International investment position statistics

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Data extracted in November 2018.

Planned article update: October 2019.

Highlights


With EUR 1 712.0 billion net assets the EU-28 is a prominent direct investor abroad.
More than EUR 12 000 billion outstanding portfolio investment liabilities incurred vis-à-vis extra EU-28 in 2017.
Germany and the Netherlands are major global net creditors to the world.


Net International Investment Position, Surplus and Deficit, Top Ten Economies, 2017 (EUR 1 000 million)
Source: ECB, IMF, Eurostat (bop_iip6_q)

The international investment position (IIP) is an economy’s financial statement, compiled at a specified date (such as by the end of year or end of quarter), showing the value and composition of its positions in external assets and liabilities with the rest of the world. In simplified terms, external assets are funds which residents lend to non-residents, external liabilities are funds which residents borrow from non-residents. When external assets exceed liabilities, the net IIP is positive and when liabilities exceed assets it is negative. This article presents data on the (net) IIP of the European Union (EU) and its Member States. Data are compiled according to the Sixth Edition of the IMF's Balance of Payments and International Investment Position Manual (BPM6), the major components of the IIP for the EU-28 were estimated by Eurostat.

Author: Robert Obrzut
Full article

The EU-28 is a net borrower of financial funds

Eurostat estimations based on official data show the EU-28 as a net debtor towards the rest of the world, owing to higher positions in liabilities than in assets. As a consequence the EU-28 is a net borrower of financial funds (as is the euro area)[1]. Without accounting for reserve assets, the net position in the financial account of the EU-28 amounted to EUR -1 585.8 billion in 2017 (EUR -2 957.7 billion in 2016), with portfolio investments most prominently contributing to this with a net position of EUR -3 448.1 billion. In the same line the euro area recorded a negative IIP of EUR -708.7 billion in 2017 (Table 1). The net borrowing was particularly supported by a prominent (net) exposure to issuances of investment fund shares, being raised through financial hubs (among others Luxembourg and Ireland).


Table 1: International investment position, components, EU-28 vis-à-vis extra EU-28 and EA-19 vis-à-vis extra EA-19, 2017 (EUR 1 000 million)
Source: ECB, IMF, Eurostat (bop_iip6_q)

In a global perspective the United States were the top global net debtor economy in the world in 2017 with a net IIP of EUR -6 838.1 billion, while Japan was the global top net lender economy to the world in 2017 with a net IIP of EUR 2 575.1 billion (Figure 1). Among the top 10 net borrowers there are three EU Member States - Spain, France and Ireland, while among the top ten net lenders to the world Germany, Norway, Switzerland and the Netherlands representing European countries. This indicates the very heterogeneous situation within the EU-28 as regards to their net external position[2]. In relative terms, the estimated net IIP (excl. reserve assets) of the EU-28 measured -10.3% of GDP, while that of the euro area (incl. reserve assets) -6.3% of GDP.

Figure 1: Net International Investment Position, Surplus and Deficit, Top Ten Economies, 2017 (EUR 1 000 million)
Source: ECB, IMF, Eurostat (bop_iip6_q)

EU-28 is a prominent direct investor abroad

Despite its overall negative net investment position with the rest of the world, the EU-28 is a significant net lender in direct investment to the rest of the world. Based upon Eurostat estimations, net assets in direct investment outside the EU-28 amounted to EUR 1 712.0 billion in 2017 (EUR 1 993.5 billion in 2016). The positive net IIP resulted from the higher value of EUR 8 358.4 billion in external assets compared to EUR 6 646.4 billion in external liabilities. The Member States with the highest (net) exposure were the Netherlands, Luxembourg, Germany and France. By the end of 2017, the Netherlands recorded a net position of EUR 555.0 billion in direct investment vis-à-vis extra EU-28, while France and Germany followed with EUR 296.1 and 293.7 billion respectively (Table 2). Although Luxembourg does not publish figures vis-à-vis extra EU-28, its overall international exposure with the rest of the world (incl. other EU Member States) was EUR 687.3 billion in 2017.

Table 2: International investment position, Direct Investment, net, EU-28 Member States vis-à-vis partner countries, 2017 (EUR 1 000 million)
Source: Eurostat (bop_iip6_q)

Beyond Europe, the Netherlands recorded an outstanding direct investment net surplus position of EUR 146.2 billion with Brazil, while Germany and France had high (net) exposures abroad in the United States with EUR 145.2 billion and EUR 143.3 billion. However, in gross terms the Netherlands and Luxembourg recorded the highest levels of direct investment activity outside the EU-28. While Luxembourg prefers to keep these data confidential, the Netherlands recorded EUR 2 894.8 billion in external assets and EUR 2 339.8 billion in external liabilities in 2017.

