport and social infrastructure sectors.
Traditionally, the bulk of loans extended by KfW IPEX-Bank has been used for export and project financing to buyers of German or European exports. In recent years, KfW IPEX-Bank has increasingly extended loans to finance direct investments by German enterprises and other corporate purposes linked to the internationalization of German companies. In addition, KfW IPEX-Bank co-finances large-scale infrastructure projects and means of transport (e.g., airplanes and vessels) in the German and European transport sector. KfW IPEX-Bank also provides, as part of its core business, financing for environment and climate protection projects. Finally, KfW IPEX-Bank’s loans are also used to secure sources of raw materials for the German and European industry.
KfW IPEX-Bank’s loans are generally extended directly to the ultimate borrower, and KfW IPEX-Bank grants a significant portion of these loans at its own risk. KfW IPEX-Bank regularly cooperates with other financial institutions by way of consortia and syndications. In some cases, KfW IPEX-Bank may arrange for commercial banks to assume the risk on portions of loans made by KfW IPEX-Bank through risk-participations, for which KfW IPEX-Bank pays a fee to the bank assuming the risk. KfW IPEX-Bank is eligible to act as on-lending bank under certain of KfW’s promotional programs. In 2021, KfW IPEX-Bank refinanced loan commitments for export and project finance under KfW’s promotional programs in an amount of EUR 212 million (2020: EUR 468 million).
35
From time to time, KfW IPEX-Bank also enters into framework loan agreements with non-German banks, which enable such banks to extend loans to their customers for the purpose of importing equipment from German or other European exporters. Because the amounts of individual loans are usually small, the related transaction costs are relatively high. The framework agreements help to reduce these transaction costs.
Loans extended by KfW IPEX-Bank are usually secured by collateral and often benefit from a payment guarantee or other security arrangement. Loans extended to finance direct investments may benefit from an investment guarantee against political risk by the Federal Republic if the host country risk is assessed to be substantial.
A portion of export finance loans extended by KfW IPEX-Bank is guaranteed by the Federal Republic through HERMES, the official German export credit insurer. HERMES insurance covers up to 95% – in some instances even up to 100% – of KfW IPEX-Bank’s export and project finance business risk, so that the risk of the portion covered is the equivalent of Federal Government risk. HERMES also provides coverage for related deliveries from other, mainly European, countries provided that they do not exceed a certain portion of the total delivery for which an export finance loan was extended. Furthermore, KfW IPEX-Bank’s financing frequently benefits from a guarantee by a foreign export credit agency or a government instrumentality in the buyer’s country.
For borrowers in other European and OECD countries where the country risk is not considered high, KfW IPEX-Bank has been increasingly extending loans on the basis of ordinary banking collateral (e.g., mortgages on aircraft or ships) without seeking the benefit of HERMES or similar coverage. In addition, even when HERMES coverage is sought, KfW IPEX-Bank often extends loans on which the insured portion is less than 95%. As of December 31, 2021, outstanding loans and guarantees (including promotional activities) outside Germany for KfW’s business sector Export and Project Finance amounted to EUR 43.9 billion, of which EUR 9.2 billion, or 21%, were export finance loans which are fully or partly guaranteed by HERMES.
Commitments
The following table shows commitments in KfW’s business sector Export and Project Finance for each of the years indicated:
EXPORT AND PROJECT FINANCE COMMITMENTS
| | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, | | | Year-to-Year | |
| | | 2021 | | | 2020 | | | % change | |
| | | (EUR in millions) | | | (in % of total) | | | (EUR in millions) | | | (in % of total) | | | (in %) | |
Commercial business | | | 11,457 | | | | 84 | | | | 13,832 | | | | 83 | | | | -17 | |
Promotional business (conducted on behalf of KfW) | | | 2,186 | | | | 16 | | | | 2,753 | | | | 17 | | | | -21 | |
| | | | | | | | | | | | | | | | | | | | |
Total commitments (1) | | | 13,644 | | | | 100 | | | | 16,584 | | | | 100 | | | | -18 | |
| | | | | | | | | | | | | | | | | | | | |
| (1) | Commitments represent the volume of funds committed for loans and other business transactions in the relevant year, including amounts to be disbursed in future years, and do not include amounts disbursed in the relevant year pursuant to commitments made in prior years. |
In 2021, total commitments of the Export and Project Finance business sector decreased to EUR 13.6 billion from EUR 16.6 billion in 2020, including commitments under the CIRR scheme for bank refinancing, which is supported by the federal budget. With the consent of the Federal Government, KfW has delegated the mandate for the CIRR scheme for bank refinancing to KfW IPEX-Bank.
The decrease in total commitments in 2021 compared to 2020 was driven by lower commitments in almost every sector since new business continued to be impacted by the effects of the ongoing COVID-19 pandemic on the global economy.
Commitments by Sector. The following table shows KfW IPEX-Bank’s commitments by sector for each of the years indicated:
36
| | | | | | | | | | | | |
| | | Year ended December 31, | | | Year-to-Year | |
| | | 2021 | | | 2020 | | | % change | |
| | | | | | | | | | |
| | | (EUR in millions) | | | (in %) | |
Power, renewables and water | | | 2,664 | | | | 2,808 | | | | -5 | |
Maritime industries | | | 2,361 | | | | 1,453 | | | | 63 | |
Financial institutions, trade and commodity finance | | | 2,310 | | | | 2,509 | | | | -8 | |
Industries and services | | | 1,625 | | | | 2,306 | | | | -30 | |
Aviation, mobility and transport | | | 1,458 | | | | 2,686 | | | | -46 | |
Infrastructure | | | 1,331 | | | | 1,684 | | | | -21 | |
Basic industries | | | 1,292 | | | | 2,438 | | | | -47 | |
CIRR scheme for bank refinancing (ship + Africa + ERP finance) (1) | | | 603 | | | | 701 | | | | -14 | |
| | | | | | | | | | | | |
Total commitments | | | 13,644 | | | | 16,584 | | | | -18 | |
| | | | | | | | | | | | |
| (1) | Starting in 2021 the CIRR scheme for bank refinancing includes commitments in an amount of EUR 100 million under the new Africa CIRR scheme designed to support German exports to Africa and to promote the economy in African buyer countries. |
Commitments in export and project finance decreased compared to 2020 due to the impact of the ongoing COVID-19 pandemic on global trade. Commitments (excluding those under the CIRR scheme for bank refinancing) amounted to EUR 13.0 billion in 2021 (2020: EUR 15.9 billion). The highest commitment volumes were achieved in the power, renewables and water sector with EUR 2.7 billion (2020: EUR 2.8 billion), followed by the maritime industries sector with commitments of EUR 2.4 billion (2020: EUR 1.5 billion).
In 2021, commitments under the CIRR scheme for bank refinancing decreased slightly to EUR 0.6 billion from EUR 0.7 billion in 2020, driven by the continued impact of the ongoing COVID-19 pandemic on global trade.
Commitments by Geographic Area. KfW IPEX-Bank’s commitments were reported for the following three regions in 2021: Germany; Europe (excluding Germany, but including Russia and Turkey); and the rest of the world. In 2021, KfW IPEX-Bank’s commitments for project and export financing (excluding the CIRR scheme for bank refinancing) within Germany decreased to EUR 3.9 billion from EUR 5.2 billion in 2020. In 2021, commitments in Europe (excluding Germany, but including Russia and Turkey) decreased to EUR 5.6 billion from EUR 6.1 billion in 2020. KfW IPEX-Bank’s commitments in the rest of the world in 2021 decreased to EUR 3.5. billion compared to commitments of EUR 4.6 billion in 2020. Commitments under the CIRR scheme for bank refinancing (2021: EUR 0.6 billion; 2020: EUR 0.7 billion) are trans-regional.
Commitments by Product. The following table shows KfW IPEX-Bank’s commitments by product for each of the years indicated:
| | | | | | | | | | | | |
| | | Year ended December 31, | | | Year-to-Year | |
| | | 2021 | | | 2020 | | | % change | |
| | | | | | | | | | |
| | | (EUR in millions) | | | (in %) | |
Corporate transactions (for German or European export companies) | | | 9,475 | | | | 12,460 | | | | -24 | |
Thereof | | | | | | | | | | | | |
Loans (term loans and bullet) | | | 4,934 | | | | 7,049 | | | | -30 | |
Trade finance | | | 1,760 | | | | 2,016 | | | | -13 | |
Revolving credit facilities for cash drawings | | | 1,651 | | | | 1,713 | | | | -4 | |
Guarantees | | | 969 | | | | 1,477 | | | | -34 | |
Lease finance | | | 162 | | | | 205 | | | | -21 | |
Project finance (1) | | | 2,103 | | | | 2,565 | | | | -18 | |
Asset finance (1) | | | 952 | | | | 275 | | | | 246 | |
Acquisition finance (1) | | | 511 | | | | 487 | | | | 5 | |
Loans to funds | | | — | | | | 95 | | | | -100 | |
CIRR scheme for bank refinancing (ship + ERP finance) | | | 603 | | | | 701 | | | | -14 | |
| | | | | | | | | | | | |
Total commitments | | | 13,644 | | | | 16,584 | | | | -18 | |
| | | | | | | | | | | | |
| (1) | The product categories project finance, asset finance and acquisition finance may also include loans, guarantees, lease finance or revolving credit facilities that are not attributed to any sub-category under the corporate transactions product category. |
37
Funding
The funds for KfW IPEX-Bank’s commitments are mainly provided by KfW through borrowings in the capital markets. KfW provides funding to KfW IPEX-Bank’s international project and export finance business at market rates based on the ratings assigned to KfW IPEX-Bank by international rating agencies. For those areas of export finance which the European Commission has deemed to fall within the scope of the promotional activities of KfW, funds from the ERP Special Fund may also be used for subsidizing interest rates. In 2021, EUR 125 million of loan disbursements were supported by the ERP Special Fund (2020: EUR 117 million).
The terms of export and project finance loans funded in the capital markets are based on the cost of funds to KfW, plus a margin intended to cover the administrative cost of the loan, the credit risk and a return on capital. Because the Federal Republic is a member of the OECD, loans financed with funds from the ERP Special Fund or under the CIRR scheme for the shipping industry are required to comply with OECD regulations, which provide for minimum interest rates and maximum credit periods. Margins on these loans are generally intended to cover all the risks of such loans as well as administrative costs and a return on capital. In addition, KfW IPEX-Bank charges customary banking fees for reserving and providing financing and for processing. Loans denominated in currencies other than euros are hedged through matched funding or other mechanisms.
Promotion of Developing Countries and Emerging Economies
In the Promotion of Developing Countries and Emerging Economies business sector, KfW, on behalf of the Federal Republic, provides financial assistance to developing countries and emerging economies, either through KfW Entwicklungsbank (KfW Development Bank), which promotes mainly public sector development cooperation activities, or through DEG, which promotes private sector investments in developing countries.
The following table sets forth KfW’s commitments for the Promotion of Developing Countries and Emerging Economies business sector for each of the years indicated:
PROMOTIONOF DEVELOPING COUNTRIESAND EMERGING ECONOMIES COMMITMENTS
| | | | | | | | | | | | |
| | | Year ended December 31, | | | Year-to-Year | |
| | | 2021 | | | 2020 | | | % change | |
| | | | | | | | | | |
| | | (EUR in millions) | | | (in %) | |
KfW Entwicklungsbank | | | 8,611 | | | | 10,983 | | | | -22 | |
DEG | | | 1,534 | | | | 1,411 | | | | 9 | |
| | | | | | | | | | | | |
Total commitments (1) | | | 10,145 | | | | 12,394 | | | | -18 | |
| | | | | | | | | | | | |
| (1) | Commitments represent the volume of funds committed for loans and other business transactions in the relevant year, including amounts to be disbursed in future years, and do not include amounts disbursed in the relevant year pursuant to commitments made in prior years. |
KfW Entwicklungsbank (KfW Development Bank)
Under the brand name KfW Entwicklungsbank, KfW acts as the Federal Republic’s international development bank, extending loans and disbursing grants mainly to foreign public sector borrowers and recipients. In 2021, approximately 42% of these loans and grants were refinanced from federal budget funds provided to KfW. All of KfW’s international development activities are made according to instructions from the Federal Government or in the case of mandates, i.e., grants funded by governmental or supranational entities and distributed using KfW’s expertise and channels (“Mandates”), from the respective donor. Mandates and all funds from the Federal Government involved in loan commitments and grants do not, by their nature, appear on KfW’s consolidated statement of financial position.
KfW extends financial cooperation (Finanzielle Zusammenarbeit, “FZ”) loans in three ways:
| | • | | Traditional Financial Cooperation Loans (FZ-Standardkredite), extended for the account of the Federal Republic; |
| | • | | Financial Cooperation Development Loans (FZ-Entwicklungskredite), in which KfW offers its own funds as an additional source of financing. For these loans, federal budget funds at low |
38
interest rates or grant funds are combined with funds from KfW that are refinanced in the capital markets. As of December 31, 2021, approximately 96% of outstanding commitments refinanced with KfW funds were guaranteed either by a special guarantee facility of the Federal Republic or by export credit agencies. Interest rates and related terms of Financial Cooperation Development Loans are significantly more favorable to the borrower than market terms and, therefore, meet the requirements for recognition as official development assistance (“ODA”); and
| | • | | Financial Cooperation Promotional Loans (FZ-Förderkredite), funded solely through funds raised by KfW in the capital markets. These loans may meet the requirements for recognition as ODA as they offer more favorable terms to the borrower than market terms. As of December 31, 2021, approximately 86% of outstanding Financial Cooperation Promotional Loans were guaranteed by a special guarantee facility of the Federal Republic. |
Generally, interested foreign governments submit applications for financial cooperation to the Federal Government, which then asks KfW to appraise the proposed projects. In the case of Financial Cooperation Promotional Loans, project sponsors may submit their proposals directly to KfW. KfW maintains a staff of economists, engineers and other specialists to assist in the appraisal and development of projects. KfW receives fees from the Federal Republic for loans and grants extended for the account of the Federal Government and Financial Cooperation Development Loans, calculated as a percentage of outstanding loans and grants, as far as they are financed out of the federal budget. Based on KfW’s appraisal and its recommendation, the Federal Republic decides whether it will fund a particular project. Upon a favorable decision and upon determination of the terms and conditions of financing, KfW enters into a loan or grant agreement with the recipient country or, if applicable, the individual agency responsible for the project, in which case the obligations under that agreement would then usually be fully guaranteed by the respective recipient country.
Financial cooperation loans and grants are disbursed according to the progress of the relevant project, and KfW monitors the utilization of funds to ensure compliance with the provisions of the loan or grant agreement.
The following table shows KfW Entwicklungsbank’s commitments for each of the years indicated:
KFW ENTWICKLUNGSBANK COMMITMENTS
| | | | | | | | | | | | |
| | | Year ended December 31, | | | Year-to-Year | |
| | | 2021 | | | 2020 | | | % change | |
| | | | | | | | | | |
| | | (EUR in millions) | | | (in %) | |
Loan commitments | | | 4,777 | | | | 6,677 | | | | -28 | |
of which federal funds | | | 218 | | | | 218 | | | | 0 | |
of which KfW’s funds refinanced in the capital markets | | | 4,559 | | | | 6,459 | | | | -29 | |
Grant commitments | | | 3,408 | | | | 3,835 | | | | -11 | |
Mandates | | | 426 | | | | 471 | | | | -9 | |
| | | | | | | | | | | | |
Total commitments | | | 8,611 | | | | 10,983 | | | | -22 | |
| | | | | | | | | | | | |
Total commitments of KfW Entwicklungsbank decreased by 22% to EUR 8.6 billion in 2021 from EUR 11.0 billion in 2020, mainly due to the reduced contribution made to the Federal Ministry for Economic Cooperation and Development’s Emergency COVID-19 Support Program and delayed projects due to the ongoing COVID-19 pandemic. The relative share of loan commitments that were refinanced in the capital markets decreased slightly to 95% in 2021, from 97% in 2020.
In 2021, Asia accounted for 24% of KfW Entwicklungsbank’s commitments (2020: 26%); Sub-Saharan Africa accounted for 25% (2020: 19%); Middle East/North Africa accounted for 13% (2020: 29%); Europe/Caucasus accounted for 11% (2020: 10%); Latin America accounted for 18% (2020: 12%); and trans-regional commitments accounted for 10% (2020: 5%).
The following table shows KfW Entwicklungsbank’s commitments by sector for each of the years indicated and as a percentage of its total commitments:
39
| | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, | | | Year-to-Year | |
| | | 2021 | | | 2020 | | | % change | |
| | | (EUR in millions) | | | (in % of total) | | | (EUR in millions) | | | (in % of total) | | | (in %) | |
Economic infrastructure | | | 1,642 | | | | 19 | | | | 1,781 | | | | 16 | | | | -8 | |
Social infrastructure | | | 4,265 | | | | 50 | | | | 4,842 | | | | 44 | | | | -12 | |
Financial sector | | | 981 | | | | 11 | | | | 2,443 | | | | 22 | | | | -60 | |
Production sector | | | 933 | | | | 11 | | | | 506 | | | | 5 | | | | 84 | |
Others (1) | | | 790 | | | | 9 | | | | 1,410 | | | | 13 | | | | -44 | |
| | | | | | | | | | | | | | | | | | | | |
Total commitments | | | 8,611 | | | | 100 | | | | 10,983 | | | | 100 | | | | 22 | |
| | | | | | | | | | | | | | | | | | | | |
| (1) | Consists mainly of commitments made for multi-sector projects and emergency assistance in crisis situations. |
DEG – Deutsche Investitions- und Entwicklungsgesellschaft mbH
DEG, a German limited liability company, is a legally independent entity founded in 1962. DEG is based in Cologne, Germany. In 2001, KfW acquired DEG from the Federal Republic. Since then, KfW has been DEG’s sole shareholder and DEG has been fully consolidated in KfW’s consolidated financial statements. As of December 31, 2021, DEG maintained 13 representative offices in developing countries or emerging economies. In 2021, DEG employed an average of 718 persons (2020: 640). At year-end 2021, DEG’s total assets (IFRS, before consolidation) amounted to EUR 7.3 billion (2020: EUR 6.3 billion).
DEG’s activities focus on corporates, project finance, financial institutions and funds investing in Africa, Asia, Latin America, and Central and Eastern Europe. DEG promotes private enterprise structures, thus contributing to sustainable economic growth, lasting improvement in the living conditions of the local population and the global Sustainable Development Goals. To this end, DEG provides long-term financing for private enterprises investing in developing countries. In addition, DEG offers customized consultancy services, for example, in the areas of environmental management, corporate governance, resource efficiency or training and skills.
DEG conducts its activities in accordance with the principles of subsidiarity, thus in cooperation with commercial banks rather than in competition with them. It does not provide subsidized financing, but instead offers financing solely on commercial terms and conditions (apart from smaller state support programs within the framework of the support for German companies in Africa and measures within the framework of COVID Response). DEG also seeks to mobilize other partners in order to raise additional capital for its clients’ investments.
Serving public policy objectives of the Federal Government, DEG has been granted a favorable tax status under which only part of DEG’s activities are subject to CIT. DEG does not distribute profits but instead re-channels them into new investments.
DEG’s obligations do not benefit from the Guarantee of the Federal Republic or from Anstaltslast, and while DEG’s indebtedness is reflected in KfW’s consolidated statement of financial position, its debt represents obligations of DEG and not of KfW. KfW and DEG have a refinancing agreement in place, pursuant to which KfW acts as sole issuer in the capital markets and provides DEG with mid- and long-term capital market funds according to DEG’s capital needs. In addition, internal agreements have been reached concerning the respective fields of business activities, the mutual use of offices abroad, joint public relations activities and joint usage of several information technology services.
The following table shows DEG’s commitments for each of the years indicated:
DEG COMMITMENTS
| | | | | | | | | | | | |
| | | Year ended December 31, | | | Year-to-Year | |
| | | 2021 | | | 2020 | | | % change | |
| | | | | | | | | | |
| | | (EUR in millions) | | | (in %) | |
Loans | | | 1,035 | | | | 944 | | | | 10 | |
Equity participations | | | 467 | | | | 275 | | | | 70 | |
Mezzanine financing | | | 32 | | | | 192 | | | | -83 | |
| | | | | | | | | | | | |
Total commitments | | | 1,534 | | | | 1,411 | | | | 9 | |
| | | | | | | | | | | | |
40
Financial Markets
KfW’s Financial Markets business sector comprises the group’s treasury activities, including its funding activities and its financial asset management. Furthermore, this business sector manages KfW’s asset-backed securities (“ABS”) as well as KfW’s green bond portfolio, which are all part of KfW’s promotional activities, as well as other capital markets-related activities currently consisting of privatization initiatives relating to Deutsche Telekom AG (“Deutsche Telekom”) and Deutsche Post AG (“Deutsche Post”).
Funding
KfW’s principal sources of funds are the international financial markets and public funds, with the majority of lending in its business sectors being financed from funds raised by KfW in the international financial markets. KfW Group’s consolidated balance sheet total assets at year-end 2021 were EUR 551.0 billion. EUR 506.1 billion, or 91.9% of this amount, was financed through borrowings (i.e., from financial market funds or public funds). In addition, at year-end 2021, KfW had EUR 19.1 billion in liabilities held in trust (for which the Federal Government mostly provides the funding and assumes all risks), which do not appear on KfW’s consolidated statement of financial position. In line with the focus on mid-term and long-term loans within its loan portfolio resulting from its promotional business, as of December 31, 2021, 69% of KfW’s consolidated total borrowings outstanding had remaining maturities of one year or more.
Financial-Market Funds. KfW raises short-term and long-term funds in the international financial markets through the issuance of bonds and notes (including commercial paper) and by incurring loans against debt certificates (Schuldscheindarlehen or “promissory note loans”). Long-term funding with initial maturities of more than one year (“capital-market funding”) represents the most important source of funding. Short-term borrowings with initial maturities of less than one year in the form of commercial paper (“money-market funding”) are primarily used for purposes of KfW’s liquidity management. As of December 31, 2021, the percentage of capital-market funding outstanding out of total financial-market funds outstanding was 90%.
All amounts stated in connection with KfW’s capital-market and money-market funding transactions or funding volume are, unless stated otherwise, based on net proceeds to KfW, which are calculated as principal amount less discount and underwriting commissions, if any.
Capital-Market Funding. KfW’s capital-market funding policy pursues a dual objective: to achieve the most favorable terms possible for funds raised in the capital markets; and to minimize, to the extent practicable, the effects of changes in interest rates and foreign exchange rates mainly through interest rate and currency risk hedging instruments and, to a more limited extent, by matching funding liabilities with loan assets. In order to achieve favorable terms for funds raised, KfW maintains an active presence in all major capital markets and utilizes a broad range of funding instruments in various currencies, covering a wide range of maturities.
KfW’s capital-market funding instruments comprise four categories of instruments: bonds issued under KfW’s benchmark programs (in euro or U.S. dollar, under KfW’s European medium-term note program or its SEC-registered debt shelf); bonds publicly placed outside the benchmark programs; bonds sold in “private placements,” a term KfW uses in the commercial sense to refer to sales to a specific investor or a limited number of investors; and “green bonds”, which comprise bonds from any of the first three categories, the proceeds of which are linked to investments with a clear environmental benefit financed by KfW, currently in the sectors of renewable energies and energy efficiency. In 2021, benchmark bonds accounted for a funding volume of EUR 50.4 billion, or 61%, of KfW’s total capital-market funding, while bonds placed publicly outside the benchmark programs accounted for EUR 9.9 billion, or 12%. The volume of bonds sold in private placements and of green bonds amounted to EUR 6.0 billion, or 7%, and EUR 16.2 billion, or 20%, respectively. Total capital-market funding in 2021 amounted to EUR 82.6 billion (2020: EUR 66.4 billion).
With respect to refinancing its funding requirements resulting from the KfW Special Program, KfW, as previously disclosed, has had access since July 1, 2020, to a new source of financing of up to a total amount of EUR 100 billion through the German Economic Stabilization Fund (Wirtschaftsstabilisierungsfonds – “WSF”). Refinancing through the WSF in 2021 totaled EUR 3.0 billion (2020: EUR 39.0 billion).
In 2021, KfW also participated in the targeted longer-term refinancing operations (“TLTROs”) of the Eurosystem via the third series of TLTROs, known as “TLTRO III.” The conditions for TLTRO III had been eased by the Governing Council of the ECB in the course of 2020 in response to the COVID-19 pandemic in
41
order to support the extension of credit to SMEs. KfW’s refinancing through TLTRO III in 2021 totaled EUR 1.4 billion (2020: EUR 13.4 billion).
KfW expects its volume of long-term funding to be raised in the capital markets in 2022 to be in a range of EUR 80 billion to EUR 85 billion, of which at least EUR 10 billion are expected to be green bonds.
In 2021, KfW conducted five new bond issuances as well as 12 re-openings (17 transactions in total in 2021) in an aggregate principal amount of EUR 33 billion, in each case under its euro benchmark program. Also in 2021, KfW conducted four new bond issuances in an aggregate principal amount of USD 20.0 billion under its U.S. dollar benchmark program.
KFW’S BENCHMARK BOND ISSUANCESIN 2021
| | | | | | | | | | | | |
| | | Aggregate principal
amount in billions | | | Maturity at issuance (in years) | | | Interest rate
in % per annum | |
KfW U.S. $-Benchmark I/2021 | | | USD 5.0 | | | | 5 | | | | 0.625 | |
KfW U.S. $-Benchmark II/2021 | | | USD 5.0 | | | | 3 | | | | 0.250 | |
KfW U.S. $-Benchmark III/2021 | | | USD 5.0 | | | | 2 | | | | 0.250 | |
KfW U.S. $-Benchmark IV/2021 | | | USD 5.0 | | | | 3 | | | | 0.500 | |
KfW Euro-Benchmark I/2021 | | | EUR 5.0 | | | | 10 | | | | 0.000 | |
KfW Euro-Benchmark II/2021 | | | EUR 5.0 | | | | 5 | | | | 0.000 | |
KfW Euro-Benchmark III/2021 | | | EUR 3.0 | | | | 15 | | | | 0.375 | |
KfW Euro-Benchmark IV/2021 | | | EUR 5.0 | | | | 7 | | | | 0.000 | |
KfW Euro-Benchmark V/2021 | | | EUR 3.0 | | | | 3 | | | | 0.000 | |
KfW Euro-Benchmark IV/2017 (re-opening) | | | EUR 1.0 | | | | 7 | | | | 0.125 | |
KfW Euro-Benchmark III/2020 (re-opening) | | | EUR 1.0 | | | | 5 | | | | 0.010 | |
KfW Euro-Benchmark IV/2020 (re-opening) | | | EUR 1.0 | | | | 7 | | | | 0.000 | |
KfW Euro-Benchmark IV/2016 (re-opening) | | | EUR 1.0 | | | | 7 | | | | 0.000 | |
KfW Euro-Benchmark V/2020 (re-opening) | | | EUR 1.0 | | | | 10 | | | | 0.000 | |
KfW Euro-Benchmark I/2017 (re-opening) | | | EUR 1.0 | | | | 7 | | | | 0.125 | |
KfW Euro-Benchmark II/2021 (re-opening) | | | EUR 1.0 | | | | 5 | | | | 0.000 | |
KfW Euro-Benchmark I/2015 (re-opening) | | | EUR 1.0 | | | | 10 | | | | 0.625 | |
KfW Euro-Benchmark VI/2018 (re-opening) | | | EUR 1.0 | | | | 10 | | | | 0.750 | |
KfW Euro-Benchmark VII/2018 (re-opening) | | | EUR 1.0 | | | | 5 | | | | 0.125 | |
KfW Euro-Benchmark V/2020 (re-opening) | | | EUR 1.0 | | | | 10 | | | | 0.000 | |
KfW Euro-Benchmark V/2019 (re-opening) | | | EUR 1.0 | | | | 7 | | | | 0.000 | |
In 2021, KfW’s total new capital-market funding was raised in 15 different currencies and 211 separate capital markets transactions. KfW’s core currencies are the euro and the U.S. dollar, which together accounted for 81% of KfW’s total new capital-market funding in 2021 (2020: 88%). The percentage of new funds raised in euros decreased from 64% in 2020 to 55% in 2021, making it still the most significant funding currency, whereas the percentage of new funds raised in U.S. dollars increased from 24% to 26% over the same period. The percentage of new funds raised in pounds sterling increased from 5% in 2020 to 8% in 2021, which made it KfW’s third most significant funding currency in 2021.
KFW’S TOTAL NEW CAPITAL-MARKET FUNDING VOLUME 2021BY CURRENCIES*
| | | | | | | | |
| | | EUR in billions | | | In % of total | |
Euro (EUR) | | | 45.6 | | | | 55 | |
U.S. dollar (USD) | | | 21.3 | | | | 26 | |
Pound sterling (GBP) | | | 6.9 | | | | 8 | |
Australian dollar (AUD) | | | 2.8 | | | | 3 | |
Norwegian krone (NOK) | | | 1.7 | | | | 2 | |
Japanese Yen (JPN) | | | 0.4 | | | | 0.5 | |
Other currencies (1) | | | 4.0 | | | | 5 | |
| | | | | | | | |
Total | | | 82.6 | | | | 100 | |
| | | | | | | | |
42
| * | Amounts in the table may not add up due to rounding differences. |
| (1) | CAD, CNY, HKD, HUF, MXN, NZD, PLN, SEK and ZAR. |
In connection with its green bond issuances, KfW has established a Green Bond Framework published on its website that reflects international best practices and which is aligned with the 2021 edition of the “Green Bond Principles” of the International Capital Market Association (“ICMA”). Through its green bond issuances, KfW aims to broaden its investor base by addressing socially responsible investors and to enhance capital markets’ infrastructure for financing environmental projects that have the reduction of greenhouse gas emissions as their common objective. Net proceeds from the sale of its green bonds and requests for disbursements under the eligible environmental projects are tracked by KfW in an appropriate manner. KfW provides investors with information regarding the use of proceeds in terms of disbursements on a regular basis on its website. Unless otherwise indicated, information available on, or accessible through, KfW’s website is not incorporated herein by reference. In 2021, KfW conducted 22 new green bond issuances in 13 currencies as well as 15 re-openings. In total, green bonds accounted for a funding volume of EUR 16.2 billion, or 19.6%, of KfW’s total capital-market funding. One USD green bond with an aggregate principal amount of USD 3.0 billion as well as one CAD green bond with an aggregate principal amount of CAD 1.0 billion were issued as SEC-registered global bonds.
The most important sources of capital-market funding for KfW are bond and note issuances followed by promissory note loans. At year-end 2021, the amount of outstanding bonds and notes issued by KfW totaled EUR 397.6 billion, representing a EUR 13.6 billion increase from EUR 384.0 billion outstanding at year-end 2020.
Of outstanding borrowings, promissory note loans continue to be KfW’s second most important capital-market funding instrument, with a book value of EUR 40.8 billion at year-end 2021. Of this amount, EUR 39.6 billion was recognized as financial liabilities at amortized cost (of which EUR 1.2 billion as liabilities to banks and EUR 38.4 billion as liabilities to customers) and EUR 1.3 billion was recognized as financial liabilities at fair value (of which EUR 0.3 billion as liabilities to banks and EUR 1.0 billion as liabilities to customers). Promissory note loans are a special instrument of the German capital markets, under which the lending entity (generally a bank, insurance company or public pension fund) receives a certificate evidencing its loan to the borrower and the terms of such loan. Maturities on promissory note loans range from one to 30 years, thereby providing a high degree of flexibility to both the borrower and the lender. Transferable only by way of assignment, promissory note loans have only limited liquidity in the interbank secondary market.
The following table sets forth summary information concerning KfW’s outstanding bonds and notes as well as promissory note loans with an initial maturity of more than one year and issued in the capital markets.
43
INFORMATIONON ISSUANCESOF FUNDED DEBTOF KFW GROUP
(ASOF DECEMBER 31, 2021)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Currency | | Number of
transactions | | Interest type | | Average
interest
rate in %
per annum
(1) (2) | | Years of issue | | Maturities | | Average
years to maturity (2) | | Aggregate
principal amount
outstanding
in applicable
currency | | | Aggregate
principal amount
outstanding
in EUR (3) | |
AUD | | | | | 14 | | | | | FIXED | | 3.67 | | 2012-2021 | | 2022-2028 | | | | | 2.15 | | | | | | 16,024,999,999.97 | | | | 10,262,568,043.53 | |
CAD | | | | | 6 | | | | | FIXED | | 2.86 | | 2005-2021 | | 2022-2037 | | | | | 3.20 | | | | | | 3,457,1999,999.99 | | | | 2,402,000,972.69 | |
CHF | | | | | 2 | | | | | FIXED | | 2.55 | | 2005-2007 | | 2025-2037 | | | | | 5.85 | | | | | | 1,304,999,999.99 | | | | 1,263,188,461.90 | |
CNY | | | | | 12 | | | | | FIXED | | 2.58 | | 2019-2021 | | 2022-2026 | | | | | 1.65 | | | | | | 7,648,000,000.13 | | | | 1,063,004,711.82 | |
DEM | | | | | 1 | | | | | FIXED | | 7.00 | | 1993 | | 2023 | | | | | 1.25 | | | | | | 105,985,000.00 | | | | 54,189,270.03 | |
EUR | | | | | 297 | | | | | FIXED | | 0.40 | | 1999-2021 | | 2022-2051 | | | | | 4.69 | | | | | | 281,083,491,510.42 | | | | 281,083,491,510.42 | |
EUR | | | | | 21 | | | | | FLOATING | | 1.14 | | 2003-2019 | | 2022-2052 | | | | | 2.73 | | | | | | 2,908,812,262.33 | | | | 2,908,812,262.33 | |
GBP | | | | | 20 | | | | | FIXED | | 2.05 | | 2000-2021 | | 2022-2037 | | | | | 3.90 | | | | | | 22,426,803,000.06 | | | | 26,689,678,440.59 | |
GBP | | | | | 1 | | | | | FLOATING | | 1.05 | | 2021 | | 2024 | | | | | 2.45 | | | | | | 500,000,000.00 | | | | 595,039,748.66 | |
HKD | | | | | 6 | | | | | FIXED | | 0.43 | | 2020-2021 | | 2022-2024 | | | | | 1.11 | | | | | | 1,599,999,999.99 | | | | 181,132,758.99 | |
HUF | | | | | 2 | | | | | FIXED | | 1.44 | | 2020-2021 | | 2022-2023 | | | | | 1.30 | | | | | | 7,750,000,000.34 | | | | 20,991,901.19 | |
JPY | | | | | 10 | | | | | FIXED | | 2.31 | | 2002-2021 | | 2022-2038 | | | | | 7.35 | | | | | | 146,943,000,000.10 | | | | 1,127,036,355.27 | |
JPY | | | | | 209 | | | | | FLOATING | | 1.87 | | 2002-2021 | | 2022-2049 | | | | | 12.18 | | | | | | 148,315,999,988.24 | | | | 1,137,567,111.43 | |
MXN | | | | | 3 | | | | | FIXED | | 6.26 | | 2017-2021 | | 2022-2025 | | | | | 2.01 | | | | | | 3,249,999,999.98 | | | | 140,426,377.69 | |
NOK | | | | | 14 | | | | | FIXED | | 1.81 | | 2002-2021 | | 2022-2036 | | | | | 2.30 | | | | | | 40,349,999,999.91 | | | | 4,039,524,267.17 | |
NOK | | | | | 2 | | | | | FLOATING | | 2.24 | | 2019 | | 2022 | | | | | 0.15 | | | | | | 5,499,999,999.96 | | | | 550,616,690.69 | |
NZD | | | | | 3 | | | | | FIXED | | 2.80 | | 2018-2021 | | 2023-2028 | | | | | 2.36 | | | | | | 840,000,000.01 | | | | 506,665,058.21 | |
PLN | | | | | 5 | | | | | FIXED | | 1.55 | | 2006-2021 | | 2022-2025 | | | | | 1.90 | | | | | | 1,546,764,122.16 | | | | 336,479,828.18 | |
SEK | | | | | 11 | | | | | FIXED | | 0.85 | | 2011-2021 | | 2022-2031 | | | | | 2.35 | | | | | | 30,900,000,000.11 | | | | 3,014,545,915.74 | |
TRY | | | | | 2 | | | | | FIXED | | 12.52 | | 2020 | | 2023 | | | | | 1.18 | | | | | | 201,999,999.94 | | | | 13,260,248.79 | |
USD | | | | | 56 | | | | | FIXED | | 1.70 | | 2002-2021 | | 2022-2046 | | | | | 2.83 | | | | | | 102,617,274,115.07 | | | | 90,603,279,282.24 | |
USD | | | | | 1 | | | | | FLOATING | | 1.05 | | 2021 | | 2024 | | | | | 2.12 | | | | | | 1,500,000,000.00 | | | | 1,324,386,367.65 | |
ZAR | | | | | 20 | | | | | FIXED | | 6.80 | | 2017-2021 | | 2022-2031 | | | | | 4.17 | | | | | | 8,435,000,000.05 | | | | 466,989,619.38 | |
Total | | | | | 718 | | | | | | | | | | | | | | | | 4.13 | | | | | | | | | | 429,784,875,204.59 | |
| (1) | Interest rate of floating rate note means the applicable interest rate as of December 31, 2021. For floating rate notes with interest rates that are fixed in arrears, the latest fixed interest rate was used. Zero coupon bonds are included in the calculation with their average effective interest rates. |
| (2) | Averages have been calculated on a capital-weighted basis taking into account the aggregate principal amount outstanding in euro. |
| (3) | Conversion into euro at the spot rate using the ECB reference rates on December 31, 2021. |
Money-Market Funding. KfW issues commercial paper under two commercial paper programs: the EUR 70 billion multicurrency commercial paper program and the USD 30 billion commercial paper program. The program volume of the USD commercial paper program was increased from USD 20 billion to USD 30 billion as of March 17, 2022. As of December 31, 2021, KfW Group’s commercial paper outstanding totaled EUR 50.0 billion (December 31, 2020: EUR 41.3billion).
