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International Finance 16:3, 2013: pp.

333361
DOI: 10.1111/j.1468-2362.2013.12034.x

Capital Inows to Greece,


Spain, Portugal and Ireland:
A SectorLevel View
Andr Ebner
Deutsche Bundesbank, Frankfurt am Main, Germany

Abstract
Greece, Spain, Portugal and Ireland have accumulated large foreign net
liabilities, exposing them to increased nancial market pressure during
the current crisis period. This analysis decomposes cumulated lending
and borrowing over the past decade into sectorlevel contributions and
compares them with the euro area average. It shows strong borrowing
by households and nonnancial corporations with government further
increasing net borrowing in Greece and Portugal. Financial corporations act in this context as intermediaries between foreign savings and
domestic borrowers. The sectorlevel contributions to an economys
foreign net liabilities vary signicantly by country, which implies a
need for different adjustment paths. In a currency union, given the
absence of a mechanism for transfer payments between member states,


This analysis is based on work carried out during the authors stay at the European
Commission, DG ECFIN, and beneted from the comments of Florian Kajuth, Eric Ruscher,
Guntram Wolff and referees. Thanks go to Reinhard Felke and his former team at DG ECFIN
for supporting this study. The author is currently an Economist in the Financial Stability
Department of the Deutsche Bundesbank. The views and analysis in this paper are those of
the author and do not necessarily reect the opinions of the European Commission or the
Deutsche Bundesbank.
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there is a heightened risk that large foreign liabilities will become


unsustainable. Thus, member states must contain external imbalances,
which often reect a loss of competitiveness and internal imbalances, to
prevent the reoccurrence of current vulnerabilities.

I. Introduction
This study examines the large nancial liabilities accumulated by Greece,
Spain, Portugal and Ireland (referred to below as EL, ES, PT and IE,
respectively) in the period from the introduction of the euro to the beginning of the current nancial and economic crisis.1 Based on a sectorby
sector analysis and a comparison with developments in the euro area
average, the paper identies the contributions made by the various sectors
of the economy to each countrys indebtedness. The analysis also highlights
regulatory and economic developments that may be associated with the
strong loan borrowing observed.
Countries that run current account decits rely on other countries lending
their savings to them. Thus, the value of the assets that a country owns abroad
minus the value of the liabilities owed to nonresidents its net nancial asset
(NFA) position will decrease. Financing spending needs abroad can be
benecial to an economy whose internal nancial resources are insufcient to
fund sustainable growth in productive sectors. However, relying on foreign
creditors can also be problematic if nancial inows exceed the absorption
capacity of the economy, thereby potentially leading to imbalances.2
A closer look at the underlying dynamics in European economies, which
accumulated signicant net nancial liabilities (or negative NFA positions)
compared with nonresidents in the years prior to the nancial crisis, is
therefore particularly warranted. All four of the countries examined in this
paper have built up macroeconomic imbalances. Their governments either
have been cut off from nancial markets (EL, PT and IE) and put under a
full nancial assistance programme or face strong market pressure (ES) and
need nancial help for restructuring the nancial sector.3
This study deliberately excludes the period since the beginning of the current nancial and
economic crisis in order to focus on the buildup of nancial liabilities in its runup.

The economic literature also nds a negative relationship between foreign debt and
economic growth. See, for example, Pattillo et al. (2002).
2

Socalled country or sector programmes are nanced by the European Commission, the
European Central Bank (ECB) and the International Monetary Fund. Financial assistance to
Greece was initially based on bilateral loans, while the European Financial Stability Facility
and the European Stability Mechanism were established later.

