IGTA Journal - Winter 2020/2021

29/01/2021 The sovereign-bank-corporate nexus – virtuous or vicious? https://www.ecb.europa.eu/press/key/date/2021/html/ecb.sp210128~8f5dc86601.en.html 5/13 Sources: ECB and ECB calculations. Notes: Non-financial corporate sector debt figures are on a consolidated basis. The red horizontal line represents the estimated MIP benchmark of 76% of GDP for consolidated non-financial corporate debt, whereby the 133% of GDP MIP benchmark for fully consolidated non-financial private sector debt is split between households and firms based on their average past shares in the stock of euro area non-financial private debt. Consolidated non-financial corporate debt figures also include cross-border inter-company loans, which tend to account for a significant part of debt in countries where a large number of foreign entities, often multinational groups, are located (e.g. Belgium, Cyprus, Ireland, Luxembourg and the Netherlands). The red vertical line represents the threshold of 60% of GDP for sovereign debt as defined in the excessive deficit procedure under the Maastricht Treaty. In addition to rising debt levels, the interlinkages between sovereigns, banks and firms resulting from the broad-based fiscal support have grown. On the one hand, the sensitivity of public finances to future corporate and financial sector developments has increased, beyond the traditional impact of automatic stabilisers during a recession, such as lower tax revenues and higher social security expenses. [4] On the other hand, banks and corporates have become more dependent on government support. Only recently, possibly in view of the potential phasing out of fiscal support measures, changes in banks’ risk perceptions have resulted in tighter credit standards for firms, according to our latest Bank Lending Survey ( Chart 5 ). [5] Chart 5 IGTA eJournal | Winter 2020/21 | 10