Public Funds. As of December 31, 2021, the proportion of public funds in KfW Group’s borrowings was 8%. The most important source of public funds for KfW is the budget of the Federal Republic. Total long-term and short-term borrowings from funds provided by the federal budget (excluding loans on a trust basis) amounted to EUR 39.9 billion as of December 31, 2021 (December 31, 2020: EUR 43.3 billion). KfW Group’s long-term and short-term borrowings from the ERP Special Fund amounted to EUR 138 million as of December 31, 2021 (December 31, 2020: EUR 216 million). Public funds are made available to KfW Group for use in special categories of KfW’s domestic activities and certain export and project finance transactions with developing countries.
Public funds are particularly important in the area of financial cooperation, where KfW Entwicklungsbank extends loans and disburses grants to foreign public sector borrowers and recipients in developing countries and emerging economies. Federal budget funds constituted approximately 42% of the
44
sources of funding for KfW Entwicklungsbank’s commitments in 2021. Funds from the Federal Government involved in loan commitments and grants of KfW Entwicklungsbank do not, by their nature, appear on KfW’s consolidated statement of financial position. For more information see “Business—Promotion of Developing Countries and Emerging Economies—KfW Entwicklungsbank (KfW Development Bank).”
Derivatives
KfW generally enters into derivatives transactions for hedging purposes in connection with its financing and funding activities. Accordingly, a substantial majority of its derivatives are interest- or currency-related derivatives. KfW Group does not enter into derivatives for trading purposes and does not facilitate the purchase of derivatives on behalf of any entities outside the group through brokerage or similar agency activities.
The following tables provide detailed information on the group’s derivatives exposures:
KFW GROUP’S DERIVATIVES EXPOSURE*
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Notional value | | | Fair value | | | Fair value | |
| | | As of December 31, | | | As of December 31, 2021 | | | As of December 31, 2020 | |
| | | 2021 | | | 2020 | | | Positive | | | Negative | | | Positive | | | Negative | |
| | | | | | | | | | | | | | | | | | | |
| | | (EUR in millions) | | | (EUR in millions) | | | (EUR in millions) | |
Interest-related derivatives | | | 584,335 | | | | 540,913 | | | | 6,111 | | | | 4,040 | | | | 10,126 | | | | 5,584 | |
Currency-related derivatives (1) | | | 165,569 | | | | 156,986 | | | | 7,727 | | | | 2,311 | | | | 3,180 | | | | 8,047 | |
Credit derivatives as protection buyer | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Miscellaneous | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total derivatives (2) (3) | | | 749,904 | | | | 697,898 | | | | 13,838 | | | | 6,351 | | | | 13,306 | | | | 13,631 | |
Embedded derivatives accounted for separately | | | — | | | | — | | | | 21 | | | | 12 | | | | 11 | | | | 20 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total balance sheet items “derivatives designated for hedge accounting” and “financial assets/liabilities at FV - other derivatives” | | | 749,904 | | | | 697,898 | | | | 13,859 | | | | 6,363 | | | | 13,317 | | | | 13,651 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| * | Amounts in the table may not add up due to rounding differences. |
| (1) | Includes cross-currency swaps. |
| (2) | Includes derivative financial instruments which are offered by KfW’s wholly-owned subsidiary KfW IPEX-Bank to its customers as hedging instruments in connection with, and related to, financing in the context of its export and project financing activities. In order to hedge the risk arising from these derivative transactions, KfW IPEX-Bank enters into hedging transactions with KfW. In the context of centralizing and aggregating market-facing hedging activities within the group at the parent level, KfW, in turn, hedges itself with corresponding offsetting transactions in the market to the extent necessary. These risk-mitigating hedging transactions entered into by KfW are also disclosed. |
| (3) | Includes derivative contracts in closed risk positions entered into pursuant to special mandates by the Federal Government in accordance with article 2 paragraph 4 of the KfW Law. |
| | | | | | | | |
| | | As of December 31, | |
| | | 2021 | | | 2020 | |
| | | | | | | |
| | | (EUR in millions) | |
Total positive fair value before netting | | | 13,838 | | | | 13,306 | |
Total positive fair value after netting (1) | | | 8,733 | | | | 4,960 | |
Collateral received | | | 7,882 | | | | 3,419 | |
of which cash collateral | | | 7,882 | | | | 3,419 | |
| | | | | | | | |
Total positive fair value after netting and collaterals | | | 851 | | | | 1,541 | |
| | | | | | | | |
| (1) | Presents the effects of netting agreements that do not fulfill the offsetting criteria under IFRS. Due to the strict criteria for offsetting financial instruments under IAS 32, KfW Group’s consolidated statement of financial position does not reflect any netting effects with respect to its derivatives. |
KfW Group’s derivatives activities are reflected in its consolidated statement of financial position in the line items “financial assets – Fair Value”, “financial liabilities – Fair Value” and “derivatives designated for hedge accounting.” For additional information on KfW Group’s derivatives exposure, see notes 8, 37, 39, 47,
45
49, 56, 57 and 58 to the financial statements included in Exhibit (e) to this annual report. For more information on interest and currency risks related to derivatives as well as counterparty default risks, see “Combined management report—Risk report—Types of risk—Counterparty default risk” and “—Market price risk,” respectively, included in Exhibit (e) to this annual report.
Asset Management
As of December 31, 2021, KfW Group held securities and investments in an amount of EUR 39.9 billion (December 31, 2020: EUR 38.9 billion). See “Combined management report—Economic report—Development of net assets” included in Exhibit (e) to this annual report for more information concerning securities and investments. EUR 32.0 billion, or 80%, of all securities and investments were held in the form of fixed-income securities for liquidity purposes in KfW’s liquidity portfolio. The remaining securities and investments were securities held as a surrogate for loans or as equity investments in the context of KfW Group’s promotional business (e.g., KfW’s ABS portfolio or DEG’s direct investments). Equity participations held directly or indirectly by KfW made up only a very limited amount of KfW Group’s securities and investments.
Liquidity Portfolio. KfW pursues a conservative liquidity management strategy. For this purpose, KfW holds financial assets in its liquidity portfolio in an amount of EUR 32.0 billion as of December 31, 2021 (December 31, 2020: EUR 31.3 billion). The bulk of securities held in this portfolio is denominated in euro. KfW purchases medium-term securities issued by banks, primarily covered bonds (Pfandbriefe), bonds of public sector issuers and supranational institutions or agencies as well as ABS. Since the beginning of 2020, the portfolio includes ABCP investments. The bulk of euro-denominated bonds included in KfW’s liquidity portfolio is eligible as collateral with the ECB and enables KfW to enter into repurchase agreements in refinancing operations within the European System of Central Banks via the Deutsche Bundesbank. For financial reporting purposes, securities denominated in U.S. dollar or GBP were converted into euro at the currency exchange rate as of December 31, 2021. In addition to these securities, as of December 31, 2021, KfW held money-market assets (overnight and term loans as well as reverse repurchase transactions) for liquidity management purposes in an amount of EUR 5.5 billion (December 31, 2020: EUR 3.5 billion).
As a signatory to the United Nations-supported “Principles for Responsible Investment” (PRI), KfW is committed to managing its liquidity portfolio in a sustainable manner. For KfW, this means integrating environmental, social and governance (“ESG”) criteria in its investment approach. In 2021, the integration of ESG criteria was based on a best-in-class approach that stipulated that for its liquidity portfolio, based on sustainability ratings from an external provider, KfW would only invest in bonds of issuers whose sustainability rating was among the best 50% of the respective sector. Sovereign bonds are eligible for such investments, provided that the relevant issuing country has reached “prime” status with regard to its sustainability rating. In addition, KfW uses exclusion criteria for its liquidity portfolio that are based on the International Finance Corporation exclusion list and the exclusion list of KfW Group. KfW also engages in regular dialogues with issuers on sustainability matters.
ABS Portfolio. As of December 31, 2021, the promotional ABS portfolio volume amounted to EUR 364 million (December 31, 2020: EUR 770 million). KfW’s capital markets-based promotional activities for SMEs ended as of December 31, 2019. The remaining outstanding portfolio volume will decrease gradually with amortizations.
Green Bond Portfolio. Under its green bond portfolio, KfW seeks to support climate and environmental protection by investing in green bonds of public sector issuers, supranational institutions and agencies, and banks as well as in green covered bonds and ABS. All of KfW’s green bond investments are aligned with the ICMA “Green Bond Principles.” In 2021, KfW provided EUR 527 million (2020: EUR 400 million) as part of its promotional activities for financing climate and environmental protection measures by investing in green bonds. As of December 31, 2021, the volume of the portfolio amounted to EUR 2.2 billion. KfW’s green bond portfolio was launched in 2015 under a mandate of the German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (now named Federal Ministry for the Environment, Nature Conservation, Nuclear Safety and Consumer Protection) and the portfolio’s targeted volume was EUR 2.0 billion. This former target volume of the green bond portfolio was reached in February 2021. Going forward, KfW will continue to invest in green bonds and plans to maintain the portfolio volume in a range of EUR 2.0 to EUR 2.5 billion. The mandate of the Federal Ministry for the Environment, Nature Conservation, Nuclear Safety and Consumer Protection was extended accordingly.
46
Privatization Initiatives
The Federal Government mandated KfW to take measures with respect to the privatization of Deutsche Telekom and Deutsche Post. Pursuant to a special mandate by the Federal Government and in accordance with article 2 paragraph 4 of the KfW Law (Zuweisungsgeschäft), KfW has acquired and sold shares of both Deutsche Telekom and Deutsche Post in various transactions since 1997. In furtherance of the privatization initiatives of the Federal Government, KfW sold those shares through German and international public offerings, private placements, block trades, exchangeable bonds and other transactions. Pursuant to an arms-length agreement with the Federal Government, KfW is protected against the market risk of these transactions. The agreement provides that KfW will receive a percentage of any market value increase in the shares acquired and sold, plus a fee for its services.
At year-end 2021, KfW’s total ownership interest in Deutsche Telekom remained unchanged compared to year-end 2020 with approximately 829.2 million ordinary shares. This represented a stake of approximately 16.6% in Deutsche Telekom (December 31, 2020: 17.4%). To KfW’s knowledge, the stake of the Federal Republic amounted to approximately 13.8% as of December 31, 2021.
At year-end 2021, KfW’s total ownership interest in Deutsche Post remained unchanged compared to year-end 2020 with approximately 253.9 million ordinary shares. This represented a stake of approximately 20.5% in Deutsche Post (December 31, 2020: 20.5%). To KfW’s knowledge, the Federal Republic does not directly hold any shares in Deutsche Post.
Given the agreement with the Federal Government described above, KfW’s holdings in shares of Deutsche Post and Deutsche Telekom are presented on KfW’s consolidated statement of financial position as Financial Assets at Fair Value, which are classified as “Loans and advances to customers – FVM.”
The Federal Government may sell further stakes in Deutsche Telekom to KfW in the future. KfW expects its holdings in Deutsche Telekom and Deutsche Post shares to be reduced in the medium term.
Loan Facility to Greece Mandated by the Federal Government
KfW supports the Federal Republic in conducting EU-wide financial support measures for Greece. In 2010, the Federal Government mandated KfW in accordance with article 2 paragraph 4 of the KfW Law (Zuweisungsgeschäft) to participate in a loan facility to Greece on behalf of the Federal Republic. All risks resulting from this loan facility are covered by a guarantee of the Federal Republic. As of December 31, 2021, the total amount outstanding of this loan to Greece amounted to EUR 14.4 billion (December 31, 2020: EUR 15.0 billion).
Strategic Shareholdings
KfW’s most important strategic shareholdings are DEG (100%) and KfW Capital (100%), which are both directly held by KfW, and KfW IPEX-Bank GmbH (100%), which is held indirectly via KfW Beteiligungsholding GmbH. The stakes in Finanzierungs- und Beratungsgesellschaft mbH (100%), tbg Technologie-Beteiligungs-Gesellschaft mbH (100%), Deutsche Energieagentur GmbH (26%), Berliner Energieagentur GmbH (25%), CureVac N.V. (16%) and HENSOLDT AG (25.1%) are held directly by KfW. KfW’s shareholding in Airbus SE (9.19%) is held indirectly via various entities. KfW’s shareholding in Eurogrid GmbH (20%) is held indirectly via a subsidiary of KfW. In addition, KfW directly holds stakes in True Sale International GmbH (7.7%) and the European Investment Fund (2.3%).
KfW’s investments in Airbus SE, Eurogrid GmbH, CureVac N.V. and HENSOLDT AG, as well as its investments in Deutsche Telekom and Deutsche Post (see “Business—Financial Markets—Privatization Initiatives”), were made pursuant to a special mandate of the Federal Government in accordance with article 2 paragraph 4 of the KfW Law, which authorizes the Federal Government to direct KfW to take measures in connection with matters in which the Federal Republic has an interest (Zuweisungsgeschäft). These investments were made at the Federal Republic’s economic risk and the opportunities and risks of these investments lie with the Federal Republic.
47
Airbus SE
In 2007, KfW, together with 14 other investors, agreed to jointly acquire from DaimlerChrysler group (now Daimler group) a stake of, at that time, 7.5% in European Aeronautic Defence and Space Company N.V. (“EADS”), the economic interest of which was held through the special purpose vehicle Dedalus GmbH & Co. KGaA (“Dedalus”). In connection with a further reduction by the Daimler group of its stake in EADS in December 2012, the Federal Government, which regards the ownership structure of EADS as a matter of strategic national interest, agreed on a revised government shareholding agreement with EADS, France and Spain, which allows the Federal Government to directly or indirectly own an equity stake of up to 12% in EADS. In this context, the Federal Government mandated KfW to directly or indirectly acquire and hold an equity stake of up to 12% in EADS on behalf of the Federal Republic.
At the beginning of April 2013, France, Germany and Spain entered into a supplemental shareholders’ agreement, which provided for the dissolution of the Dedalus consortium and for KfW and the remaining investors to hold their respective equity stakes in EADS directly and indirectly through Gesellschaft zur Beteiligungsverwaltung GZBV mbH & Co. KG (“GZBV”). At the end of 2013, GZBV increased its equity stake in EADS by buying approximately 1.87 million shares. In 2015, EADS transformed its legal form into a European company (Societas Europaea) and changed its legal name to Airbus Group SE. In April 2017, following approval by the annual general meeting, the legal name was changed into Airbus SE. As of December 31, 2021, KfW held, through GZBV, an equity stake of approximately 9.19% in Airbus SE. Together with the other investors’ interests in GZBV, GZBV held a total equity stake of 10.90% in Airbus SE.
Eurogrid International CVBA/SCRL and Eurogrid GmbH
In July 2018, the Federal Government mandated KfW pursuant to and in accordance with article 2 paragraph 4 of the KfW Law (Zuweisungsgeschäft), to acquire a 20% shareholding in Eurogrid International CVBA/SCRL (“Eurogrid International”). The transaction closed in August 2018. Under the mandate, all economic risks resulting from KfW’s investment are covered by a guarantee of the Federal Republic. At the time of the acquisition, Eurogrid International indirectly held all shares in the German transmission systems operator 50Hertz Transmission GmbH via its wholly-owned subsidiary Eurogrid GmbH.
In June 2019, KfW swapped its 20% equity stake in Eurogrid International for a 20% equity stake in Eurogrid GmbH in accordance with its mandate by the Federal Government. This share swap was executed to simplify the holding structure. KfW’s stake in Eurogrid GmbH is now held via Selent Netzbetreiber GmbH, a wholly-owned subsidiary of KfW. The German transmission system operator 50Hertz Transmission GmbH is a wholly-owned subsidiary of Eurogrid GmbH, incorporated in Berlin, Germany.
CureVac N.V.
In June 2020, the Federal Government mandated KfW pursuant to and in accordance with article 2 paragraph 4 of the KfW Law (Zuweisungsgeschäft) to make an investment of approximately EUR 300 million through the acquisition of a stake in biopharmaceutical company CureVac AG (“CureVac”). CureVac is a German stock corporation under German law with its registered seat in Tübingen, Germany, which focuses on the research and development of medicines based on messenger ribonucleic acids (mRNA). The investment occurred at the end of July 2020. In August 2020, CureVac B.V., a private company with limited liability under Dutch law, offered and sold in an underwritten initial public offering (the “CureVac IPO”) new common shares, which were listed on the Nasdaq Global Market. In connection with the consummation of the CureVac IPO, all shares of CureVac AG were contributed into CureVac B.V. in exchange for shares of CureVac B.V., and CureVac B.V. was converted to a public company under Dutch law and accordingly renamed CureVac N.V. As a consequence, KfW’s investment is in shares of CureVac N.V. Under the mandate, KfW is fully covered by the Federal Republic against any economic risks resulting from its investment.
HENSOLDT AG
In March 2021, the Federal Government mandated KfW pursuant to and in accordance with article 2 paragraph 4 of the KfW Law (Zuweisungsgeschäft) to acquire 25.1% of the outstanding shares in HENSOLDT AG (“Hensoldt”). Hensoldt is a stock corporation under German law with its registered seat in Taufkirchen, Germany, which focuses on electronic sensor solutions and optronics. The acquisition was completed in
48
May 2021. Under the mandate, KfW is fully covered by the Federal Republic of Germany against any economic risks resulting from its investment in Hensoldt.
49
CAPITALIZATION
CAPITALIZATIONOF KFW GROUPASOF DECEMBER 31, 2021
| | | | |
| | | (EUR in millions) | |
Borrowings | | | | |
Short-term funds | | | 51,588 | |
Bonds and other fixed-income securities | | | 397,617 | |
Other borrowings (1) | | | 56,854 | |
| | | | |
Total borrowings | | | 506,059 | |
| |
Equity | | | | |
Paid-in subscribed capital (2) | | | 3,300 | |
Capital reserve | | | 8,447 | |
Reserve from the ERP Special Fund | | | 1,191 | |
Retained earnings | | | 22,026 | |
Fund for general banking risks | | | 200 | |
Revaluation reserve | | | -957 | |
| | | | |
Total equity | | | 34,207 | |
| | | | |
Total capitalization | | | 540,266 | |
| | | | |
| (1) | Includes long-term and short-term borrowings from the ERP Special Fund of EUR 138 million. |
| (2) | KfW’s equity capital, 80% of which is held by the Federal Republic and the remaining 20% by the Länder, amounted to EUR 3,750 million in 2021, of which EUR 3,300 million has been paid in pro rata by the Federal Republic and the Länder. |
50
MANAGEMENT AND EMPLOYEES
The bodies of KfW are the Executive Board (Vorstand) and the Board of Supervisory Directors (Verwaltungsrat).
Executive Board
The Executive Board is responsible for the day-to-day conduct of KfW’s business and the administration of its assets. Typically, members of the Executive Board are initially appointed for a maximum of three years by the Board of Supervisory Directors. After the first term each member may be repeatedly reappointed for, or his or her term of office may be repeatedly extended by, up to five years by the Board of Supervisory Directors. Each member of the Executive Board is responsible for certain aspects of KfW’s activities but shares the responsibility for actions taken by the Executive Board.
The following biographical information on the current members of the Executive Board includes their ages as of April 8, 2022, the year in which they were appointed, their terms of office, their current positions and their areas of responsibility.
For information on the remuneration of the Executive Board, see note 68 to the financial statements included in Exhibit (e) to this annual report.
Stefan Wintels
Age: 55
Stefan Wintels joined KfW’s Executive Board as Co-CEO in October 2021 and became the sole CEO in November 2021. He is in charge of the General Secretariat, Internal Auditing, Financial Markets, Group Development and Economics, Legal Affairs, Domestic Promotional Business, Sales Digital Development, New Business Credit Service as well as KfW Capital. Mr. Wintels was appointed until September 2025.
Prior to joining KfW, Mr. Wintels worked at Citigroup for 20 years from 2001 to 2021 in various leadership roles. Most recently, he was the Global Co-Head Financial Institutions Group and a member of the Global BCMA Executive Committee. Before that, he was Vice Chairman of Citigroup in Germany, Citi’s Chief Country Officer for Germany as well as Chief Executive Officer of Citigroup Global Markets Europe AG until March 2020.
Stefan Wintels began his professional career in 1994 at Deutsche Bank AG and left in 2001 as Managing Director at Deutsche Bank’s Corporate Development / Group Strategy Department.
He received a Master’s degree in Business Administration from the Technische Universität Berlin and participated in the 2nd year of a two year MBA program at the University of Illinois, Urbana-Champaign.
Stefan Wintels also chairs the supervisory board of KfW Capital, Frankfurt am Main, Germany.
Melanie Kehr
Age: 47
Melanie Kehr became a member of KfW’s Executive Board in March 2019. She is in charge of Information Technology, Central Services and Transaction Management. Ms. Kehr joined KfW as General Manager in September 2018. Ms. Kehr was appointed until August 2022.
Ms. Kehr studied Business Administration at the University of Bielefeld, Germany, and also holds a Master’s degree in Economics from Purdue University, Indiana, USA. In 1999, she started her professional career at the consulting firm Andersen Consulting Unternehmensberatung GmbH (renamed Accenture in 2001) where she became Managing Director for Industry Financial Services in 2012. In 2014, she was appointed Group Chief Information Officer of Bayerische Landesbank, Munich, Germany, and served in this position until July 2018.
51
Ms. Kehr is also a member of the supervisory board of Deka Bank Deutsche Girozentrale, Frankfurt am Main, Germany.
Christiane Laibach
Age: 60
Christiane Laibach joined KfW’s Executive Board in June 2021. She leads the international financing activities consisting of KfW Development Bank and the two affiliates KfW IPEX GmbH and KfW DEG mbh. Ms. Laibach was appointed until May 2025.
Prior to joining KfW’s Executive Board she was member of DEG’s Management Board for six years, the last year as CEO. From 2008 to 2015 she was part of KfW IPEX Bank’s Management Board, including Chief Risk and Financial Officer. She has been holding leadership positions at KfW Group for 25 years after having joined in 1990, including as global head of aviation for seven years.
Ms. Laibach holds a Master’s degree in Economics from University of Mainz, Germany, and completed the Executive Management Program at Wharton Business School, Philadelphia, USA.
Ms. Laibach also chairs the supervisory board of KfW IPEX GmbH.
Bernd Loewen
Age: 56
Bernd Loewen joined KfW as a member of KfW’s Executive Board in July 2009. He is in charge of Finance, Human Resources, Portfolio Credit Service as well as Organization and Consulting. Mr. Loewen acts as Chief Financial Officer of KfW after initially running both the risk and finance departments at KfW up to the separation of the CRO and CFO functions as of January 1, 2016. Mr. Loewen was appointed until June 2024.
After graduating with a Business Administration degree from the University of Muenster, Germany, he started his professional career at an auditing firm and completed the tax consultant exam. Subsequently, Mr. Loewen joined the Corporate Development department at COMMERZBANK Aktiengesellschaft, Frankfurt am Main, Germany, before moving on to Equity Derivatives Trading. From 2002 onwards, Bernd Loewen worked as Co-Managing Director at Commerz Capital Markets Corporation, a subsidiary of COMMERZBANK Aktiengesellschaft, in New York, USA. In 2005, he was appointed Member of the Management Board of mBank (formerly BRE Bank SA), a Polish subsidiary of COMMERZBANK Aktiengesellschaft and relocated from New York to Warsaw, Poland.
Mr. Loewen is also a member of the supervisory boards of The Currency Exchange Fund (TCX), Amsterdam, Netherlands and of DEG – Deutsche Investitions- und Entwicklungsgesellschaft mbH, Cologne, Germany.
Dr Stefan Peiß
Age: 52
Dr Stefan Peiß became a member of KfW’s Executive Board in January 2016. He is in charge of Credit Risk Management, Risk Controlling and Compliance, and he acts as Chief Risk Officer of KfW. Dr Peiß was appointed until December 2024.
Dr Peiß studied business administration at the Ludwig-Maximilians-Universität in Munich, Germany, where he also obtained a doctorate in political science (Dr. oec. publ.) from the university’s Institute for Risk Management and Insurance. In 1995, he started his career in the Real Estate Department of Bayerische Landesbank, Germany. He then transferred to the Risk Management Department, where he held management positions as Head of Team (client portfolio and strategic controlling) and Head of Department (portfolio controlling and controlling systematics, risk controlling trading activities). In 2007, Dr Peiß became Head of the Risk Operations Division, and in 2008, he was promoted to Head of Group Risk Control Division. Dr Peiß joined KfW in 2009 as Senior Vice President and Head of Risk Management and Controlling.
52
Dr Peiß is a member of the supervisory board of KfW IPEX-Bank, Frankfurt am Main, Germany and of KfW Capital, Frankfurt am Main, Germany.
Board of Supervisory Directors
The Board of Supervisory Directors generally has 37 members and consists of the Federal Minister of Finance; the Federal Minister for Economic Affairs and Climate Action; the Federal Minister for Foreign Affairs; the Federal Minister of Food and Agriculture; the Federal Minister of Transport and Digital Infrastructure; the Federal Minister for Economic Cooperation and Development; the Federal Minister for the Environment, Nature Conservation, Nuclear Safety and Consumer Protection; seven members appointed by the Bundesrat; seven members appointed by the Bundestag; five representatives of commercial banks; two industry representatives; one representative each of the local municipalities, agricultural, skilled crafts, trade and housing sectors; and four representatives of the trade unions. The representatives of the commercial banks, industry, the local municipalities, agricultural, skilled crafts, trade and housing sectors, and the trade unions are appointed by the Federal Government after consultation with their constituencies.
The Federal Minister of Finance and the Federal Minister for Economic Affairs and Climate Action serve as Chairman and Deputy Chairman of the Board of Supervisory Directors on a year-by-year rotating basis, with the latter chairing for the year 2022. The term of office of all Federal Ministers on KfW’s Board of Supervisory Directors corresponds to their term of office as Federal Minister of such Federal Ministry, while the other members of the Board of Supervisory Directors are personally appointed for a term of three years.
The Board of Supervisory Directors supervises the overall conduct of KfW’s business and the administration of its assets. It may give the Executive Board general directives. In particular, the Board of Supervisory Directors (via its Risk and Credit Committee) generally must approve, inter alia, loans to members of management bodies (Organkredite), short-term financing, loan commitments to a single borrower exceeding EUR 50 million for non-investment grade or unrated borrowers, certain unsecured loans and loan commitments exceeding EUR 100 million to investment grade borrowers. The Board of Supervisory Directors may reserve the right to approve other transactions or types of transactions. However, it is not authorized to represent KfW or to commit funds on KfW’s behalf.
KfW’s Board of Supervisory Directors’ committee structure comprises a Presidial and Nomination Committee (Präsidial- und Nominierungsausschuss), a Remuneration Committee (Vergütungskontrollausschuss), a Risk and Credit Committee (Risiko- und Kreditausschuss) and an Audit Committee (Prüfungsausschuss). The Presidial and Nomination Committee is responsible for dealing with legal and administrative matters as well as fundamental business and corporate policy issues. It may make decisions on the Board of Supervisory Directors’ behalf in urgent matters (Eilentscheidung). Additionally, it regularly assesses the Executive Board and the Board of Supervisory Directors, provides recommendations for suitable candidates to the Executive Board and may assist the responsible federal agencies in appointing members to the Board of Supervisory Directors. The Remuneration Committee is responsible for dealing with the systems of remuneration for the Executive Board and KfW employees and their consequences for KfW’s risk, capital and liquidity management and advises the Presidial and Nomination Committee with respect to the remuneration paid to the members of the Executive Board. The Risk and Credit Committee advises the Board of Supervisory Directors regarding, in particular, the current and future overall risk tolerance and strategy of KfW. It is responsible for approving loans and equity investments at the operational level that exceed certain thresholds as set forth in KfW’s Bylaws, as well as for authorizing the issuance of debt securities, borrowings in foreign currencies and swap transactions. The Audit Committee monitors in particular the accounting process and the effectiveness of the risk management system, especially the internal control system and the internal audit system. It monitors the performance of the audits of the annual financial statements and the timely correction of any errors identified by the auditor. Furthermore, the Audit Committee provides recommendations to the Board of Supervisory Directors regarding the approval of the annual unconsolidated financial statements and the adoption of the annual consolidated financial statements. The Presidial and Nomination Committee and the Remuneration Committee will, as a general rule, be chaired by the Chairperson of the Board of Supervisory Directors. The Risk and Credit Committee and the Audit Committee, as a general rule, will be chaired by a representative of the banking sector.
As of April 8, 2022, the members of the Board of Supervisory Directors were:
53
| | |
Name | | Position |
| Annalena Baerbock | | Federal Minister for Foreign Affairs |
| |
| Dr. Danyal Bayaz | | Minister of Finance of the State of Baden-Wuerttemberg; appointed by the Bundesrat |
| |
| Katharina Beck | | Member of Parliament; appointed by the Bundestag |
| |
Dr André Berghegger Volker Bouffier | | Member of Parliament; appointed by the Bundestag Minister President of the State of Hesse; appointed by the Bundesrat |
| |
| Dr Andreas Dressel | | Senator for finance in the city state of Hamburg; appointed by the Bundesrat |
| |
| Ingeborg Esser | | Managing Director of the Federal Association of German Housing and Real Estate Companies (GdW); representative of the housing sector |
| |
| Robert Feiger | | Chair of the German Trade Union Construction-Agriculture-Environment (IG Bau); representative of the trade unions |
| |
| Albert Füracker | | State Minister at the Bavarian State Ministry of Finance and for Regional Identity; appointed by the Bundesrat |
| |
| Dr Robert Habeck | | Federal Minister for Economic Affairs and Climate Action; Chair in 2022 |
| |
| Dr Louis Hagen | | CEO of Muenchener Hypothekenbank eG; representative of the mortgage banks |
| |
| Prof Dr Hans-Günter Henneke | | Managing Member of the Executive Committee of the Federation of German Districts (DLT), Representative of the municipalitie |
| |
| Reinhold Hilbers | | Minister of Finance of the State of Lower Saxony; appointed by the Bundesrat |
| |
| Reiner Hoffmann | | Chair of the Confederation of German Trade Unions (DGB); representative of the trade unions |
| |
| Dr Bruno Hollnagel | | Member of Parliament; appointed by the Bundestag |
| |
| Verena Hubertz | | Member of Parliament; appointed by the Bundestag |
| |
| Dr Dirk Jandura | | President of the Federation of German Wholesale, Foreign Trade and Services (BGA); representative of the wholesale and foreign trade sector |
| |
| Alois Karl | | Member of Parliament (retired); appointed by the Bundestag |
| |
| Andrea Kocsis | | Deputy Chair of ver.di - United Services Trade Union; representative of the trade unions |
| |
| Stefan Körzell | | Member of the Executive Board of the Confederation of German Trade Unions (DGB); representative of the trade unions |
| |
| Dr Joachim Lang | | CEO and Director General of the Federation of German Industries (BDI); representative of the industry |
| |
| Steffi Lemke | | Federal Minister for the Environment, Nature Conservation, Nuclear Safety and Consumer Protection |
| |
| Christian Lindner | | Federal Minister of Finance; Deputy Chair in 2022 |
54
| | |
| Rainer Neske | | Chair of the Board of Managing Directors of Landesbank Baden-Wuerttemberg, representative of credit institutions prominent in the field of industrial credit |
| |
| Cem Özdemir | | Federal Minister of Food and Agriculture |
| |
| Dr Hans-Walter Peters | | President of the Federal Association of German Banks (BdB); representative of the commercial banks |
| |
| Daniel Quinten | | Member of the Board of Managing Directors of the National Association of German Cooperative Banks (BVR); representative of the cooperative banks |
| |
| Achim Post | | Member of Parliament; appointed by the Bundestag |
| |
| Michael Richter | | Minister of Finance of the State of Saxony-Anhalt; appointed by the Bundesrat |
| |
| Joachim Rukwied | | President of the German Farmers’ Association (DBV); representative of the agricultural sector |
| |
| Frank Schäffler | | Member of Parliament; appointed by the Bundestag |
| |
| Helmut Schleweis | | President of the German Savings Banks Association (DSGV); representative of the savings banks |
| |
| Svenja Schulze | | Federal Minister for Economic Cooperation and Development |
| |
| Holger Schwannecke | | Secretary General of the German Confederation of Skilled Crafts and Small Business (ZDH); representative of the skilled crafts sector |
| |
| Dietmar Strehl | | Senator for finance in the city state of Bremen; appointed by the Bundesrat |
| |
| Dr Martin Wansleben | | Chief Executive of the Association of German Chambers of Commerce and Industry (DIHK); representative of the industry |
| |
| Dr Volker Wissing | | Federal Minister for Digital and Transport |
55
For information concerning the remuneration of the Board of Supervisory Directors, see note 68 to the financial statements included in Exhibit (e) to this annual report.
Employees
In 2021, KfW Group employed an average of 7,734 persons (excluding members of the Executive Board and trainees, but including temporary personnel and local personnel in KfW’s representative offices) (2020: 7,382 persons). Approximately 31.8% of KfW’s staff (excluding local personnel in KfW’s representative offices) is covered by collective bargaining agreements. KfW provides employee benefits such as pensions to its employees.
Of KfW Group’s staff, approximately 20% is engaged in KfW’s domestic business activities, 28% in Promotion of Developing Countries and Emerging Economies (KfW Entwicklungsbank and DEG), 11% in Export and Project Finance (KfW IPEX-Bank), and the remaining balance in KfW’s accounting, disbursements, collateral, funding and lending support departments and in general administrative and staff functions.
KfW Group has defined employee relations as one of its key sustainability action areas and attaches great importance to treating its employees with respect and appreciation. Because KfW recognizes that its success is based on its skilled and motivated staff, employer attractiveness, including by achieving top positions in the main employer rankings, has been defined as one of the key targets within KfW Group’s strategic objectives. KfW believes that a fair remuneration system, group-wide diversity and equal opportunities for the professional development of all employees, irrespective of gender, origin, ethnicity, religion, disability, age, sexual identity or social background, provide a solid basis for achieving this target. KfW emphasizes the importance of achieving target quotas for women in leadership positions and a good work-life balance. As a future-oriented organization, KfW offers a variety of part-time work and mobile work options as well as professional development and training opportunities and supports responsible health management.
For more information concerning KfW Group’s employees, see note 67 to the financial statements included in Exhibit (e) to this annual report.
56
THE FEDERAL REPUBLIC OF GERMANY
The following information regarding the Federal Republic is derived from the public official documents cited below. Certain information is preliminary.
GENERAL
Area, Location and Population
The Federal Republic is situated in central Europe and comprises an area of approximately 358,000 square kilometers (about 138,000 square miles). According to a first estimate of the Federal Statistical Office, 83.2 million people were living in Germany at the end of 2021, which was roughly the same number as at the end of both 2020 and 2019. In 2021, the population was stagnating due to the increased number of deaths, which clearly exceeded the number of births. The gap between births and deaths, however, was filled by higher net immigration. Based on provisional results for 2021, the Federal Statistical Office estimates that the number of births amounted to between 775,000 and 795,000 (2020: 773,144), the number of deaths to around 1.02 million (2020: 985,572), and net immigration to between 270,000 and 320,000 persons (2020: 220,251). In 2020, approximately 16.9% of the total population was concentrated in metropolitan areas with more than 500,000 inhabitants; the largest of these areas were (in descending order) Berlin, Hamburg, Munich, Cologne and Frankfurt am Main.
Sources: Statistisches Bundesamt, Bundesländer mit Hauptstädten nach Fläche, Bevölkerung und Bevölkerungsdichte am 31.12.2020 (September 2021) (https://www.destatis.de/DE/Themen/Laender-Regionen/Regionales/Gemeindeverzeichnis/Administrativ/02-bundeslaender.html); Statistisches Bundesamt, Once again no population growth expected for 2021, press release of January 20, 2022 (https://www.destatis.de/EN/Press/2022/01/PE22_027_124.html; German version: https://www.destatis.de/DE/Presse/Pressemitteilungen/2022/01/PD22_027_124.html); Statistisches Bundesamt, Daten aus dem Gemeindeverzeichnis, Städte nach Fläche, Bevölkerung und Bevölkerungsdichte am 31.12.2020 (September 2021) (https://www.destatis.de/DE/Themen/Laender-Regionen/Regionales/Gemeindeverzeichnis/Administrativ/05-staedte.html).
G-1
The following table shows selected key demographic figures for the Federal Republic for the years stated.
