This was shown clearly in the spreads of retail bank lending rates over corresponding market rates and in the increasing risk premia on corporate bond interest rates. The ratio of debt of non-financial corporations to GDP, which increased substantially in the second half of the nineties, only started to stabilise last year. The relatively high debt levels of non-financial corporations, combined with the decline in the value of financial assets, has had adverse consequences on firms' financing conditions via balance sheet effects and therefore on private investment in particular over the past few years. Furthermore, corporations have become increasingly reluctant or have found it more difficult to issue equity capital on public stock exchanges. In 2002, total gross issuance of equity only accounted for around 45% of the annual average for the period 1999-2002. In fact, in the second half of 2002, the value of quoted shares issued in the euro area was at its lowest level since the mid-nineties. The slowdown in equity issuance activity in 2001 and 2002 was accompanied by a similar decline in debt securities issuance by non-financial corporations. These declines in securities financing partly point to lower capital demand following the economic slowdown, but the worsening of capital market sentiment in recent years may also have induced companies to increasingly rely on other sources of finance. Furthermore, stock market participation of households in the euro area steadily increased in the 1990s.
The excesses, which were particularly evident in the stock markets, are the most notable expression of the interaction of the belief in the “new economy” with developments in financial markets. However, the growth in debt markets also played its role. The introduction of the euro and the start of the single monetary policy seem to have had a strong, positive impact on the possibilities for corporate issuers both financial and non-financial - to resort to corporate bond issuance as a financing source. In addition, this process was fuelled by the surge in mergers and acquisitions, as more and more companies prepared to grasp the opportunities of the new dynamic environment. Furthermore, issuance activity by certain sectors linked to the “new economy”, such as the telecommunications and high-tech sectors, promoted the development of certain segments of the bond markets, for example the market for high-yield bonds. 2  B. van Ark, “Measuring Productivity in the “New Economy”: Towards a European Perspective”, De Economist 148, No.1, 2000, pp.87-105. 2  BIS Review 23/2003  We all know where all this optimism about the “new economy” led to. Since March 2000, we have seen both a substantial decline in stock prices and rising financial imbalances. I shall now discuss the aftermath of the boom and burst period that we experienced in financial markets.