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In general, macroeconomic imbalances can be reected in large and persistent external decits and surpluses, sustained losses of competitiveness, the
buildup of indebtedness and housing market bubbles that can lead to severe
economic problems (European Commission 2012a). In response to this threat,
the EU has set up a new surveillance and enforcement mechanism to identify
and correct imbalances at an early stage: the Macroeconomic Imbalance
Procedure. This mechanism is based on the economic interpretation of a
scoreboard of indicators for each member state. Starting from this, indepth
studies may be triggered that can lead to preventive and corrective actions. One
of these indicators of indebtedness is the countrys net international investment
position (NIIP), which is conceptually equivalent to NFA.4 While aggregate
country gures are an important starting point, a sector analysis, such as the
one presented below, can help better understand the underlying driving forces
and show where adjustment is needed.5
To study a countrys aggregate and sector NFA positions, it is useful to
compare developments with a historic or geographic benchmark. This
analysis rst uses the euro area average to detect countryspecic deviations.
It then tests the robustness of the results using the countryspecic pre
European Monetary Union (EMU) period as an alternative benchmark.
Between 1999 and 2008, the current and nancial accounts of the euro area
were almost balanced, although the records of individual member states
differed signicantly. Some EMU countries had high net borrowing requirements, while other euro area countries had large savings. In principle, differences in countries economic development and structure can explain differing
sector performances, but the scale of net borrowing observed in EL, ES, PT and
IE proved to have been unsustainable ex post. Therefore, a more balanced
performance in line with that of the euro area as a whole would have
helped avoid some of the current economic problems. This is not to claim that
every country should be above average in performance which is obviously
impossible or that the euro area should run high surpluses. Taking the euro
area average as a benchmark merely embraces the idea that countries should
not deviate too much from a largely balanced account. A set of countries with
4

NIIP is based on balance of payment statistics, while NFA makes use of national account
statistics. See European Commission (2012b). The scoreboard uses an indicative threshold of
35% of GDP, although it states the difculty of establishing a level of external indebtedness
that can be considered to be risky. Importantly, it is not only the level but also the
composition of gross assets and liabilities in terms of types and maturities that matters for
assessing the vulnerability of a countrys NFA position (see European Commission 2012a).
See also Gros and Alcidi (2011) for a discussion of foreign debt in the euro area context.
5

The Macroeconomic Imbalance Procedure does not neglect sectoral developments: it looks,
among other factors, at private and government sector debt and private sector credit ows.
However, it does not provide a detailed sector analysis of nancial transactions.
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widely diverging current accounts can yield the same average as countries that
run modest current account decits and surpluses, but the implications can be
very different. Certainly, no single threshold can be applied mechanically to
NFA positions. However, a rapid and sustained accumulation of signicant
liabilities or assets can often be seen as a worrying sign. Thus, taking the euro
area average as a benchmark allows us to identify countryspecic developments that led to a problematic buildup of debt in the decade prior to the
onset of the current nancial and economic crisis. The results of this analysis
are corroborated when the developments are compared with the preEMU
period. Prior to the adoption of the euro, countries net foreign liabilities were
substantially lower, which indicates that the single currency may have facilitated
the buildup of foreign liabilities.6
The contribution of this study is twofold: it links the increasing indebtedness
in EL, ES, PT and IE to the net borrowing within the economys individual
sectors, and it describes concomitant regulatory and economic developments
both nationally and at the European level. The analysis is motivated by the
question of how aggregate NFA gures relate to those at the sector level. The
answer to this is important as it offers insight into which sectors may have to
adjust for net lending and borrowing to return to a sustainable path. The
approach is descriptive, and no attempt is made to establish a causal link.
The rest of the paper is structured as follows. Section II provides a short
overview of the data used in this study. Section III examines the countries NFA
positions. Positive NFA positions with respect to the rest of the world represent
claims on foreign debtors, while negative positions represent liabilities to
foreign creditors. Section IV identies the nancial positions of the various
sectors of the economy. Section V briey discusses the developments that
occurred during or prior to the sample period, which may be related to the
observed buildup of debt. Although the data from national sector accounts
provide a detailed breakdown, they do not permit a distinction to be made
between liabilities (or claims) on residents and nonresidents. This issue is
addressed in Section VI, which sheds light on the sectors dependence on
foreign funding that is reected in the sectorspecic gross external debt
positions. To conclude, the main ndings of the paper are summarized.

II. Statistical Concepts and Data


This analysis describes borrowing at the levels of both the economy and its
sectors. At the country level, the NFA position with respect to the rest of the
world explains whether a country is a net creditor or debtor.7 The NFA position
6

See the Appendix for this robustness analysis.

