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Understanding the capital key

Understanding the capital key

Governing council meeting of the ECB

If the European Union or the euro currency area is enlarged by the accession of another country, that also changes the weighting of each member state at the European Central Bank (ECB). This is the result of the way the European monetary union is constructed, in that the national central banks are the owners of the ECB.

In order to safeguard the ECB's independence from political influence, it has its own capital, subscribed by the national central banks. The total subscribed capital currently amounts to 10.83 billion euro. Each national central bank accounts for a fixed percentage of this – the capital key. The key is calculated according to the size of a member state in relation to the European Union as a whole, size being measured by population and gross domestic product in equal parts. In this way, each national central bank has a fair share in the ECB's total capital. The figures used to calculate this are supplied by Eurostat, the EU statistics agency. If, for instance, a country accounted for 10% of the EU's total population and produced 20% of its total economic output, then its capital key would be 15%. For Germany, the most populous country and strongest economy in Europe, the key for the subscription of ECB capital is currently 17.9973%.

The capital key is recalculated every five years, the most recent calculation having taken place as at 1 January 2014. The capital shares are also adjusted whenever a new member joins the European System of Central Banks (ESCB). This last happened in July 2013, when Croatia became the 28th member state of the EU and so the country's central bank, the Hrvatska narodna banka, joined the ESCB.

Only euro-area members have to pay up the full amount

When a country joins the EU, its central bank automatically becomes a member of the ESCB. That means it is immediately factored into the calculation of the capital key. Thus, the ECB is owned not just by the central banks of the euro-area member states, but by all national central banks in the EU. However, there is a major difference between them: only the central banks of euro-area member states actually have to pay up their capital share in full. All other members of the ESCB are obliged to pay only 3.75% of their share, to help cover the ECB's running costs.

This distinction also has an effect on the share national central banks take in surpluses or deficits on the ECB's balance sheet. When the ECB makes gains or losses in a given year, these are passed on to the national central banks in line with the capital key, after deduction of an accumulated safety buffer. As with "monetary income", the interest income arising from Eurosystem monetary policy operations, gains and losses are distributed only to those central banks which have paid up their subscribed capital in full – ie the members of the euro area.

Let us take an example. In 2012, the ECB recorded a surplus of 2.16 billion euro. Of this, the ECB Governing Council decided to retain 1.17 billion euro for safety purposes, while the remaining 998 million euro was distributed to the national central banks. As a result, the Deutsche Bundesbank, which at the time had a 27.1341% share in the ECB's subscribed capital, received a share in the net surplus amounting to around 270 million euro.

About 30% of the ECB's subscribed capital currently falls to central banks in countries which do not belong to the euro area. Because they receive no share in gains or losses, their capital key is assigned for accounting purposes to the central banks of the euro-area member states. At the beginning of 2014, the 18 central banks of the euro area together paid up around 7.6 billion euro in capital to the ECB. Of this, 1.95 billion euro was contributed by the Bundesbank, with its share amounting to 25.7184%. This capital share is also of significance for ECB Governing Council decisions on certain financial issues such as the distribution of ECB surpluses: the Bundesbank President's voting share is determined by the capital share.

National central bank

Key for subscription of ECB capital
(%)

Share of fully paid-up capital
(%)
 

Austria

1.96312.8053

Belgium

2.47783.5408

Cyprus

0.15130.2162

Estonia

0.19280.2755

Finland

1.25641.7954

France

14.179220.2623

Germany

17.997325.7184

Greece

2.03322.9055

Ireland

1.16071.6587

Italy

12.310817.5923

Latvia

0.28210.4031

Luxembourg

0.20300.2901

Malta

0.06480.0926

Netherlands

4.00355.7211

Portugal

1.74342.4913

Slovakia

0.77251.1039

Slovenia

0.34550.4937

Spain

8.840912.6338

Total euro area

69.9783100

Bulgaria

0.8590-

Croatia

0.6023-

Czech Republic

1.6075-

Denmark

1.4873-

Hungary

1.3798-

Lithuania

0.4132-

Poland

5.1230-

Romania

2.6024-

Sweden

2.2729-

United Kingdom

13.6743-

Total

100100

as at January 2014
 

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