POPULATION
| | | | | | | | | | | | | | | | | | | | |
| | | 2020 | | | 2019 | | | 2018 | | | 2017 (1) | | | 2016 (1) | |
| | | | | | | | | | | | | | | | |
| | | (number of persons) | |
Total population | | | 83,155,031 | | | | 83,166,711 | | | | 83,019,213 | | | | 82,792,351 | | | | 82,521,653 | |
| |
Age distribution | | | (percent of total population) | |
Under 20 | | | 18.4 | | | | 18.4 | | | | 18.4 | | | | 18.4 | | | | 18.4 | |
20-40 | | | 24.5 | | | | 24.6 | | | | 24.6 | | | | 24.6 | | | | 24.5 | |
40-60 | | | 28.1 | | | | 28.4 | | | | 28.8 | | | | 29.1 | | | | 29.4 | |
60-80 | | | 21.8 | | | | 21.7 | | | | 21.7 | | | | 21.7 | | | | 21.6 | |
80 and more | | | 7.1 | | | | 6.8 | | | | 6.5 | | | | 6.2 | | | | 6.0 | |
| |
Growth rate | | | (percent change on the previous year) | |
Total population | | | 0.0 | | | | 0.2 | | | | 0.3 | | | | 0.3 | | | | 0.4 | |
Under 20 | | | 0.0 | | | | 0.2 | | | | 0.3 | | | | 0.2 | | | | 1.0 | |
20-40 | | | -0.5 | | | | 0.1 | | | | 0.5 | | | | 0.7 | | | | 0.6 | |
40-60 | | | -1.1 | | | | -1.1 | | | | -0.8 | | | | -0.8 | | | | -0.9 | |
60-80 | | | 0.5 | | | | 0.4 | | | | 0.3 | | | | 0.5 | | | | 0.4 | |
80 and more | | | 4.5 | | | | 5.4 | | | | 4.6 | | | | 4.2 | | | | 4.5 | |
| (1) | Due to methodological changes and further technical developments, the results for the 2017 and 2016 reporting years are only comparable with the previous years’ figures to a certain extent. The accuracy of the results for 2016 in particular is limited due to inconsistencies, among other things, in connection with the increased immigration and the resulting problems in the registration of persons seeking protection under reporting law. |
Source: Statistisches Bundesamt, Bevölkerung, Bevölkerungsstand, Bevölkerung nach Altersgruppen (ab 2011)
(https://www.destatis.de/DE/Themen/Gesellschaft-Umwelt/Bevoelkerung/Bevoelkerungsstand/Tabellen/liste-altersgruppen.html).
Without the surplus resulting from net immigration, the total population would have fallen every year since 1972 because more people died than were born in each year. These developments are expected to continue, together with the continued aging of the population. According to the 14th coordinated population projection of the Federal Statistical Office published in June 2019 and covering the period until 2060, even a rising birth rate and sustained high net immigration can only slow down aging, but not reverse the trend. The number of people of working age between 20 and 66 is expected to decline by 4 to 6 million by 2035, which may result in a downward pressure on Germany’s growth potential in the long term. In its first medium-term population projection published in September 2021, which explicitly takes demographic changes related to the COVID-19 pandemic into account and covers the period until 2035, the Federal Statistical Office materially confirms the expected significant decline in the working-age population and the ongoing trend towards aging. For the total population, however, a wider range of possible future developments is projected. While it is expected to increase until at least 2024, assuming a moderate development in birth rates and life expectancy, the total population is expected to decline from 2040 onwards at the latest, even if net immigration remains permanently high. However, assuming that, in addition to permanently high net immigration, birth rates were to continue to rise, the total population would stabilize after the increase projected until at least 2024. In 2060, Germany is therefore projected to have a total population ranging from 74 to 84 million people, depending on the development of the aforementioned demographic factors.
Sources: Statistisches Bundesamt, Once again no population growth expected for 2021, press release of January 20, 2022 (https://www.destatis.de/EN/Press/2022/01/PE22_027_124.html; German version:
https://www.destatis.de/DE/Presse/Pressemitteilungen/2022/01/PD22_027_124.html); Statistisches Bundesamt, Working-age population expected to decrease by 4 to 6 million by 2035, press release of June 27, 2019 (https://www.destatis.de/EN/Press/2019/06/PE19_242_12411.html); Statistisches Bundesamt, Bevökerungsvorausberechnung, 14. koordinierte Bevölkerungsvorausberechnung – Basis 2018
(https://www.destatis.de/DE/Themen/Gesellschaft-Umwelt/Bevoelkerung/Bevoelkerungsvorausberechnung/aktualisierung-bevoelkerungsvorausberechnung.html); Statistisches Bundesamt, Number of people aged 67 or over will grow 22% by 2035, press release of September 30, 2021 (https://www.destatis.de/EN/Press/2021/09/PE21_459_12411.html; German version: https://www.destatis.de/DE/Presse/Pressemitteilungen/2021/09/PD21_459_12411.html).
G-2
Government
The Federal Republic is a federated republic whose constitution is codified in the Grundgesetz of 1949. The capital of the Federal Republic is Berlin. The Federal Republic consists of 16 federal states (Länder). The Länder have legislative sovereignty over matters not expressly reserved to the legislative, executive and judicial bodies of the Federal Republic.
The Grundgesetz provides for a Federal President (Bundespräsident), two Houses of Parliament (the Bundestag and the Bundesrat, the latter consisting of representatives of the 16 Länder governments), a Chancellor (Bundeskanzler) and a Federal Constitutional Court (Bundesverfassungsgericht). The Chancellor heads the Federal Government (Bundesregierung), consisting of the Chancellor and the Federal Ministers. The Bundespräsident acts as head of state.
General elections for the Bundestag are generally held every four years on the basis of an electoral system of proportional representation. The last general election was held on September 26, 2021.
A political party is not entitled to party representation in the Bundestag unless it receives at least 5% of the votes cast or three direct mandates, awarded to the candidate with the most votes in a given electoral district, in a general election. Upon proposal by the Bundespräsident, the Chancellor is elected by and is responsible to the Bundestag.
Political Parties
The political parties currently represented in the Bundestag are: the Social Democratic Party (SPD); the Christian Democratic Union (CDU) and its Bavarian sister party, the Christian Social Union (CSU); the Greens (Bündnis 90/Die Grünen); the Free Democratic Party (FDP); the Alternative for Germany (AfD); the Left-Wing Party (Die Linke) and the Südschleswigscher Wählerverband (SSW), which participates in the distribution of seats of the Bundestag as a party representing the Danish minority in Federal State of Schleswig-Holstein, to which the five percent of the votes cast or three direct mandates threshold for participation in the Bundestag does not apply.
Since 1949, the Federal Republic has been governed by nine Chancellors over 20 electoral periods. The most recent general election, held in September 2021, resulted in a coalition between the Social Democratic Party (SPD), the Greens (Bündnis 90/Die Grünen) and the Free Democratic Party (FDP). On December 8, 2021, the Bundestag elected Olaf Scholz (SPD), who served as Finance Minister in the previous Federal Government, Chancellor for the first time.
Sources: The Federal Returning Officer, 2021 Bundestag Election: final result, press release of October 15, 2021 (https://www.bundeswahlleiter.de/info/presse/mitteilungen/bundestagswahl-2021/52_21_endgueltiges-ergebnis.html); Deutscher Bundestag, Election of Members and the allocation of seats, October 18, 2021 (https://www.bundestag.de/en/parliament/elections/arithmetic); The Federal Government, New Federal Government in office, December 8, 2021 (https://www.bundesregierung.de/breg-en/news/federal-chancellor-election-1989862); Bundesregierung, Koalitionsvertrag (https://www.bundesregierung.de/resource/blob/974430/1990812/04221173eef9a6720059cc353d759a2b/2021-12-10-koav2021-data.pdf?download=1).
The following table shows the results of the five most recent general elections for the Bundestag.
ELECTION RESULTSTOTHE GERMAN BUNDESTAG
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2021
Elections | | | 2017
Elections | | | 2013
Elections | | | 2009
Elections | | | 2005
Elections | |
| | | % of
Votes | | | Seats | | | % of
Votes | | | Seats | | | % of
Votes | | | Seats | | | % of
Votes | | | Seats | | | % of
Votes | | | Seats | |
SPD | | | 25.7 | | | | 206 | | | | 20.5 | | | | 153 | | | | 25.7 | | | | 193 | | | | 23.0 | | | | 146 | | | | 34.2 | | | | 222 | |
CDU/CSU | | | 24.1 | | | | 197 | | | | 33.0 | | | | 246 | | | | 41.5 | | | | 311 | | | | 33.8 | | | | 239 | | | | 35.2 | | | | 226 | |
Bündnis 90/Die Grünen | | | 14.8 | | | | 118 | | | | 8.9 | | | | 67 | | | | 8.4 | | | | 63 | | | | 10.7 | | | | 68 | | | | 8.1 | | | | 51 | |
FDP | | | 11.5 | | | | 92 | | | | 10.7 | | | | 80 | | | | 4.8 | | | | — | | | | 14.6 | | | | 93 | | | | 9.8 | | | | 61 | |
AfD | | | 10.3 | | | | 83 | | | | 12.6 | | | | 94 | | | | 4.7 | | | | — | | | | — | | | | — | | | | — | | | | — | |
Die Linke. | | | 4.9 | | | | 39 | | | | 9.2 | | | | 69 | | | | 8.6 | | | | 64 | | | | 11.9 | | | | 76 | | | | 8.7 | | | | 54 | |
SSW (1) | | | 0.1 | | | | 1 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Others | | | 8.6 | | | | — | | | | 5.0 | | | | — | | | | 6.2 | | | | — | | | | 6.0 | | | | — | | | | 3.9 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | | | | | 736 | | | | | | | | 709 | | | | | | | | 631 | | | | | | | | 622 | | | | | | | | 614 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (1) | SSW (Südschleswigscher Wählerverband), representing the Danish minority in the federal state of Schleswig-Hollstein, is exempt from the five percent of the votes cast or three direct mandates threshold for representation in the Bundestag. |
G-3
Sources: The Federal Returning Officer, 2021 Bundestag Election: final result, press release of October 15, 2021
(https://www.bundeswahlleiter.de/en/info/presse/mitteilungen/bundestagswahl-2021/52_21_endgueltiges-ergebnis.html); The Federal Returning Officer, Bundestag election 2017 (https://www.bundeswahlleiter.de/en/bundestagswahlen/2017/ergebnisse/bund-99.html), Statistisches Bundesamt, Statistisches Jahrbuch 2016, Tables 10.1.1 and 10.1.2; Statistisches Bundesamt, Statistisches Jahrbuch 2011, Tables 4.3.1, 4.3.2 and 4.6.
International Organizations
In addition to the European Union (“EU”), the Federal Republic is a member of various major multilateral institutions, including the United Nations, the International Monetary Fund (“IMF”), the International Bank for Reconstruction and Development and the International Development Association, the Council of Europe, the Organization for Economic Cooperation and Development and the North Atlantic Treaty Organization. Furthermore, the Federal Republic is a signatory to the General Agreement on Tariffs and Trade and a member of the World Trade Organization (“WTO”). It is also a shareholder of, among others, the European Investment Bank (“EIB”), the European Bank for Reconstruction and Development, the Asian Infrastructure Investment Bank and the European Atomic Energy Community.
The European Union and European Integration
The Federal Republic was one of the six founding members of the European Coal and Steel Community in 1951, which later developed into the EU. Since its foundation, the EU has grown considerably. Following the withdrawal of the United Kingdom from the EU on January 31, 2020, 27 countries currently form part of the EU. These include Austria, Belgium, Bulgaria, Croatia, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, the Slovak Republic, Slovenia, Spain and Sweden (together, the “EU Member States”). According to provisional data, the aggregate population of the 27 EU Member States was approximately 447 million as of January 1, 2021. Formal accession negotiations are currently being conducted with Montenegro, Serbia and Turkey. While Turkey is a key strategic partner of the EU on issues including migration, security, counter-terrorism, and the economy, accession negotiations with Turkey have not progressed in recent years. In March 2020, the EU decided to initiate accession negotiations with Albania and North Macedonia but negotiations have not yet commenced. Bosnia and Herzegovina and Kosovo are potential candidates, but both countries still have to address EU-related reforms before the EU can decide to initiate accession negotiations. Following the invasion of Ukraine by the Russian Federation (“Russia”) in February 2022, Ukraine, Georgia and the Republic of Moldova have formally applied for EU membership.
Sources: European Union, The history of the European Union (https://europa.eu/about-eu/eu-history/index_en.htm); European Union, The history of the European Union: 1945-1959 (https://europa.eu/european-union/about-eu/history/1945-1959_en); European Union, About the EU (https://europa.eu/european-union/about-eu/countries_en#the-27-member-countries-of-the-eu); Statistical Office of the European Communities, Total population (https://ec.europa.eu/eurostat/databrowser/view/tps00001/default/table?lang=en); European Commission, Enlargement, Countries, Check current status (https://ec.europa.eu/neighbourhood-enlargement/countries/check-current-status_en); European Council, Versailles Declaration, March 11, 2022 (https://www.consilium.europa.eu/media/54773/20220311-versailles-declaration-en.pdf).
Political Integration
The EU is based on treaties that are binding agreements between the EU Member States and have been approved voluntarily and democratically by all EU Member States. The treaties set out the EU’s objectives, the rules governing the EU institutions, the way decisions are taken and the relationship between the EU and the EU Member States. Treaties are amended to make the EU more efficient and transparent, to prepare for the accession of candidate countries as new EU Member States and to introduce new areas of cooperation. Under the treaties, EU institutions can adopt legislation, which, depending on the subject matter, becomes directly applicable law or requires further implementation by the EU Member States.
G-4
The EU’s three main institutions are the Council of the EU (representing the governments of the EU Member States) (the “Council”), the Parliament (elected by and representing the citizens of the EU Member States) and the European Commission (the executive body of the EU). In addition, the European Council, which consists of the heads of state or government of the EU Member States, the European Council President and the President of the European Commission, defines the EU’s overall political direction and priorities. It is not one of the EU’s legislating institutions, but rather sets the EU’s policy agenda, traditionally by adopting conclusions during European Council meetings which identify issues of concern and actions to take.
Article 50 of the Treaty on European Union provides for a mechanism for the voluntary and unilateral withdrawal of a EU Member State from the EU. Pursuant to Article 50, the withdrawal process is initiated by a notification from the EU Member State wishing to withdraw to the European Council. The EU treaties cease to apply to a EU Member State from the later of the date of entry into force of an agreement setting out arrangements for the EU Member State’s withdrawal, or within two years of the notification of the withdrawal. The European Council may, in agreement with the EU Member State concerned, unanimously decide to extend the period beyond two years.
Sources: European Commission, Europe in 12 lessons by Pascal Fontaine
(https://publications.europa.eu/en/publication-detail/-/publication/a5ba73c6-3c6a-11e8-b5fe-01aa75ed71a1); Europa.eu, Treaties currently in force (https://eur-lex.europa.eu/collection/eu-law/treaties/treaties-force.html); European Council, Council of the European Union, The European Council
(https://www.consilium.europa.eu/en/european-council/); Europa.eu, Consolidated versions of the Treaty on European Union, Article 50 (https://eur-lex.europa.eu/eli/treaty/teu_2016/art_50/oj).
Economic Integration
From its inception, the EU has had the fundamental objective, in line with its predecessors, of economic integration of its member states. After a long process, a single market that provides for the free movement of goods and services, persons and capital among the EU Member States was established as of January 1, 1993. The integration of the EU Member States’ economies and the completion of a single market are also promoted by a European competition policy, which aims at creating a level-playing field for EU Member States’ companies, thereby promoting economic efficiency, and by a European consumer policy. In addition, various liberalization and harmonization measures are being implemented, for example in the telecommunication and energy sectors. In the financial sector, the single market has been fostered by providing for the free movement of capital and the freedom to perform banking services throughout the EU under the “single passport,” which enables financial institutions to provide financial services throughout the EU based on a single license obtained in one EU Member State. The EU promotes economic integration with regional aid, which is designed to focus development efforts on certain disadvantaged regions and sections of population of the EU. Another important policy area for the EU has been agriculture and fisheries.
EU Budget. The EU’s expenditures are governed by a long-term budget, also referred to as multiannual financial framework (“MFF”). The MFF is meant to ensure that the EU’s expenditures develop in an orderly manner and within the limits of its own resources. It aims to align spending with policy priorities, to increase predictability of EU finances for co-financers and beneficiaries, to ensure EU budgetary discipline and to facilitate the adoption of the annual EU budget. It sets overall spending limits by determining annual maximum amounts for commitment appropriations, which cover commitments made to spend funds over one or more years in certain expenditure categories and for payment appropriations.
The regulation laying down the MFF of the EU for the years 2021 to 2027 was formally adopted in December 2020. The regulation provides for a long-term EU budget of EUR 1,210.9 billion (in current prices, including the integration of the European Development Fund) in commitment appropriations. Together with the new temporary Next Generation EU recovery instrument (the “EU Recovery Instrument”) of up to EUR 806.9 billion (in current prices), in which is specifically aimed at addressing the socioeconomic consequences of the COVID-19 pandemic, this will allow the EU to provide an unprecedented amount of approximately EUR 2 trillion to support recovery from the COVID-19 pandemic in Europe and further the EU’s long-term priorities across different policy areas with new and reinforced priorities, including green and digital transitions. For more information on the EU’s response to the COVID-19 pandemic, see “—Monetary Integration—EU Response to the COVID-19 Pandemic.” The 2022 EU budget, which was adopted by the Council and the European Parliament in November 2021, amounts to EUR 169.5 billion in commitment appropriations and EUR 170.6 billion in payment appropriations.
G-5
Sources: European Commission, Europe in 12 lessons by Pascal Fontaine
(https://publications.europa.eu/en/publication-detail/-/publication/a5ba73c6-3c6a-11e8-b5fe-01aa75ed71a1); European Banking Authority, Topics, Passporting and supervision of branches (https://eba.europa.eu/regulation-and-policy/passporting-and-supervision-branches); European Council, Policies, EU budget (https://www.consilium.europa.eu/en/policies/the-eu-budget/); European Council, Policies, Long-term EU budget 2021-2027 and recovery package (https://www.consilium.europa.eu/en/policies/the-eu-budget/long-term-eu-budget-2021-2027/); European Parliament, EU Budget 2022 approved: investing more for a strong recovery, press release of November 24, 2021 (https://www.europarl.europa.eu/news/en/press-room/20211118IPR17624/eu-budget-2022-approved-investing-more-for-a-strong-recovery); Publications Office of the European Union, The EU’s 2021-2027 long-term budget and NextGenerationEU, Facts and Figures (https://op.europa.eu/en/publication-detail/-/publication/d3e77637-a963-11eb-9585-01aa75ed71a1/language-en); Official Journal of the European Union, DEFINITIVE ADOPTION (EU, Euratom) 2022/182 of the European Union’s general budget for the financial year 2022, February 24, 2022 (https://eur-lex.europa.eu/budget/data/General/2022/en/GenExp.pdf).
Trade. The EU is responsible for trade matters with third-party countries. In the area of trade in goods, the EU has exclusive competence. Furthermore, the EU’s responsibilities also cover trade in services, the commercial aspects of intellectual property (such as patents), public procurement and foreign direct investment, whereas in the case of portfolio investments, investment protection and investment dispute settlement, the competence is shared between the EU and the EU Member States. In particular, the EU is responsible for negotiating and concluding international trade agreements as well as identifying trade barriers and unfair trade practices by trading partners and adopting appropriate countermeasures. Trade agreements are negotiated by the European Commission upon authorization of the Council. Once the European Commission completes negotiations, the Council and the European Parliament examine the final negotiated agreement and decide whether or not to approve it. Trade agreements regulating areas of mixed responsibility between the EU and the EU Member States can only be concluded after ratification by all EU Member States. As part of the EU’s response to Russia’s Invasion of Ukraine the EU has imposed comprehensive economic sanctions, including trade restrictions. For more information on the EU’s response to Russia’s invasion of Ukraine, see “Recent Developments—Federal Republic of Germany—Other Recent Developments—EU Response to Russia’s Invasion of Ukraine.”
Sources: European Commission, Business, Economy, Euro, Trade with non-EU countries, EU trade policy-making
(https://ec.europa.eu/trade/policy/policy-making); Federal Ministry for Economic Affairs and Energy, Topics, Trade Policy, European Trade Policy
(https://www.bmwi.de/Redaktion/EN/Dossier/trade-policy.html).
Monetary Integration
The Federal Republic is a signatory to and has ratified the Treaty on European Union of February 1992 (also known as the “Maastricht Treaty”). The Maastricht Treaty was the basis for the establishment of the European Economic and Monetary Union (“EMU”). The EMU led, in turn, to the adoption of irrevocable conversion rates between the euro and the national currencies of the initial participating member states on December 31, 1998 and the introduction of the euro as the single European currency in the euro area on January 1, 1999. On January 1, 2002, banknotes and coins denominated in euro were introduced as legal tender to replace the national currencies in the twelve member states forming the euro area at that time (Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain). Slovenia, Malta, Cyprus, Slovakia, Estonia, Latvia and Lithuania subsequently joined the euro area.
The European Central Bank (“ECB”) was established on June 1, 1998, as part of the European System of Central Banks (“ESCB”). According to the Maastricht Treaty, the primary objective of the ESCB is to maintain price stability. Without prejudice to the objective of price stability, the ESCB supports the general economic policies of the EU. See “—Monetary and Financial System” for more information on the ECB and ESCB as well as on the European financial system. The Eurosystem, consisting of the ECB and the national central banks of those EU Member States whose currency is the euro (“Euro Area Member States”), assumed sole responsibility for the monetary policy in the euro area on January 1, 1999.
Sources: European Union, Founding agreements, Treaty on European Union – Maastricht Treaty (https://europa.eu/european-union/law/treaties_en); European Central Bank, Economic and Monetary Union (EMU) (https://www.ecb.int/ecb/history/emu/html/index.en.html); European Central Bank, Use of the euro (https://www.ecb.europa.eu/euro/intro/html/index.en.html); European Central Bank, Monthly Bulletin, 10th Anniversary of the ECB (https://www.ecb.europa.eu/pub/pdf/other/10thanniversaryoftheecbmb200806en.pdf).
EU Economic Governance
The EU economic governance framework aims to detect, prevent and correct problematic economic trends such as excessive government deficits or public debt levels, which can stunt growth and put economies at risk. The framework consists of the following main components.
G-6
Stability and Growth Pact. To strengthen the monitoring and coordination of national fiscal and economic policies, the EU Member States established the Stability and Growth Pact (“SGP”) in 1997. Every April, EU Member States are required to lay out their fiscal plans for the year based on economic governance rules set forth in the SGP. Euro Area Member States do this in documents known as “Stability Programs”, while EU Member States whose currency is not the euro submit “Convergence Programs”, which include additional information about monetary policies. In addition, to ensure the coordination of fiscal policies among Euro Area Member States, governments are required by European economic governance rules to submit their draft budgetary plans for the following year to the European Commission by October 15 of each year.
The preventive arm of the SGP binds EU Member States to their commitments towards sound fiscal policies and coordination by setting country-specific, medium-term budgetary targets. These budget deficit (or surplus) targets are defined in structural terms by taking into consideration business cycle swings and filtering out the effect of one-off and temporary measures. The corrective arm of the SGP consists of the excessive deficit procedure (“EDP”). The EDP ensures the correction of excessive budget deficits (defined as a deficit in excess of 3% of gross domestic product (“GDP”)) or excessive public debt levels (defined as a debt ratio greater than 60% of GDP without an adequate diminishing trend). Countries that fail to respect the SGP’s preventive or corrective rules may ultimately face sanctions. For Euro Area Member States, these could take the form of warnings and financial sanctions including fines. In addition, all EU Member States could face a suspension of commitments or payments from the EU’s structural and investment funds if they fail to abide by the corrective rules. The SGP contains rules for exceptional situations. In particular, in case of an unusual event outside the control of the EU Member State concerned which has a major impact on the financial position of the general government or in periods of severe economic downturn for the euro area or the EU as a whole, upon proposal of the European Commission and endorsement of the Council, EU Member States are allowed to depart from the budgetary requirements that would normally apply provided that this does not endanger fiscal sustainability in the medium-term. When applied in the case of a severe economic downturn for the euro area or the EU as a whole this rule is referred to as the “general escape clause.”
Upon proposal of the European Commission, the “general escape clause” under the SGP was activated in March 2020 as part of the EU’s response to the COVID-19 pandemic. The use of the clause has allowed EU Member States to deal adequately with the effects of the pandemic and has provided them with the required flexibility to take the measures necessary to support their health and civil protection systems and to protect the European economies. The general escape clause continues to apply in 2022. A final decision on the possible deactivation of the clause for 2023 has not yet been taken. In light of the high uncertainty and downside risks to economic activity from Russia’s invasion of Ukraine, the European Commission has announced a reassessment based on its spring forecast, which is expected in May. See also “—Public Finance—Germany’s General Government Deficit/Surplus and General Government Gross Debt.” For more information on the EU’s response to the COVID-19 pandemic, see “—EU Response to the COVID-19 Pandemic.” For more information on the EU’s response to Russia’s invasion of Ukraine, see “Recent Developments—Federal Republic of Germany—Other Recent Developments—EU Response to Russia’s Invasion of Ukraine.”
Sources: European Commission, Business, Economy, Euro, Economic and fiscal policy coordination, EU economic governance: monitoring, prevention, correction (https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eu-economic-governance-monitoring-prevention-correction_en); European Commission, Business, Economy, Euro, Economic and fiscal policy coordination, EU economic governance, Stability and Growth Pact, Annual draft budgetary plans (DBPs) of euro area countries (https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eu-economic-governance-monitoring-prevention-correction/stability-and-growth-pact/annual-draft-
budgetary-plans-dbps-euro-area-countries_en); European Commission, Business, Economy, Euro, Economic and fiscal policy coordination, EU economic governance, Stability and Growth Pact (https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eu-economic-governance-monitoring-prevention-correction/stability-and-growth-pact_en); European Commission, Business, Economy, Euro, Economic and fiscal policy coordination, EU economic governance, Stability and Growth Pact, Stability and convergence programmes (https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eu-economic-governance-monitoring-prevention-correction/stability-and-growth-pact/stability-and-
convergence-programmes_en); European Commission, Vade Mecum on the Stability & Growth Pact 2019 edition, page 25
(https://ec.europa.eu/info/sites/info/files/economy-finance/ip101_en.pdf); Council of the European Union, Statement of EU ministers of finance on the Stability and Growth Pact in light of the COVID-19 crisis, press release of March 23, 2020 (https://www.consilium.europa.eu/en/press/press-releases/2020/03/23/statement-of-eu-ministers-of-finance-on-the-stability-and-growth-pact-in-light-of-the-covid-19-crisis/); European Commission, Fiscal policy guidance for 2023, Communication from the Commission to the Council of March 2, 2022
(https://ec.europa.eu/info/sites/default/files/economy-finance/com_2022_85_1_en_act_en.pdf).
Macroeconomic Imbalance Procedure. Established in 2011, the macroeconomic imbalance procedure (“MIP”) is a surveillance mechanism for the EU and the EU Member States that aims to identify potential economic risks early on, prevent the emergence of harmful macroeconomic imbalances and correct any existing excessive imbalances. The preventive arm of the procedure relies on an early warning system that uses a scoreboard of indicators and in-depth country reviews. This preventive arm allows the European Commission and the Council to provide preventive recommendations to the respective EU Member State at an early stage. In cases of an EU Member State with excessive macroeconomic imbalances, the corrective arm may open an
G-7
excessive imbalance procedure, under which the EU Member State concerned will have to submit a corrective action plan and regular progress reports. The enforcement regime within the corrective arm comprises the option to decide upon financial sanctions for Euro Area Member States, including fines of up to 0.1% of such Euro Area Member State’s GDP, if a Euro Area Member State repeatedly does not comply with its obligations.
In the 2021 surveillance cycle, twelve EU Member States, including Germany, were subject to an in-depth review in the context of the MIP. Of these twelve EU Member States, nine were found to be experiencing macroeconomic imbalances and three excessive imbalances. According to the European Commission’s assessment, Germany is experiencing macroeconomic imbalances and a further in-depth review is warranted in 2022 (see “—The Economy—International Economic Relations—Germany’s Current Account Surplus and the Macroeconomic Imbalance Procedure.”).
Sources: European Commission, Business, Economy, Euro, Economic and fiscal policy coordination, EU economic governance, Macroeconomic imbalance procedure, Dealing with macroeconomic imbalances (https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eu-economic-governance-monitoring-prevention-correction/macroeconomic-imbalance-procedure/
dealing-macroeconomic-imbalances_en); European Commission, European Commission, Alert Mechanism Report 2022, (https://ec.europa.eu/info/sites/default/files/economy-finance/2022_european_semester_alert_mechanism_report.pdf).
Treaty on Stability, Coordination and Governance in the EMU. The Treaty on Stability, Coordination and Governance in the EMU (“TSCG”), which was signed in March 2012 and entered into force on January 1, 2013, is intended to promote budgetary discipline in the participating EU Member States through a fiscal pact. The fiscal pact’s provisions are binding for Euro Area Member States, while the other participating EU Member States will only be bound if they adopt the euro, unless they declare their intention to be bound by certain provisions of the treaty at an earlier date. The TSCG requires the participating parties to ensure convergence towards the country-specific, medium-term budgetary objectives as defined in the SGP, with a lower limit of a structural deficit of 0.5% of such participating EU Member State’s GDP (or of 1% of GDP, if their debt-to-GDP ratio is well below 60%). In the event of a deviation from this requirement, an automatic correction mechanism will be triggered with escape clauses for exceptional circumstances. These budget rules were to be transposed into national law through provisions of “binding force and permanent character, preferably constitutional” one year after the entry into force of the treaty, i.e., by January 1, 2014 at the latest.
Sources: European Council, Fiscal compact signed: Strengthened fiscal discipline and convergence in the euro area, press release of March 2, 2012 (https://www.consilium.europa.eu/uedocs/cms_Data/docs/pressdata/en/ec/128454.pdf); Deutsche Bundesbank, Glossary: Treaty on Stability, Coordination and Governance in the EMU (TSCG) (https://www.bundesbank.de/dynamic/action/en/homepage/glossary/729724/glossary?firstLetter=T&contentId=653696#panel-653696); European Commission, The EU’s economic governance explained, press release of November 26, 2015 (https://europa.eu/rapid/press-release_MEMO-15-6071_en.htm).
Financial Assistance in the EU
EU countries experiencing or threatened by financing difficulties can request access to several financial assistance mechanisms. The main ones are described below.
Temporary Financial Stability Mechanism. In May 2010, the EU and Euro Area Member States established a temporary stability mechanism to safeguard the financial stability amid severe tensions in euro area sovereign debt markets, consisting of the European Financial Stabilisation Mechanism (“EFSM”) and the European Financial Stability Facility (“EFSF”). Through the EFSM the European Commission is allowed to borrow up to a total of EUR 60 billion on behalf of the EU under an implicit EU budget guarantee. The EFSF was created as a temporary institution and since July 1, 2013 no longer engages in new financing programs. As of December 2021, the EFSF had outstanding loans to Ireland, Portugal and Greece of approximately EUR 173 billion backed by effective guarantees extended by the Euro Area Member States totaling EUR 307 billion. The Federal Republic has committed guarantees of approximately EUR 89 billion to the EFSF as of December 31, 2021, in accordance with its share in the paid-up capital of the ECB at that time, which amounts to approximately 29% of the total effective guarantees. The EFSF will be dissolved and liquidated when all financial assistance provided to Euro Area Member States and all funding instruments issued by the EFSF have been repaid in full.
Sources: European Commission, Business, Economy, Euro, Economic and fiscal policy coordination, EU financial assistance, How is financial assistance given to EU countries? (https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eu-financial-assistance/how-financial-assistance-given-eu-countries_en); European Commission, Business, Economy, Euro, Economic and fiscal policy coordination, EU financial assistance, Loan programmes, European Financial Stabilisation Mechanism (EFSM) (https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eu-financial-assistance/loan-programmes/european-financial-stabilisation-mechanism-efsm_en#support); European Stability Mechanism, Publications, Investor Presentation (https://www.esm.europa.eu/system/files/document/2022-01/20220126_EFSF_ESM_InvestorPresentation.pdf).
G-8
European Stability Mechanism. Since October 2012, the European Stability Mechanism (“ESM”), which was established as an intergovernmental organization under public international law by the Euro Area Member States, has been assisting in preserving the financial stability of the EMU. As of July 1, 2013, it assumed the tasks fulfilled by the EFSF and the EFSM and is currently the primary support mechanism for Euro Area Member States experiencing or threatened by severe financing problems, if such assistance is deemed essential to safeguard financial stability in the euro area as a whole. The ESM issues bonds or other debt instruments on the financial markets to raise capital to provide assistance, subject to certain conditions, to Euro Area Member States. Unlike the EFSF, which is based upon guarantees by Euro Area Member States, the ESM has total subscribed capital of EUR 705 billion provided by Euro Area Member States, which provides it with a lending capacity of EUR 500 billion. EUR 81 billion of the ESM’s subscribed capital is in the form of paid-in capital with the balance of EUR 624 billion being callable capital. The contribution of each Euro Area Member State is based on the paid-in capital for the ECB. On this basis, the Federal Republic’s contribution amounts to approximately 27% of the aggregate contributions to the ESM. The Federal Republic contributed approximately EUR 22 billion of paid-in capital to the ESM.
Financial assistance from the ESM is activated upon a request from a Euro Area Member State to the chairperson of the ESM’s board of governors and is provided subject to strict conditions appropriate to the instrument chosen. The initial instruments available to the ESM have been modeled upon those available to the EFSF and include the extension of loans to a Euro Area Member State in financial difficulties, interventions in the primary and secondary debt markets, action based on a precautionary program, and the extension of loans to governments, or since December 2014 directly to affected financial institutions, for the purposes of recapitalizing financial institutions. Each instrument is to be linked to a memorandum of understanding which sets forth the conditions for financial support that the Euro Area Member State has negotiated with the European Commission in liaison with the ECB, as well as the monitoring and surveillance procedures established to ensure the Euro Area Member State is progressing towards financial stability. In principle, decisions under the ESM are taken by mutual agreement. However, in the event that the European Commission and the ECB conclude that an urgent decision related to financial assistance is needed because the financial and economic sustainability of the euro area is threatened, the mutual agreement rule is replaced by a qualified majority of 85%. Given its voting rights of approximately 27%, the Federal Republic may veto any decision even under the emergency voting rule. As of January 2022, the ESM had loans in an aggregate amount of approximately EUR 90 billion outstanding to Spain, Cyprus and Greece.
Sources: European Stability Mechanism, History (https://www.esm.europa.eu/about-us/history); European Commission, Business, Economy, Euro, Economic and fiscal policy coordination, EU financial assistance, How is financial assistance given to EU countries? (https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eu-financial-assistance/how-financial-assistance-given-eu-countries_en); European Stability Mechanism, How we decide (https://www.esm.europa.eu/esm-governance#anc_shareholders); European Stability Mechanism, How we work (https://www.esm.europa.eu/about-us/how-we-work#overview); European Stability Mechanism, Financial Assistance, Lending toolkit (https://www.esm.europa.eu/financial-assistance/lending-toolkit#headline-lending__toolkit); European Stability Mechanism, Explainers, The ESM, ESM decision making
(https://www.esm.europa.eu/explainers); European Stability Mechanism, Publications, Investor Presentation (https://www.esm.europa.eu/system/files/document/2022-01/20220126_EFSF_ESM_InvestorPresentation.pdf).
On January 27 and February 8, 2021, the Euro Area Member States signed an agreement amending the treaty establishing the ESM. The reform establishes a common backstop to the Single Resolution Fund (“SRF”) in the form of a credit line from the ESM to replace the direct recapitalization instrument for financial institutions, providing a financial safety net for bank resolutions in the European banking union (the “Banking Union”), which will help to protect financial stability (see “—Monetary and Financial System—Financial System—European Financial System—European System of Financial Supervision and European Banking Union” for more information on the Banking Union and the SRF). The maximum amount of ESM loans to the SRF is set at EUR 68 billion. The credit line may only be used as a last resort and to the extent that it is fiscally neutral in the medium term, i.e., it is repaid through ex-post contributions by banks over a period of three to five years. Moreover, the revised ESM Treaty envisages the introduction of single-limb collective action clauses for bonds with maturities of more than a year issued by governments of Euro Area Member States, which, if required, would facilitate orderly and predictable sovereign debt restructuring by allowing certain cross-series modifications to the terms of bonds provided the issuer consents and there is an affirmative vote or written resolution of the holders of not less than 662⁄3% of the aggregate principal amount of the outstanding debt securities of all relevant series (taken in the aggregate). Furthermore, the reformed ESM Treaty enables the ESM to have a stronger role in future economic adjustment programs and crisis prevention. The reform clarified that ESM precautionary instruments provide support to Euro Area Member States with sound fundamentals that
G-9
could be affected by an adverse shock beyond their control in order to safeguard the financial stability of the euro area as a whole. The eligibility criteria for granting a precautionary credit line were tightened accordingly. If a Euro Area Member State meets certain quantitative benchmarks and complies with qualitative conditions related to EU surveillance, it is eligible to request a precautionary credit line based on a letter of understanding. Access to the credit line shall be discontinued however, if the Beneficiary Member State (“BMS”) no longer respects the eligibility criteria. If the non-compliant BMS has drawn funds from the credit line, an additional margin will be imposed. The reformed ESM Treaty will come into force once it has been ratified by the parliaments of all Euro Area Member States. The ratification has been challenged before the German Federal Constitutional Court (Bundesverfassungsgericht). A decision of the court is expected in the second quarter of 2022.
