The international investment position as at end-2008
At the end of 2008, the international investment position (i.i.p.) of the euro area vis-à-vis the rest of the world recorded net liabilities of EUR 1.6 trillion (representing 18% of euro area GDP). This reflects an increase of EUR 0.4 trillion in net liabilities compared with the revised end-2007 position, which represented 14% of euro area GDP.
The increase in the net liability position from end-2007 to end-2008 was mainly the result of net financial transactions (EUR 164 billion), revaluation effects due to exchange rate changes (EUR 108 billion) and other adjustments (EUR 204 billion), which were to a limited extent offset by revaluation effects due to price changes (EUR 88 billion). The other adjustments mainly reflected the introduction of a new data collection system for portfolio investment in one euro area country. Compared with 2007, exchange rate changes in 2008 had a lesser impact on the euro area’s net liability position, while net financial transactions and other adjustments had a much greater impact.
The net financial transactions were mainly driven by a net increase in portfolio investment liabilities (by EUR 342 billion) accounted for by net purchases of euro area debt securities (EUR 466 billion) by non-residents, which were partly offset by net sales of euro area equity securities (EUR 125 billion) by non-residents.
The changes in outstanding amounts related to exchange rate variations broadly reflecting the appreciation of the euro in 2008. As the euro area’s external assets are mostly denominated in foreign currencies and its external liabilities in euro, an appreciation of the euro results in a lower euro value of external assets and thus in an increase of the net liability position of the euro area. In 2008 changes in the i.i.p. related to exchange rate variations were mainly due to foreign currency revaluations of other investment (EUR 52 billion), portfolio investment (EUR 49 billion) and, to a lesser extent, direct investment (EUR 17 billion).
The i.i.p. revaluations reflecting price changes amounted to EUR 88 billion in net terms in 2008. These were mainly recorded in portfolio investment (EUR 160 billion), reflecting higher price decreases of euro area equity securities (EUR 1.0 trillion) held by non-residents than of foreign equity securities (EUR 717 billion) and foreign bonds and notes (EUR 86 billion) held by euro area residents. These exceptionally large price decreases of both assets and liabilities are related to the financial crisis.
The geographical breakdown of the international investment position as at end-2008
At the end of 2008, the stock of euro area direct investment abroad amounted to EUR 3.7 trillion, 23% of which was invested in the United Kingdom, 20% in the United States, 11% in offshore financial centres, 10% in Switzerland and 7% in other EU countries. The stock of foreign direct investment in the euro area amounted to EUR 3.2 trillion, 36% of which originated from the United Kingdom, 25% from the United States, 13% from offshore financial centres and 8% from Switzerland. The United Kingdom was the most important net investor in the euro area (EUR 294 billion).
With regard to portfolio investment, euro area holdings of foreign securities amounted to EUR 3.8 trillion at the end of 2008, which largely reflected holdings of securities issued in the United States (33% of the total), the United Kingdom (24%) and offshore financial centres (12%). Foreign holdings of euro area securities amounted to EUR 6.1 trillion at the end of 2008.
Turning to other investment, the outstanding amount of euro area holdings abroad (e.g. loans by euro area MFIs to non-residents or deposits by euro area residents with non-euro area MFIs) was EUR 5.5 trillion at the end of 2008, 37% of which was in the United Kingdom, 16% in the United States and 12% in offshore financial centres. The other investment in the euro area (e.g. non-residents’ deposits with euro area MFIs or loans to euro area residents by non-euro area MFIs) amounted to EUR 5.7 trillion at the end of 2008, of which the United Kingdom accounted for 38%, the United States for 20% and offshore financial centres for 11%.
