Historically low interest rate environment
In a number of industrialised nations, the general interest rate environment reached a historical low in the past year. The European Central Bank (ECB) reduced its key interest rate by 25 basis points to 0.75 per cent in July and recently resolved to maintain this low level for the time being. The US Fed again kept the Fed funds rate at practically zero in the past year and announced its intention to stick to its policy of quantitative easing until at least 2015. Monthly bond purchases were also increased to USD 85 billion.
In the area of long-term investments, too, yields on secure government bonds were extremely low. At year-end, the effective yield on ten-year German government bonds was just 1.32 per cent, while ten-year Austrian government bonds had a yield of 1.75 per cent. Companies with good credit ratings are now able to refinance at extremely favourable credit margins (compared with government bonds). The average credit spread for European industrial companies and banks at year-end was just 145 basis points.
The outlook in terms of inflation is moderate. In its most recent forecast, the ECB expects euro zone inflation of between 1.1 and 2.1 per cent in 2013.
The way out of the euro crisis
Economic development over the past year has been dominated by the European sovereign debt crisis. Particular attention was paid to political efforts aimed at overcoming the crisis. The European Fiscal Compact was ratified by 25 EU member states on 2 March 2012. The Compact obliges the signatory states to balance their structural deficits. The European Stability Mechanism (ESM) came into force officially on 8 October 2012. The first operation of the ESM was the recapitalisation of the Spanish banking sector. The Eurogroup had previously approved credit lines of a maximum of € 100 billion in July. In December, the ESM transferred around € 40 billion to the Spanish banking bailout and reconstruction programme FROB.
The ECB also played a not insubstantial role in overcoming the crisis. The two long-term refinancing operations (LTRO) for European banks led to a relaxation on the bond markets in early 2012. The ECB’s announcement in the second half of the year that it was willing to provide unlimited support for euro countries in the form of outright monetary transactions in bond markets (OMT) meant that more time was available for further structural reforms in the euro zone in particular.