Germany's international investment position at the end of 2011
Germany’s financial ties with the rest of the world intensified further in 2011, partly due to the crisis. However, growth in cross-border positions was significantly weaker than one year previously. External assets rose by 4% to €6,555 billion, while external liabilities expanded by 5% to €5,710 billion. The growth in assets was primarily attributable to the Bundesbank’s higher external position, while large safe-haven flows into Bunds played a major role in the rise in liabilities. As external liabilities expanded at a somewhat stronger pace than assets, Germany’s net international investment position decreased by €26 billion to €845 billion. Overall, the negative effects of the revaluation of all assets and liabilities and of other adjustments were thus greater than the current account surplus.
The cross-border net asset position of monetary financial institutions (excluding the Bundesbank) fell by 12% to €177 billion over the year. External assets rose by €40 billion to €2,863 billion and external liabilities by €63 billion to €2,686 billion. On balance, these rises were solely attributable to financial derivatives, which boosted external assets by €132 billion and external liabilities by €143 billion. Excluding financial derivatives, domestic banks’ external assets and liabilities would have fallen by €92 billion and €80 billion, respectively, during the reporting year. The trend seen in previous years thus continued. On the assets side, this was mainly due to a decline in portfolio investment (by €68 billion), which was primarily driven by bond sales and holding losses, while on the liabilities side, this reflected above all a decline in domestic banks’ foreign credit liabilities (by €88 billion), particularly those with short-term maturities.
German enterprises and individuals, which include insurance companies and mutual funds (excluding money market funds), expanded their net external position again in 2011 (by €12 billion to €1,035 billion). Their claims on non-residents rose by €5 billion to €2,738 billion. At the same time, their external liabilities declined by €7 billion to €1,704 billion. These data reflect opposing developments in direct investment and portfolio investment. The favourable economic climate in Germany in 2011 led to a further increase in cross-border corporate links via direct investment. The rise in German foreign investment (by €23 billion) was predominantly due to the expansion of equity capital, while intra-group loans led to a considerable inflow of funds from non-resident subsidiaries to Germany. Financial intermediaries, usually domiciled abroad, thereby pass on the proceeds from securities issued on the international capital market to their parent companies. Foreign proprietors also increased their investment in their affiliates in Germany (by €9 billion). By contrast, cross-border portfolio investment dropped significantly. Thus German enterprises and individuals’ holdings of foreign securities fell by €33 billion. There was an even sharper decline (€52 billion) in non-residents’ holdings of German paper. In both cases, this was primarily due to valuation effects. While foreign investors chiefly felt the impact of the marked fall in German stock market prices (‑€61 billion), resident investors’ market losses were spread broadly across foreign equities, mutual fund shares and bonds. However, this was counterbalanced by substantial purchases of foreign bonds by German investors (€37 billion), predominantly through insurance companies and outside the euro area.
General government external liabilities totalled €1,036 billion net at the end of 2011. The deterioration in the public sector’s external position (by 20%) reflects, inter alia, the inflow of funds to the safe haven of Germany. External liabilities consequently increased by €184 billion, primarily due to the increase in foreign-owned holdings of public debt securities (€164 billion). The growth was attributable in roughly equal parts to transactions relevant for the balance of payments and to increases in the price of German government bonds. Although these push up the market value of foreign holdings of government bonds, they do not place any additional repayment obligations on the German government. The sharp rise in public sector external assets in 2010 in connection with the resolution agencies, which are assigned to the government sector, was followed by only slight growth during the reporting period (€12 billion). Thereby, loans expanded by €13 billion (primarily due to transactions), while securities holdings sank slightly.
The net external position of the Bundesbank increased by €158 billion to €668 billion in 2011. Reserve assets rose by €23 billion to €185 billion. Of this growth, €20 billion was the result of the customary marking-to-market of the reserve assets, with gold alone accounting for valuation gains of €17 billion. Transactions boosted reserve assets by €3 billion, which was mainly caused by an increase in Germany’s reserve position in the International Monetary Fund. The marked growth in other external assets from €167 billion to €530 billion was attributable chiefly to the ongoing rise in claims associated with TARGET2. Moreover, in 2011 the Bundesbank once again took a significant volume of foreign securities onto its books as part of the Eurosystem’s purchasing programmes. The growth in the Bundesbank’s external liabilities (€32 billion) at the end of 2011 is above all due to higher deposits by central banks and international organisations outside the euro area.