For information on the role of the ESM in connection with the EU’s response to the COVID-19 pandemic, see “—General—Monetary Integration—EU Response to the COVID-19 Pandemic—Safety Nets for Workers, Businesses and Sovereigns.”
Sources: ESM, ESM Reform (https://www.esm.europa.eu/about-esm/esm-reform); ESM, ESM Treaty Reform - Explainer (https://www.esm.europa.eu/about-esm/esm-treaty-reform-explainer#ui-id-5); European Union, Economic and Financial Committee, Collective Action Clauses in the Euro area, “Single-limb” CAC (the “2022 CAC”) (https://europa.eu/efc/efc-sub-committee-eu-sovereign-debt-markets/collective-action-clauses-euro-area_de); Terms of Reference of the 2022 CAC (https://europa.eu/efc/system/files/2021-04/EA%20Model%20CAC%20-%20Draft%20Terms%20of%20Reference.pdf); Council of the European Union, Infographic - Reform of the European Stability Mechanism (ESM) (https://www.consilium.europa.eu/en/infographics/reform-of-the-european-stability-mechanism-esm/).
EU Response to the COVID-19 Pandemic
In reaction to the COVID-19 pandemic, the EU has taken numerous measures to support the EU Member States, focusing not only on reducing its detrimental economic impacts and supporting jobs through extensive economic measures also aimed at post-pandemic recovery, but also by developing an EU vaccination strategy, coordinating emergency resources, national measures and travel restrictions, and making testing and quarantine recommendations. For information on the measures taken by the ECB in response to the COVID-19 pandemic, see “—Monetary and Financial System—Monetary Policy—Monetary Policy Response to the COVID-19 Pandemic.” For recent developments related to the epidemiological situation, see “Recent Developments—Federal Republic of Germany—Other Recent Developments—General Considerations Relating to the COVID-19 Pandemic.”
Measures to increase EU Member States’ flexibility. In order to provide EU Member States with the maximum flexibility to extend the necessary financial support to their populations and companies in connection with the COVID-19 pandemic, including by incurring further indebtedness, in March 2020, the EU activated the general escape clause under the SGP as discussed under “—EU Economic Governance—Stability and Growth Pact” and “—Public Finance—Germany’s General Government Deficit/Surplus and General Government Gross Debt.” In addition, since EU Member States may generally grant state aid only within the narrow framework of EU state aid regulations and procedures, the European Commission adopted a temporary framework for state aid measures to support the economy in connection with the COVID-19 pandemic (the “Temporary Framework”) in March 2020, permitting EU Member States to provide certain types of direct support to companies and small enterprises affected by the COVID-19 pandemic subject to less stringent conditions than would normally apply. The types of aid covered by the Temporary Framework include direct grants (or tax advantages), subsidized state guarantees on bank loans, public and private loans with subsidized interest rates, the use of banks’ existing lending capacities as a channel for support for businesses (in particular to SMEs), additional flexibility to enable short-term export credit insurance to be provided by governments where needed as well as aid in the form of equity and hybrid capital instruments. The aim of these measures is to ensure that businesses retain the means to keep operating, or to temporarily freeze activity without impairing long-term growth prospects. Currently, the Temporary Framework, which has been amended and extended several times, has been prolonged until June 30, 2022. With respect to state aid rules and regulations, the Temporary Framework provides the basis for a number of German governmental support measures at federal and regional (Länder) level in connection with the COVID-19 pandemic, including for example the bridging support measures and various KfW loans.
Safety Nets for Workers, Businesses and Sovereigns. On April 9, 2020, finance ministers of the Euro Area Member States, referred to as the “Eurogroup”, adopted a comprehensive economic policy response to the COVID-19 pandemic, which included three important safety nets for workers, businesses and sovereigns, amounting to a combined package up to EUR 540 billion. The safety net for workers is represented by the European instrument for temporary Support to mitigate Unemployment Risks in an Emergency (“SURE”),
G-10
which was implemented by the Council of the EU in May 2020. Until the end of 2022, SURE provides for financial assistance of up to EUR 100 billion in the form of loans from the EU, underpinned by a system of voluntary guarantees by EU Member States, to affected EU Member States. SURE seeks to address sudden increases in public expenditure for the preservation of employment, such as short-time work schemes and other similar measures put in place in response to the COVID-19 pandemic, in particular for self-employed persons. As of the end of March 2022, loans in a total amount of EUR 94.4 billion had been approved and loans in a total amount of EUR 91.8 billion had been disbursed under SURE. To finance SURE, the European Commission has been issuing social bonds since October 2020, with an aggregate amount of EUR 91.8 billion issued as of March 23, 2022.
The EIB is offering a safety net for businesses by providing liquidity support to help hard-hit small and medium-sized enterprises throughout the EU with an emergency support package for investments of up to EUR 200 billion, based on a pan-European guarantee fund of EUR 25 billion. The ESM represents the safety net for sovereigns by providing a credit line to Euro Area Member States referred to as Pandemic Crisis Support (“PCS”). Under the PCS, which came into operation in mid-May 2020, an aggregate amount of up to EUR 240 billion could be made available to Euro Area Member States. Preliminary assessments by the European Commission, regarding financial stability risks, bank solvency, debt sustainability, and on the eligibility criteria for accessing the PCS have confirmed that all Euro Area Member States are eligible to receive support. To date, there have been no requests for support. The credit line will be available until the end of 2022. This period could be adjusted if required, depending on the further development of the COVID-19 pandemic.
EU Recovery Instrument. To help repair the economic and social damage caused by the COVID-19 pandemic, in December 2020, the EU adopted legislative acts regarding a recovery instrument to mitigate the impact of the COVID-19 pandemic and lay the foundations for a modern and more sustainable Europe that is better prepared for the challenges and opportunities of the green and digital transitions. The EU’s long-term budget, the MFF, and the EU Recovery Instrument with an amount of up to EUR 807 billion (in current prices), also referred to as “Next Generation EU,” together are designed to boost recovery in a total amount of approximately EUR 2 trillion (in current prices). For additional information on the MFF, see also “—General—The European Union and European Integration—Economic Integration—EU Budget.” The most important component of the EU Recovery Instrument is the Recovery and Resilience Facility (“RRF”), with up to EUR 724 billion (in current prices) in loans and grants available to support reforms and investments undertaken by the EU Member States. To access the RRF, EU Member States are required to submit national recovery and resilience plans which are assessed by the European Commission and then are approved by the Council of the EU on a case-by-case basis. After a prefinancing of 13% of the total support available to the relevant EU Member State, an EU Member State may request further disbursements up to twice a year upon reaching certain agreed milestones and targets. As of December 31, 2021, the European Commission had disbursed EUR 64.3 billion to 20 Member States under the RRF, thereof EUR 46.4 billion in the form of grants and EUR 18.0 billion in the form of loans. The balance of the funds under the EU Recovery Instrument are being employed through existing EU instruments and assistance programs.
To implement the EU Recovery Instrument, the EU’s Own Resources Decision, which defines how the EU budget is financed and which was adopted by the Council on December 14, 2020 pursuant to the special legislative procedure applicable thereto, was ratified by all EU Member States in accordance with their own constitutional requirements. Under the Own Resources Decision, the European Commission is authorized, on an exceptional basis, to temporarily borrow up to EUR 806.9 billion (in current prices) on the capital markets for the EU Recovery Instrument to support the recovery from the economic fallout caused by the COVID-19 pandemic. From June to December 2021, the Commission raised EUR 71 billion for Next Generation EU via long-term EU bonds, of which EUR 12 billion were raised through green bonds. In addition, around EUR 20 billion short-term debt in EU bills was outstanding at December 31, 2021. The European Commission has announced plans to issue long-term EU bonds in an amount of EUR 50 billion between January and June 2022, to be complemented by short-term EU bills.
Sources: European Commission, Overview of the Commission’s response, accessed on March 23, 2022 (https://ec.europa.eu/info/live-work-travel-eu/coronavirus-response/overview-commissions-response_en); European Commission, State Aid Cases – State Aid Actions, accessed on March 23, 2022 (https://ec.europa.eu/info/live-work-travel-eu/coronavirus-response/jobs-and-economy-during-coronavirus-pandemic/state-aid-cases_en); Council of the European Union, COVID-19: the EU’s response to the Economic Fallout, accessed on March 23, 2022 (https://www.consilium.europa.eu/en/policies/coronavirus/covid-19-economy/); European Commission, SURE, accessed on March 23, 2021 (https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/financial-assistance-eu/funding-mechanisms-and-facilities/sure_en); European Stability Mechanism, ESM Pandemic Crisis Support – Explainer, Timeline and Documents, accessed on March 23, 2022 (https://www.esm.europa.eu/content/europe-response-corona-crisis); European Commission, Recovery Plan for Europe, accessed on March 23, 2022 (https://ec.europa.eu/info/strategy/recovery-plan-europe_en);
G-11
Council of the EU, Multiannual financial framework for 2021-2027 adopted, press release of December 17, 2020 (https://www.consilium.europa.eu/en/press/press-releases/2020/12/17/multiannual-financial-framework-for-2021-2027-adopted/); European Commission, Recovery and Resilience Facility, accessed on March 23, 2022 (https://ec.europa.eu/info/business-economy-euro/recovery-coronavirus/recovery-and-resilience-facility_en); European Commission, Semi-annual report on the execution of the NextGenerationEU funding operations pursuant to Article 12 of Commission Implementing Decision C(2021)2502 June—December 2021, February 17, 2022 (https://ec.europa.eu/info/sites/default/files/about_the_european_commission/eu_budget/com_2022_43_1_en_act_part1_v6.pdf); Council of the European Union, Green light from all member states for EU recovery spending, press release of May 31, 2022 (https://www.consilium.europa.eu/en/press/press-releases/2021/05/31/green-light-from-all-member-states-for-eu-recovery-spending/).
Statistical Standards
Statistical Standard for the National Accounts
Since August 2014, the Federal Statistical Office calculates the German national accounts in accordance with the European System of National and Regional Accounts 2010 (“ESA 2010”) which, in turn, is based on the System of National Accounts (SNA 2008) of the United Nations. Recalculations have been conducted for all time series since 1991.
Statistical Standard for the Balance of Payments
Since July 2014, the methodological concept of the German balance of payments statistics follows the sixth edition of the Balance of Payments and International Investment Position Manual (“BPM6”), the revised standard of the IMF. The application of BPM6 is binding for EU Member States by virtue of a regulation adopted by the European Commission. Balance of payments data since 1971 have been recalculated in accordance with BPM6.
Source: Bundesbank, Statistics, Methodological notes (https://www.bundesbank.de/en/statistics/external-sector/balance-of-payments/methodological-notes-794532).
Statistical Disclosure Standards of the International Monetary Fund
Since February 2015, the Federal Republic meets the Special Data Dissemination Standard Plus (“SDDS Plus”) of the IMF relating to coverage, periodicity and timeliness of economic data. The SDDS Plus was created in 2012 as an extension of the existing Special Data Dissemination Standard. By providing comparable economic and financial data, it is designed to improve the transparency of the financial sector and its international interdependencies, and thus contributes to the identification of risks at an early stage. Although adherence by member countries to the SDDS Plus is voluntary, it carries a commitment requiring members to observe the standard and to provide certain information to the IMF about their practices in disseminating economic and financial data.
Source: Bundesbank, Statistics, IMF related Data, SDDS Plus (Special Data Dissemination Standard) (https://www.bundesbank.de/en/statistics/sets-of-indicators/sdds-plus/sdds-plus-795798).
G-12
THE ECONOMY
Overview
Since 1945, the Federal Republic’s economic system has developed into a social market economy, combining the free initiative of the individual with progressive social principles. The Grundgesetz guarantees freedom of private enterprise and private property, provided that these basic rights are not exercised against the public good. The state mainly has a regulatory function in the market economy, setting the general framework of conditions within which market processes take place.
Key Economic Figures
The German economy is one of the world’s largest economies, with an annual GDP of EUR 3,570.62 billion in 2021. After a COVID-19 pandemic-induced decrease by 4.6% in 2020, the price-adjusted GDP increased by 2.9% in 2021. While the German economy managed to recover from the sharp decline during the first year of the pandemic, economic performance has not yet reached its pre-crisis level again and was still 1.8% lower than in 2019, the year before the start of the COVID-19 pandemic. Compared to the level of 1991, which represents the first full year after German reunification on October 3, 1990, the price-adjusted GDP increased by 43.6%. The growth in GDP since 1991 has been largely driven by productivity gains, as the price-adjusted GDP per employee has risen by 24.3% since 1991. In calculating the price-adjusted GDP, the Federal Statistical Office (Statistisches Bundesamt) uses a chain index based on the previous year’s prices. In 2021, the GDP per capita at current prices was EUR 42,918 while the GDP per employee at current prices was EUR 79,488.
Source: Statistisches Bundesamt, Fachserie 18, Reihe 1.4 – 2021 (March 2022), Table 2.1.4.
As in many advanced economies, the services sector of the Federal Republic has become the largest contributor to GDP (in terms of gross value added). In 2021, services accounted for 69.7% of gross value added, measured at current prices, compared to 61.9% in 1991. The two most important subsectors were “trade, transport, accommodation and food services,” accounting for 16.1% in 2021, compared to 16.1% in 1991, and “public services, education, health,” accounting for 19.2% of gross value added in 2021, compared to 15.9% in 1991. The production sector (excluding construction) generated 23.5% of gross value added compared to 30.8% in 1991. Construction contributed 5.9% to gross value added in 2021, compared to 6.0% in 1991, and agriculture, forestry and fishing accounted for 0.9% of gross value added in 2021, compared to 1.2% in 1991.
Source: Statistisches Bundesamt, Fachserie 18, Reihe 1.4 – 2021 (March 2022), Table 2.2.1.
In 2021, private final consumption expenditure totaled 49.4% of GDP in current prices, gross capital formation amounted to 22.0% and government final consumption expenditure equaled 22.4%. Exports and imports of goods and services accounted for 47.5% and 41.9% of GDP at current prices, respectively. The trade balance (according to national accounts) thus showed a surplus equal to 5.5% of GDP in 2021 (2020: 5.7% of GDP).
Source: Statistisches Bundesamt, Fachserie 18, Reihe 1.4 – 2021 (March 2022), Table 2.3.1.
The economic situation in Germany in 2021 continued to be affected by the COVID-19 pandemic and related containment measures as well as by disruptions to global supply chains. Nevertheless, over the summer of 2021 Germany continued its recovery that had started in the third quarter of 2020. However, this development was slowed down again in the last quarter of 2021 by another wave of infections, which in particular restricted certain areas of the services sector. Overall, the annual price-adjusted GDP in 2021 was 2.9% higher than in 2020. The GDP adjusted for both price and calendar effects also increased by 2.9%. Household final consumption expenditure increased by a price-adjusted 0.1% year on year. Exports increased by 9.9%, while imports rose by 9.3%, all on a price-adjusted basis. The growth contribution of net exports was 0.8%. Gross fixed capital formation increased by 1.5%, in price-adjusted terms. Government final consumption expenditure increased by 3.1% on a price-adjusted basis.
Source: Statistisches Bundesamt, Fachserie 18, Reihe 1.4 – 2021 (March 2022), Tables 2.1.1 and 2.3.2.
G-13
The annual average rate of registered unemployment (as computed under the “national definition” of the Federal Employment Agency (Bundesagentur für Arbeit)) decreased from 5.9% in 2020 to 5.7% in 2021. Based on the internationally comparable method of calculation promulgated by the International Labour Organization (“ILO”), which is referred to as the “ILO definition,” the annual average unemployment rate decreased from 3.6% in 2020 to 3.3% in 2021. For an explanation of the differences between the national definition and the ILO definition, see “—Employment and Labor.” Inflation as measured by the percentage increase in the national consumer price index (“CPI”) increased to 3.1% in 2021, compared to 0.5% in 2020. Excluding energy prices, annual Inflation was at 2.3% in 2021. General government gross debt stood at EUR 2,475.8 billion at year-end 2021, compared to EUR 2,314.1 billion at year-end 2020.
Sources: Bundesagentur für Arbeit, Monatsbericht Februar 2021, Table 6.1 (https://www.arbeitsagentur.de/datei/arbeitsmarktbericht-februar-2021-_ba146877.pdf); Statistisches Bundesamt, Fachserie 18, Reihe 1.4 – 2021 (March 2022), Table 2.1.10 and 2.1.13; Statistisches Bundesamt, Fachserie 17, Reihe 7 (February 2022), Table 1.1 and 1.2; Deutsche Bundesbank, Time series BBK01.BJ9059: General government debt as defined in the Maastricht Treaty—Germany—overall (https://www.bundesbank.de/dynamic/action/en/statistics/time-series-databases/time-series-databases/745582/745582?listId=www_v27_web011_21a&tsId=BBK01.BJ9059).
The following table shows selected key economic figures for the Federal Republic for each of the years indicated.
KEY ECONOMIC FIGURES
| | | | | | | | | | | | | | | | | | | | |
| | | 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
| | | | | | | | | | | | | | | | |
| | | (EUR in billions, unless otherwise indicated) | |
GDP - at current prices | | | 3,570.6 | | | | 3,367.6 | | | | 3,473.4 | | | | 3,367.9 | | | | 3,267.2 | |
(change from previous year in %) | | | 6.0 | | | | -3.0 | | | | 3.1 | | | | 3.1 | | | | 4.2 | |
GDP - price-adjusted, chain-linked index (2015=100), not adjusted for calendar effects | | | 105.3 | | | | 102.3 | | | | 107.2 | | | | 106.1 | | | | 105.0 | |
(change from previous year in %) | | | 2.9 | | | | -4.6 | | | | 1.1 | | | | 1.1 | | | | 2.7 | |
GDP - price-adjusted, chain-linked index (2015=100), adjusted for calendar effects | | | 105.1 | | | | 102.1 | | | | 107.4 | | | | 106.3 | | | | 105.1 | |
(change from previous year in %) | | | 2.9 | | | | -4.9 | | | | 1.1 | | | | 1.1 | | | | 3.0 | |
Unemployment rate (ILO definition) (in %) (1) | | | 3.3 | | | | 3.6 | | | | 3.0 | | | | 3.2 | | | | 3.5 | |
Rate of inflation (year-to-year change in consumer price index (CPI) in %) | | | 3.1 | | | | 0.5 | | | | 1.4 | | | | 1.8 | | | | 1.5 | |
Balance of payments - current account | | | 265.3 | | | | 238.7 | | | | 262.9 | | | | 267.7 | | | | 255.8 | |
General government gross debt (2) | | | 2,475.8 | | | | 2,314.1 | | | | 2,045.7 | | | | 2,062.6 | | | | 2,111.4 | |
| (1) | Unemployed persons, available and seeking work. |
| (2) | Definition according to Maastricht Treaty. |
Sources: Statistisches Bundesamt, Fachserie 18, Reihe 1.2—4. Vierteljahr 2021 (February 2022), Tables 1.1 and 1.11; Statistisches Bundesamt, Preise, Verbraucherpreisindizes, Gesamtindex und 12 Abteilungen, Jahresdurchschnitte, Veränderung zum Vorjahr (https://www.destatis.de/DE/Themen/Wirtschaft/Preise/Verbraucherpreisindex/Tabellen/Verbraucherpreise-12Kategorien.html); Deutsche Bundesbank, Monatsbericht März 2022, Table XII.2; Deutsche Bundesbank, Time series BBK01.BJ9059: General government debt as defined in the Maastricht Treaty—Germany—overall (https://www.bundesbank.de/Navigation/EN/Statistics/Time_series_databases/Macro_economic_time_series/its_details_value_node.html?tsId=BBK01.BJ9059&listId=www_v27_web001_02a).
Economic Outlook
In its forecast published on April 27, 2022, the Federal Government projects German price-adjusted GDP to rise by 2.2% in 2022. The German economy is on an ongoing post-pandemic recovery trajectory, while Russia’s invasion of Ukraine is causing additional supply chain disruptions and a sharp rise in energy prices, which weigh on economic output. In the second half of 2022, economic activity is expected to pick up again and the recovery is expected to continue in 2023 with a real GDP growth rate of 2.5%.
Since Russia’s invasion of Ukraine began on February 24, 2022, prices on the energy markets have risen sharply. Against this background, the inflation rate is projected to be 6.1% in 2022. The Federal Government expects the inflation rate to drop to 2.8% in 2023. Despite high inflation, private consumption is expected to recover in real terms with an increase of 3.7% in 2022 due to rising disposable income and the removal of measures to curb the COVID-19 pandemic (2023: +2.3%). Bolstered by a sharp increase in public-sector investment in machinery and equipment, total gross fixed capital formation is expected to grow by 3.4% in 2022 and by 4.6% in 2023. For investment in construction, growth rates of 1.7% in 2022 and 2.2% in 2023 are expected, encouraged by continuing high demand for housing. Imports are expected to increase significantly by 5.5% in 2022 supported by the resumption of travel and tourism (2023: +5.3%). Once supply bottlenecks in the industry ease, there should also be a significant strengthening of export momentum in the course of 2022 and 2023 in view of full order books (2022: +4.2%, 2023:+5.9%). The current account surplus is expected to decline to 5.7% of GDP in 2022 and to increase to 6.6% in 2023.
G-14
The recovery on the labour market is set to continue. The use of short-time work schemes (Kurzarbeit) is expected to decrease markedly in 2022 to an annual average of 0.5 million workers and to return to its pre-crisis level of 0.1 million workers in 2023. Employment already picked up significantly at the beginning of 2022, while a further rise in employment is expected to be slowed down by demographic change. According to the Federal Government’s forecast, employment will rise by 1.0% in 2022 and by 0.3% in 2023. The unemployment rate is expected to decline to the pre-pandemic level of 5.0% (national definition) in 2022 and to maintain this level in 2023.
Source: Bundesministerium für Wirtschaft und Klimaschutz, Frühjahrsprojektion 2022, April 27, 2022 (https://www.bmwk.de/Redaktion/DE/Artikel/Wirtschaft/Projektionen-der-Bundesregierung/projektionen-der-bundesregierung-fruehjahr-2022.html).
General Economic Policy
Dealing with the economic consequences of the COVID-19 pandemic continued to be a central challenge for economic policy in 2021. Until spring 2021, economic development was significantly impacted by the COVID-19 pandemic and related containment measures. In the face of shut-downs in several areas of the services sector, the Federal Government provided its citizens and companies with rapid and targeted support. Various support and loan programs have been set up to help companies that have suffered losses as a result of the COVID-19 pandemic. To strengthen liquidity, loans have been granted via the KfW Special Program (KfW-Sonderprogramm). For more information, see “KfW—Business—Domestic Promotional Business—KfW measures to mitigate the economic impact of the COVID-19 pandemic in Germany.” The guarantee programs of the guarantee banks (Bürgschaftsbanken) and the Federal Government’s large-scale guarantee program (Großbürgschaften) were also expanded to facilitate corporate borrowing and to strengthen the equity base of SMEs. With the German Economic Stabilization Fund (Wirtschaftsstabilisierungsfonds, “WSF”) the Federal Government has created an instrument to counter liquidity bottlenecks and strengthen the capital base of larger companies. Companies and self-employed persons particularly affected by the pandemic were also supported with various grants, in particular the bridging support measures (Überbrückungshilfe). Further measures adopted by the Federal Government to support companies’ liquidity and increase their resilience include the reimbursement of social security contributions for employees on short-time work, and also the temporary option of simplified deferral of taxes and social security contributions. A temporary suspension of the obligation to file for insolvency for companies over-indebted due to the COVID-19 pandemic until the end of April 2021, has given companies time to respond to the crisis and aimed to create a window of opportunity for government relief measures to take effect.
In some cases, the COVID-19 pandemic has led to significant losses in profits and labor income. Among other measures, the Federal Government has temporarily simplified access to basic benefits in order to compensate for these losses. Self-employed persons may also benefit from these measures, provided that their livelihood is not otherwise secured, e.g., through rental income. Furthermore, in order to reduce losses for employees and prevent a massive rise in unemployment, the Federal Government has facilitated the access to short-time work compensation (Kurzarbeitergeld).
The bridging support measures (Überbrückungshilfe), the restart assistance (Neustarthilfe), the assistance in case of hardship (Härtefallhilfen) as well as most of the pandemic related regulations regarding facilitated access to short-time work compensation (Kurzarbeitergeld) were extended until the end of June 2022. The KfW Special Program as well as the WSF and the guarantee programs were open for applications until April 30, 2022. In addition, numerous tax-related COVID 19-measures were extended in favor of companies and taxpayers. These measures include the extension of tax deferrals in a simplified procedure, an extended tax allowance for home office work, extended tax filing deadlines for 2020, 2021 and 2022, extended options to offset losses, the extension of degressive depreciation options for movable fixed assets, extended investment deadlines for tax-deductible investments and tax-free grants for short-time work compensation.
Sources: Bundesministerium der Finanzen, Viertes Gesetz zur Umsetzung steuerlicher Hilfsmaßnahmen zur Bewältigung der Corona-Krise (Viertes Corona-Steuerhilfegesetz) (https://www.bundesfinanzministerium.de/Content/DE/Gesetzestexte/Gesetze_Gesetzesvorhaben/Abteilungen/Abteilung_IV/20_Legislaturperiode/2022-02-25-Viertes-Corona-Steuerhilfegesetz/0-Gesetz.html); Bundesministerium der Finanzen, BMF-Schreiben vom 31. Januar 2022, (https://www.bundesfinanzministerium.de/Content/DE/Downloads/BMF_Schreiben/Weitere_Steuerthemen/Abgabenordnung/2022-01-31-steuerliche-massnahmen-zur-beruecksichtigung-der-
auswirkungen-des-coronavirus.pdf?__blob=publicationFile&v=1).
G-15
In total, the Federal Government has supported companies, the self-employed and employees with more than EUR 170 billion since the start of the COVID-19 pandemic. The support includes grants of around EUR 60 billion, loans of just under EUR 55 billion, expenditure related to short-time work compensation in 2020 and 2021 of around EUR 24.6 billion and expenditure related to the reimbursement of social security contributions to employers of around EUR 17.6 billion.
With the end of the first wave of the COVID-19 pandemic in the spring of 2020, the Federal Government in June 2020 adopted targeted measures to support the subsequent economic recovery, which took the form of an economic stimulus package with a total budget of approximately EUR 180 billion for 2020 and 2021. The top priorities of the stimulus package were to safeguard jobs and stabilize the economy. To this end, the Federal Government employed various instruments to support the financial situation of businesses and private households. In addition, the stimulus package also included measures to strengthen investments in the future with a view to addressing upcoming challenges such as climate change, digitization and demographic change. As part of the stimulus package, the “package for the future”, with a volume of approximately EUR 50 billion, provides financial incentives in the areas of climate protection, energy transition, mobility and digitization, which are expected to present the key challenges in the near future. In addition, the Federal Government is making funds available for greater infrastructure expansion. With the package for the future, the Federal Government is largely building on existing measures and continuing its course of specifically addressing the challenges associated with digitization and climate protection.
As an industrialized nation that is fully integrated in global value chains, Germany has assumed responsibility in protecting the environment. Recognizing climate protection as a fundamental global challenge, at the World Climate Conference in Paris in 2015, 197 states, including Germany, committed to limiting global warming to well below 2°C, preferably to 1.5°C, and to achieving greenhouse gas neutrality worldwide by the second half of the century. At the national level, the Federal Climate Protection Act (Bundes-Klimaschutzgesetz, KSG) sets the central legal framework for climate protection policy in Germany. The KSG amendment in August 2021 in particular takes into account a highly noted decision of the Federal Constitutional Court of March 24, 2021, which clarified the government’s constitutional obligations with respect to addressing climate change, and also serves as the first implementation of the European Union’s new 2030 climate target. The amended KSG prescribes a reduction target for 2030 of at least 65% (previously 55%) compared to 1990 levels, a new interim reduction target of at least 88% for 2040 and the goal of greenhouse gas neutrality by 2045 (previously by 2050); after 2050, negative emissions are to be achieved across all sectors. To this end, the Federal Government has adopted a climate protection program for the period until 2030 (“Climate Protection Program 2030”). The program provides for measures in all sectors and consists of four elements: a more comprehensive pricing of CO2, support programs and further incentives for CO2 savings, relief for citizens and the economy, and regulatory measures that will demonstrate their effectiveness by 2030 at the latest. Under the Climate Protection Program 2030, in 2019, the Federal Government made funds available for climate protection-related measures amounting to approximately EUR 54 billion for the period from 2020 to 2023. The package for the future included in the stimulus package provides for an additional EUR 15 billion for this same purpose. Among others, additional funds have been made available for the implementation of the National Hydrogen Strategy and the amounts available for the CO2 building renovation program were increased. On December 13, 2021, the Federal Government approved the draft of a second supplementary budget for 2021. It re-allocates EUR 60 billion from already budgeted and unused credit appropriations to deal with the consequences of the COVID-19 pandemic to the Energy and Climate Fund. Among others, the funds are intended to support investment in buildings, CO2-neutral mobility, new production facilities in industries with emission-intensive processes and the expansion of infrastructure for CO2-neutral energy supply.
In view of the ambitious climate policy goals and rapid technological changes, the Federal Government intends to improve the framework conditions for private investment and refine them with a view to digitization and sustainability requirements. To this end, the Federal Government is striving to accelerate administrative, planning and approval procedures as well as administrative court proceedings, reduce unnecessary bureaucracy and provide targeted tax policy impetus. Competition law is intended to be further adapted to the requirements of the data and platform economy, while the rules on public procurement are to be optimized and modernized in line with sustainability goals. Furthermore, the German government is pursuing a rules- and values-based foreign trade policy that builds on multilateralism and is based on fair social and ecological criteria to strengthen economic resilience and eliminate protectionism.
G-16
The Federal Government aims to drive forward improvements to the digital infrastructure, especially in rural areas, by providing additional funding for broadband expansion, mobile communications on rail networks and a high-performance mobile communications network in unserved areas. In this context, the Federal Government is building on its recent policy to achieve nationwide mobile communications coverage and coverage with a gigabit-capable fixed network by 2025. The Federal Government is also promoting the digitization of public administration and private businesses.
The Federal Government believes that social participation and social acceptance are basic prerequisites for successful structural change. In this context, the labor market is key to increasing employment, improving qualifications and ensuring fair pay. In particular, the Federal Government plans to raise the statutory minimum wage EUR 12.00 per hour in a one-off adjustment in October 2022. Subsequently, the independent Minimum Wage Commission will again decide on any further increases. The Federal Government expects to continue to develop its skilled labor strategy and the National Continuing Education Strategy. This involves increasing the labor force participation of women and older workers, giving a new boost to vocational training, continuing education and professional development, increasing labor force immigration and creating more attractive working conditions in areas where there is or is likely to be a shortage of skilled workers. The Federal Government also intends to work with the federal states to significantly increase public spending on education and, while recognizing the states’ sovereignty over education and the arts, is striving for a closer, more targeted and binding cooperation between all federal levels (cooperation requirement).
For further information on the Federal Republic’s fiscal situation and prospects, see “—Public Finance—Germany’s General Government Deficit/Surplus and General Government Gross Debt” and “—Public Finance—Fiscal Outlook.” For information on government measures to stabilize Germany’s financial system, see “—Monetary and Financial System—Financial System—German Financial System.” For information on government budgets, see “—Public Finance.” For information on current and pending fiscal measures adopted in 2022 to date, including in response to the Russia’s invasion of the Ukraine, see “Recent Developments—Federal Republic of Germany—Other Recent Developments—Germany’s Response to Russia’s Invasion of Ukraine.”
Sources: Bundesministerium für Wirtschaft und Energie, Jahreswirtschaftsbericht 2021 (https://www.bmwk.de/Redaktion/DE/Publikationen/Wirtschaft/jahreswirtschaftsbericht-2021.pdf?__blob=publicationFile&v=16); Bundesministerium für Wirtschaft und Klima, Jahreswirtschaftsbericht 2022 (https://www.bmwk.de/Redaktion/DE/Publikationen/Wirtschaft/jahreswirtschaftsbericht-2022.pdf?__blob=publicationFile&v=18); Bundesministerium für Arbeit und Soziales, Mit Kurzarbeit weiter Arbeitsplätze sichern, press release of February 9, 2022 (https://www.bmas.de/DE/Service/Presse/Pressemitteilungen/2022/mit-kurzarbeit-weiter-arbeitsplaetze-sichern.html).
Gross Domestic Product
The following tables show the structure of the Federal Republic’s GDP at current prices by use and origin for each of the years indicated along with changes over the respective preceding period.
STRUCTUREOF GDP – USE
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | | | | 2021 | | | 2020 | | | 2019 | | | 2018 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (EUR in billions) | | | | | | (change in %) | |
Domestic uses | | | 3,373.1 | | | | 3,174.8 | | | | 3,277.1 | | | | 3,160.1 | | | | 3,035.6 | | | | | | | | 6.2 | | | | -3.1 | | | | 3.7 | | | | 4.1 | |
Final private consumption | | | 1,763.0 | | | | 1,708.0 | | | | 1,802.9 | | | | 1,752.1 | | | | 1,702.5 | | | | | | | | 3.2 | | | | -5.3 | | | | 2.9 | | | | 2.9 | |
Final government consumption | | | 801.3 | | | | 754.6 | | | | 705.2 | | | | 670.4 | | | | 648.2 | | | | | | | | 6.2 | | | | 7.0 | | | | 5.2 | | | | 3.4 | |
Gross fixed capital formation | | | 783.9 | | | | 735.9 | | | | 742.2 | | | | 709.2 | | | | 666.9 | | | | | | | | 6.5 | | | | -0.9 | | | | 4.7 | | | | 6.3 | |
Machinery and equipment | | | 228.2 | | | | 216.9 | | | | 241.1 | | | | 235.5 | | | | 224.4 | | | | | | | | 5.2 | | | | -10.0 | | | | 2.4 | | | | 4.9 | |
Construction | | | 414.3 | | | | 380.1 | | | | 364.1 | | | | 345.5 | | | | 321.7 | | | | | | | | 9.0 | | | | 4.4 | | | | 5.4 | | | | 7.4 | |
Other products | | | 141.5 | | | | 138.9 | | | | 137.0 | | | | 128.2 | | | | 120.7 | | | | | | | | 1.8 | | | | 1.4 | | | | 6.9 | | | | 6.2 | |
Changes in inventories (1) | | | 24.9 | | | | -23.7 | | | | 26.8 | | | | 28.5 | | | | 18.0 | | | | | | | | — | | | | — | | | | — | | | | — | |
Net exports (1) | | | 197.5 | | | | 192.8 | | | | 196.2 | | | | 207.7 | | | | 231.6 | | | | | | | | — | | | | — | | | | — | | | | — | |
Exports | | | 1,694.6 | | | | 1,462.1 | | | | 1,619.4 | | | | 1,593.0 | | | | 1,540.9 | | | | | | | | 15.9 | | | | -9.7 | | | | 1.7 | | | | 3.4 | |
Imports | | | 1,497.0 | | | | 1,269.3 | | | | 1,423.2 | | | | 1,385.3 | | | | 1,309.3 | | | | | | | | 17.9 | | | | -10.8 | | | | 2.7 | | | | 5.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gross domestic product | | | 3,570.6 | | | | 3,367.6 | | | | 3,473.4 | | | | 3,367.9 | | | | 3,267.2 | | | | | | | | 6.0 | | | | -3.0 | | | | 3.1 | | | | 3.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (1) | Percentage changes are not presented due to the potentially changing signs of these net positions. |
Source: Statistisches Bundesamt, Fachserie 18, Reihe 1.2 – 4. Vierteljahr 2021 (February 2022), Tables 3.1 and 3.9.
