The role of households in financing government debt in euro area

The experience of the last ten years shows that the composition of government debt plays an important role in several analytical and policy domains such as public debt management, financial stability and sovereign debt sustainability. Against this background, the article provides an overview of the evolution of the structure of public debt by holder in euro area countries and explores in more detail the structure of domestically held government debt with a special focus on households. In the first decade of EMU, the share of foreign holdings of euro area government debt, including both creditors from other euro area countries and creditors from outside the euro area, has been increasing owing to deepening financial integration. Following the global financial crisis and the euro area sovereign debt crisis, the share of domestic holdings increased again, first driven by holdings of banks and other financial corporations and, since 2015, mainly by central banks’ holdings. The role of households’ direct holdings of government debt is relatively limited at around 2% of total government debt in the euro area, although it is more sizeable in several euro area countries and in some other advanced economies. However, considering indirect holdings through investment funds, insurance corporations and pension funds, the share of households in financing government debt is more significant, albeit slightly decreasing over time, and amounted to almost 16% in the euro area in 2020. JEL Classification: H6, H1, E21