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at the end of the accounting period is the result of the stock at the beginning of
the accounting period, the net lending and borrowing (NLB) of the accounting
period, and valuation effects (holding gains less holding losses accruing during
the accounting period).8
The NFA position of a country nds its counterpart in the NFA positions of all
institutional sectors. For a sector analysis, one has to resort to the sector account
statistics that provide information on nonnancial corporations (NFCs), nancial corporations (FCs) and the government and households. NLB states whether
a certain sector is a net creditor or debtor.9 However, in contrast to a countrys
NFA position, the counterpart of a sectors NLB is unknown, as it comprises the
net position compared with all other domestic sectors and the rest of the world.
Thus, since the data do not allow us to differentiate between net inows from
abroad and net inows from other sectors in the economy, cumulated sector
NLB does not match 1:1 with a countrys NFA position compared with the rest
of the world. Nevertheless, sector trends can be identied, depicting the underlying forces of a countrys aggregate position.
The resulting picture is then complemented by an analysis of countries and
sectors gross external debt positions.10 This allows us to detect the sectors that
depend most on foreign funding. At the same time, it should be borne in mind
that these are gross gures and that the asset side of the balance sheet is ignored.
Furthermore, only debt, such as deposits, loans and bonds, is included, whereas
shares and other equity and nancial derivatives are not taken into account.11

III. Net Financial Asset Positions Compared


with the Rest of the World
A countrys NFA position suggests whether it is a net creditor or debtor. The debt
and equity held by nonresidents have two important economic implications.
First, the interest/dividend payment itself does not remain in the country, nor
From Eurostat, national account nancial balance sheets statistics. NFA positions are
recorded by position BF90.

The change in NFA positions can also be dened as current account plus valuation effects.

To measure NLB, this study uses data from the Eurostat national sector accounts, specically B9_F in the sector nancial account, for which the correct technical term is net nancial
transactions. However, this analysis refers to it as NLB owing to the wider use of this
expression. NLB is B9 in the sector nonnancial account, which is conceptually equal in
value to B9_F.

10

Data are derived from the Joint External Debt Hub.

11

All data in this analysis were retrieved from Eurostat or the Joint External Debt Hub in
2010.
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0%
-20%
-40%
-60%
-80%
-100%

EL

ES

PT

IE

-120%
1995

1997

1999

2001

2003

2005

2007

Figure 1: Net nancial assets (stocks) visvis the rest of the world (as percentage of
GDP)
Source: Eurostat Financial Account.

does the government of the debtor country receive tax revenue on the interest/
dividend paid (see Cabral 2010). This decreases the countrys nancial resources,
thus increasing vulnerability. Second, from a nancial stability point of view,
foreign liabilities represent a direct risk exposure for foreign counterparties to the
possible payment difculties of domestic debtors. This can involve signicant
spillover effects, giving an international dimension to a local debt crisis. Furthermore, foreign funding may be more prone to sudden withdrawals and thus
heighten funding risk. Since foreign liabilities may be offset and masked in net
gures, there is a need to better understand developments in countries NFA
positions as well as in their gross external debt positions.
Since the mid1990s, EL, ES and PT have been net debtors, increasingly
relying on foreign capital for their nancing needs (see Figure 1). This
development has been especially pronounced in EL and PT, where NFA
positions were only slightly negative around 1995 but have since deteriorated
at a fast pace, accounting for 87% and 94% of Greek and Portuguese GDP,
respectively, in 2008. Spain already started with higher net liabilities, which
increased to 79% of GDP in 2008. By contrast, Eurostat data suggest that IEs
negative NFA position was quite stable until 2007 before rising sharply to
58% of GDP in 2008.12 Nevertheless, the data on IE have to be interpreted
with caution since Dublin serves as a nancial hub, home to the International Financial Service Centre (IFSC).13 According to the Irish Central
12

This sudden deterioration in the Irish NFA position is still puzzling as IE did not
experience exceptionally large current account decits, and net nancial ows do not seem
to be the major driving factor. Thus, valuation effects and other adjustments played a role
that has yet to be fully understood. See Lane (2012) for a discussion of the recent change in
the Irish net international investment position.
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10%
0%
-10%
-20%
-30%
-40%
-50%
-60%
-70%
-80%

Change in stocks (1998-2006)

EL

ES

Sum of flows (1999-2006)

PT

IE

Figure 2: Net nancial assets visvis the rest of the world (change in stocks vs. ows as
percentage of 2006 GDP)
Note: Due to data availability Irish data display the change in stocks between 2001 and
2006 and the sum of ows between 2002 and 2006.
Source: Eurostat Financial Account. Own calculations.