G-17
STRUCTUREOF GDP – ORIGIN
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | | | | 2021 | | | 2020 | | | 2019 | | | 2018 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (EUR in billions) | | | | | | (change in %) | |
Gross value added of all economic sectors | | | 3,228.9 | | | | 3,050.3 | | | | 3,130.7 | | | | 3,035.2 | | | | 2,944.1 | | | | | | | | 5.9 | | | | -2.6 | | | | 3.1 | | | | 3.1 | |
Agriculture, forestry and fishing | | | 28.6 | | | | 24.8 | | | | 27.1 | | | | 23.2 | | | | 27.8 | | | | | | | | 15.4 | | | | -8.5 | | | | 16.6 | | | | -16.6 | |
Production sector (excluding construction) | | | 758.2 | | | | 715.8 | | | | 777.6 | | | | 771.4 | | | | 759.2 | | | | | | | | 5.9 | | | | -7.9 | | | | 0.8 | | | | 1.6 | |
Construction | | | 191.9 | | | | 177.6 | | | | 160.5 | | | | 148.2 | | | | 138.0 | | | | | | | | 8.0 | | | | 10.7 | | | | 8.3 | | | | 7.4 | |
Trade, transport, accommodation and food services | | | 518.4 | | | | 479.5 | | | | 501.0 | | | | 483.1 | | | | 469.1 | | | | | | | | 8.1 | | | | -4.3 | | | | 3.7 | | | | 3.0 | |
Information and communication | | | 161.8 | | | | 153.3 | | | | 151.7 | | | | 145.9 | | | | 135.5 | | | | | | | | 5.5 | | | | 1.1 | | | | 4.0 | | | | 7.7 | |
Financial and insurance services | | | 122.1 | | | | 122.8 | | | | 121.4 | | | | 118.4 | | | | 118.4 | | | | | | | | 0.3 | | | | 0.3 | | | | 2.6 | | | | 0.0 | |
Real estate activities | | | 346.3 | | | | 336.7 | | | | 329.2 | | | | 320.5 | | | | 313.2 | | | | | | | | 2.8 | | | | 2.3 | | | | 2.7 | | | | 2.3 | |
Business services | | | 366.8 | | | | 337.1 | | | | 358.5 | | | | 353.6 | | | | 336.8 | | | | | | | | 8.8 | | | | -6.0 | | | | 1.4 | | | | 5.0 | |
Public services, education, health | | | 620.2 | | | | 592.5 | | | | 583.4 | | | | 555.2 | | | | 534.0 | | | | | | | | 4.7 | | | | 1.6 | | | | 5.1 | | | | 4.0 | |
Other services | | | 114.6 | | | | 111.0 | | | | 120.3 | | | | 115.6 | | | | 112.0 | | | | | | | | 3.2 | | | | -7.7 | | | | 4.1 | | | | 3.2 | |
Taxes on products offset against subsidies on products | | | 341.7 | | | | 317.2 | | | | 342.7 | | | | 332.7 | | | | 323.1 | | | | | | | | 7.7 | | | | -7.4 | | | | 3.0 | | | | 3.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gross domestic product | | | 3,570.6 | | | | 3,367.6 | | | | 3,473.1 | | | | 3,367.9 | | | | 3,267.2 | | | | | | | | 6.0 | | | | -3.0 | | | | 3.1 | | | | 3.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Source: Statistisches Bundesamt, Fachserie 18, Reihe 1.2 – 4. Vierteljahr 2021 (February 2022), Tables 1.14 and 2.1.
Sectors of the Economy
Production Sector
Following German reunification in 1990, industry in the eastern Länder (i.e., the territory of the former German Democratic Republic), has undergone a restructuring process. Today, the German production sector is characterized by a balanced mix of small, medium and large enterprises, and is almost entirely privately owned. Measured by its share in value added, approximately 59% of the production sector is geographically concentrated in the western Länder of Bavaria, Baden-Württemberg and North Rhine-Westphalia. The main segments of the production sector relate to the manufacturing of motor vehicles, machinery and equipment, electrical and optical equipment, basic metals and fabricated metal products, as well as chemicals and chemical products. In 2021, the production sector’s aggregate contribution to gross value added at current prices was 23.5% (excluding construction) and 29.4% (including construction), respectively. Its price-adjusted gross value added (excluding construction) increased by 4.1% year-on-year in 2021.
Sources: Volkswirtschaftliche Gesamtrechnungen der Länder, Reihe 1, Länderergebnisse Band 1 (March 2022), Table 2.3; Statistisches Bundesamt, Fachserie 18, Reihe 1.4 – 2021 (March 2022), Tables 2.2.1 and 2.2.2.
OUTPUTINTHE PRODUCTION SECTOR (1)
(2015 = 100)
| | | | | | | | | | | | | | | | |
| | | 2021 | | | 2020 | | | 2019 | | | 2018 | |
Production sector, total | | | 97.0 | | | | 94.1 | | | | 102.5 | | | | 105.8 | |
Industry (2) | | | 94.8 | | | | 91.0 | | | | 101.6 | | | | 106.0 | |
of which: | | | | | | | | | | | | | | | | |
Intermediate goods (3) | | | 102.2 | | | | 94.9 | | | | 101.8 | | | | 105.5 | |
Capital goods (4) | | | 87.2 | | | | 85.7 | | | | 101.4 | | | | 106.0 | |
Durable goods (5) | | | 103.7 | | | | 97.6 | | | | 106.2 | | | | 106.2 | |
Nondurable goods (6) | | | 99.0 | | | | 97.2 | | | | 101.0 | | | | 106.9 | |
Energy (7) | | | 86.9 | | | | 84.4 | | | | 90.4 | | | | 97.4 | |
Construction (8) | | | 114.2 | | | | 116.1 | | | | 112.8 | | | | 109.1 | |
| (1) | Adjusted for working-day variations. |
| (2) | Manufacturing sector, unless assigned to the main grouping energy, plus mining and quarrying. |
G-18
| (3) | Including mining and quarrying except energy-producing goods. |
| (4) | Including manufacture of motor vehicles and components. |
| (5) | Consumption goods that have a long-term use, such as furniture. |
| (6) | Consumption goods that have a short-term use, such as food. Including printing and service activities related to printing. |
| (7) | Electricity, gas, steam and hot water supply, mining and quarrying of energy-producing materials, and especially manufacture of refined petroleum products. |
| (8) | Comprises the economic classifications “Site preparation” and “Building of complete constructions or parts thereof; civil engineering.” |
Source: Deutsche Bundesbank, Monatsbericht März 2022, Table XI.2.
Services Sector
As in most other industrialized countries, the services sector, which comprises “trade, transport, accommodation and food services,” “information and communication,” “financial and insurance services,” “real estate activities,” “business services,” “public services, education, health” as well as “other services,” has expanded rapidly in recent years and is currently the largest contributor to gross value added. In 2021, the services sector’s aggregate contribution to gross value added at current prices was 69.7%, compared to only 61.9% in 1991. Within the services sector, “public services, education, health” represented the largest subsector in terms of contribution to total gross value added at current prices, contributing 19.2% in 2021 after 15.9% in 1991.
Source: Statistisches Bundesamt, Fachserie 18, Reihe 1.4 – 2021 (March 2022), Table 2.2.1.
Employment and Labor
As economic output increased in 2021, labor market conditions improved. In 2021, the average unemployment rate according to the national definition was 5.7%, compared to 5.9% in 2020. Under the ILO definition, the average unemployment rate was 3.3% in 2021 compared to 3.6% in 2020. The number of persons resident in Germany who were either employed or self-employed in 2021 was 44.8 million, approximately unchanged compared to 2020.
Sources: Bundesagentur für Arbeit, Monatsbericht Februar 2022, Table 6.1 (https://www.arbeitsagentur.de/datei/arbeitsmarktbericht-februar-2022_ba147381.pdf); Statistisches Bundesamt, Fachserie 18, Reihe 1.4 – 2021 (March 2022), Table 2.1.13.
The following table presents data with respect to employment and unemployment for each of the years indicated. The ILO definition and the national definition of unemployment differ in various ways. Further, the national definition of unemployment is applied to administrative data whereas unemployment according to the ILO is measured using surveys.
EMPLOYMENTAND UNEMPLOYMENT
| | | | | | | | | | | | | | | | | | | | |
| | | 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
Employed (in thousands)–ILO definition | | | 44,804 | | | | 44,803 | | | | 45,125 | | | | 44,719 | | | | 44,131 | |
Unemployed (in thousands)–ILO definition (1) | | | 1,506 | | | | 1,664 | | | | 1,374 | | | | 1,468 | | | | 1,621 | |
Unemployment rate (in %)–ILO definition | | | 3.3 | | | | 3.6 | | | | 3.0 | | | | 3.2 | | | | 3.5 | |
Unemployed (in thousands)–national definition (2) | | | 2,613 | | | | 2,695 | | | | 2,267 | | | | 2,340 | | | | 2,533 | |
Unemployment rate (in %)–national definition (3) | | | 5.7 | | | | 5.9 | | | | 5.0 | | | | 5.2 | | | | 5.7 | |
| (1) | Unemployed persons, available and seeking work. |
| (2) | Registered unemployed persons, available and seeking work (but including persons working up to 15 hours per week). |
| (3) | As a percentage of the total work force (excluding armed forces). |
Sources: Bundesagentur für Arbeit, Monatsbericht zum Arbeits- und Ausbildungsmarkt: Dezember und das Jahr 2021, Table 10.1; Statistisches Bundesamt, Fachserie 18, Reihe 1.2 – 4. Vierteljahr 2021 (February 2022), Table 1.11.
G-19
The following table presents data with respect to the employment rate broken down by gender and age for 2021.
EMPLOYMENT RATE – BREAKDOWNBY GENDERAND AGE
| | | | | | | | | | | | |
| | | 2021 | |
(Age in years) | | Total | | | Men | | | Women | |
15 to 19 | | | 26.8 | | | | 29.4 | | | | 24.0 | |
20 to 24 | | | 67.0 | | | | 69.0 | | | | 64.8 | |
25 to 29 | | | 80.1 | | | | 82.7 | | | | 77.4 | |
30 to 34 | | | 83.4 | | | | 88.2 | | | | 78.3 | |
35 to 39 | | | 84.4 | | | | 89.8 | | | | 78.9 | |
40 to 44 | | | 85.8 | | | | 89.6 | | | | 82.0 | |
45 to 49 | | | 86.5 | | | | 89.7 | | | | 83.3 | |
50 to 54 | | | 85.7 | | | | 89.0 | | | | 82.4 | |
55 to 59 | | | 81.1 | | | | 84.8 | | | | 77.5 | |
60 to 64 | | | 61.4 | | | | 65.8 | | | | 57.2 | |
65 to 69 | | | 17.2 | | | | 20.7 | | | | 14.1 | |
15 to 64 | | | 75.8 | | | | 79.4 | | | | 72.1 | |
65 and older | | | 7.5 | | | | 10.0 | | | | 5.4 | |
| | | | | | | | | | | | |
Total | | | 58.9 | | | | 63.7 | | | | 54.2 | |
| | | | | | | | | | | | |
Source: Statistisches Bundesamt, Erwerbsbeteiligung, Erwerbstätige und Erwerbstätigenquote nach Geschlecht und Alter, Ergebnis des Mikrozensus 2021 (https://www.destatis.de/DE/Themen/Arbeit/Arbeitsmarkt/Erwerbstaetigkeit/Tabellen/erwerbstaetige-erwerbstaetigenquote.html).
The following table presents data with respect to the structure of employment by economic sector for 2021 and 2011.
STRUCTUREOF EMPLOYMENT – ECONOMIC SECTORS
| | | | | | | | |
| | | 2021 | | | 2011 | |
| | | | | | | |
| | | (Percent of total) | |
Agriculture, forestry and fishing | | | 1.3 | | | | 1.6 | |
Production sector (excluding construction) | | | 18.0 | | | | 18.9 | |
of which: manufacturing | | | 16.6 | | | | 17.5 | |
Construction | | | 5.8 | | | | 5.7 | |
Trade, transport, accommodation and food services | | | 22.0 | | | | 23.1 | |
Information and communication | | | 3.2 | | | | 2.8 | |
Financial and insurance services | | | 2.4 | | | | 2.9 | |
Real estate activities | | | 1.1 | | | | 1.1 | |
Business services | | | 13.6 | | | | 13.0 | |
Public services, education, health | | | 26.1 | | | | 23.8 | |
Other services | | | 6.6 | | | | 7.1 | |
| | | | | | | | |
Total (1) | | | 100.0 | | | | 100.0 | |
| | | | | | | | |
| (1) | Figures may not add up due to rounding. |
Source: Statistisches Bundesamt, Fachserie 18, Reihe 1.4 – 2021 (March 2022), Table 2.2.9.
The following table shows changes in the annual wage level per employee and unit labor costs per hour worked for each of the years indicated.
WAGE TRENDSAND LABOR COSTS
| | | | | | | | | | | | | | | | | | | | |
| | | 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
Gross wages and salaries per employee in EUR | | | 38,241 | | | | 36,951 | | | | 36,995 | | | | 35,929 | | | | 34,822 | |
Change from previous year in % | | | 3.5 | | | | -0.1 | | | | 3.0 | | | | 3.2 | | | | 2.6 | |
Unit labor costs per hour worked | | | | | | | | | | | | | | | | | | | | |
Index (2015=100) | | | 113.1 | | | | 112.2 | | | | 108.5 | | | | 105.3 | | | | 102.2 | |
Change from previous year in % | | | 0.8 | | | | 3.4 | | | | 3.1 | | | | 3.0 | | | | 1.0 | |
Source: Statistisches Bundesamt, Fachserie 18, Reihe 1.2 – 4. Vierteljahr 2021 (February 2022), Tables 2.17 and 2.20.
G-20
About one-sixth of the German work force consists of members of unions. The German Trade Union Federation (Deutscher Gewerkschaftsbund) serves as an umbrella organization for eight such unions. In 2021, approximately 5.7 million persons were members of a union under the umbrella of the Deutscher Gewerkschaftsbund, which is considerably less compared to the 11.8 million members in 1991, the first full year after German reunification. One major reason contributing to the strong decline since 1991 is the significant decline in manufacturing employment in the eastern Länder after reunification.
Each member union typically covers employees of an entire industry, regardless of the precise type of work done by those employees (the “one union, one industry” principle). As a result, employers usually deal with only one negotiating partner on the labor side in each specific industry. The unions and employers of each specific industry enter into collective labor agreements (Tarifverträge) without government intervention. The collective labor agreements often apply to all employees of a given industry, regardless of whether or not a particular employee is a member of a union, so long as the employer is a member of the relevant association of employers, which is often the case. Despite their binding character, collective labor agreements in many cases contain opt-out clauses (Öffnungsklauseln) allowing for company-specific adjustments to be negotiated between the employer and the works council at the specific company. Moreover, there is a range of additional possibilities to deviate from these agreements. Many employers in the eastern Länder are not members of employers’ associations, which means that wages are individually negotiated, often resulting in wage levels that are lower than those provided for by the collective labor agreements.
Sources: Deutscher Gewerkschaftsbund, DGB-Mitgliederzahlen ab 2010 (https://www.dgb.de/uber-uns/dgb-heute/mitgliederzahlen/2010); Deutscher Gewerkschaftsbund, Mitgliederzahlen 1950-1993 (https://www.dgb.de/uber-uns/dgb-heute/mitgliederzahlen/1950-1993); European Trade Union Institute, National Industrial Relations, Countries, Germany, Trade Unions (https://www.worker-participation.eu/National-Industrial-Relations/Countries/Germany); Bundeszentrale für politische Bildung, Tarifautonomie (https://www.bpb.de/nachschlagen/lexika/handwoerterbuch-politisches-system/202193/tarifautonomie).
Social Security, Social Protection, and Social Policy
The comprehensive system of social security and protection in effect in the Federal Republic includes in particular health insurance, long-term care insurance, retirement and disability pensions, participation benefits and benefits for medical rehabilitation, protection against the effects of occupational accidents and diseases by means of the mandatory occupational accident insurance, unemployment benefits, compensation for workers in short-time work schemes (Kurzarbeit), family benefits, benefits and rehabilitation for persons with disabilities, allowances to orphans and to single persons with dependents, and the provision of general public assistance to persons in need. The majority of the German population is covered by mandatory statutory pensions and health insurance. Hospitals and institutions caring for children and handicapped persons are operated by municipalities, churches, charitable institutions, and private providers.
Most of these social services are mainly funded through social security contributions from employers and employees, and a smaller part is funded through direct contributions by the Federal Republic, the Länder, municipalities and other public institutions, depending notably upon whether the respective social service is provided by an insurance-based system funded through contributions or a social-assistance-like program funded through taxes.
The Federal Republic’s statutory pension insurance system operates on a pay-as-you-go basis, with contributions from current employers and employees funding payments to current retired persons. Generally, most employed and some self-employed and other persons are subject to mandatory insurance in the statutory retirement system. Certain persons, including employed members of particular professions (including some freelance professions) may apply for exemption, while others, as in the case of civil servants, are automatically exempt from mandatory participation in the statutory pension insurance system. Instead, exempted persons have to contribute to professional or public pension schemes or, in the case of civil servants and similar groups, they will benefit from special pension schemes for civil servants. Furthermore, the Retirement Funds Act (Altersvermögensgesetz) aims to ensure the long-term viability of the statutory pension insurance system by decreasing payments from the statutory pension insurance while encouraging insured persons to also sign up for designated privately funded or occupational pension schemes, for which certain bonus payments and tax incentives are provided.
Statutory health insurance coverage must remain available to all persons fulfilling the applicable eligibility criteria. Within the statutory health insurance system, insured persons may choose among a large number of statutory health insurance funds that have developed historically. Persons whose gross income exceeds certain thresholds as well as civil servants, self-employed persons and members of certain professions
G-21
may opt out of the statutory system and choose private health insurance coverage, which, in case of opting-out, is obligatory as well. Contributions to the statutory health insurance system are based solely on the insured person’s income situation and are independent of the insured person’s gender, age and medical risk. By contrast, contributions towards private health insurance coverage are mainly calculated based on age, medical risk and the desired level of coverage.
In 2021, social security revenue, as shown in the national accounts, amounted to EUR 782.7 billion, and expenditure was EUR 778.3 billion. The social security budget thus incurred a surplus of EUR 4.4 billion in 2021, after a deficit of EUR 35.0 billion in 2020. The deficit in 2020 was due to the COVID-19 pandemic, as paid social benefits rose markedly due to increases in unemployment benefits, the large-scale payment of short-time work compensation as well as higher payments for pensions and children’s allowance.
Sources: Statistisches Bundesamt, Fachserie 18, Reihe 1.4 – 2021 (March 2022), Table 3.4.3.7; Statistisches Bundesamt, Negative government finance in 2020: deficit of 139.6 billion euros, press release of February 24, 2021 (https://www.destatis.de/EN/Press/2021/02/PE21_082_81.html).
In light of a changing population structure, the Federal Government has already implemented structural reforms of the statutory pension system in order to safeguard the sustainability of the pension system in the long term. In addition, the Federal Republic has implemented reforms of the statutory pension insurance which gradually raise the regular retirement age by two years to the age of 67 since 2012. For example, the 1964 birth cohort will reach the regular retirement age of 67 in 2031.
To increase the sustainability of the health care system, the Federal Republic has implemented several structural reform measures to strengthen competition among providers in order to improve the efficiency and quality of health care services.
Sources: Bundesministerium der Gesundheit, Gesundheitsfonds (https://www.bundesgesundheitsministerium.de/gesundheitsfonds.html); European Commission, Employment, Social Affairs & Inclusion, Germany - Pensions and other old age benefits (https://ec.europa.eu/social/main.jsp?catId=1111&intPageId=4554&langId=en [ec.europa.eu]).
International Economic Relations
International economic relations are of major importance to the German economy. In 2021, exports and imports of goods and services amounted to 47.5% and 41.9% of GDP at current prices, respectively. The Federal Republic supports the EU in pursuing a liberal foreign trade policy aimed at dismantling tariffs and other barriers to trade. The responsibility for trade matters (particularly WTO and free trade agreements) in the EU rests with the European Commission. For further information on the EU’s responsibility for trade matters, see “—General—The European Union and European Integration—Economic Integration.”
Source: Statistisches Bundesamt, Fachserie 18, Reihe 1.4 – 2021 (March 2022), Table 2.3.1.
Because of the openness of the Federal Republic’s economy, German growth and employment depend particularly on open markets and foreign trade. Accordingly, the Federal Government supports efforts to reduce trade barriers. The strengthening of the multilateral trading system with the WTO at its center is a priority both for Germany and the EU. Bilaterally, the Federal Government and the European Commission champion ambitious, balanced and comprehensive free trade agreements in order to strengthen the international competitiveness of the European economy and thus growth and employment in Europe, while also contributing to sustainable development. An example of these agreements is the Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada, which was approved by the European Parliament in February 2017. On September 21, 2017, CETA entered into force provisionally, i.e., most of the agreement, with the exception of investment protection, investment market access for portfolio investment and the Investment Court System, is already in force. CETA will take full effect after ratification by all EU Member States. Similarly, in February 2019, a free trade agreement between the EU and Japan came into force (Economic Partnership Agreement), which is intended to remove the majority of duties and regulatory barriers.
Sources: Bundesministerium für Wirtschaft und Energie, Current free trade agreements
(https://www.bmwi.de/Redaktion/EN/Artikel/Foreign-Trade/ongoing-negotiations-on-free-trade-agreements.html); Bundesministerium für Wirtschaft und Energie, WTO-Welthandelsrunde “Doha Development Agenda” (https://www.bmwi.de/Redaktion/DE/Artikel/Aussenwirtschaft/wto-doha.html); Bundesministerium für Wirtschaft und Energie, CETA – Das europäisch-kanadische Wirtschafts- und Handelsabkommen
(https://www.bmwi.de/Redaktion/DE/Dossier/ceta.html); Bundesministerium für Wirtschaft und Energie, Europäisches Parlament stimmt CETA zu, press release of February 15, 2017
(https://www.bmwi.de/Redaktion/DE/Pressemitteilungen/2017/20170215-europaeisches-parlament-stimmt-ceta-zu.html); European Commission, EU-Canada agreement (https://policy.trade.ec.europa.eu/eu-trade-relationships-country-and-region/countries-and-regions/canada/eu-canada-agreement_en); Bundesministerium für Wirtschaft und Energie, EU-Japan Free Trade Agreement
(https://www.bmwi.de/Redaktion/EN/Artikel/Foreign-Trade/free-trade-agreement-japan.html).
G-22
Balance of Payments
The Federal Republic typically achieves a surplus in the trading of goods. Traditionally, this surplus has been partially offset by deficits in other fields, such as services and secondary income. In 2021, the current account surplus totaled EUR 265.3 billion, compared to EUR 238.7 billion in 2020, an increase of EUR 26.6 billion. Thus, the current account surplus increased by 1⁄2 percentage point to 71⁄2% of nominal GDP in 2021. Following a brief decline in 2020, the surplus was roughly back at the level prior to the outbreak of the COVID-19 pandemic. The primary income surplus, in particular, increased, while trade in goods, trade in services and secondary income remained largely unchanged.
Source: Deutsche Bundesbank, Monatsbericht März 2022, Table XII.2, and Chapter Die deutsche Zahlungsbilanz für das Jahr 2021, pp. 39-60.
According to data prepared by the Deutsche Bundesbank, applying the annual averages of a broad monthly indicator of Germany’s price competitiveness compared to 60 trading partners based on consumer price indices, Germany’s price competitiveness has been relatively stable since 1999, fluctuating within a range of approximately 10% of the average indicator value in the period from 1999 to 2020. In 2020, price competitiveness deteriorated by 1.0% compared to 2019, mainly due to the appreciation of the euro relative to several currencies, including the U.S. dollar, the Pound sterling, and the Chinese yuan. However, the influence of variations in the exchange rates should be viewed in light of the fact that the Euro Area Member States account for a major part of German exports (36.6% in 2020).
In 2020, the euro appreciated against the U.S. dollar by 1.8% mainly due to a comparatively larger decline in U.S. interest rates. While the euro depreciated against the U.S. dollar during the second half of 2021, the average euro exchange rate in 2021 was 3.5% higher than in 2020. The depreciation of the euro against the U.S. dollar continued in the first four months of 2022 against the backdrop of Russia’s invasion of Ukraine.
Source: Deutsche Bundesbank, Monatsbericht März 2022, Tables XII.3, XII.9 XII.11.
The following table shows the Federal Republic’s balance of payments for each of the years indicated.
BALANCEOF PAYMENTS (BALANCES)
| | | | | | | | | | | | | | | | | | | | |
| | | 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
| | | | | | | | | | | | | | | | |
| | | (EUR in millions) | |
Current account | | | | | | | | | | | | | | | | | | | | |
Trade in goods (1) | | | 192,442 | | | | 189,963 | | | | 215,456 | | | | 221,983 | | | | 255,077 | |
Services (2) | | | 314 | | | | 2,725 | | | | -18,100 | | | | -15,806 | | | | -23,994 | |
Primary income | | | 126,606 | | | | 98,780 | | | | 115,359 | | | | 111,890 | | | | 76,404 | |
Secondary income | | | -54,090 | | | | -52,727 | | | | -49,811 | | | | -50,338 | | | | -51,673 | |
| | | | | | | | | | | | | | | | | | | | |
Total current account | | | 265,272 | | | | 238,741 | | | | 262,903 | | | | 267,729 | | | | 255,814 | |
Capital account (3) | | | -1,376 | | | | -5,829 | | | | -887 | | | | 580 | | | | -2,936 | |
Financial account | | | | | | | | | | | | | | | | | | | | |
Net German investment abroad (increase: +) | | | 844,810 | | | | 739,081 | | | | 251,072 | | | | 411,358 | | | | 397,038 | |
Net foreign investment in Germany (increase: +) | | | 530,060 | | | | 522,566 | | | | 64,756 | | | | 164,430 | | | | 120,341 | |
| | | | | | | | | | | | | | | | | | | | |
Net financial account
(net lending: + / net borrowing: -) | | | 314,750 | | | | 216,515 | | | | 186,317 | | | | 246,928 | | | | 276,697 | |
Net errors and omissions (4) | | | 50,854 | | | | -16,397 | | | | -75,700 | | | | -21,381 | | | | 23,819 | |
| (1) | Including supplementary trade items. |
| (2) | Including the freight and insurance costs of foreign trade. |
| (3) | Including net acquisition/disposal of non-produced non-financial assets. |
| (4) | Statistical errors and omissions, resulting from the difference between the balance on the financial account and the balances on the current account and the capital account. |
Sources: Deutsche Bundesbank, Zahlungsbilanzstatistik, Stand vom 15.3.2022, Table I. Wichtige Posten der Zahlungsbilanz (https://www.bundesbank.de/resource/blob/805258/8a20015437a2b74e29df58f1cfcc4bd9/mL/i-wichtige-posten-data.pdf); Deutsche Bundesbank, Zahlungsbilanzstatistik, Stand vom 15.3.2022, Table IV. Kapitalbilanz 1. Übersicht a) Insgesamt (https://www.bundesbank.de/resource/blob/805274/4e758d080ea205b7f4ed1d4683563459/mL/iv-kapitalbilanz-data.pdf).
G-23
Balance of Trade
The following tables show information relating to foreign trade of the Federal Republic for each of the years indicated.
TRADEIN GOODS (1)
| | | | | | | | | | | | | | | | | | | | |
| | | 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
| | | | | | | | | | | | | | | | |
| | | (EUR in millions) | |
Exports of goods | | | 1,367,418 | | | | 1,186,834 | | | | 1,303,728 | | | | 1,290,468 | | | | 1,256,858 | |
Imports of goods | | | 1,174,976 | | | | 996,871 | | | | 1,088,272 | | | | 1,068,485 | | | | 1,001,782 | |
| | | | | | | | | | | | | | | | | | | | |
Trade balance | | | 192,442 | | | | 189,963 | | | | 215,456 | | | | 221,983 | | | | 255,077 | |
| | | | | | | | | | | | | | | | | | | | |
| (1) | Including supplementary trade items. |
Source: Deutsche Bundesbank, Zahlungsbilanzstatistik, Stand vom 15.3.2022, Table I. Wichtige Posten der Zahlungsbilanz (https://www.bundesbank.de/resource/blob/805258/8a20015437a2b74e29df58f1cfcc4bd9/mL/i-wichtige-posten-data.pdf).
The Federal Republic’s principal export goods are motor vehicles, machinery of all kinds, and chemical products. The principal import goods are computer, electronic and optical products, motor vehicles, and chemical products. The Federal Republic has relatively few resources of industrial raw materials. As a result, it largely depends on imports to satisfy its demand for raw materials. This dependence on foreign supplies is particularly significant in the case of metals such as copper, tungsten, niobium, rare earth, rock phosphate, lithium carbonate, bauxite, manganese, titanium, and tin. The Federal Republic currently imports about 72% of its energy requirements, including 98% of its oil and 95% of its natural gas requirements as well as all enriched uranium needed for nuclear energy.
Sources: Statistisches Bundesamt, Genesis Online, Tabelle 51000-0005, Werte nach Güterabteilungen des Güterverzeichnisses für Produktionsstatistiken (GP 2019), 2021, database evaluation by 21.3.2022; Bundesanstalt für Geowissenschaften und Rohstoffe, Deutschland – Rohstoffsituation 2020 (https://www.deutsche-rohstoffagentur.de/DE/Themen/Min_rohstoffe/Downloads/rohsit-2020.pdf;jsessionid=2162F810D51140AE17E58660F0BF6F76.2_cid292?__blob=publicationFile&v=4).
Germany’s Current Account Surplus and the Macroeconomic Imbalance Procedure
Within the framework of the MIP, on November 24, 2021, the European Commission published the Alert Mechanism Report 2022, which, similar to the previous year’s report, noted the current account surplus observed in Germany. The Federal Republic entered the COVID-19 pandemic with a large domestic savings surplus, underpinned primarily by net private and governmental savings. The current account surplus has gradually narrowed since 2015 but remains at a high level, as private investment remains muted despite policy support in the COVID-19 context, and public investment has not yet filled longstanding investment gaps. House prices have increased strongly. Due to the exceptional situation during the COVID-19 pandemic, the European Commission will further assess the persistence of imbalances or their unwinding in mid-2022, also taking into account the identification of imbalances within the forthcoming in-depth review.
The Federal Government supports the European Commission in the implementation of the MIP. Together with the European partners, the Federal Government aims to reduce economic imbalances while complying with the rules of the reformed SGP. However, the Federal Government points out that German foreign direct investments abroad increase the current account balance, as does the interest and capital income generated from past foreign direct investments. Furthermore, the current account surplus is the result of market-based decisions by companies and individuals that determine supply and demand. The German economy’s specialization in the export of capital goods also plays a key role in the high surplus. The Federal Government has taken a wide range of measures to strengthen domestic demand and increase public and private investment activity, which are expected to have an indirect dampening effect on the current account balance. These measures include the comprehensive stimulus package, including a “package for the future” of around EUR 50 billion for investments in the green and digital transformation, launched to strengthen the domestic economy and combat the economic and social consequences of the COVID-19 pandemic as well as further projects by the Federal Government launched under the EU Recovery Instrument. While respecting the autonomy of collective bargaining, the Federal Government is also creating framework conditions for greater collective bargaining coverage and striving to improve the conditions for taking up employment. Furthermore, a one-off increase in the minimum wage from EUR 9.82 to EUR 12.00 is planned. These measures are anticipated to have positive
G-24
effects on consumption and thus also on imports. While the overall impact of Russia’s invasion of Ukraine on the German current account surplus is still difficult to assess, the planned increase in military spending is expected to generate both higher domestic and import demand. These measures are therefore also likely to have a downward effect on the current account surplus. In addition, structural changes such as the massive investments in sustainable transformation, the aging of the population, the reorganization of supply chains are also likely to dampen the current account surplus in the medium and long term.
For general information on the MIP, see “—General—The European Union and European Integration—Monetary Integration—EU Economic Governance—Macroeconomic Imbalance Procedure.”
Sources: European Commission, Report from the Commission to the European Parliament, the Council, the European Central Bank and the European Economic and Social Committee, Alert Mechanism Report 2022, dated November 24, 2021
(https://ec.europa.eu/info/sites/default/files/economy-finance/2022_european_semester_alert_mechanism_report.pdf); European Commission, Economic and Financial Affairs, EU Economic governance: monitoring, prevention, correction, Macroeconomic imbalance procedure (https://ec.europa.eu/economy_finance/economic_governance/macroeconomic_imbalance_procedure/mip_reports/index_en.htm); Bundesministerium für Wirtschaft und Klimaschutz, Nationales Reformprogramm 2022 (https://www.bmwi.de/Redaktion/DE/Publikationen/Europa/nationales-reformprogramm-2022.pdf?__blob=publicationFile&v=10); Bundesministerium der Finanzen, Monatsbericht des BMF März 2017, Analysen und Berichte, Der deutsche Leistungsbilanzsaldo – Entwicklung und wirtschaftspolitische Implikationen (https://www.bundesfinanzministerium.de/Monatsberichte/2017/03/Inhalte/Kapitel-3-Analysen/3-2-Der-deutsche-Leistungsbilanzsaldo.html).
COMPOSITIONOF EXPORTEDAND IMPORTED GOODS
| | | | | | | | |
| | | 2021 (1) | |
| | | Imports | | | Exports | |
| | | | | | | |
| | | (Percent of total) | |
Products of agriculture and hunting | | | 2.6 | | | | 0.7 | |
Products of forestry | | | 0.1 | | | | 0.1 | |
Fish and products of fishing | | | 0.1 | | | | 0.0 | |
Coal and lignite | | | 0.4 | | | | 0.0 | |
Crude petroleum and natural gas | | | 6.1 | | | | 0.9 | |
Metal ores | | | 1.0 | | | | 0.0 | |
Other mining and quarrying products | | | 0.1 | | | | 0.1 | |
Food products | | | 4.3 | | | | 4.3 | |
Beverages | | | 0.6 | | | | 0.4 | |
Tobacco products | | | 0.2 | | | | 0.2 | |
Textiles | | | 1.1 | | | | 0.9 | |
Wearing apparel | | | 2.9 | | | | 1.6 | |
Leather and related products | | | 1.2 | | | | 0.7 | |
Wood and of products of wood and cork, except furniture; articles of straw and plaiting materials | | | 0.8 | | | | 0.7 | |
Paper and paper products | | | 1.2 | | | | 1.5 | |
Coke and refined petroleum products | | | 1.8 | | | | 1.1 | |
Chemicals and chemical products | | | 7.8 | | | | 9.9 | |
Basic pharmaceutical products and pharmaceutical preparations | | | 6.0 | | | | 7.4 | |
Rubber and plastic products | | | 3.0 | | | | 3.7 | |
Other non-metallic mineral products | | | 1.0 | | | | 1.2 | |
Basic metals | | | 6.3 | | | | 4.9 | |
Fabricated metal products, except machinery and equipment | | | 2.8 | | | | 3.4 | |
Computer, electronic and optical products | | | 10.6 | | | | 8.7 | |
Electrical equipment | | | 6.8 | | | | 7.1 | |
Machinery and equipment not elsewhere classified | | | 7.5 | | | | 14.1 | |
Motor vehicles, trailers and semi-trailers | | | 9.5 | | | | 15.2 | |
Other transport equipment | | | 2.5 | | | | 3.1 | |
Furniture | | | 1.2 | | | | 0.8 | |
Energy | | | 0.2 | | | | 0.5 | |
Other goods | | | 10.4 | | | | 6.7 | |
| | | | | | | | |
Total | | | 100.0 | | | | 100.0 | |
| | | | | | | | |
Source: Statistische Ämter des Bundes und der Länder, Statistische Bibliothek, Statistischer Bericht Außenhandel – Dezember 2021 (February 2022), Tables 51000-05 and 51000-06 (https://www.statistischebibliothek.de/mir/receive/DEHeft_mods_00139248); calculation of percentages by KfW based on import and export values in EUR thousands, respectively; figures may not add up to total due to rounding.
G-25
FOREIGN TRADE (SPECIAL TRADE)BY GROUPSOF COUNTRIESAND COUNTRIES (1)
| | | | | | | | | | | | |
| | | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | | |
| | | (EUR in millions) | |
Exports to: | | | | | | | | | | | | |
Total | | | 1,375,415 | | | | 1,206,928 | | | | 1,328,152 | |
of which: | | | | | | | | | | | | |
United States | | | 121,997 | | | | 103,476 | | | | 118,680 | |
China (2) | | | 103,643 | | | | 95,840 | | | | 95,984 | |
France | | | 102,329 | | | | 90,910 | | | | 106,564 | |
The Netherlands | | | 100,360 | | | | 84,579 | | | | 91,528 | |
Italy | | | 75,361 | | | | 60,634 | | | | 67,887 | |
Austria | | | 71,914 | | | | 60,118 | | | | 66,076 | |
United Kingdom | | | 65,363 | | | | 67,086 | | | | 79,166 | |
Switzerland | | | 60,621 | | | | 56,265 | | | | 56,345 | |
Belgium/Luxembourg | | | 57,298 | | | | 48,824 | | | | 52,006 | |
New industrial countries and emerging markets of Asia (3) | | | 55,233 | | | | 50,590 | | | | 54,164 | |
Spain | | | 43,607 | | | | 37,618 | | | | 44,218 | |
Japan | | | 18,238 | | | | 17,396 | | | | 20,662 | |
Imports from: | | | | |
Total | | | 1,202,640 | | | | 1,026,502 | | | | 1,104,141 | |
of which: | | | | | | | | | | | | |
China (2) | | | 141,794 | | | | 117,373 | | | | 110,054 | |
The Netherlands | | | 105,916 | | | | 87,024 | | | | 97,816 | |
United States | | | 72,011 | | | | 67,694 | | | | 71,334 | |
Italy | | | 65,298 | | | | 53,906 | | | | 57,100 | |
France | | | 62,225 | | | | 56,364 | | | | 66,199 | |
New industrial countries and emerging markets of Asia (3) | | | 55,372 | | | | 48,222 | | | | 51,748 | |
Belgium/Luxembourg | | | 54,956 | | | | 39,584 | | | | 46,322 | |
Switzerland | | | 48,842 | | | | 45,556 | | | | 45,824 | |
Austria | | | 47,642 | | | | 40,454 | | | | 44,059 | |
Spain | | | 34,343 | | | | 31,281 | | | | 33,126 | |
United Kingdom | | | 32,061 | | | | 35,018 | | | | 38,397 | |
Japan | | | 23,460 | | | | 21,427 | | | | 23,904 | |
| (1) | Exports (f.o.b.) by country of destination, imports (c.i.f.) by country of origin. Special trade consists mainly of goods that are imported into the Federal Republic for use, consumption, adaptation or processing, as well as goods that are produced, manufactured, adapted or processed in the Federal Republic and subsequently exported. |
| (3) | Includes Brunei Darussalam, Hong Kong, Indonesia, Malaysia, Philippines, Singapore, South Korea, Taiwan and Thailand. |
Source: Deutsche Bundesbank, Monatsbericht März 2022, Table XII.3.