EU-28 remains important hub for portfolio investment

Through the EU EUR 12 075.4 billion outstanding liabilities incurred vis-à-vis extra EU-28 in 2017, while EU residents have invested abroad EUR 8 627.3 billion in outstanding assets. This resulted in a net deficit of EUR 3 448.1 billion and the EU continuing its role as a major net borrower of portfolio investment from the rest of the world. Considerable outstanding positions in financial liabilities were recorded by Luxembourg (EUR 4 968.0 billion), France (EUR 3 182.7 billion) and Ireland (EUR 3 125.1 billion) (Map 1b). It can be noted in this context that capital is raised predominantly through the issuance of investment fund shares, in particular in Luxembourg and Ireland. The two countries appear also among the major investors in foreign assets (Map 1a). Luxembourg residents held EUR 3 927.5 billion in assets abroad (in EU partner countries and the rest of the world), Irish residents held EUR 2 698.6 billion abroad in 2017. Among EU Member States Germany appeared as a major net investor in foreign portfolio investment assets, recording a net surplus of EUR 382.1 billion in 2017 vis-à-vis the rest of the world.

Map 1a: Portfolio investment assets held by European residents, millions EUR
Source: Eurostat (bop_iip6_q)


Map 1a: Portfolio investment liabilities held by non-residents, millions EUR
Source: Eurostat (bop_iip6_q)

EU-28 is a net lender of other investment

The IIP of the EU-28 in the other investment component[3] showed a slightly positive net position of EUR 134.3 billion in 2017 (EUR 250.6 billion in 2016). Thus, the EU-28 is a net lender to the rest of the world in financial funds related to other investment (Table 3). The major contributors to the positive net assets of the EU-28 in 2017 were Germany and Luxembourg (EUR 690.8 billion and 375.9 billion with the rest of the world, respectively).

Table 3: International investment position, Other Investment, net, EU-28 Member States vis-à-vis partner countries, 2017 (EUR 1 000 million)
Source: Eurostat (bop_iip6_q)

Outside the EU Germany appeared as prominent net lender to the United States (EUR 38.5 billion) and Switzerland (EUR 30.3 billion), while France showed a high net lending position vis-à-vis Japan in 2017 (EUR 84.7 billion) and Ireland vis-à-vis the USA (EUR 29.7 billion). Major net borrowers of other investment from abroad were Spain and Italy (in 2017: EUR -475.6 billion and EUR -419.3 billion). The figures also show that the most prominent part of these borrowings came from within the EU.

Germany and the Netherlands are the main European creditor nations

IIP data for each Member State can be analysed by examining their (net) exposure in financial assets and liabilities with the rest of the world (including intra-EU exposure). Economies with higher positions in financial assets abroad than financial liabilities (i.e. a positive net IIP) are consequently considered as net lenders or creditors. Germany and the Netherlands appear as the major net lending economies in Europe (Figure 2). In 2017 Germany registered a striking surplus position of EUR 1 771.4 billion in its net IIP (increasing from EUR 1 602.5 billion in 2016), and the Netherlands followed with EUR 439.8 billion (EUR 444.3 billion in 2016). However, the highest outstanding positions in assets and liabilities abroad were reported by the United Kingdom and Luxembourg, both representing prominent financial centres within the EU. Furthermore, Norway and Switzerland reported high net lending positions with EUR 739.2 billion and EUR 724.3 billion in the same year.

Figure 2: Total net IIP with the rest of the world, EU Member States and European countries, 2017 (EUR 1 000 million)
Source: Eurostat (bop_iip6_q)

The top debtor nations in the EU-28: Spain, France and Ireland

Economies with higher positions in financial liabilities abroad than financial assets (i.e. a negative net IIP) are considered as net borrowers or debtors. The top net borrowing economies in the EU-28 in absolute terms in 2017 were Spain with a negative net IIP of EUR -977.7 billion, France with EUR -461.5 billion and Ireland with EUR -439.2 billion (Figure 2). A similar picture is obtained from figures on net external debt, which measures the highest volumes of indebtedness within the EU-28 in Spain (EUR 1 013.5 billion in 2017).