Statistics Ofce, the overall NIIP was less negative than its nonIFSC
component for the period from 1999 to 2010, although the two data series
converged almost completely in 2008.14
The change in NFA stocks is not only caused by increased borrowing from
abroad but also signicantly inuenced by valuation effects. Figure 2 compares the change in NFA stocks to cumulated NFA ows for the period from
1999 to 2006.15 NFA ows are measured as the NLB of the economy. The
difference between cumulated ows (that is cumulated nancial transactions) and stocks (that is the value of assets and liabilities at a given point in
time) are valuation effects, which turn out to be signicantly negative in EL,
ES and PT but positive in IE. Looking solely at net ows, the NFA position of
EL and ES would have deteriorated to a smaller extent, but valuation effects
signicantly exacerbated the negative developments. The same effect, though
somewhat curbed, can be observed in the case of PT. For the remainder of

13

The IFSC was established in 1987 to boost activity and employment in the Irish economy.
Until 2006, it offered nancial incentives to the nancial services industry. Because of the
IFSC, Dublin is host to half of the worlds top 50 banks and half of the top 20 insurance
companies, according to the centres website. See http://www.ifsc.ie/page.aspx?idpage6.
14

See the Appendix.

15

The sample period was chosen to avoid the most recent valuation effects due to the crisis.
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Andr Ebner

the paper, the analysis generally disregards valuation effects by focusing on


cumulated ows rather than stocks.16

IV. Net Financial Asset Positions by Sector


This section investigates the contributions made by the various sectors to the
changes in the NFA position of the economy, which are based on cumulated
ows.17 To assess a sectors contribution to the countrys NFA position, it is
necessary to establish a benchmark for its normal level of NLB. For example,
the household sector is typically a net lender to the economy. A household
sector that increases its borrowing during a housing boom could still remain
a net lender overall. However, its weaker net lending would ceteris paribus
imply weaker net lending in the economy. It is therefore useful to compare
NLB per sector with a historic benchmark and a geographic benchmark. For
the historic benchmark, developments in a certain period can be compared
with previous years or a historic average. For the geographic benchmark, the
euro area can be used for comparison. I present the latter approach below. A
robustness check that compares the average annual NLB from 1999 to 2008
to the period from 1995 to 1998 conrms the main results and emphasizes
the role that the adoption of the single currency played.
By looking at cumulated NLB, the data show that the positions of both
NFCs and households deteriorated signicantly in EL, ES and PT, while
households were the major driving factor of net borrowing in IE. In the
period from 1999 to 2008, the corporate sector accumulated signicant net
liabilities (approximately 50% in terms of 2008 GDP; see Figure 3) in EL, ES
and PT, and the average annual NLB was lower than in the period from 1995
to 1998. In these countries, the corporate sectors cumulated NLB as a share
of GDP was approximately 40 percentage points lower than that in the euro
area as a whole (see Figure 4), conrming strong net borrowing. In addition,
households nancial positions also deteriorated. While households were still
net lenders or had almost balanced net ows, their net lending was signicantly lower after the introduction of the euro and when compared with the

16

European Commission (2010a) includes an extensive discussion of the valuation effects on


external asset positions in euro area member states.
Eurostats nancial account data are used. The data set does not allow us to assess the
increase in the exposure of the respective sector to the rest of the world, but Section V uses
external debt statistics to do so to the extent possible.

