As regards foreign assets, however, the picture is clear, as the pension funds have indeed built up a very significant stock of these through the years, amounting to 26% of their total assets at the end of 2007. They amounted to 7% of total foreign assets and 29% of foreign securities owned by Icelandic residents as recorded in Iceland’s international investment position. In addition to shifting part of the future pension burden abroad, these assets proved to be important reserves when Iceland faced a sudden stop of capital inflows during the financial crisis. The clearest effects of the accumulation of the pension funds have been on financial market developments, where the funds contributed very significantly to the growth of these markets. At some points, there were even concerns that the funds were becoming too predominant. Thus their share of marketable bonds was almost 40% at the end of 2002. For a while, the overgrowth of the Icelandic banks laid any such concerns to rest, but when the dust has settled after their collapse, these concerns might come back. However, at the moment, with capital controls having temporarily stopped further foreign investment by the pension funds, they play an important role in the heretofore relatively easy domestic financing of the large fiscal deficit amounting to 13.5% of GDP last year and projected at 10.2% of GDP this year. You might have noticed that I have spoken mostly in the past tense when assessing the strengths and weaknesses of the Icelandic pension system.
Part 2: The Eurosystem’s vision for 2020 •  To deal with the technological and strategic challenges to its market infrastructure, the Eurosystem has developed three key action points it will work on in the run up to 2020;  •  The first is to explore synergies between TARGET2 and T2S, potentially even merging them into a single platform in the future, with the goal of achieving a consolidated market infrastructure for large-value payments and securities settlement;  •  The enhancements envisaged for Europe’s financial market infrastructure will benefit users by providing access to all available services via a single gateway;  •  Moreover, these enhancements will provide an opportunity to further increase the resilience of the system, which is also beneficial from a financial stability perspective;  •  The second action point is to consider new service opportunities that the closer integration of TARGET2 and T2S would bring;  •  in particular, the Eurosystem is considering enhancing the TARGET2 services with instant payments, at least in the settlement layer;  •  Third, there are plans to review the harmonisation of Eurosystem arrangements and procedures for collateralisation;  •  The three action points are currently in the design phase, and it is expected that decisions on the actual implementation of the projects will be taken over the summer;  •  For all three action points, the Eurosystem will continue to work closely with the market in order to benefit from its knowledge and experience as well as to ensure that Europe’s future financial market infrastructure fully meets the needs of its users.