Table 4: Gross and net external debt in the EU-28, 2017 (EUR 1 000 million)
Source: Eurostat (bop_iip6_q)

Financial stability analysis is in this context more concerned about the sustainability of long-term negative net IIPs and their size in relation to total economic activity (usually expressed in % of GDP), and in relation to current account balances. Negative net IIPs - if maintained for longer periods - could reveal structural rigidities in local credit markets with the consequence of long-term and accumulating debtor positions towards the rest of the world. However, these values have to be assessed in the context of a multitude of macroeconomic indicators, in order to avoid premature conclusions on macroeconomic imbalances without knowing the full picture. While the net borrowing positions of France assumed 38 % of its GDP in 2017, several other European countries reported negative net IIPs with the rest of the world close to or more than 100 % of their GDPs. In 2017 this concerned in particular Cyprus (144 %), Greece (134 %), and Portugal (92 %) in the EU-28 (table 4).

Within the framework of a reinforced European economic governance after the financial and economic crisis, the European Commission has developed a set of scoreboard indicators to identify harmful macroeconomic imbalances. The net IIP as a percentage of GDP is one of the indicators included in the Macroeconomic imbalances procedure (MIP) for early warnings and national values are carefully monitored on an annual basis. The indicative threshold applied for benchmarking negative net IIPs is 35 % of GDP.

Source data for tables and graphs

Data sources

Statistics about the international investment position is based upon positions (or stocks) data which relate to the framework of balance of payments statistics. The main methodological reference is the Sixth Edition of the Balance of Payments and International Investment Position Manual (BPM6) of the International Monetary Fund (IMF). This new set of international standards has been developed, partly in response to significant economic developments, including an increased role for globalisation, rising innovation and interconnectedness of financial markets, and a greater emphasis on using the balance sheet as a tool for understanding economic activity (asset-liability principle). The transmission of IIP data to Eurostat is covered by Regulation (EC) No 184/2005 of the European Parliament and of the Council of 12 January 2005 on Community statistics concerning balance of payments, international trade in services and foreign direct investment. New data requirements according to the BPM6 manual are included in Commission Regulation EU No 555/2012 of 22 June 2012 and Commission Regulation EU No 1013/2016 of 8 June 2016 as an amendment to the above.

Why the IIP of the EU-28 is only an estimate?

The international investment position is an indicator of an economy’s external exposure in financial assets and liabilities to the rest of the world. This contributes most effectively to monetary policy analysis and foreign exchange rate policies. Given that the EU-28 is not a homogeneous currency union (unlike the euro area), such a measure has been treated only with minor attention in the past, and the publication of national IIPs has been deliberately left to Member States which maintain their own national currencies. Since the outbreak of the financial crisis user needs have however somewhat changed, and there have been increasing demands for an IIP of the EU-28 for the purpose of financial stability analysis of the European Union in general, and Member States in particular.

However, the compilation of the IIP for the EU-28 would require a geographical breakdown of positions data far beyond the current legal requirements. Firstly, all Member States would have to generally disseminate their assets and liabilities[4] held outside the European Union (Geo 3, extra EU-28). Secondly, this would require all Member States to send also their positions in reserve assets (as a component of the IIP) vis-à-vis extra-EU-28 to Eurostat, which is not the case (Geo 3, extra EU-28). The current legal framework of the European Union does not address these additional data requirements sufficiently – data requirements applying to Member States not participating in the Monetary Union are generally less comprehensive, with some improvements for other investment and financial derivatives components to be expected by 2019. The legal requirement for the dissemination of portfolio investment liabilities remains practically without geographical breakdown (Geo 1, rest of the world) [5], and requires resorting to other data sources[6], while the dissemination of reserve assets is not covered by the above mentioned regulation.

In spite of these difficulties, Eurostat has estimated the main IIP components for the EU-28, based on mirror data from counterpart Member States and geographical details from national and international data sources (IMF).

Interpreting external debt

Two measures in macroeconomic statistics complement IIP statistics – gross and net external debt. Their methodology is covered in the External Debt Statistics - Guide for Compilers and Users (EDS).

Gross external debt represents the total position of an economy in debt liabilities, and comprises the following debt instruments: special drawing rights (SDR) allocations, currency and deposits (including unallocated gold accounts), debt securities at nominal or market value, loans, insurance, pension and standardised guarantee schemes, trade credits and advances, and other accounts payable (EDS, paragraph 2.11). Equity and investment fund shares are excluded from this definition because no payment of principal or interest is required. Likewise the definition excludes financial derivatives and employee stock options.