17

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40%
20%
0%
-20%
-40%
-60%

HOUSEHOLDS
GOV
FC
NFC

-80%
-100%
EL

ES

PT

IE

EA-12

Figure 3: Sectors contribution to changes in the countrys net nancial assets (sum of
ows 19992008 as percentage of 2008 GDP)
Notes: The sectors cumulated ow of net nancial transactions as a percentage of 2008
GDP is displayed on the yaxis. NFC, nonnancial corporations; FC, nancial corporations; GOV, government. FC excludes the Central Bank sector, except for the euro
area. EA12 refers to euro area and covers the rst 12 member states of the EMU. Data
for IE and EA12 are nonconsolidated except for NLB of the Irish government. Irish
data cover 20022008 due to data availability.
Source: Eurostat Financial Account. Own calculations.
40%
20%
0%
-20%
-40%
-60%

HOUSEHOLDS
GOV

-80%

FC
NFC

-100%
EL

ES

PT

IE

Figure 4: Sectors contributions to the changes in the countrys net nancial assets
visvis the euro area (sum of ows 19992008 as percentage of 2008 GDP relative to
the euro area (EA12))
Notes: Sectors contributions are calculated as the difference between the sum of ows
19992008 as a percentage of 2008 GDP of the respective country and the same ratio
concerning EA12. NFC, nonnancial corporations; FC, nancial corporations; GOV,
government. FC excludes the Central Bank sector, except for EA12 (euro area). Data
for IE and EA12 are nonconsolidated except for NLB of the Irish government. Irish
data cover 20022008 due to data availability.
Source: Eurostat Financial Account. Own calculations.
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Andr Ebner

euro area average.18 On the other hand, the data for IE show that households
borrowed heavily between 2002 and 2008.19
Country differences also emerge with respect to the public sector. Net
borrowing by the government was higher in EL and PT than in the euro area
as a whole, with the governments decits usually (PT) or always (EL) above
3% of GDP the ceiling mandated by the Maastricht treaty.20 Conversely,
net borrowing by the government was lower in ES and IE than in the euro
area overall, reecting consolidation measures and, more importantly,
increased revenues due to a booming economy.21,22 Nevertheless, cyclical
revenues can contribute to the overheating of the economy if they are largely
spent.
In contrast to the public and nonnancial private sectors, cumulated
ows in the assets and liabilities of the FC sector were quite balanced and
broadly in line with developments in the euro area. However, these net
gures could mask an important intermediation role between foreign savings
and domestic borrowings. Again, the data on Ireland have to be interpreted
with caution as they can be inuenced by the size of the IFSC located in
Dublin.
Below, I investigate the subcomponents of the sectors balance sheets in
more detail in order to gain insight into how this pattern of NLB arose. The
structure of assets and liabilities is relevant for detecting how funding is
raised and channelled into investments as well as inferring vulnerabilities in
the sector and the economy as a whole.

18

The deterioration in NFA positions can also be seen when looking at stocks, that is
including valuation effects. In 2008 (1998), NFA positions amounted to 55% (134%) of
GDP in EL, 68% (126%) in ES and 121% (167%) in PT. While households NFA positions
also deteriorated in PT between 1998 and 2008, average annual NLB was similar when
comparing 199598 with 19992008. Except for ES, nancial account data from Eurostat are
not available prior to 1995.
19
Irish national sector accounts from Eurostat are available on a nonconsolidated basis.
Thus, intrasector ows are not netted when looking at assets and liabilities.
20

The budget decit criterion is one of the euro convergence criteria (socalled Maastricht
criteria) of the EMU.

21
The difference compared with the euro area in cumulated NFA ows as a percentage of
GDP amounts to approximately 24 percentage points in EL and 14 percentage points in
PT.
22

See European Commission (2010c) for EL and European Commission (2011b) and Abreu

(2006) for PT. Cech
(2006) discusses the increasing reliance of Irish tax revenues on the
property market and European Commission (2011a) shows that windfall revenues were
largely spent. European Commission (2012c) mentions that the housing boom was also
sustaining public revenues in Spain.