G-26
Foreign Direct Investment
The following table presents data with respect to foreign direct investment stocks at year-end 2019.
FOREIGN DIRECT INVESTMENT STOCKSAT YEAR-END 2019
| | | | | | | | |
| | | Outward (1) | | | Inward (2) | |
| | | | | | | |
| | | (EUR in billions) | |
Total (3) | | | 1,371.6 | | | | 556.1 | |
Selected countries and regions | | | | | | | | |
European Union | | | 578.3 | | | | 384.8 | |
of which: European Monetary Union | | | 310.1 | | | | 330.1 | |
of which: United Kingdom (4) | | | 136.4 | | | | 35.5 | |
Switzerland | | | 44.5 | | | | 47.0 | |
Russia | | | 23.7 | | | | 2.6 | |
United States | | | 391.2 | | | | 56.7 | |
Canada | | | 21.1 | | | | 1.6 | |
Central America | | | 27.7 | | | | 2.0 | |
South America | | | 32.7 | | | | 1.6 | |
Asia | | | 192.3 | | | | 43.5 | |
of which: China | | | 89.5 | | | | 3.7 | |
of which: India | | | 18.6 | | | | 0.4 | |
of which: Japan | | | 15.7 | | | | 24.8 | |
Australia | | | 18.6 | | | | 2.6 | |
Africa | | | 12.1 | | | | 0.7 | |
Selected economic sectors of investment object | | | | | | | | |
Manufacturing | | | 450.2 | | | | 134.5 | |
of which: Chemicals and chemical products | | | 94.3 | | | | 21.4 | |
of which: Pharmaceutical products | | | 37.0 | | | | 17.1 | |
of which: Machinery and equipment | | | 45.5 | | | | 16.8 | |
of which: Motor vehicles, trailers and semi-trailers | | | 108.2 | | | | 2.5 | |
Electricity, gas, steam and air conditioning supply | | | 34.5 | | | | 25.2 | |
Wholesale and retail trade; repair of motor vehicles and motor cycles | | | 215.6 | | | | 62.8 | |
Information and communication | | | 85.9 | | | | 36.4 | |
Financial and insurance activities | | | 361.3 | | | | 188.5 | |
Real estate activities | | | 51.4 | | | | 30.6 | |
Professional, scientific and technical activities | | | 73.9 | | | | 38.0 | |
| (1) | German foreign direct investment abroad. |
| (2) | Foreign direct investment in Germany. |
| (3) | Primary and secondary direct investment (consolidated). |
| (4) | The United Kingdom exited the European Union on January 31, 2020. |
Source: Deutsche Bundesbank, Direktinvestitionsstatistiken, II. Bestandsangaben über Direktinvestitionen (nach dem Erweiterten Richtungsprinzip), Tables 1I.1.b, II.2.b. (https://www.bundesbank.de/de/statistiken/aussenwirtschaft/direktinvestitionen/direktinvestitionsstatistiken-804078).
G-27
MONETARY AND FINANCIAL SYSTEM
The ESCB and the Eurosystem
The ESCB comprises the ECB and the national central banks of all EU Member States, while the Eurosystem consists only of the ECB and the national central banks of the Euro Area Member States.
The Eurosystem is responsible for the single monetary policy for the euro area. Its decision-making bodies are the Governing Council and the Executive Board of the ECB. The national central banks of the EU Member States that are not part of the Eurosystem are represented in the General Council of the ECB, but have no voting right in the decision-making process, particularly with respect to monetary policy. The ESCB’s primary objective is to maintain price stability. Without prejudice to this objective, the ESCB supports the general economic policies of the EU.
The Deutsche Bundesbank – Germany’s national central bank within the ESCB – has the responsibility of implementing the single monetary policy in Germany and continues to perform various other tasks, including operating cashless payment systems, cash management and playing an important role in banking and financial market supervision, as further described below under the caption “—Financial System.”
Sources: European Central Bank, Annual Report 2016, pages 101-107 (https://www.ecb.europa.eu/pub/pdf/annrep/ar2016en.pdf); European Central Bank, About, Organisation: ECB, ESCB and the Eurosystem (https://www.ecb.europa.eu/ecb/orga/escb/html/index.en.html); Deutsche Bundesbank, Tasks (https://www.bundesbank.de/en/tasks).
Monetary Policy
Monetary Policy Instruments of the ESCB and the ECB
To achieve its operational goals, the ESCB conducts open market operations, offers standing facilities and requires credit institutions to maintain minimum reserves in accounts with the ESCB. Open market operations play an important role in the ESCB’s monetary policy for the purposes of steering interest rates and managing the liquidity situation in the market. Available open market operations are reverse transactions, outright transactions, the issuance of debt certificates or foreign exchange swaps, and the collection of fixed-term deposits. Standing facilities are designed to provide or absorb overnight liquidity, and the imposition of minimum reserve requirements allows the ESCB to stabilize money market interest rates, create (or enlarge) a structural liquidity shortage and possibly contribute to the control of monetary expansion. In addition the ECB also provides forward guidance, i.e., it provides information about its future monetary policy intentions, based on its assessment of the outlook for price stability. Furthermore, the ESCB has employed a variety of non- standard policy instruments in response to the global economic and financial crisis, the European sovereign debt crisis and the COVID-19 Pandemic. For further information, see “—Financial System—European Financial System—Policy Responses to the Global Financial and Economic Crisis and the COVID-19 Pandemic.” It is also making use of such instruments in connection with the COVID-19 pandemic, see “—Monetary Policy Response to the COVID-19 Pandemic.”
Source: European Central Bank, Monetary Policy: The Eurosystem’s instruments (https://www.ecb.europa.eu/mopo/implement/html/index.en.html).
Monetary Policy Strategy and Prices
The ECB presented its revised monetary strategy in July 2021, its first revision since 2003. Its primary goal is to maintain medium-term price stability, which is defined as a year-on-year increase in the harmonized index of consumer prices for the euro area of 2%. The 2% target is symmetric. This means that the ECB considers negative and positive deviations from the target to be equally undesirable. When the economy is operating close to the lower bound on nominal interest rates, particularly forceful or persistent monetary policy action may be required to prevent negative deviations from the inflation target from becoming entrenched. The new strategy considers formerly unconventional measures such as asset purchasing programs to be part of its monetary tool kit for these purposes. The Governing Council of the ECB seeks to achieve price stability over the medium term. This allows for short-term deviations of inflation from its target, provides the necessary flexibility and makes it possible to take other considerations into account. The medium-term orientation indicates the commitment to provide an adequate margin to avoid the risk of deflation. The stability-oriented monetary policy strategy of the Eurosystem used by the ECB to achieve this goal is based on two independent analyses: (1) analysis and assessment of short- to medium-term risks to price stability (economic analysis); and (2) assessment of medium- to long-term monetary and financial developments (monetary and financial analysis).
Source: European Central Bank, Monetary Policy: Strategy (https://www.ecb.europa.eu/mopo/strategy/html/index.en.html).
G-28
The following table shows price trends in Germany for the periods indicated.
PRICE TRENDS
| | | | | | | | | | | | | | | | | | | | |
| | | 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
| | | | | | | | | | | | | | | | |
| | | (change from previous year in %) | |
Harmonized index of consumer prices (HICP) (1) | | | 3.2 | | | | 0.4 | | | | 1.4 | | | | 1.9 | | | | 1.7 | |
Consumer price index (CPI) (1) | | | 3.1 | | | | 0.5 | | | | 1.4 | | | | 1.8 | | | | 1.5 | |
Index of producer prices of industrial products sold on the domestic market (2) | | | 10.5 | | | | -1.0 | | | | 1.1 | | | | 2.6 | | | | 2.7 | |
| (1) | Results in 2020 and 2021 influenced by the temporary reduction of the value-added tax rate in the second half of 2020. |
| (2) | Excluding value-added tax. |
Sources: Statistisches Bundesamt, Preise, Verbraucherpreisindizes, Harmonisierter Verbraucherpreisindex, Jahresdurchschnitte, Veränderung zum Vorjahr (https://www.destatis.de/DE/Themen/Wirtschaft/Preise/Verbraucherpreisindex/Tabellen/Harmonisierter-Verbraucherpreisindex.html); Statistisches Bundesamt, Preise, Verbraucherpreisindex und Inflationsrate, Verbraucherindizes, Gesamtindex und 12 Abteilungen (https://www.destatis.de/DE/Themen/Wirtschaft/Preise/Verbraucherpreisindex/Tabellen/Verbraucherpreise-12Kategorien.html); Deutsche Bundesbank, Monatsbericht Dezember 2021, Table XI.7; Deutsche Bundesbank, Monatsbericht Februar 2022, Table XI.7.
Monetary Policy Response to the COVID-19 Pandemic
The ECB’s monetary policy response to the COVID-19 pandemic consists of three parts: (1) a further increase in monetary expansion through existing and pandemic-specific purchases of sovereign and corporate bonds via its Asset Purchasing Program (“APP”) and Pandemic-Emergency Asset Purchasing Program (“PEPP”), (2) a continuation of measures that assist financial institutions in providing favorable liquidity conditions to especially small and medium enterprises in the euro area through targeted longer-term refinancing operations (“TLTROs”) and specific pandemic emergency longer-term refinancing operations (PELTROs), (3) a package of temporary collateral easing measures to facilitate the availability of eligible collateral for Eurosystem counterparties to participate in liquidity providing operations, such as TLTROs. Since the start of the COVID-19 pandemic, the parameters that define the ECB’s monetary policy response have been adjusted or extended several times and are now scheduled to end over the course of 2022 and 2023. For additional information, see “—Financial System—European Financial System—Policy Responses to the Global Financial and Economic Crisis and the COVID-19 Pandemic.”
Source: European Central Bank, Our response to the coronavirus pandemic (https://www.ecb.europa.eu/home/search/coronavirus/html/index.en.html).
Official Foreign Exchange Reserves
The following table shows the breakdown of the Federal Republic’s official foreign exchange reserves as of the end of the years indicated.
OFFICIAL FOREIGN EXCHANGE RESERVESOFTHE FEDERAL REPUBLIC (1)
| | | | | | | | | | | | | | | | | | | | |
| | | As of December 31 | |
| | | 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
| | | | | | | | | | | | | | | | |
| | | (EUR in millions) | |
Gold | | | 173,821 | | | | 166,904 | | | | 146,562 | | | | 121,445 | | | | 117,347 | |
Special drawing rights | | | 46,491 | | | | 14,014 | | | | 14,642 | | | | 14,378 | | | | 13,987 | |
Foreign currency balances | | | 32,649 | | | | 30,066 | | | | 32,039 | | | | 31,796 | | | | 31,215 | |
Reserve position in the IMF | | | 8,426 | | | | 8,143 | | | | 6,051 | | | | 5,518 | | | | 4,294 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | | 261,387 | | | | 219,127 | | | | 199,295 | | | | 173,138 | | | | 166,842 | |
| | | | | | | | | | | | | | | | | | | | |
| (1) | External position of the Deutsche Bundesbank in the EMU. Assets and liabilities vis-à-vis all EMU member countries and non-EMU member countries. |
Source: Deutsche Bundesbank, Monatsbericht Februar 2022, Table XII.7.
G-29
The Federal Republic’s foreign reserve assets are managed by the Deutsche Bundesbank. The Euro Area Member States have transferred foreign reserve assets to the ECB in an aggregate amount equivalent to approximately EUR 40.3 billion, consisting of foreign currency reserves and gold. The ECB manages the foreign reserve assets transferred to it. The foreign reserve assets not transferred to the ECB continue to be held and managed by the national central banks of the Euro Area Member States. In order to ensure consistency within the single monetary and foreign exchange policies of the EMU, the ECB monitors and coordinates market transactions conducted with those assets.
Sources: European Central Bank, Annual Report 1998, page 74 (https://www.ecb.int/pub/pdf/annrep/ar1998en.pdf); European Central Bank, Annual Accounts 2021, 2.1 Balance Sheet as at 31 December 2021 (https://www.ecb.europa.eu/pub/annual/annual-accounts/html/ecb.annualaccounts2021~5130ce3be2.en.html#toc14).
External Positions of Banks
The following table shows the external assets and liabilities of the Deutsche Bundesbank and the banks (monetary financial institutions) of the Federal Republic as of the end of each of the years indicated.
EXTERNAL FINANCIAL ASSETSAND LIABILITIESBY SECTOR
| | | | | | | | | | | | | | | | | | | | |
| | | 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
| | | | | | | | | | | | | | | | |
| | | (EUR in billions) | |
Deutsche Bundesbank | | | | |
Assets | | | 1,592.8 | | | | 1,429.2 | | | | 1,161.0 | | | | 1,210.0 | | | | 1,142.8 | |
of which: clearing accounts within ESCB (1) | | | 1,260.7 | | | | 1,136.0 | | | | 895.2 | | | | 966.2 | | | | 906.9 | |
Liabilities (2) | | | 1,009.5 | | | | 781.3 | | | | 663.3 | | | | 770.5 | | | | 668.5 | |
| | | | | | | | | | | | | | | | | | | | |
Net position | | | 583.3 | | | | 647.9 | | | | 497.7 | | | | 439.5 | | | | 474.3 | |
Banks | | | | | | | | | | | | | | | | | | | | |
Loans to foreign banks | | | 1,100.7 | | | | 1,024.3 | | | | 1,064.2 | | | | 1,014.1 | | | | 963.8 | |
Loans to foreign non-banks | | | 871.2 | | | | 822.8 | | | | 795.3 | | | | 762.0 | | | | 723.9 | |
Loans from foreign banks | | | 914.6 | | | | 761.2 | | | | 680.6 | | | | 643.1 | | | | 659.0 | |
Loans from foreign non-banks | | | 288.2 | | | | 258.5 | | | | 229.8 | | | | 231.5 | | | | 241.2 | |
| (1) | Consists mainly of net claims from the interbank payment system for the real-time processing of cross-border transfers throughout the EMU (TARGET2). |
| (2) | Including estimates of currency in circulation abroad. |
Source: Deutsche Bundesbank, Monatsbericht März 2022, Tables IV.4 and XII.7.
Foreign Exchange Rates and Controls
The euro is a freely convertible currency. Since its introduction in 1999, the euro has become the second most widely used currency internationally. Currency transactions do not require licenses or other permissions. Capital market transactions are not subject to any license or similar requirements. Gold may be imported and exported freely, subject only to the levy of VAT on some transactions.
Sources: International Monetary Fund, Selected Decisions and Selected Documents of the IMF, Forty-First Issue - Freely Usable Currencies, Prepared by the Legal Department of the IMF, as updated July 31, 2020 (https://www.imf.org/external/pubs/ft/sd/2021/41st_Sel_Dec_EN_Web_FINAL.pdf); Bank for International Settlements, Triennial Central Bank Survey, Foreign exchange turnover in April 2019, September 2019, Table “Currency distribution of OTC foreign exchange turnover”, p. 10 (https://www.bis.org/statistics/rpfx19_fx.pdf).
G-30
The following table shows the annual average exchange rates for selected currencies in relation to the euro for the years indicated.
ANNUAL AVERAGE EXCHANGE RATESOFTHE EURO (1)
| | | | | | | | | | | | | | | | | | | | |
| | | 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
U.S. dollars per euro | | | 1.1827 | | | | 1.1422 | | | | 1.1195 | | | | 1.1810 | | | | 1.1297 | |
Pound sterling per euro | | | 0.85960 | | | | 0.88970 | | | | 0.87777 | | | | 0.88471 | | | | 0.87667 | |
Japanese yen per euro | | | 129.88 | | | | 121.85 | | | | 122.01 | | | | 130.40 | | | | 126.71 | |
Swiss franc per euro | | | 1.0811 | | | | 1.0705 | | | | 1.1124 | | | | 1.1550 | | | | 1.1117 | |
Chinese yuan per euro | | | 7.6282 | | | | 7.8747 | | | | 7.7355 | | | | 7.8081 | | | | 7.6290 | |
| (1) | Calculated from daily values. |
Source: Deutsche Bundesbank, Monatsbericht Februar 2022, Table XII.9.
Financial System
German Financial System
Overview. As of January 31, 2022, 1,442 monetary financial institutions in Germany reported an aggregate balance sheet total of EUR 9,779.4 billion to the Deutsche Bundesbank. According to the Deutsche Bundesbank’s classification, these institutions included:
| | • | | 250 commercial banks, with an aggregate balance sheet total of EUR 4,241.0 billion; |
| | • | | 368 savings banks, with an aggregate balance sheet total of EUR 1,546.4 billion; |
| | • | | the six regional institutions of those savings banks, including DekaBank Deutsche Girozentrale (the central asset managing institution of the German savings banks) and five Landesbanken (German public law financial institutions traditionally focusing on the banking business for and in the Land in which they operate), with an aggregate balance sheet total of EUR 880.7 billion; |
| | • | | 18 special-purpose credit institutions, including KfW, KfW IPEX-Bank, promotional banks of the federal states (Landesförderinstitute), and, since July 2016, DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main (DZ Bank), the only remaining central institution of German credit cooperatives, with an aggregate balance sheet total of EUR 1,486.8 billion; |
| | • | | 773 credit cooperatives, with an aggregate balance sheet total of EUR 1,139.1 billion; |
| | • | | 9 mortgage banks, with an aggregate balance sheet total of EUR 231.9 billion; |
| | • | | 18 building and loan associations, with an aggregate balance sheet total of EUR 253.4 billion; and |
| | • | | 141 subsidiaries and branches of foreign banks located in the Federal Republic with an aggregate balance sheet total of EUR 1,911.0 billion. These institutions, which are majority-owned by foreign banks, are also included in the totals of the other categories of banks listed above. |
Source: Deutsche Bundesbank, Monatsbericht März 2022, Table IV.2.
The German Banking Act (Kreditwesengesetz, or “KWG”) currently regulates all banks except for the Deutsche Bundesbank and KfW (although it does regulate KfW IPEX-Bank). Many important provisions of the KWG have become applicable by analogy to KfW with effect from January 1, 2016. For more information on the application of the KWG to KfW, see “KfW—General—Supervision and Regulation—Regulation.” German commercial banking institutions operate as “universal” banks and are not restricted by law or otherwise from offering a complete range of diverse financial services.
Supervision. The Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, or “BaFin”) is responsible for the integrated supervision of financial services. Its primary objective is to ensure the proper functioning, stability and integrity of Germany as a financial center in the context of European integration and international cooperation, as well as to strengthen collective consumer protection through its regulatory actions. The BaFin, which is subject to the legal and technical oversight of the Federal Ministry of Finance, operates exclusively in the public interest. It helps to ensure the ability of banks, financial services institutions and insurance companies to meet their payment obligations (solvency supervision), and it also enforces standards of professional conduct aimed at preserving investors’ trust in the financial markets (market supervision). In addition, the BaFin has an investor protection role in that it seeks to prevent unauthorized financial business from being carried out.
G-31
The Deutsche Bundesbank is closely involved in the ongoing supervision of credit institutions by the BaFin and has been assigned a substantial number of the ongoing operational tasks in banking supervision. Furthermore, the German Federal Agency for Financial Market Stabilization (Bundesanstalt für Finanzmarktstabilisierung, or “FMSA”) supervises two wind-up institutions, Erste Abwicklungsanstalt and FMS Wertmanagement, as well as Portigon AG (the legal successor of former Landesbank WestLB which is in the process of being wound-up), all of which were founded under its auspices in order to stabilize the financial market (see “—Wind-up Institutions”).
In November 2014, the Single Supervisory Mechanism (“SSM”) – as one of the pillars of the Banking Union – became operational. Under the SSM, the ECB is the central prudential supervisor of financial institutions in the euro area as well as in non-euro area EU Member States that choose to join the SSM. The ECB directly supervises the most significant banks, while the national supervisors continue to monitor the remaining banks. The ECB and the national supervisors work closely together to ensure the banks’ compliance with EU banking regulations and to be able to address issues early on.
In order to facilitate the timely identification of risks to financial stability, the Financial Stability Committee (Ausschuss für Finanzstabilität), which consists of representatives of the Federal Ministry of Finance, the Deutsche Bundesbank and BaFin, was established in March 2013 based on the Financial Stability Act (Gesetz zur Überwachung der Finanzstabilität, Finanzstabilitätsgesetz). On basis of the Financial Stability Act and due to its macroeconomic and financial market expertise, the Deutsche Bundesbank is responsible for contributing towards safeguarding financial stability and tasked with analyzing all relevant factors in order to identify threats to financial stability. If appropriate, the Deutsche Bundesbank may propose and submit warnings or recommendations for corrective measures to the Financial Stability Committee, which may pass resolutions with respect thereto and publish them if appropriate. The recipients of such warnings or recommendations are required to report on the implementation of corrective measures. In addition, the Financial Stability Committee is tasked with discussing issues relevant for financial stability, coordinating and strengthening the cooperation of its members during times of crisis, discussing how to deal with warnings or recommendations issued by the European Systemic Risk Board (“ESRB”) and reporting to the German Bundestag on a yearly basis.
Sources: Bundesministerium der Justiz, Gesetz über das Kreditwesen (https://www.gesetze-im-internet.de/kredwg/index.html); Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin, Functions & history (https://www.bafin.de/EN/DieBaFin/AufgabenGeschichte/aufgabengeschichte_node_en.html); Deutsche Bundesbank, Tasks, Banking supervision (https://www.bundesbank.de/en/tasks/banking-supervision); Bundesanstalt für Finanzdienstleistungsaufsicht, Aufsichtsrichtlinie—Richtlinie zur Durchführung und Qualitätssicherung der laufenden Überwachung der Kredit- und Finanzdienstleistungsinstitute durch die Deutsche Bundesbank (Aufsichtsrichtlinie), May 21, 2013, revised on December 19, 2016 (https://www.bafin.de/SharedDocs/Veroeffentlichungen/DE/Aufsichtsrecht/Richtlinie/rl_130521_aufsichtsrichtlinie.html); Bundesanstalt für Finanzdienstleistungsaufsicht, Act on the Strengthening of German Financial Supervision, January 18, 2013 (https://www.bafin.de/SharedDocs/Veroeffentlichungen/EN/Fachartikel/2013/fa_bj_2013_01_finstabg_en.html); Bundesanstalt für Finanzmarktstabilisierung (FMSA): Federal Agency for Financial Market Stabilisation (https://www.fmsa.de/en/); Portigon AG: Unternehmensinformationen (https://www.portigon-ag.de/acm/cm/content/portigon/i/de/portigon-ag/unternehmensinformationen.html); Deutsche Bundesbank, Macroprudential surveillance by the G-FSC (https://www.bundesbank.de/en/tasks/financial-and-monetary-system/financial-and-monetary-stability/macroprudential-surveillance-g-fsc-/macroprudential-surveillance-by-the-g-fsc-625732); European Commission: Single supervisory mechanism (https://ec.europa.eu/info/business-economy-euro/banking-and-finance/banking-union/single-supervisory-mechanism_en).
Bank Recovery and Resolution. Between January 1, 2015, and December 31, 2017, the FMSA (see “—Supervision”) acted as the German national resolution authority for banks. The FMSA was thus responsible for the recovery and resolution of all banks in Germany under the European Bank Recovery and Resolution Directive (“BRRD”) which were not directly supervised by the ECB within the framework of the SSM (see “—European Financial System—European System of Financial Supervision and European Banking Union”). The BRRD was adopted in May 2014 to provide authorities with comprehensive and effective arrangements to deal with failing banks at the national level and with cooperation arrangements to tackle cross-border banking failures. The BRRD includes rules to set up national resolution funds, which must be established by each EU Member State, and it requires banks to prepare recovery plans to overcome financial distress.
On January 1, 2018, FMSA’s duties deriving from its role as the national resolution authority were integrated into the BaFin as a new and independently operating division. At the same time, FMSA’s responsibilities of administering and managing the Financial Market Stabilization Fund (“Sondervermögen Finanzmarktstabilisierungsfonds,” or “FMS”) were incorporated into the Federal Republic of Germany – Finance Agency (Bundesrepublik Deutschland – Finanzagentur GmbH). The FMS was originally created during the financial crisis on October 17, 2008. Until the Single Resolution Mechanism (“SRM”) became fully operational on January 1, 2016, and functionally replaced the FMS, the latter was responsible for stabilizing German banks by extending guarantees covering the banks’ securities and by granting loans. The stabilization measures provided by the FMS amounted to EUR 14.6 billion in capital injections, while loss compensation payments made to FMS Wertmanagement totaled EUR 9.3 billion.
G-32
For more information on the SRM, see “—European Financial System—European System of Financial Supervision and European Banking Union.”
Sources: Deutsche Bundesbank, Glossary: Restructuring Act (https://www.bundesbank.de/dynamic/action/en/homepage/glossary/729724/glossary?firstLetter=R&contentId=653352#anchor-653352); European Commission: Bank recovery and resolution (https://ec.europa.eu/info/business-economy-euro/banking-and-finance/financial-supervision-and-risk-management/managing-risks-banks-and-financial-institutions/bank-recovery-and-resolution_en); Bundesministerium der Finanzen, Verordnung über die Erhebung der Beiträge zum Restrukturierungsfonds für Kreditinstitute (Restrukturierungsfonds-Verordnung—RStruktFV) (https://www.bundesfinanzministerium.de/Content/DE/Gesetzestexte/Gesetze_Verordnungen/2015-07-22-RStruktFV.html); Gesetz zur Neuordnung der Aufgaben der Bundesanstalt für Finanzmarktstabilisierung (FMSA-Neuordnungsgesetz—FMSANeuOG) (https://www.bundesfinanzministerium.de/Content/DE/Gesetzestexte/Gesetze_Gesetzesvorhaben/Abteilungen/Abteilung_VII/18_Legislaturperiode/2016-12-28-FMSA-Neuordnungsgesetz/3-
Verkuendetes-Gesetz.pdf?__blob=publicationFile&v=3); Federal Agency for Financial Market Stabilisation: History (https://www.fmsa.de/en/history/); Bundesrepublik Deutschland – Finanzagentur GmbH, Financial Market Stabilisation, Financial Market Stabilisation Fund (FMS) (https://www.deutsche-finanzagentur.de/en/financialmarketstabilisation/); Bundesanstalt für Finanzdienstleistungsaufsicht, Recovery and resolution (https://www.bafin.de/EN/Aufsicht/BankenFinanzdienstleister/Massnahmen/SanierungAbwicklung/sanierung_abwicklung_node_en.html).
Wind-up Institutions. In the wake of the global financial crisis, two wind-up institutions (Abwicklungsanstalten) for troubled German banks were established. The first wind-up institution, Erste Abwicklungsanstalt, was established in December 2009 to liquidate a portfolio of EUR 77.5 billion assumed from WestLB. It assumed a second portfolio consisting of an asset portfolio worth EUR 72.3 billion and a trading portfolio with a market value of approximately EUR 52.1 billion following the restructuring of WestLB. As of December 31, 2021, the combined asset portfolios had been reduced to approximately EUR 18.1 billion.
The second wind-up institution, FMS Wertmanagement, assumed a portfolio of EUR 175.7 billion from Hypo Real Estate Group in October 2010 to support restructuring efforts. In December 2014, FMS Wertmanagement acquired DEPFA Bank plc (“DEPFA”), which, as of December 31, 2013, had consolidated total assets amounting to EUR 49.1 billion from Hypo Real Estate Holding AG. In February 2021, FMS Wertmanagement announced that it is selling wholly-owned DEPFA to BAWAG P.S.K. AG. The transaction was closed in November 2021. As of December 31, 2021, FMS Wertmanagement’s portfolio had a nominal value of EUR 54.1 billion.
Sources: Erste Abwicklungsanstalt, Annual Report 2021 (https://www.aa1.de/wp-content/uploads/2022/04/GB-2021_de.pdf); FMS Wertmanagement AöR, Investor Präsentation Nov. 2021 (https://www.fms-wm.de/de/downloadcenter-de/investoren/praesentationen/149-investorenpraesentation/file); FMS Wertmanagement AöR, Geschäftsbericht 2020 (https://www.fms-wm.de/de/downloadcenter-de/investoren/berichte/210-geschaeftsbericht-2020-1/file); FMS Wertmanagement AöR, FMS Wertmanagement sells DEPFA Bank plc to Autria’s BAWAG P.S.K. AG (https://www.fms-wm.de/en/press/514-fms-wertmanagement-sells-depfa-bank-plc-to-austria-s-bawag-p-s-k-ag); FMS Wertmanagement sells all of its shares in DEPFA BANK plc (https://www.fms-wm.de/en/press/531-fms-wertmanagement-sells-all-of-its-shares-in-depfa-bank-plc); Bundesanstalt für Finanzmarktstabilisierung, Gemeinsame Pressemitteilung von FMSA und HRE, press release of May 13, 2014 (https://www.fmsa.de/fileadmin/user_upload_fmsa/Pressemitteilungen/deutsch/20140513_FMS-WM.pdf); FMS Wertmanagement, Joint Press Release of FMS- WM and HRE: FMS Wertmanagement closes acquisition of DEPFA Bank plc from HRE, press release of December 19, 2014 (https://www.fms-wm.de/en/press/245-joint-press- release-of-fms-wm-and-hre-fms-wertmanagement-closes-acquisition-of-depfa-bank-plc-from-hre); European Commission, Commission Decision of 18 July 2011 on State Aid C 15/2009 (ex N 196/2009), which Germany implemented and is planning to implement for Hypo Real Estate (https://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1490275422217&uri=CELEX:32012D0118); FMS Wertmanagement, FMS Wertmanagement fulfils wind-up task for the DEPFA Group and meets wind-up target for 2021, press release of April 26, 2022 (https://www.fms-wm.de/en/press/538-fms-wertmanagement-fulfils-wind-up-task-for-the-depfa-group-and-meets-wind-up-target-for-2021).
European Financial System
European System of Financial Supervision and European Banking Union. The European system of financial supervisors became operational on January 1, 2011. At the macro-financial level, the ESRB was established, which provides macro-prudential oversight of the financial system. The ESRB’s role is to monitor and assess potential risks to the stability of the financial system. If necessary, it will issue risk warnings and recommendations for remedial action and will monitor their implementation. The ESRB is currently chaired by the President of the ECB.
At the micro-financial level, three supervisory authorities were established:
| | • | | the European Banking Authority (“EBA”); |
| | • | | the European Insurance and Occupational Pensions Authority; and |
| | • | | the European Securities and Markets Authority. |
G-33
The three European Supervisory Authorities (“ESAs”) cooperate with the supervisory authorities of the EU Member States. National authorities are responsible for the day-to-day supervision of individual financial institutions, whereas the ESAs are responsible for ensuring that a single set of harmonized rules and consistent supervisory practices are applied by supervisory authorities of the EU Member States. The ESAs have, for example, the power to settle disputes among national financial supervisors by imposing legally binding mediation and to impose temporary bans on risky financial products or activities.
One of the key elements of the Banking Union, which was established in the wake of the European sovereign debt crisis, is the SSM composed of the ECB and the national supervisory authorities of participating EU Member States. The SSM’s main aims are to contribute to the safety and soundness of credit institutions and the stability of the European financial system and to ensure consistent supervision. The SSM became operational in November 2014. In its role within the SSM, the ECB directly supervises 115 significant banks and banking groups, which represent almost 82% of the total assets on the aggregated balance sheets of all credit institutions under its supervision. For the remaining banks, the ECB is responsible for setting and monitoring the supervisory standards and for working closely with the national competent authorities in the supervision of these banks.
Another key element of the Banking Union is the SRM which was established by a regulation adopted in July 2014 and has become fully operational starting January 1, 2016 with the purpose of ensuring the orderly resolution of failing banks. The SRM consists of a single resolution board (“SRB”), which has broad powers in cases of bank resolution, and the SRF. The SRB is responsible for the planning and resolution phases of cross-border banks and those directly supervised by the ECB, while since January 1, 2015 national resolution authorities are responsible for all other banks under the BRRD. However, the SRB will always be responsible if the resolution of a bank requires access to the SRF. The SRF is being built up over a period of eight years from 2016 to 2023 to reach a target level of at least 1% of the amount of covered deposits of all credit institutions authorized in all the participating EU Member States. Banks will have to make annual contributions to the SRF calculated on the basis of their liabilities, excluding own funds and covered deposits, and adjusted for risk. Companies defined in article 2 paragraph 5 of the EU Capital Requirements Directive IV (CRD IV), including KfW, are not required to contribute to the fund. During the transitional period each participating Member State is providing an individual national credit line to the SRB to back its banks’ contributions to the SRF in the event of possible funding shortfalls following resolution cases of its banks. By now all 19 participating EU Member States have signed the Loan Facility Agreements with the SRB which are the basis for the bridge financing in the form of national credit lines to the SRB. The maximum aggregate amount of the credit lines of the participating EU Member States will amount to just over EUR 60 billion. The repartition key among EU Member States corresponds to the contributions to the SRF, which will be made by banks in each Member State by 2023. In July 2021, the SRF had grown to approximately EUR 52 billion and its target size for 2023 is expected to be in the range of EUR 70 billion to EUR 75 billion. In 2021, the aggregate contribution of German banks amounted to 26.2% of total contributions.
In November 2015, and as amended on October 11, 2017, the European Commission proposed a European Deposit Insurance Scheme (“EDIS”) as an additional element of the Banking Union. Since then, work on a technical level has been ongoing. In December 2018, the Euro Summit, the meeting format of the heads of state or government of the Euro Area Member States, created a high-level working group to work on a roadmap for beginning political negotiations on EDIS. In December 2020, the Euro Summit invited the Eurogroup in inclusive format to prepare, on a consensual basis, a stepwise and time-bound work plan on all outstanding elements needed to complete the Banking Union, including deposit insurance and reaffirmed its statement in December 2021. The EU has agreed on common rules to harmonize the national deposit insurance schemes.
In response to the global economic and financial crisis, regulatory authorities and central banks launched a comprehensive regulatory reform program. As a result, in December 2010, the Basel Committee on Banking Supervision launched a first package, typically referred to as Basel III, of new standards on bank capital adequacy and liquidity to enhance the banking regulatory framework. In order to implement Basel III into EU law, previous EU capital requirement directives were replaced by the Capital Requirements Regulation (CRR), a regulation establishing prudential requirements, and the Capital Requirements Directive IV (CRD IV), a directive governing access to deposit-taking activities, both of which entered into force on January 1, 2014 and have since been gradually implemented in the EU Member States. Further measures were implemented by changes to CRR and CRD adopted by the European legislators in 2019 as described below. A second reform package was endorsed by the Basel Committee on Banking Supervision in December 2017 to finalize the post-
G-34
crisis reforms. It aims to reduce excessive variability in the calculation of risk-weighted assets. These new Basel regulations, typically referred to as Basel III final or Basel IV, will enter into force gradually from January 1, 2023 onwards until full implementation in January 2028, given that their implementation was postponed by one year by the Basel Committee on March 27, 2020 due to the COVID-19 pandemic.
In May 2019, the Council adopted a package of revised rules aimed at reducing risks in the EU banking sector. Most new rules started to apply in mid-2021. The package comprised two regulations and two directives, relating to bank capital requirements (amendments to CRR (CRR II) and CRD (CRD V)) and the recovery and resolution of banks in difficulty (amendments to BRRD and the Single Resolution Mechanism Regulation (SRMR)) and implemented reforms agreed at the international level following the 2007-2008 financial crisis to strengthen the banking sector and to address outstanding challenges to financial stability. Among the core measures agreed to reduce risk in the banking system, the package enhances the framework for bank resolution. It requires global-systemically important institutions (G-SIIs) to have more loss-absorbing and recapitalization capacity by setting the minimum requirements with respect to the amount and quality of own funds and eligible liabilities (MREL) to ensure an effective and orderly “bail-in” process. It also provides provisional safeguards and possible additional actions for resolution authorities. Additionally, the package strengthens bank capital requirements to reduce incentives for excessive risk taking, by including a binding leverage ratio, a binding net stable funding ratio, and setting risk sensitive rules for trading in securities and derivatives. Moreover, the package includes measures to improve banks’ lending capacity and to facilitate a greater role for banks in the capital markets, such as reducing the administrative burden for smaller and less complex banks, linked in particular to reporting and disclosure requirements and enhancing the capacity of banks to lend to SMEs and to fund infrastructure projects. It also comprises a framework for cooperation and information sharing among the various authorities involved in the supervision and resolution of cross-border banking groups. The agreed measures aim to preserve the balance achieved by the Council between the powers of home and host supervisors in order to facilitate cross-border flows of capital and liquidity, while ensuring an adequate level of protection for depositors and creditors as well as financial stability in all EU Member States. Furthermore, the amendments improve cooperation between competent authorities on matters related to the supervision of anti-money laundering activities.
In the spring of 2020, due to the COVID-19 pandemic, the ECB announced a temporary change within its framework for market risk, by allowing banks to adjust the supervisory component of these requirements. Following a recommendation of the EBA, the BaFin extended these relief measures to smaller German banks which are not directly supervised by the ECB. In addition, the ECB announced in September 2020 that euro area banks under its direct supervision may exclude certain central bank exposures from the leverage ratio. This measure was extended to smaller German banks by BaFin as well. On February 10, 2022, the ECB announced that it will not extend capital and leverage relief measures for banks beyond December 2022. Further, the ECB announced that it will not extend the ability of banks to exclude certain central bank exposures from their leverage ratios beyond March 2022.
