the government bonds held by euro - area banks are issued by just one sovereign – their domestic government. for example, in december 2014, 98 % of the loans from greek banks to euro - area sovereign debtors were granted to the greek government. is it clear that in cases where the ties are so close, doubts concerning government solvency have a direct negative impact on the banking system. it is in this particular context that we have devoted the first main article of this year ’ s annual report to the topic of the sovereign - bank nexus. in particular, the article examines what would happen if sovereign loans were backed with capital, on the one hand, and if large exposures were subject to limits, on the other. because of the potentially significant consequences, especially of the application of the large exposure limit, any reforms would require a certain transitional period. however, the macroeconomic effects of such new rules would no doubt be positive. financial stability would be enhanced, incentives to pursue this type of fiscal policy would be increased and lending to private borrowers would become more attractive which, in turn, might boost capital stock and economies ’ growth potential. it would therefore be important not to lose any time. this article should be seen as a contribution to this debate. against this backdrop, it is a welcome development that the basel committee has now added the regulatory treatment of lending to sovereigns to its agenda. furthermore, the european systemic risk board published its report on this topic just the day before yesterday. in the foreword to the report, mario draghi quite rightly said that a discussion on the topic was long overdue. if it is not possible to reach a consensus at the international level on eliminating the privileged treatment of loans to sovereigns, we should push ahead with a european solution in order to make this important contribution to the long - term stability of the euro area. as well as focusing on major issues relating to a stability - oriented regulatory framework, the bundesbank also takes a look at the bigger picture, including, for example, the topic of payment transactions. the second main article in this year ’ s annual report therefore examines digital structural change in payment services. bis central bankers ’ speeches 8. bundesbank profit and risk provisions ladies and gentlemen, finally i would like to come now to our annual accounts and hence also to this year ’ s bundesbank profit. the profit and loss account for the 2014 financial year closed with an annual surplus of €2. 95 billion. the annual surplus

realistic. bis central bankers ’ speeches public finances, too, show a positive picture at present. in 2014, germany ’ s general government budget again recorded a slight surplus. while government expenditure was fuelled by a sharp rise in pension and healthcare costs, government interest payments again contracted significantly, chiefly thanks to the very favourable funding conditions. the fiscal balance could deteriorate somewhat in the current year. amongst other things, this is likely a result of faster expenditure growth due, not least, to the rise in social payments resulting from the pension benefits package adopted in mid - 2014. however, a slight general government surplus will again be recorded this year. regardless of the good situation overall and the favourable economic outlook, continued risks to economic developments in germany must not be neglected. this includes geopolitical tensions, amongst other things. what is more, the economic recovery that has got underway in the euro area remains fragile. the bottom line is that there is no room in germany for complacency on economic policy matters. in particular, the unfavourable demographic outlook will weigh heavily on the german economy in the medium term. by 2060, the population will have shrunk by up to 20 % and the labour force by around 30 %. to make matters worse, policy measures such as early retirement on a full pension at 63 are already constraining the labour supply, thereby eroding growth opportunities. 6. european banking union ladies and gentlemen, the single supervisory mechanism ( or ssm ), based at the ecb, has been up and running since 4 november 2014. in parallel to the introduction of the ssm, policymakers pressed ahead with efforts to create a regime for the orderly recovery and resolution of banks in 2014 without jeopardising financial stability or using taxpayers ’ money, if at all possible. this project is the second pillar of the european banking union. in this context, the eu regulation establishing a single resolution mechanism ( srm ) created the two elements of this pillar : on the one hand, a european resolution board and on the other, a single bank - financed resolution fund. the srm, which will enter into force in 2016, will apply the liability principle for banks as well. freedom to take entrepreneurial decisions and responsibility for the consequences are to be inextricably linked here, too – and this means, if the worst comes to the worst, resolving and therefore closing a bank. assuming they are involved at all, taxpayers will be the last