Eurostat publishes net external debt as positions in debt liabilities minus the respective positions in debt assets[7]. The latter is based on the assumption that for risk-management purposes entities manage their external liabilities and assets in an integrated manner. Consequently, the difference between an economy’s net external debt and net international investment position is the absence of all equity and investment fund shares components, as well as financial derivatives [8] and gold bullion (EDS, paragraph 7.51), as well as the sign convention[9].

Eurostat publishes both gross and net external debt, based on quarterly IIP data for all EU-28 Member States and several European countries, while the World Bank publishes annual data on external debt positions for most countries in the world [10].

Context

The EU is a major player in the global economy not only for international trade in goods and services, but also for financial market operations and direct investment. Statistics on the international investment position provides a complete picture of the EU-28 and its Member States’ external exposure in financial assets and liabilities to the rest of the world. These statistics effectively support financial stability analysis and may be used as a tool to study the international exposure of different parts of the EU’s economy, indicating its comparative advantages and disadvantages with the rest of the world, and calibrate the implied macroeconomic risks for the respective economies. The financial and economic crisis underlined the importance of developing such economic statistics insofar as improvements in the availability of data on the real and financial economies of the world may have helped policymakers and analysts when the crisis unfolded; for example, if internationally comparable information about financial exposure in specific assets and liabilities had been available earlier.

The European Commission launched new policy proposals in this domain in the aftermath of the financial and economic crisis — aiming at establishing a package of actions designed to stimulate economic recovery, such as the Proposal for a Regulation on the European Fund for Strategic Investments (COM/2015/010), and to launch regular initiatives such as the Macroeconomic imbalances procedure to detect macroeconomic risks in EU Member States, and provide advice for addressing them. Further details on the European Commission’s initiatives are available from the website of the European Commission’s Directorate-General for Economic and Financial Affairs (DG ECFIN), with a particular interest in recent priorities concerning the European semester.

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Balance of payments statistics and International investment positions (BPM6) (bop_q6)
Quarterly sector accounts (ESA 2010) (nasq_10)
Annual sector accounts (ESA 2010) (nasa_10)


Notes

  1. However, considerable doubts have been raised about the negative net IIP. By estimating data gaps in assets held by euro area residents in offshore financial centres, missing in the compilation of national IIPs, the author concludes that the euro area is indeed a net lender to the rest of the world. See: http://www.parisschoolofeconomics.eu/docs/zucman-gabriel/mwn23march.pdf
  2. Source: IMF (BOPS). Differences with official figures may occur due to exchange rates applied.
  3. Consisting of other equity, currency and deposits, loans, insurance, pension and standardised guarantee schemes, trade credit and advances, other accounts receivable/payable, special drawing rights.
  4. Including all components of the IIP, i.e. direct investment, portfolio investment, other investment, financial derivatives and employee stock options, reserve assets.
  5. The legal provisions respect traditional information asymmetries of national compilers on non-resident investors holding resident securities. However, recent developments in European securities databases have promisingly improved information on at least European residents' holdings in securities, now available to national compilers in the EU-28.
  6. The IMF's Coordinated Portfolio Investment Survey (CPIS)
  7. Net external debt = direct investment liabilities in debt instruments + portfolio investment liabilities in debt securities + other investment liabilities in currency and deposits + other investment liabilities in loans + other investment liabilities in insurance, pension and standardised guarantee schemes + other investment liabilities in trade credit and advances + other investment liabilities in other accounts receivable/payable + other investment liabilities in SDRs - direct investment assets in debt instruments - portfolio investment assets in debt securities - other investment assets in currency and deposits - other investment assets in loans - other investment assets in insurance, pension and standardised guarantee schemes - other investment assets in trade credit and advances - other investment assets in other accounts receivable/payable - reserve assets in monetary gold and unallocated gold accounts - reserve assets in SDRs - reserve assets in the IMF reserve position - reserve assets in currency and deposits - reserve assets in debt securities - reserve assets in other claims. See: Balance of Payments Vademecum (Eurostat).
  8. EDS suggests additionally an extended measure of net external debt, including net financial derivatives. A comprehensive overview is presented in EDS, Table 7.14
  9. Net external debt = (debt) liabilities minus (debt) assets
  10. http://data.worldbank.org/topic/external-debt