Based on their assessment of the risk situation in German credit markets as well as the development of supporting indicators like the credit/GDP gap, BaFin decided to increase the ratio of the national anticyclical capital buffer to 0.75% from February 1, 2022 onwards. The associated requirement for hard equity must therefore be met from February 1, 2023 onwards.
Sources: European Commission, European system of financial supervision (https://ec.europa.eu/info/business-economy-euro/banking-and-finance/financial-supervision-and-risk-management/european-system-financial-supervision_en); European Commission, Banking Union (https://ec.europa.eu/info/business-economy-euro/banking-and-finance/banking-union_en); Council of the European Union, Banking Union (https://www.consilium.europa.eu/en/policies/banking-union/); European Central Bank, ECB assumes responsibility for euro area banking supervision, press release of November 4, 2014 (https://www.ecb.europa.eu/press/pr/date/2014/html/pr141104.en.html); European Central Bank - Banking Supervision, Single Supervisory Mechanism (https://www.bankingsupervision.europa.eu/about/thessm/html/index.en.html); European Central Bank - Banking Supervision, List of supervised entities (https://www.bankingsupervision.europa.eu/ecb/pub/pdf/ssm.listofsupervisedentities202102.en.pdf?f532b1d8606bfdbb1cc4a5adcd66934f); European Commission, Single Resolution Mechanism to come into effect for the Banking Union, press release of December 31, 2015 (https://europa.eu/rapid/press-release_IP-15-6397_en.htm); Single Resolution Board, Single Resolution Fund (https://www.srb.europa.eu/en/content/single-resolution-fund#:~:text=The%20SRF%20is%20being%20built,at%20approximately%20%E2%82%AC52%20billion.); Single Resolution Board, Annual SRF levies (ex-ante contributions), National Compartment Table 2021 (https://www.srb.europa.eu/system/files/media/document/National%20Compartment%20Table%202021.pdf); Single Resolution Board, The Single Resolution Fund (https://srb.europa.eu/en/content/single-resolution-fund); Single Resolution Board, Banking Union – Single Resolution Board completes signature of Loan Facility Agreements with all 19 participating Member States, February 8, 2017 (https://srb.europa.eu/en/file/pr-banking-union-single-resolution-board-completes-signature-loan-facility-agreements-all-19); Single Resolution Fund (SRF) Fact Sheet (https://www.srb.europa.eu/en/system/files?file=media/document/2020_fact_sheet.pdf); European Banking Authority, Implementing Basel III in Europe: CRD IV Package (https://www.eba.europa.eu/regulation-and-policy/implementing-basel-iii-europe); Bank for International Settlements, Basel Committee on Banking Supervision, Basel III: Finalising Post-Crisis Reforms (https://www.bis.org/bcbs/publ/d424.htm); European Commission, Communication from the Commission: Completing
G-35
the banking union, first published on October 11, 2017 (https://ec.europa.eu/info/publications/171011-communication-banking-union_en); Council of the European Union, Banking Union, Amendments to the banking union rules (https://www.consilium.europa.eu/en/policies/banking-union/2016-amendments); European Council, Banking Union: Council adopts measures to reduce risk in the banking system (https://www.consilium.europa.eu/en/press/press-releases/2019/05/14/banking-union-council-adopts-measures-to-reduce-risk-in-the-banking-system/); European Council, Euro Summit, 14/12/2018 (https://www.consilium.europa.eu/en/meetings/euro-summit/2018/12/14/); Single Resolution Board, Single Resolution Fund, SRF grows to EUR 33 billion after latest round of transfers, press release of July 17, 2019 (https://srb.europa.eu/en/node/804); Single Resolution Board, Single Resolution Fund: Statistical Overview of the funds collected by the SRB (https://srb.europa.eu/sites/srbsite/files/additional_statistics.pdf); European Central Bank – Banking Supervision, ECB Banking Supervision provides temporary relief for capital requirements for market risk, press release of April 16, 2020 (https://www.bankingsupervision.europa.eu/press/pr/date/2020/html/ssm.pr200416~ecf270bca8.en.html); European Central Bank – Banking Supervision, ECB Banking Supervision provides temporary capital and operational relief in reaction to coronavirus, press release of March 12, 2020 (https://www.bankingsupervision.europa.eu/press/pr/date/2020/html/ssm.pr200312~43351ac3ac.en.html); Bundesanstalt für Finanzdienstleistungsaufsicht, General Administrative Act regarding a decrease in the domestic countercyclical capital buffer rate of March 31, 2020, updated on April 23, 2020 (https://www.bafin.de/SharedDocs/Veroeffentlichungen/EN/Aufsichtsrecht/Verfuegung/vf_200331_allgvfg_antizykl_kapitalpuffer_en.html); European Central Bank - Banking Supervision, ECB will not extend capital and leverage relief for banks, press release of February 10, 2022 (https://www.bankingsupervision.europa.eu/press/pr/date/2022/html/ssm.pr220210_1~ea3dd0cd51.en.html).
Policy Responses to the Global Financial and Economic Crisis and the COVID-19 Pandemic. In response to the tensions in the financial markets and the loss of confidence in the financial sector in the wake of the global financial and economic crisis, a number of measures were taken at the EU level in recent years to restore confidence in the financial sector and prevent market disruptions. These measures were, or continue to be, mainly directed at preserving adequate capitalization of financial institutions, at enhancing credit support measures to improve bank lending and liquidity in the euro area money market, at safeguarding the flow of credit from financial institutions to the real economy and at addressing the risk of a prolonged period of low inflation. A central role was, and continues to be, played by the ECB, which introduced a number of non-standard monetary policy measures, including, among others, asset purchase programs, long-term refinancing operations and measures aimed at increasing collateral availability. These measures are unprecedented in nature, scope and magnitude and aim to safeguard the primary objective of price stability and to ensure an appropriate monetary policy transmission mechanism.
In September 2012, the ECB announced Outright Monetary Transactions in secondary markets for euro-denominated sovereign bonds in the euro area aimed at enabling the ECB to address severe distortions in government bond markets. In June 2014, the ECB announced several measures designed to enhance the functioning of the monetary policy transmission mechanism by supporting lending to the real economy. In particular, the ECB decided to conduct a series of eight TLTROs between September 2014 and June 2016. All of these TLTROs matured in September 2018. Furthermore, the ECB conducted four additional TLTROs with four-year maturities (“TLTROs II”) on a quarterly basis from June 2016 to March 2017. Counterparties exceeding an ECB-defined lending benchmark until January 2018 were entitled to borrow at an interest rate as low as the interest rate on the deposit facility prevailing at the time of allotment. Since the interest rate on the deposit facility stood below zero at the time of the allotments of all TLTROs II, counterparties were, in fact, paid for their lending efforts if they exceeded their benchmarks. Like the previous TLTROs, the TLTROs II were aimed at improving bank lending to the euro-area non-financial private sector (defined as euro-area households and non-financial corporations), excluding loans to households for house purchases. Banks were able to borrow larger amounts through the TLTROs II compared to the previous TLTROs. The last operation of the TLTROs II series matured in March 2021. In March 2019, the ECB announced the launch of a further series of quarterly targeted longer-term refinancing operations (“TLTROs III”), which started in September 2019 and were initially set to continue until March 2021. The ECB amended the originally planned conditions for the TLTROs III in September 2019, reducing the interest rate on the operations and extending their maturity from two to three years. Moreover, in reaction to the COVID-19 Pandemic, the ECB eased the conditions of the TLTRO III to 50 basis points below the deposit facility rate and announced in December 2020 that it will extend the TLTROs III until June 2022, with three additional operations being conducted between June 2021 and December 2021. Furthermore, to ensure sufficient liquidity and smooth money market conditions during the pandemic, the ECB introduced pandemic emergency longer-term refinancing operations (PELTROs), which served as liquidity backstop until the end of 2021.
In addition, over the past years the ECB has sought to provide monetary stimulus to the economy through its APP, which was launched in October 2014 and significantly expanded in March 2015. The APP was conducted to further ease monetary and financial conditions in a context where key ECB interest rates were at their effective lower bound. Since mid-2016, it had consisted of four elements: a covered bond purchase program, an asset-backed securities purchase program, a public sector purchase program (including, among others, debt securities of KfW) and a corporate sector purchase program. Monthly purchases varied over time. In total, the ECB has bought securities for an amount of approximately EUR 2.57 trillion via the APP between
G-36
October 2014 and December 2018. When net purchases ended in December 2018, the ECB continued to reinvest principal payments from maturing securities purchased under the APP. In September 2019, the ECB announced that net purchases would be restarted under the Governing Council of the ECB’s APP at a monthly pace of EUR 20 billion as from November 1, 2019, and were expected to continue for as long as necessary to reinforce the accommodative impact of the ECB’s policy rates. In February 2022, the Eurosystem’s holdings under the APP stood at EUR 3,163 billion. Moreover, starting in March 2020, the ECB introduced a PEPP, which was extended several times and currently has a total program volume of EUR 1,850 billion. As of February 2022, the ECB had purchased assets in an amount of EUR 1,687.9 billion. All asset categories eligible under the existing APP are also eligible under the PEPP. Moreover, the ECB buys securities in a flexible manner over time, across asset classes and jurisdictions. In its December 2021 meeting, the ECB announced the end of PEPP for the end of March, 2022 and that purchases within the APP were to be increased to EUR 40 billion a month and subsequently reduced to EUR 20 billion at the end of October 2022. As inflation remained well above the ECB’s target of 2 % in the first two months of 2022, and incoming data is confirming the ECB’s view that inflation in the Euro area will be significantly higher than 2 % in 2022, the ECB in March 2022 decided to reduce APP monthly net purchases to EUR 20 billion already by the end of June 2022. In addition, the ECB intends to end net asset purchases at the beginning of the third quarter of 2022, provided that then available data on inflation does not require a different stance.
In September 2019, the ECB decided to decrease the interest rate on its deposit facility by 10 basis points to -0.50% while leaving the interest rates on the main refinancing operations and the rate on the marginal lending facility unchanged at 0.00% and 0.25%, respectively. At the same time the Governing Council of the ECB introduced a two-tier system for reserve remuneration, which exempts part of credit institutions’ excess liquidity holdings (i.e., reserve holdings in excess of minimum reserve requirements) from negative remuneration at the rate applicable to the deposit facility. This measure aims at supporting the bank-based transmission of monetary policy. The interest rate on the ECB’s deposit facility has been negative since June 2014. The ECB has stressed repeatedly that it will increase interest rates only after the end of its net asset purchases.
Sources: European Central Bank, The Eurosystem’s instruments (https://www.ecb.europa.eu/mopo/implement/html/index.en.html); European Central Bank, Monetary policy decisions (https://www.ecb.europa.eu/mopo/decisions/html/index.en.html); European Central Bank, Technical features of Outright Monetary Transactions, press release of September 6, 2012 (https://www.ecb.int/press/pr/date/2012/html/pr120906_1.en.html); European Central Bank, ECB introduces a negative deposit facility interest rate, press release of June 5, 2014 (https://www.ecb.europa.eu/press/pr/date/2014/html/pr140605_3.en.html); European Central Bank, ECB announces further details of the targeted long-term refinancing operations, press release of July 3, 2014 (https://www.ecb.europa.eu/press/pr/date/2014/html/pr140703_2.en.html); European Central Bank, ECB announces new series of targeted longer-term refinancing operations (TLTRO II), press release of March 10, 2016 (https://www.ecb.europa.eu/press/pr/date/2016/html/pr160310_1.en.html); European Central Bank, Asset purchase programmes (https://www.ecb.europa.eu/mopo/implement/omt/html/index.en.html); European Central Bank, ECB announces expanded asset purchase programme, press release of January 22, 2015 (https://www.ecb.europa.eu/press/pr/date/2015/html/pr150122_1.en.html); European Central Bank, ECB adds corporate sector purchase programme (CSPP) to the asset purchase programme (APP) and announces changes to APP, press release of March 10, 2016 (https://www.ecb.europa.eu/press/pr/date/2016/html/pr160310_2.en.html); European Central Bank, Monetary policy decisions, press release of March 7, 2019 (https://www.ecb.europa.eu/press/pr/date/2019/html/ecb.mp190307~7d8a9d2665.en.html); European Central Bank, Monetary policy decisions, press release of September 12, 2019 (https://www.ecb.europa.eu/press/pr/date/2019/html/ecb.mp190912~08de50b4d2.en.html); European Central Bank, ECB announces changes to new targeted longer-term refinancing operations (TLTRO III), press release of September 12, 2019 (https://www.ecb.europa.eu/press/pr/date/2019/html/ecb.pr190912~19ac2682ff.en.html); European Central Bank, ECB introduces two-tier system for remunerating excess liquidity holdings, press release of September 12, 2019 (https://www.ecb.europa.eu/press/pr/date/2019/html/ecb.pr190912_2~a0b47cd62a.en.html); European Central Bank, Pandemic emergency purchase programme (PEPP) (https://www.ecb.europa.eu/mopo/implement/pepp/html/index.en.html); European Central Bank – Banking Supervision, ECB Banking Supervision provides temporary capital and operational relief in reaction to coronavirus, press release of March 12, 2020 (https://www.bankingsupervision.europa.eu/press/pr/date/2020/html/ssm.pr200312~43351ac3ac.en.html); European Central Bank, Monetary policy decisions, press release of March 10, 2022 (https://www.ecb.europa.eu/press/pr/date/2022/html/ecb.mp220310~2d19f8ba60.en.html).
Securities Market
The Federal Republic’s securities market is among Europe’s largest. Trading in listed securities is not legally or otherwise confined to the stock exchanges. It is estimated, however, that most transactions in equity securities are executed through stock exchanges. By contrast, debt securities, although typically listed, are predominantly traded over-the-counter.
Highly developed secondary markets, combined with the distribution capabilities of an extensive network of financial institutions, provide the basis for the Federal Republic’s position in the world’s capital
G-37
markets. Equity and debt issues are generally underwritten and distributed through banking syndicates, which typically include commercial banks as well as certain regional and specialized institutions. The regulated securities markets in Berlin, Dusseldorf, Frankfurt am Main, Hamburg, Hanover, Munich and Stuttgart and the European Energy Exchange are recognized as regulated markets of the EU according to Article 56 of Directive 2014/65/EU on Markets in Financial Instruments and comply with globally accepted regulatory standards.
Based on total turnover on German securities exchanges, the Frankfurt Stock Exchange, operated by Deutsche Börse AG, is by far the most important stock exchange in the Federal Republic.
In January 2013, the Heads of State or Government of the European Union adopted a decision authorizing a number of EU Member States to proceed with the introduction of a financial transaction tax through “enhanced cooperation.” Negotiations are currently not being conducted.
Sources: Bundesanstalt für Finanzdienstleistungsaufsicht, Notice on the granting of authorization to provide financial services pursuant to section 32 (1) of the German Banking Act (https://www.bafin.de/SharedDocs/Downloads/EN/Merkblatt/WA/dl_fidierlaubnis_buba_en.html); Bundesanstalt für Finanzdienstleistungsaufsicht, Issuer Guidelines published by the Federal Financial Supervisory Authority (https://www.bafin.de/SharedDocs/Downloads/EN/Leitfaden/WA/dl_emittentenleitfaden_einleitung_en.html?nn=12655158); Bundesanstalt für Finanzdienstleistungsaufsicht, Stock exchanges & markets (https://www.bafin.de/EN/Aufsicht/BoersenMaerkte/boersenmaerkte_node_en.html); Deutsche Börse Group, The Frankfurt Stock Exchange (https://www.deutsche-boerse.com/dbg-en/our-company/frankfurt-stock-exchange); Council of the European Union, Financial transaction tax: Council agrees to enhanced cooperation, press release of January 22, 2013 (https://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/134949.pdf).
G-38
PUBLIC FINANCE
Receipts and Expenditures
The Federal Government, each of the Länder governments and each of the municipalities (Gemeinden) have separate budgets. The federal budget is the largest single public budget.
The fiscal year of the Federal Republic is the calendar year. The annual federal budget is passed by an act of Parliament. On the basis of a proposal prepared by the Ministry of Finance, the Federal Government introduces the federal budget bill to the Parliament, generally in the summer of each year. The proposal has to pass through three Bundestag sessions, the budget committee of the Bundestag, and the Bundesrat, which deliberates on the proposal twice. The final vote on the proposal is taken by the Bundestag in its third session.
In addition to the federal, Länder and municipal budgets, there are separate budgets for the social security funds and various special funds (Sondervermögen) of the federal administration and the Länder, as well as other extra-budgetary entities at all levels of government that are created for specific public purposes. General government, as defined in the national accounts, comprises all of these different levels of government activity.
In 2021, public finances continued to be under significant pressure due to the COVID-19 pandemic. Total consolidated general government revenue, as presented in the national accounts, amounted to EUR 1,705.8 billion in 2021, with tax revenue of EUR 872.9 billion and net social contributions of EUR 632.8 billion.
Source: Statistisches Bundesamt, Fachserie 18, Reihe 1.4 – 2021 (March 2022), Table 3.4.3.2.
In 2021, VAT and the taxes on income and wealth, as presented in the national accounts, amounted to EUR 258.0 billion and EUR 481.2 billion, respectively. These joint taxes are distributed among the Federal Government, the Länder governments and municipal authorities, according to predetermined formulae. In addition to joint taxes, the Federal Government, the Länder governments and the municipal authorities each levy special taxes, for example, on tobacco and beer.
Source: Statistisches Bundesamt, Fachserie 18, Reihe 1.4 – 2021 (March 2022), Table 3.4.3.16.
Consolidated general government expenditure in 2021, as presented in the national accounts, amounted to a total of EUR 1,838.2 billion. The most significant consolidated general government expenditures were monetary social benefits (EUR 609.0 billion), social benefits in kind (EUR 327.5 billion) and employee compensation (EUR 294.1 billion). Other significant consolidated general government expenditures included intermediate consumption (EUR 232.5 billion), gross capital formation (EUR 91.7 billion), subsidies (EUR 105.0 billion) and interest on public debt (EUR 21.0 billion).
Source: Statistisches Bundesamt, Fachserie 18, Reihe 1.4 – 2021 (March 2022), Table 3.4.3.2.
GENERAL GOVERNMENT ACCOUNTS (1)
| | | | | | | | | | | | | | | | | | | | |
| | | 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
| | | | | | | | | | | | | | | | |
| | | (EUR in billions) | |
Federal Government, Länder governments and municipalities | | | | | | | | | | | | | | | | | | | | |
Revenue | | | 1,110.9 | | | | 1,001.9 | | | | 1,047.0 | | | | 1,014.8 | | | | 966.4 | |
of which: Current taxes (2) | | | 872.9 | | | | 773.4 | | | | 827.4 | | | | 801.4 | | | | 767.2 | |
Expenditure | | | 1,247.8 | | | | 1,112.1 | | | | 1,005.0 | | | | 966.3 | | | | 933.9 | |
| | | | | | | | | | | | | | | | | | | | |
Balance | | | -136.9 | | | | -110.2 | | | | 42.0 | | | | 48.4 | | | | 32.5 | |
Social security funds | | | | | | | | | | | | | | | | | | | | |
Revenue | | | 782.7 | | | | 717.8 | | | | 690.7 | | | | 662.0 | | | | 636.9 | |
Expenditure | | | 778.3 | | | | 752.8 | | | | 681.6 | | | | 646.0 | | | | 625.8 | |
| | | | | | | | | | | | | | | | | | | | |
Balance | | | 4.4 | | | | -35.0 | | | | 9.1 | | | | 16.0 | | | | 11.1 | |
General government | | | | | | | | | | | | | | | | | | | | |
Revenue | | | 1,705.8 | | | | 1,566.9 | | | | 1,613.8 | | | | 1,557.3 | | | | 1,486.9 | |
Expenditure | | | 1,838.2 | | | | 1,712.1 | | | | 1,562.7 | | | | 1,492.8 | | | | 1,443.3 | |
| | | | | | | | | | | | | | | | | | | | |
Balance | | | -132.5 | | | | -145.2 | | | | 51.1 | | | | 64.4 | | | | 43.7 | |
| | | | | | | | | | | | | | | | | | | | |
| (1) | Definition according to the national accounts. |
| (2) | Excluding taxes of domestic sectors paid to EU. |
Source: Statistisches Bundesamt, Fachserie 18, Reihe 1.4 - 2021 (March 2022), Tables 3.4.3.2, 3.4.3.3 and 3.4.3.7.
G-39
FEDERAL GOVERNMENT ACCOUNTS (1)
| | | | | | | | | | | | | | | | | | | | |
| | | 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
| | | | | | | | | | | | | | | | |
| | | (EUR in billions) | |
Revenue | | | 470.9 | | | | 421.7 | | | | 457.2 | | | | 422.3 | | | | 422.8 | |
of which: Current taxes (2) | | | 404.4 | | | | 359.2 | | | | 396.3 | | | | 385.6 | | | | 373.1 | |
Expenditure | | | 614.4 | | | | 508.2 | | | | 435.2 | | | | 421.2 | | | | 414.8 | |
| | | | | | | | | | | | | | | | | | | | |
Balance | | | 143.4 | | | | 86.4 | | | | 22.0 | | | | 21.1 | | | | 7.9 | |
| | | | | | | | | | | | | | | | | | | | |
| (1) | Definition according to the national accounts. |
| (2) | Excluding taxes of domestic sectors paid to EU. |
Source: Statistisches Bundesamt, Fachserie 18, Reihe 1.4 - 2021 (March 2022), Table 3.4.3.4.
GENERAL GOVERNMENT EXPENDITURE: BREAKDOWNBY FUNCTIONS (1)
| | | | | | | | | | | | | | | | | | | | |
| | | 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
| | | | | | | | | | | | | | | | |
| | | (EUR in billions) | |
General public services | | | 222.1 | | | | 205.3 | | | | 200.5 | | | | 191.7 | | | | 187.4 | |
Defense | | | 38.7 | | | | 37.2 | | | | 36.7 | | | | 35.2 | | | | 33.2 | |
Public order and safety | | | 60.3 | | | | 57.8 | | | | 55.4 | | | | 53.2 | | | | 50.9 | |
Economic affairs | | | 211.0 | | | | 155.8 | | | | 112.9 | | | | 111.1 | | | | 103.7 | |
Environmental protection | | | 21.0 | | | | 23.0 | | | | 20.9 | | | | 19.4 | | | | 17.9 | |
Housing and community amenities | | | 16.3 | | | | 16.2 | | | | 14.7 | | | | 13.2 | | | | 12.2 | |
Health | | | 311.6 | | | | 286.7 | | | | 253.7 | | | | 241.6 | | | | 232.7 | |
Recreation, culture and religion | | | 39.2 | | | | 38.3 | | | | 35.8 | | | | 34.9 | | | | 33.5 | |
Education | | | 162.8 | | | | 157.1 | | | | 150.7 | | | | 143.6 | | | | 136.6 | |
Social protection | | | 755.2 | | | | 734.8 | | | | 681.5 | | | | 648.8 | | | | 635.0 | |
| | | | | | | | | | | | | | | | | | | | |
Total expenditure | | | 1,838.2 | | | | 1,712.1 | | | | 1,562.7 | | | | 1,492.8 | | | | 1,443.3 | |
| | | | | | | | | | | | | | | | | | | | |
| (1) | Definition according to the national accounts. |
Source: Statistisches Bundesamt, Fachserie 18, Reihe 1.4 - 2021 (March 2022), Table 3.4.3.11.
Germany’s General Government Deficit/Surplus and General Government Gross Debt
For purposes of the EU Member States’ reports to the European Commission under the EDP, the general government or “Maastricht” deficit/surplus refers to the difference between consolidated public sector revenue and consolidated public sector expenditure and is the balancing item “net borrowing/net lending” of the general government (central government, state government, local government and social security funds) as defined in ESA 2010. After eight annual surpluses in a row, the German general government budget balance turned negative in 2020 due to the impact of the COVID-19 pandemic. Following a general government deficit of 4.3% in 2020, the German general government deficit amounted to EUR 132.5 billion or 3.7% of nominal GDP in 2021, which continues to be above the EU’s 3% reference value. The German general government gross debt- to-GDP ratio increased from 68.7% in 2020 to 69.3% in 2021, which is also above the EU’s respective reference value of 60%.
However, on March 23, 2020, the respective Ministers of Finance of the EU Member States agreed with the assessment of the European Commission that the condition for the use of the general escape clause under the SGP – a severe economic downturn in the euro area or the EU as a whole – had been fulfilled. The activated general escape clause allows Germany and the other EU Member States to depart from the budgetary requirements that would normally apply under the European fiscal framework in order to tackle the economic
G-40
consequences of the COVID-19 pandemic. According to the European Commission’s fiscal policy guidance for 2023, published on March 2, 2022, the general escape clause will continue to apply in 2022 and is expected to be deactivated as of 2023. However, as the expected deactivation from 2023 onwards was based on an economic projection completed before Russia’s invasion of Ukraine, the European Commission also indicated that adjustments may be possible in view of the high uncertainty in reaction to changing circumstances and economic developments. For further information, see also “General—Monetary Integration—EU Economic Governance—Stability and Growth Pact.” At the national level, the German constitutional balanced budget rule known as the “debt brake” (Schuldenbremse), which provides for a structural budget deficit of no more than 0.35% of GDP at the federal level and structurally balanced Länder budgets, has been suspended for the years 2020 and 2021, in order to enable the financing of the governmental measures taken in connection with the COVID-19 pandemic without violating the constitutional budgetary requirements that normally apply. According to the second government draft of the 2022 federal budget (Zweiter Regierungsentwurf für den Bundeshaushalt 2022), the suspension of the “debt brake” is expected to be renewed for the fiscal year 2022, while targeting to return to compliance with the regular debt ceiling starting in 2023, as reflected in the benchmark figures (Eckwerte) for the fiscal years 2023 to 2026.
Sources: Statistisches Bundesamt, Fachserie 18, Reihe 1.2 – 4. Vierteljahr 2021 (February 2022), Table 1.10; EUR-lex, Consolidated Version of the Treaty on the Functioning of the European Union (https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:02016E/TXT-20200301&from=EN); Deutsche Bundesbank, General government debt as defined in the Maastricht Treaty as a percentage of GDP—Germany—overall (https://www.bundesbank.de/dynamic/action/en/statistics/time-series-databases/time-series-databases/745582/745582?listId=www_v27_web011_21a&treeAnchor=FINANZEN&statisticType=BBK_ITS&tsId=BBK01.BJ9959); Council of the European Union, Statement of EU ministers of finance on the Stability and Growth Pact in light of the COVID-19 crisis, press release of March 23, 2020 (https://www.consilium.europa.eu/en/press/press-releases/2020/03/23/statement-of-eu-ministers-of-finance-on-the-stability-and-growth-pact-in-light-of-the-covid-19-crisis/); Bundestag, Bundestag billigt mit breiter Mehrheit Nachtragshaushalt für 2020 (https://www.bundestag.de/dokumente/textarchiv/2020/kw13-de-corona-schuldenbremse-688956); Bundestag, Finanzministerium-Etat beschlossen – Schuldenbremse bleibt ausgesetzt (https://www.bundestag.de/dokumente/textarchiv/2020/kw50-de-finanzministerium-bundesrechnungshof-810030); Bundesministerium der Finanzen, Fiskalregeln (https://www.bundesfinanzministerium.de/Web/DE/Themen/Oeffentliche_Finanzen/Stabilitaetspolitik/Fiskalregeln/fiskalregeln.html); Bundesministerium der Finanzen, Kompendium zur Schuldenregel des Bundes (Schuldenbremse), February 25, 2022 (https://www.bundesfinanzministerium.de/Content/DE/Standardartikel/Themen/Oeffentliche_Finanzen/Schuldenbremse/kompendium-zur-schuldenbremse-des-bundes.pdf?__blob=publicationFile&v=9 [bundesfinanzministerium.de]); European Commission, Commission presents fiscal policy guidance for 2023, press release of March 2, 2022 (https://ec.europa.eu/commission/presscorner/detail/en/ip_22_1476); European Commission, Questions and answers: Commission Communication on fiscal policy guidance for 2023, March 2, 2022 (https://ec.europa.eu/commission/presscorner/detail/en/qanda_22_1477); Bundesministerium der Finanzen, Stabilität sichern, Gestaltungsspielraum bewahren, Zweiter Regierungsentwurf für den Bundeshaushalt 2022, Eckwerte 2023 und Finanzplan bis 2026, press release of March 16, 2022 (https://www.bundesfinanzministerium.de/Content/DE/Pressemitteilungen/Finanzpolitik/2022/03/2022-03-16-bundeshaushalte-2022-2023.html).
The following table shows historical information on the Federal Republic’s general government deficit/surplus and debt as a percentage of GDP.
THE FEDERAL REPUBLIC’S FISCAL MAASTRICHT CRITERIA
| | | | | | | | | | | | | | | | | | | | |
| | | 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
| | | | | | | | | | | | | | | | |
| | | (% of GDP) | |
General government deficit (-) / surplus (+) | | | -3.7 | | | | -4.3 | | | | 1.5 | | | | 1.9 | | | | 1.3 | |
General government gross debt | | | 69.3 | | | | 68.7 | | | | 58.9 | | | | 61.2 | | | | 64.6 | |
Sources: Statistisches Bundesamt, Fachserie 18, Reihe 1.2 – 4. Vierteljahr 2021 (February 2022), Table 1.10; Deutsche Bundesbank, General government debt as defined in the Maastricht Treaty as a percentage of GDP—Germany—overall (https://www.bundesbank.de/dynamic/action/en/statistics/time-series-databases/time-series-databases/745582/745582?listId=www_v27_web011_21a&treeAnchor=FINANZEN&statisticType=BBK_ITS&tsId=BBK01.BJ9959).
Fiscal Outlook
On April 27, 2022, the Federal Government published the German Stability Program 2022, in accordance with the rules of the Stability and Growth Pact. The German Stability Program 2022 contains budgetary projections for the years 2022 to 2026 at all government levels (Federation, Länder, local authorities and social security funds). The projections are based on (i) the Federal Government’s annual projection of macroeconomic trends of January 26, 2022, (ii) the results of the Working Party on Tax Revenue Estimates of November 11, 2021, as subsequently updated to take account of the Federal Government’s annual projection, (iii) the second government draft of the federal budget for 2022 prepared on this basis and adopted by the Federal Government on March 16, 2022, and (d) the benchmark figures for the government draft of the federal budget for 2023 and the fiscal plan until 2026. The planned special fund for the Bundeswehr and the governing parties’ decision of March 23, 2022 on a “Package of federal government measures to manage high energy costs” were also taken into account.
G-41
The following table presents the Federal Government’s projection for key fiscal indicators in the years 2022 to 2026 compared to the results for these key fiscal indicators in 2021, as set out in the German Stability Program 2022.
GENERAL GOVERNMENT BUDGETARY PROSPECTS (1)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2026 | | | | | 2025 | | | | 2024 | | | | 2023 | | | | | 2022 | | | | | 2021 |
Revenue | | | 47 1⁄4 | | | | | | | | 47 | | | | | | | | 46 1⁄4 | | | | | | | | 46 | | | | | | | | 45 1/2 | | | | | | | | 47.8 | |
Total taxes | | | 24 1/2 | | | | | | | | 24 1⁄4 | | | | | | | | 24 | | | | | | | | 23 3⁄4 | | | | | | | | 23 1⁄4 | | | | | | | | 24.7 | |
Social contributions | | | 18 1⁄4 | | | | | | | | 18 | | | | | | | | 17 1/2 | | | | | | | | 17 1/2 | | | | | | | | 17 1⁄4 | | | | | | | | 17.7 | |
Property income | | | 1/2 | | | | | | | | 1/2 | | | | | | | | 1/2 | | | | | | | | 1/2 | | | | | | | | 1/2 | | | | | | | | 0.4 | |
Other | | | 4 | | | | | | | | 4 1⁄4 | | | | | | | | 4 1⁄4 | | | | | | | | 4 1⁄4 | | | | | | | | 4 1/2 | | | | | | | | 4.9 | |
Expenditure (2) | | | 47 3⁄4 | | | | | | | | 47 3⁄4 | | | | | | | | 48 | | | | | | | | 47 3⁄4 | | | | | | | | 49 1⁄4 | | | | | | | | 51.5 | |
Compensation of employees and intermediate consumption | | | 13 1⁄4 | | | | | | | | 13 1⁄4 | | | | | | | | 13 1⁄4 | | | | | | | | 13 1/2 | | | | | | | | 14 1/2 | | | | | | | | 14.7 | |
Social payments | | | 25 1/2 | | | | | | | | 25 1/2 | | | | | | | | 25 1⁄4 | | | | | | | | 25 | | | | | | | | 25 1⁄4 | | | | | | | | 26.2 | |
Interest expenditure | | | 1/2 | | | | | | | | 1/2 | | | | | | | | 1/2 | | | | | | | | 1/2 | | | | | | | | 1/2 | | | | | | | | 0.6 | |
Subsidies | | | 1 3⁄4 | | | | | | | | 1 3⁄4 | | | | | | | | 1 3⁄4 | | | | | | | | 1 1/2 | | | | | | | | 2 | | | | | | | | 2.9 | |
Gross fixed capital formation | | | 2 3⁄4 | | | | | | | | 2 3⁄4 | | | | | | | | 3 | | | | | | | | 3 | | | | | | | | 3 | | | | | | | | 2.5 | |
Capital transfers | | | 1 3⁄4 | | | | | | | | 1 3⁄4 | | | | | | | | 1 3⁄4 | | | | | | | | 1 3⁄4 | | | | | | | | 1 3⁄4 | | | | | | | | 1.9 | |
Other | | | 2 1⁄4 | | | | | | | | 2 1⁄4 | | | | | | | | 2 1⁄4 | | | | | | | | 2 1/2 | | | | | | | | 2 1/2 | | | | | | | | 2.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
General government deficit (-) / surplus (+) | | | -1/2 | | | | | | | | -1 | | | | | | | | -1 3⁄4 | | | | | | | | -2 | | | | | | | | -3 3⁄4 | | | | | | | | -3.7 | |
Federal Government | | | -1 | | | | | | | | -1 | | | | | | | | -1 1/2 | | | | | | | | -1 1/2 | | | | | | | | -3 | | | | | | | | -4.0 | |
Länder governments | | | 1⁄4 | | | | | | | | 1⁄4 | | | | | | | | 0 | | | | | | | | 0 | | | | | | | | -1⁄4 | | | | | | | | 0.1 | |
Municipalities | | | 1⁄4 | | | | | | | | 0 | | | | | | | | 0 | | | | | | | | 0 | | | | | | | | 0 | | | | | | | | 0.0 | |
Social security funds | | | -1⁄4 | | | | | | | | -1⁄4 | | | | | | | | -1/2 | | | | | | | | -1/2 | | | | | | | | -1⁄4 | | | | | | | | 0.1 | |
General government gross debt | | | 64 1/2 | | | | | | | | 65 | | | | | | | | 65 3⁄4 | | | | | | | | 65 3⁄4 | | | | | | | | 66 3⁄4 | | | | | | | | 69.3 | |
| (1) | Forecast figures are rounded to one-quarter of a percent of GDP. |
| (2) | Adjusted by the net amount of payments in connection with swaps. |
Source: Bundesministerium der Finanzen, Deutsches Stabilitätsprogramm 2022, Tables 10 and 15 (https://www.bundesfinanzministerium.de/Content/DE/Downloads/Broschueren_Bestellservice/stabilitaetsprogramm-2022.pdf?__blob=publicationFile&v=5).
For information on current and pending fiscal measures adopted in 2022 to date, including in response to the Russia’s invasion of the Ukraine, see “Recent Developments—Federal Republic of Germany—Other Recent Developments—Germany’s Response to Russia’s Invasion of Ukraine.”
Tax Structure
Income Tax
Significant sources of revenue for the general government are the various types of income taxes. Income taxation for employees and self-employed persons is based on a progressive tax scale with marginal tax rates ranging from 14% to 45% subject to the amount of taxable income. Employees pay taxes on their income from employment in the form of wage taxes. Self-employed persons typically pay estimated taxes during the year before filing their annual income tax return. Income generated by partnerships (Personengesellschaften) is not subject to tax at the partnership level, but at the level of the partners. The partners pay tax on this income according to their individual income tax brackets.
Income generated by corporations is subject to corporate income tax (Körperschaftsteuer) at a flat rate of 15%.
G-42
Capital income received by domestic taxpayers (all types of income from capital as well as private shareholders’ net gains from sales of shares in corporations) is subject to a final uniform tax rate of 25% (Abgeltungsteuer), taking into consideration an allowance (Sparerpauschbetrag) of EUR 801 (EUR 1,602 for married couples).
In addition to the various types of income tax, a solidarity surcharge of 5.5% is imposed on the applicable income tax liability. From January 1, 2021, onwards, the additional tax burden resulting from the solidarity surcharge has been abolished for approximately 90% and reduced for approximately 6.5% of income taxpayers for the benefit of low and middle incomes.
Sources: Bundesministerium der Justiz und für Verbraucherschutz, Einkommensteuergesetz (https://www.gesetze-im-internet.de/estg/index.html); Bundesministerium der Justiz und für Verbraucherschutz, Solidaritätszuschlaggesetz 1995, § 4 Zuschlagssatz (https://www.gesetze-im-internet.de/solzg_1995/__4.html); Bundesministerium der Justiz und für Verbraucherschutz, Körperschaftsteuergesetz (https://www.gesetze-im-internet.de/kstg_1977/index.html); Bundesministerium der Finanzen, Fragen und Antworten zur weitgehenden Abschaffung des Solidaritätszuschlags, Was ist ab 2021 neu? (https://www.bundesfinanzministerium.de/Content/DE/FAQ/2019-08-21-faq-solidaritaetszuschlag.html).
VAT and Consumption Taxes
VAT serves as a significant source of revenue. VAT is a general consumption tax that is imposed on the value of most goods and services. The standard rate applicable to most goods and services is 19%. Certain items that are classified as necessities, such as food (except food and beverages in restaurants) and books, are subject to a reduced rate of 7%.
In addition to the VAT, there are specific consumption taxes. The most significant specific consumption taxes relate to energy and tobacco.
Sources: Bundesministerium der Justiz und für Verbraucherschutz, Umsatzsteuergesetz (https://www.gesetze-im-internet.de/ustg_1980/index.html); Bundesministerium der Justiz und für Verbraucherschutz, Umsatzsteuergesetz, § 12 Steuersätze (https://www.gesetze-im-internet.de/ustg_1980/__12.html); Bundesministerium der Justiz und für Verbraucherschutz, Energiesteuergesetz (https://www.gesetze-im-internet.de/energiestg/); Bundesministerium der Justiz und für Verbraucherschutz, Tabaksteuergesetz (https://www.gesetze-im-internet.de/tabstg_2009/index.html).
Environmental Tax and Emissions Trading
The environmental tax regime aims to encourage energy conservation and to mitigate climate change by providing incentives for a reduction of carbon emissions. Furthermore, it aims to allocate the burden of taxes and contributions more equally among labor, capital and natural resources. Key points of the environmental tax regime are an electricity tax and a fossil fuel energy tax. The electricity tax rate is EUR 20.50 per megawatt-hour. The rates of the energy tax are assessed in accordance with certain environmental criteria.
In addition to the EU’s Emissions Trading System (ETS) for carbon emissions applied to the manufacturing and energy industries, Germany has introduced a national ETS for carbon emissions of the transportation and buildings sector from 2021 onwards, starting with a price on carbon emissions initially set at EUR 25 per ton in 2021, EUR 30 per ton in 2022 and rising incrementally to EUR 55 per ton in 2025. In 2026, allowances will be auctioned within a price range of EUR 55 (minimum) to EUR 65 (maximum) per ton of carbon emissions.
Sources: Bundesministerium der Justiz und für Verbraucherschutz, Stromsteuergesetz (https://www.gesetze-im-internet.de/stromstg/index.html); Bundesministerium der Justiz und für Verbraucherschutz, Stromsteuergesetz, § 3 Steuertarif (https://www.gesetze-im-internet.de/stromstg/__3.html); The Federal Government, Incentives for fewer CO2—carbon dioxide emissions (https://www.bundesregierung.de/breg-en/issues/climate-action/fewer-co2-emissions-1797122).
Trade Tax
Trade tax (Gewerbesteuer) is levied at the municipal level and is imposed on businesses and their objective earning power. The trade tax rate varies and depends on the municipality that levies the tax. Basis of assessment are the profits of a business enterprise as determined under income tax law or corporation tax law, increased or decreased by certain adjustments. The result is multiplied by the basic federal rate (Gewerbesteuermesszahl) to achieve the base amount for the trade tax (Steuermessbetrag), which is then multiplied by the municipal multiplier (Hebesatz). Beyond a required minimum level of 200% for the municipal multiplier, municipalities have discretion to fix the municipal tax collection rate. Based on a weighted average municipal multiplier of 400.2% in 2020 the average trade tax rate in 2021 amounted to 14.01%.
G-43
Sources: Bundesministerium der Justiz und für Verbraucherschutz, Gewerbesteuergesetz (https://www.gesetze-im-internet.de/gewstg/index.html); Bundesministerium der Finanzen, Die wichtigsten Steuern im internationalen Vergleich 2020, Overview 4, page 14 (https://www.bundesfinanzministerium.de/Content/DE/Downloads/Broschueren_Bestellservice/2021-06-21-die-wichtigsten-steuern-im-internationalen-vergleich-2020.
pdf?__blob=publicationFile&v=9); Statistisches Bundesamt, Fachserie 14, Reihe 10.1 Realsteuervergleich 2020, table 6.1. (https://www.destatis.de/DE/Service/Bibliothek/_publikationen-fachserienliste-14.html?nn=206136).
The following table provides an overview of the annual tax revenues of the general government divided by categories for each of the years indicated, as presented in the national accounts.
TAXES (1)
| | | | | | | | | | | | | | | | | | | | |
| | | 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
| | | | | | | | | | | | | | | | |
| | | (EUR in billions) | |
Current taxes | | | 872.9 | | | | 773.4 | | | | 827.4 | | | | 801.4 | | | | 767.2 | |
Taxes on production and imports | | | 391.7 | | | | 345.9 | | | | 369.7 | | | | 356.6 | | | | 345.8 | |
of which: VAT | | | 258.0 | | | | 221.6 | | | | 244.1 | | | | 235.1 | | | | 226.6 | |
Current taxes on income and wealth | | | 481.2 | | | | 427.6 | | | | 457.7 | | | | 444.8 | | | | 421.4 | |
of which: Wage tax | | | 256.4 | | | | 254.0 | | | | 260.5 | | | | 248.2 | | | | 234.7 | |
Assessed income tax | | | 69.4 | | | | 57.3 | | | | 61.9 | | | | 58.8 | | | | 57.7 | |
Non-assessed taxes on earnings | | | 39.3 | | | | 29.8 | | | | 30.5 | | | | 31.0 | | | | 29.8 | |
Corporate tax | | | 44.3 | | | | 25.8 | | | | 34.1 | | | | 36.0 | | | | 31.6 | |
Trade tax (Gewerbesteuer) | | | 56.5 | | | | 45.4 | | | | 55.6 | | | | 56.0 | | | | 52.9 | |
Capital taxes | | | 9.8 | | | | 8.7 | | | | 7.0 | | | | 6.8 | | | | 6.1 | |
| | | | | | | | | | | | | | | | | | | | |
Tax revenue of general government | | | 882.6 | | | | 782.1 | | | | 834.4 | | | | 808.2 | | | | 773.3 | |
Taxes of domestic sectors to EU | | | 4.9 | | | | 4.7 | | | | 5.1 | | | | 5.0 | | | | 5.1 | |
| | | | | | | | | | | | | | | | | | | | |
Taxes | | | 887.6 | | | | 786.8 | | | | 839.5 | | | | 813.2 | | | | 778.3 | |
| | | | | | | | | | | | | | | | | | | | |
| (1) | Definition according to the national accounts. |
Source: Statistisches Bundesamt, Fachserie 18, Reihe 1.4—2021 (March 2022), Table 3.4.3.16.
Tax Relief Measures Relating to the COVID-19 Pandemic
From July 1, 2020, to December 31, 2020, the standard VAT rate was temporarily lowered to 16% and the reduced rate to 5% as part of mitigation measures to the adverse economic impact of the COVID-19 pandemic. Under the tax relief measures, food services in restaurants, which are normally taxed at the standard VAT rate, are to be taxed at the reduced VAT rate from July 1, 2020, to December 31, 2022.
Companies, self-employed persons and employees continue to benefit from a broad range of tax-related measures relating to the COVID-19 pandemic. They include, for example, a tax allowance for working from home up to December 31, 2022, extended tax return filing deadlines, extended options to offset losses, accelerated depreciation options for movable assets, and extended investment deadlines for tax-deductible investments.
Sources: Bundesministerium der Finanzen, FAQ „Anstehende Umsatzsteuersenkung“
(https://www.bundesfinanzministerium.de/Content/DE/Standardartikel/Themen/Steuern/2020-06-25-FAQ_Corona_Umsatzsteuer.html); Bundesministerium der Finanzen, Entlastungen für Bürgerinnen und Bürger sowie Unternehmen: Weitere steuerliche Erleichterungen zur Bekämpfung der Corona-Pandemie, February 16, 2022
(https://www.bundesfinanzministerium.de/Content/DE/Pressemitteilungen/Finanzpolitik/2022/02/2022-02-16-weitere-steuerliche-erleichterungen-corona-pandemie.html); Das Parlament Nr. 9 (March 1, 2021), Drittes Steuer-Paket – Hilfe für Familien, Gastronomen und Firmen (https://www.das-parlament.de/2021/9/wirtschaft_und_finanzen/825228-825228).
G-44
Government Participations
The Federal Republic and its various special funds held direct participations in 116 public and private enterprises as of December 31, 2020.
The following table shows information on the Federal Republic’s significant direct participations (including those held through special funds) as of December 31, 2020.
PARTICIPATIONSOFTHE FEDERAL REPUBLIC
| | | | | | | | |
Enterprises | | Total nominal capital of enterprise | | | Participation of the Federal
Republic | |
| | | (EUR in millions) | | | (%) | |
Significant majority participations: | | | | | | | | |
Deutsche Bahn AG | | | 2,150 | | | | 100.0 | |
KfW Kreditanstalt für Wiederaufbau | | | 3,750 | | | | 80.0 | |
Hypo Real Estate Holding GmbH (1) | | | 909 | | | | 100.0 | |
Significant minority participations exceeding 25%: | | | | | | | | |
Flughafen München GmbH | | | 307 | | | | 26.0 | |
| (1) | Participations held by a special fund. |
Source: Bundesministerium der Finanzen, Beteiligungsbericht des Bundes 2021 (https://www.bundesfinanzministerium.de/Content/DE/Downloads/Broschueren_Bestellservice/beteiligungsbericht-des-bundes-2021.pdf?__blob=publicationFile&v=3).
Direct Debt of the Federal Government
As of December 31, 2021, the principal amount of the Federal Government’s direct debt totaled EUR 1,437.4 billion. For further information on the principal amount of the outstanding direct debt, see “Tables and Supplementary Information—I. Summary of the Principal Amount of the Outstanding Direct Debt of the Federal Government.”
The Federal Government raises funds primarily through the issuance of bonds and notes. Euro-denominated bonds and notes issued by the Federal Republic are evidenced by book entry and no certificates are issued.
In addition to its own direct debt obligations, the Federal Government and its special funds had outstanding guarantees in an aggregate amount of EUR 667.6 billion as of December 31, 2020. Of this amount, EUR 125.3 billion were outstanding in the form of export credit insurance, which is handled by Euler Hermes Aktiengesellschaft (“HERMES”) on behalf of and for the account of the Federal Government. Furthermore, EUR 22.4 billion of the aggregate amount were outstanding in the form of a guarantee for a loan to Greece according to the German Financial Stability Act, and EUR 91.5 billion of the aggregate amount were outstanding in the form of a guarantee for the European Financial Stability Facility.
Source: Bundesministerium der Finanzen, Finanzbericht 2022, Overview 3, page 294 (https://www.bundesfinanzministerium.de/Content/DE/Downloads/Broschueren_Bestellservice/finanzbericht-2022.pdf?__blob=publicationFile&v=5).
For more detailed information regarding the Federal Government’s debt and guarantees, see “—Tables and Supplementary Information.”
For information on the Federal Government’s liability as of December 31, 2021 for capital subscriptions to various international financial organizations, see the table entitled “—Tables and Supplementary Information—III. Liabilities to International Financial Organizations.”
G-45
TABLES AND SUPPLEMENTARY INFORMATION
I. DIRECT DEBTOFTHE FEDERAL GOVERNMENT
SUMMARYOFTHE PRINCIPAL AMOUNTOFTHE OUTSTANDING DIRECT DEBTOFTHE FEDERAL GOVERNMENT
| | | | |
| | | Principal amount
outstanding as of
December 31, 2021 | |
| | | (EUR in millions) | |
Federal Bonds (Bundesanleihen) | | | 1,008,500 | |
Federal Notes (Bundesobligationen) | | | 217,000 | |
Federal Treasury Notes (Bundesschatzanweisungen) | | | 116,000 | |
Treasury Discount Paper (Unverzinsliche Schatzanweisungen) | | | 154,500 | |
Inflation-linked Securities (Inflationsindexierte Bundeswertpapiere) | | | 69,900 | |
Green Federal Bonds (Grüne Bundesanleihen) | | | 19,000 | |
Green Five-year Federal Notes (Grüne Bundesobligationen) | | | 5,000 | |
Borrowers’ note loans (Schuldscheindarlehen) | | | 5,695 | |
Old debt (1) | | | 4,474 | |
Repurchased debt | | | -162,662 | |
| | | | |
Total (2) | | | 1,437,407 | |
| | | | |
| (1) | Mainly equalization and covering claims of the Deutsche Bundesbank, other banks and insurance companies in connection with the currency reform of 1948. |
| (2) | Compared to the published Monthly Report of the Federal Ministry of Finance, January 2022, from which the information above is derived, Treasury Discount Papers are presented with their outstanding volume (as opposed in the amount owed). |
Source: Monthly Report of the Federal Ministry of Finance, January 2022, Table “Entwicklung der Kreditaufnahme des Bundes im Dezember 2021”, page 74, and table “Entwicklung von Umlaufvolumen und Eigenbestände an Bundeswertpapieren im Dezember 2021”, page 76 (https://www.bundesfinanzministerium.de/Monatsberichte/2022/01/Inhalte/Kapitel-4-Wirtschafts-und-Finanzlage/4-4-kreditaufnahme-des-bundes-und-seiner-sondervermoegen_pdf.pdf?__
blob=publicationFile&v=6).
DEBT TABLES
1. FEDERAL BONDS (1)
| | | | | | | | | | | | | | | | |
Title | | Interest rate | | | Year of issue | | | Maturity | | | Aggregate
principal amount
outstanding as of
December 31, 2021 | |
| | | (% per annum) | | | | | | | | | (EUR in millions) | |
6.25% Bonds of the Federal Republic of 1994 | | | 6.25 | | | | 1994 | | | | 2024 | | | | 12,750 | |
6.5% Bonds of the Federal Republic of 1997 | | | 6.50 | | | | 1997 | | | | 2027 | | | | 13,750 | |
5.625% Bonds of the Federal Republic of 1998 | | | 5.625 | | | | 1998 | | | | 2028 | | | | 17,000 | |
4.75% Bonds of the Federal Republic of 1998 | | | 4.75 | | | | 1998 | | | | 2028 | | | | 13,750 | |
6.25% Bonds of the Federal Republic of 2000 | | | 6.25 | | | | 2000 | | | | 2030 | | | | 11,750 | |
5.5% Bonds of the Federal Republic of 2000 | | | 5.50 | | | | 2000 | | | | 2031 | | | | 21,500 | |
4.75% Bonds of the Federal Republic of 2003 | | | 4.75 | | | | 2003 | | | | 2034 | | | | 24,500 | |
4% Bonds of the Federal Republic of 2005 | | | 4.00 | | | | 2005 | | | | 2037 | | | | 27,500 | |
4.25% Bonds of the Federal Republic of 2007 | | | 4.25 | | | | 2007 | | | | 2039 | | | | 18,500 | |
4.75% Bonds of the Federal Republic of 2008 | | | 4.75 | | | | 2008 | | | | 2040 | | | | 20,500 | |
3.25% Bonds of the Federal Republic of 2010 | | | 3.25 | | | | 2010 | | | | 2042 | | | | 19,500 | |
2% Bonds of the Federal Republic of 2011 | | | 2.00 | | | | 2011 | | | | 2022 | | | | 22,500 | |
1.75% Bonds of the Federal Republic of 2012 | | | 1.75 | | | | 2012 | | | | 2022 | | | | 26,500 | |
1.5% Bonds of the Federal Republic of 2012 | | | 1.50 | | | | 2012 | | | | 2022 | | | | 20,500 | |
2.5% Bonds of the Federal Republic of 2012 | | | 2.50 | | | | 2012 | | | | 2044 | | | | 28,500 | |
1.5% Bonds of the Federal Republic of 2013 | | | 1.50 | | | | 2013 | | | | 2023 | | | | 20,500 | |
1.5% Bonds of the Federal Republic of 2013 | | | 1.50 | | | | 2013 | | | | 2023 | | | | 22,500 | |
2% Bonds of the Federal Republic of 2013 | | | 2.00 | | | | 2013 | | | | 2023 | | | | 22,500 | |
1.75% Bonds of the Federal Republic of 2014 | | | 1.75 | | | | 2014 | | | | 2024 | | | | 22,500 | |
2.5% Bonds of the Federal Republic of 2014 | | | 2.50 | | | | 2014 | | | | 2046 | | | | 30,500 | |
G-46
| | | | | | | | | | | | | | | | |
Title | | Interest rate | | | Year of issue | | | Maturity | | | Aggregate
principal amount
outstanding as of
December 31, 2021 | |
| | | (% per annum) | | | | | | | | | (EUR in millions) | |
1.5% Bonds of the Federal Republic of 2014 | | | 1.50 | | | | 2014 | | | | 2024 | | | | 22,500 | |
1% Bonds of the Federal Republic of 2014 | | | 1.00 | | | | 2014 | | | | 2024 | | | | 22,500 | |
0.5% Bonds of the Federal Republic of 2015 | | | 0.5 | | | | 2015 | | | | 2025 | | | | 27,500 | |
1% Bonds of the Federal Republic of 2015 | | | 1.00 | | | | 2015 | | | | 2025 | | | | 27,500 | |
0.5% Bonds of the Federal Republic of 2016 | | | 0.50 | | | | 2016 | | | | 2026 | | | | 30,500 | |
0% Bonds of the Federal Republic of 2016 | | | 0.00 | | | | 2016 | | | | 2026 | | | | 29,500 | |
0.25% Bonds of the Federal Republic of 2017 | | | 0.25 | | | | 2017 | | | | 2027 | | | | 30,500 | |
0.5% Bonds of the Federal Republic of 2017 | | | 0.50 | | | | 2017 | | | | 2027 | | | | 29,500 | |
1.25% Bonds of the Federal Republic of 2017 | | | 1.25 | | | | 2017 | | | | 2048 | | | | 30,000 | |
0.5% Bonds of the Federal Republic of 2018 | | | 0.50 | | | | 2018 | | | | 2028 | | | | 25,500 | |
0.25% Bonds of the Federal Republic of 2018 | | | 0.25 | | | | 2018 | | | | 2028 | | | | 25,500 | |
0.25% Bonds of the Federal Republic of 2019 | | | 0.25 | | | | 2019 | | | | 2029 | | | | 26,500 | |
0.00% Bonds of the Federal Republic of 2019 | | | 0.00 | | | | 2019 | | | | 2029 | | | | 26,500 | |
0.00% Bonds of the Federal Republic of 2019 | | | 0.00 | | | | 2019 | | | | 2050 | | | | 29,000 | |
0.00% Bonds of the Federal Republic of 2020 | | | 0.00 | | | | 2020 | | | | 2030 | | | | 25,000 | |
0.00% Bonds of the Federal Republic of 2020 | | | 0.00 | | | | 2020 | | | | 2035 | | | | 22,500 | |
0.00% Bonds of the Federal Republic of 2020 | | | 0.00 | | | | 2020 | | | | 2027 | | | | 22,000 | |
0.00% Bonds of the Federal Republic of 2020 | | | 0.00 | | | | 2020 | | | | 2030 | | | | 30,500 | |
0.00% Bonds of the Federal Republic of 2021 | | | 0.00 | | | | 2021 | | | | 2028 | | | | 24,000 | |
0.00% Bonds of the Federal Republic of 2021 | | | 0.00 | | | | 2021 | | | | 2031 | | | | 25,000 | |
0.00% Bonds of the Federal Republic of 2021 | | | 0.00 | | | | 2021 | | | | 2031 | | | | 29,500 | |
0.00% Bonds of the Federal Republic of 2021 | | | 0.00 | | | | 2021 | | | | 2036 | | | | 22,000 | |
0.00% Bonds of the Federal Republic of 2021 | | | 0.00 | | | | 2021 | | | | 2052 | | | | 7,500 | |
| | | | | | | | | | | | | | | | |
Total Federal Bonds | | | | | | | | | | | | | | | 1,008,500 | |
| | | | | | | | | | | | | | | | |
| (1) | Federal Bonds (Bundesanleihen) are evidenced by book entry, and no certificates are issued. Maturities are 10 to 30 years. No redemption prior to maturity; including principal strips. |
2. GREEN FEDERAL BONDS (1)
| | | | | | | | | | | | | | | | |
Title | | Interest rate | | | Year of
issue | | | Maturity | | | Aggregate
principal amount
outstanding as of
December 31, 2021 | |
| | | (% per annum) | | | | | | | | | (EUR in millions) | |
0.00% Green Bonds of the Federal Republic of 2020 | | | 0.00 | | | | 2020 | | | | 2030 | | | | 6,500 | |
0.00% Green Bonds of the Federal Republic of 2021 | | | 0.00 | | | | 2021 | | | | 2031 | | | | 6,500 | |
0.00% Green Bonds of the Federal Republic of 2021 | | | 0.00 | | | | 2021 | | | | 2050 | | | | 6,000 | |
| | | | | | | | | | | | | | | | |
Total Green Federal Bonds | | | | | | | | | | | | | | | 19,000 | |
| | | | | | | | | | | | | | | | |
| (1) | Federal Bonds (Bundesanleihen) are evidenced by book entry, and no certificates are issued. Maturities are 10 to 30 years. No redemption prior to maturity; including principal strips. |
3. INFLATION-LINKED SECURITIES (1)
| | | | | | | | | | | | | | | | |
Title | | Interest rate | | | Year of
issue | | | Maturity | | | Aggregate
principal amount
outstanding as of
December 31, 2021 | |
| | | (% per annum) | | | | | | | | | (EUR in millions) | |
0.10% Inflation-linked Bonds of the Federal Republic of 2012 | | | 0.10 | | | | 2012 | | | | 2023 | | | | 16,500 | |
0.50% Inflation-linked Bonds of the Federal Republic of 2014 | | | 0.50 | | | | 2014 | | | | 2030 | | | | 21,300 | |
0.10% Inflation-linked Bonds of the Federal Republic of 2015 | | | 0.10 | | | | 2015 | | | | 2026 | | | | 17,300 | |
G-47
| | | | | | | | | | | | | | | | |
Title | | Interest rate | | | Year of issue | | | Maturity | | | Aggregate
principal amount
outstanding as of
December 31, 2021 | |
| | | (% per annum) | | | | | | | | | (EUR in millions) | |
0.10% Inflation-linked Bonds of the Federal Republic of 2015 | | | 0.10 | | | | 2015 | | | | 2046 | | | | 10,900 | |
0.10% Inflation-linked Bonds of the Federal Republic of 2021 | | | 0.10 | | | | 2021 | | | | 2033 | | | | 3,900 | |
| | | | | | | | | | | | | | | | |
Total Inflation-linked Securities | | | | | | | | | | | | | | | 69,900 | |
| | | | | | | | | | | | | | | | |
| (1) | Inflation-linked Securities (Inflationsindexierte Bundeswertpapiere) are evidenced by book entry, and no certificates are issued. Maturities are five to ten years. No redemption prior to maturity. |
4. FEDERAL NOTES (1)
| | | | | | | | | | | | | | | | |
Title | | Interest rate | | | Year of issue | | | Maturity | | | Aggregate
principal amount
outstanding as of
December 31, 2021 | |
| | | (% per annum) | | | | | | | | | (EUR in millions) | |
0.00% Bonds of 2017-Series 175 | | | 0.00 | | | | 2017 | | | | 2022 | | | | 20,500 | |
0.00% Bonds of 2017-Series 176 | | | 0.00 | | | | 2017 | | | | 2022 | | | | 19,500 | |
0.00% Bonds of 2018-Series 177 | | | 0.00 | | | | 2018 | | | | 2023 | | | | 18,500 | |
0.00% Bonds of 2018-Series 178 | | | 0.00 | | | | 2018 | | | | 2023 | | | | 18,500 | |
0.00% Bonds of 2019-Series 179 | | | 0.00 | | | | 2019 | | | | 2024 | | | | 23,500 | |
0.00% Bonds of 2019-Series 180 | | | 0.00 | | | | 2019 | | | | 2024 | | | | 22,500 | |
0.00% Bonds of 2020-Series 181 | | | 0.00 | | | | 2020 | | | | 2025 | | | | 20,000 | |
0.00% Bonds of 2020-Series 182 | | | 0.00 | | | | 2020 | | | | 2025 | | | | 25,000 | |
0.00% Bonds of 2021-Series 183 | | | 0.00 | | | | 2021 | | | | 2026 | | | | 25,000 | |
0.00% Bonds of 2021-Series 184 | | | 0.00 | | | | 2021 | | | | 2026 | | | | 24,000 | |
| | | | | | | | | | | | | | | | |
Total Federal Notes | | | | | | | | | | | | | | | 217,000 | |
| | | | | | | | | | | | | | | | |
| (1) | Federal Notes (Bundesobligationen) are evidenced by book entry, and no certificates are issued. Maturities are approximately five years. No redemption prior to maturity. |
5. GREEN FEDERAL NOTES (1)
| | | | | | | | | | | | | | | | |
Title | | Interest rate | | | Year of issue | | | Maturity | | | Aggregate
principal amount
outstanding as of
December 31, 2021 | |
| | | (% per annum) | | | | | | | | | (EUR in millions) | |
0.00% Green Bonds of 2020 | | | 0.00 | | | | 2020 | | | | 2025 | | | | 5,000 | |
| | | | | | | | | | | | | | | | |
Total Federal Notes | | | | | | | | | | | | | | | 5,000 | |
| | | | | | | | | | | | | | | | |
| (1) | Federal Notes (Bundesobligationen) are evidenced by book entry, and no certificates are issued. Maturities are approximately five years. No redemption prior to maturity. |
6. FEDERAL TREASURY NOTES (1)
| | | | | | | | | | | | | | | | |
Title | | Interest Rate | | | Year of Issue | | | Maturity | | | Aggregate
principal amount
outstanding as of
December 31, 2021 | |
| | | (% per annum) | | | | | | | | | (EUR in millions) | |
0.00% Notes of 2020 | | | 0.00 | | | | 2020 | | | | 2022 | | | | 14,000 | |
0.00% Notes of 2020 (II) | | | 0.00 | | | | 2020 | | | | 2022 | | | | 15,000 | |
0.00% Notes of 2020 (III) | | | 0.00 | | | | 2020 | | | | 2022 | | | | 15,000 | |
0.00% Notes of 2020 (IV) | | | 0.00 | | | | 2020 | | | | 2022 | | | | 14,000 | |
0.00% Notes of 2021 | | | 0.00 | | | | 2021 | | | | 2023 | | | | 16,000 | |
0.00% Notes of 2021 (II) | | | 0.00 | | | | 2021 | | | | 2023 | | | | 16,000 | |
0.00% Notes of 2021 (III) | | | 0.00 | | | | 2021 | | | | 2023 | | | | 16,000 | |
0.00% Notes of 2021 (IV) | | | 0.00 | | | | 2021 | | | | 2023 | | | | 10,000 | |
| | | | | | | | | | | | | | | | |
G-48
| | | | | | | | | | |
Title | | Interest Rate | | Year of Issue | | Maturity | | Aggregate
principal amount
outstanding as of
December 31, 2021 | |
| | | (% per annum) | | | | | | (EUR in millions) | |
Total Federal Treasury Notes | | | | | 116,000 | |
| | | | | | |
| (1) | Federal Treasury Notes (Bundesschatzanweisungen) are evidenced by book-entry, and no certificates are issued. Maturities are two years. No redemption prior to maturity. |
7. TREASURY DISCOUNT PAPER (1)
| | | | | | | | | | | | | | | | |
| | | Interest Rate(2) | | | Year of Issue | | | Maturity | | | Aggregate
principal amount
outstanding as of
December 31, 2021 | |
| | | (% per annum) | | | | | | | | | (EUR in millions) | |
Treasury Discount Paper | | | -0.76 to -0.63 | | | | 2020 to 2021 | | | | 2021 to 2022 | | | | 154,500 | |
8. BORROWERS’ NOTE LOANS (3)
| | | | | | | | | | | | | | | | |
| | | Interest Rate | | | Year of Issue | | | Maturity | | | Aggregate
principal amount
outstanding as of
December 31, 2021 | |
| | | (% per annum) | | | | | | | | | (EUR in millions) | |
Borrower’s note loans (Schuldscheindarlehen) | | | 3.46 to 5.05 | | | | 2003 to 2007 | | | | 2021 to 2037 | | | | 5,695 | |
| (1) | Treasury Discount Papers (Unverzinsliche Schatzanweisungen) are issued at a discount and repaid at par value on the maturity date. No interest payments are made during the term of the paper. The papers are auctioned and intended for institutional investors. Maturities range from six months to twelve months. No redemption is permitted prior to maturity. |
| (2) | Reflects annual interest rate paid to the holder by way of the initial issue discount. No redemption is permitted prior to maturity. |
| (3) | Borrowers’ note loans (Schuldscheindarlehen) are an instrument of the German capital market where the lending entity, generally an institutional investor, receives a certificate evidencing its loan to the borrower and the term of such loans. The certificate generally authorizes at least three assignments. No redemption is permitted prior to maturity. |
Source for Debt Table 1 to 8: Federal Republic of Germany – Finance Agency, “Einzelaufstellung der ausstehenden Bundeswertpapiere und Kreditmarktmittel“
(https://www.deutsche-finanzagentur.de/fileadmin/user_upload/institutionelle-investoren/pdf/Einzelaufstellung_Bundeswertpapiere_dt.pdf).
9. OTHER LIABILITIES
| | | | | | | | | | | | | | | | |
Title | | Interest Rate | | | Year of
incurrence | | | Maturity | | | Aggregate
principal amount
outstanding as of
December 31, 2021 | |
| | | (% per annum) | | | | | | | | | (EUR in millions) | |
Old debt (1) | | | 0.00 to 3.00 | | | | Various | | | | Various | | | | 4,474 | |
| (1) | Includes mainly equalization and covering claims of the Deutsche Bundesbank, other banks and insurance companies in connection with the currency reform of 1948 as well as liabilities of the Federal Government to repay amounts received from the Investitionshilfeabgabe, a special duty levied on income, the proceeds of which were to be used to promote investments. |
Source: Monthly Report of the Federal Ministry of Finance, January 2022, Table “Entwicklung der Kreditaufnahme des Bundes im Dezember 2021”, page 74,
(https://www.bundesfinanzministerium.de/Monatsberichte/2022/01/Inhalte/Kapitel-4-Wirtschafts-und-Finanzlage/4-4-kreditaufnahme-des-bundes-und-seiner-sondervermoegen_pdf.pdf?__
blob=publicationFile&v=6).
G-49
II. GUARANTEESBYTHE FEDERAL GOVERNMENT (1)
| | | | | | | | |
| | | Aggregate
principal amount
outstanding as of
December 31, | |
Purpose of Guarantees | | 2020 | | | 2019 | |
| | | | | | | |
| | | (EUR in millions) | |
Export finance loans (including rescheduled loans) (2) | | | 125,328 | | | | 125,172 | |
Untied loans; direct foreign investments by German companies; Loans of the European Investment Bank to non-EU borrowers | | | 37,027 | | | | 42,818 | |
Loans in connection market organization and stocking measures | | | 0 | | | | 0 | |
Loans to domestic corporations and for projects in areas of agriculture, fishing and housing construction | | | 269,036 | | | | 110,588 | |
Contributions to international financing institutions | | | 68,637 | | | | 60,067 | |
Co-financing of bilateral projects of German financial co-operation | | | 29,977 | | | | 25,555 | |
Successor agencies to Treuhandanstalt | | | 1,009 | | | | 1,009 | |
Interest compensation guarantees | | | 15,000 | | | | 15,000 | |
| | | | | | | | |
Total guarantees pursuant to the 2020 German Budget Act | | | 546,014 | | | | 380,210 | |
| | | | | | | | |
Guarantee for a loan to Greece according to the German Financial Stability Act | | | 22,400 | | | | 22,400 | |
Loan guarantees under the Act on Guarantees pertaining to the European Financial Stability Facility | | | 91,526 | | | | 93,341 | |
Warranties in connection with the SURE-Warranty Act as of July 10, 2020 | | | 6,384 | | | | 0 | |
| | | | | | | | |
Total guarantees | | | 666,324 | | | | 495,950 | |
| | | | | | | | |
| (1) | Does not include guarantees under the KfW Law with respect to money borrowed, bonds issued and derivative transactions entered into by KfW. For information relating to KfW’s borrowings, see “KfW—Business—Financial Markets—Funding.” |
| (2) | Includes export finance loans extended by KfW IPEX-Bank guaranteed by the Federal Republic through HERMES, the official German export credit insurer. For information relating to loans extended by KfW IPEX-Bank benefiting from HERMES coverage, see “KfW—Business—Export and Project Finance (KfW IPEX-Bank)—Business.” |
Source: Bundesministerium der Finanzen, Finanzbericht 2022, Overview 3, page 294 (https://www.bundesfinanzministerium.de/Content/DE/Downloads/Broschueren_Bestellservice/finanzbericht-2022.pdf?__blob=publicationFile&v=5).
III. LIABILITIESTO INTERNATIONAL FINANCIAL ORGANIZATIONS
The Federal Republic is obligated to contribute to the capital subscriptions and, in some cases, to additional financing, according to the requirements of each respective membership. Such contributions were in many cases stated initially in 1944 with one U.S. dollar being an equivalent to 0.888671 grams of gold, and later – with the creation of the Special Drawing Right (“SDR”) – being an equivalent to the SDR at the same value. The value of the SDR, the possible inclusion of new currencies in the basket, the weight of each of these currencies in the basket, and the financial instruments used in determining the interest rate on the SDR are reviewed every five years. With effect from October 1, 2016, the SDR basket consists of five currencies with the following weights: U.S. dollar (42%), euro (31%), Chinese yuan (11%), Japanese yen (8%) and Pound sterling (8%).
G-50
SUBSCRIPTIONSOR COMMITMENTSBYTHE FEDERAL REPUBLIC
TO INTERNATIONAL ORGANIZATIONSASOFENDOF DECEMBER 2021
| | | | | | | | |
Name of organization | | Subscription or
commitment by the
Federal Republic (1) | | | Amount paid in | |
| | | | | | | |
| | | (USD in millions) | |
IMF (2) | | | 37,277.2 | | | | 37,277.2 | |
International Bank for Reconstruction and Development (IBRD) (3) | | | 13,242.8 | | | | 913.3 | |
International Development Association (IDA) (3)(4) | | | 29,272.8 | | | | 29,060.8 | |
International Finance Corporation (IFC) (3)(4) | | | 1,094.4 | | | | 1,094.4 | |
European Investment Bank (EIB) (5) | | | 52,917.8 | | | | 4,719.9 | |
African Development Bank (AfDB) (3) | | | 8,269.1 | | | | 348.8 | |
African Development Fund (AfDF) (3) | | | 4,980.3 | | | | 4,753,6 | |
Asian Development Bank (AsDB) (3) | | | 6,429.9 | | | | 321.4 | |
Asian Development Fund (AsDF) (3) | | | 2,002.0 | | | | 1,859.0 | |
Inter-American Development Bank (IDB) (3) | | | 3,368.7 | | | | 242.3 | |
Inter-American Investment Corporation (IIC) (3) | | | 20.2 | | | | 20.2 | |
Fund for Special Operations (FSO) (3) | | | — | | | | — | |
International Fund for Agricultural Development (IFAD) (3) | | | 714.1 | | | | 621.9 | |
Caribbean Development Bank (CDB) (3) | | | 106.6 | | | | 23.6 | |
Special Development Fund of the Caribbean Development Bank (SDF) (3) | | | 126.1 | | | | 114.0 | |
European Bank for Reconstruction and Development (EBRD) (5) | | | 2,895.5 | | | | 603.9 | |
Council of Europe Development Bank (CEB) (5) | | | 1,037.2 | | | | 115.1 | |
Asian Infrastructure Investment Bank (AIIB) (3) | | | 4,484.2 | | | | 896.8 | |
| (1) | Subscriptions are in part committed in USD, SDR or EUR. SDR or EUR commitments are converted to USD at year-end exchange rates, except that certain SDR commitments are converted at the fixed conversion rate of SDR 1 = USD 1.39959. |
| (2) | Quota in SDR: 26,634.4 Mio. SDR. Year-end value 2021 1 SDR = USD 1.399590. Source: computation provided by the Ministry of Finance based on data provided by the IMF; the subscription (quota) is fully paid in by the Deutsche Bundesbank. The foreign currency part of the quota (25% of the subscription) and the Deutsche Bundesbank’s further contributions to the IMF’s financing are part of the foreign currency reserves of the Deutsche Bundesbank. The government does not provide any guarantees or provisions for risks of IMF loans. |
| (3) | Source: computation provided by the Ministry of Finance and the Ministry for Economic Cooperation and Development. |
| (4) | Source: IFC and IDA: World Bank Corporate Secretariat, April 2022. |
| (5) | Source: computation provided by the Ministry of Finance based on euro exchange rate of the European Central Bank at December 31, 2021 of EUR 1 per USD 1.1326. |
G-51