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160%
140%
120%

343

F6+F7
F5 (shares)
F4 (loans)
F3 (other securities)
F2 (deposits)

100%
80%
60%
40%
20%
0%
(A) (L)
EL

(A) (L)
ES

(A) (L)
PT

(A) (L)
IE

(A) (L)
EA-12

Figure 5: Changes in assets and liabilities of NFCs (sum of ows 19992008 as a


percentage of 2008 GDP)
Notes: A, assets; L, liabilities; F2, deposits; F3, securities other than shares; F4, loans; F5,
shares and other equity; F6, insurance technical reserves; F7, other accounts receivable/
payable. Data are consolidated except for IE and EA12 (euro area). Irish data cover
20022008 due to data availability.
Source: Eurostat Financial Account. Own calculations.

A. NonFinancial Corporations
New borrowing in the form of loans was the most important source of nancing
for NFCs during the period from 1999 to 2008 followed by the issuance of shares
and other equity, and other securities. Loan borrowing was especially striking in
ES, where it amounted to 94% of 2008 GDP, well above the overall level in the
euro area (see Figure 5).23 Corporations also raised funds in nancial markets and
issued more shares than other securities over the sample period. Cumulated share
issues accounted for 1829% of 2008 GDP in EL, ES and PT, which is similar to
gures for the euro area as a whole. By contrast, accumulated life insurance and
pension fund reserves as well as other accounts payable were lower in EL, ES and
PT than in IE or the euro area overall, which may reect the relatively minor
importance of corporate pension schemes in these three countries.24

23

The time pattern shows that, in all four countries, loan borrowing varied by year but was
subject to strong dynamics (gures available from the author). Generally, liabilities rose year
onyear in the late 1990s, declined in the early years of the last decade and rose again in the
years preceding the global nancial crisis.

24

The importance of occupational pensions differs by country: they play a major role in
Denmark, Ireland, the Netherlands and the UK. See, for example, Andrietti (2003) and
European Commission (2010b).
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350%

F6+F7

300%

F5 (shares)
F4 (loans)

250%

F3 (other securities)
F2 (deposits)

200%
`

150%
100%
50%
0%
(A) (L)
EL

(A) (L)
ES

(A) (L)
PT

(A) (L)
EA-12

Figure 6: Changes in assets and liabilities of nancial corporations in EL, ES and PT


(sum of ows 19992008 as percentage of 2008 GDP)
Notes: A, assets; L, liabilities; F2, deposits; F3, securities other than shares; F4, loans; F5,
shares and other equity; F6, insurance technical reserves; F7, other accounts receivable/
payable. Data are consolidated except for IE and EA12 (euro area). Data do not cover
Central Banks except for EA12.
Source: Eurostat Financial Account. Own calculations.

B. Financial Corporations
Over the past decade, cumulated changes in the nancial sectors assets and
liabilities have been broadly balanced. However, this does not necessarily imply
that FCs did not contribute to the accumulation of considerable liabilities in the
economy. They play an important intermediating role, channelling both domestic and foreign savings to borrowers. I investigate this role in greater detail when I
discuss the sectors gross external debt position in Section VI.
Furthermore, the current vulnerability of the banking sector demands a
closer look at the size and composition of its assets and liabilities in the run
up to the crisis (see Figures 6 and 7). The gures for IE, owing to its
importance as an international nancial centre, are much higher than those
for EL, ES, PT and the rest of the euro area.
On the asset side, cumulated growth in loans has been more important in the
three southern European countries examined in this analysis than in the euro
area as a whole, which corresponds to substantial lending to NFCs and households.25 In addition, relative to Irish or other euro area banks, loans provided by
25
By cumulating new loan borrowing from nancial account data over the period from 1999
to 2008, we can see that the share of household loans to corporate loans was higher in all
four countries than in the euro area as a whole. While the share in ES was still broadly in line
with the euro area average (70% compared with 60% in the euro area), loans to households
were signicantly more important in EL (130%), PT (108%) and IE (93%). For IE and the
euro area as a whole, only nonconsolidated data are available.

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Capital Inflows to Greece, Spain, Portugal and Ireland


1400%
1200%

F2 (deposits)
F4 (loans)
F6+F7

345

F3 (other securities)
F5 (shares)

1000%
800%
600%
400%
200%
0%
IE (A)

IE

(L)

Figure 7: Changes in assets and liabilities of nancial corporations in IE (sum of ows


20022008 as percentage of 2008 GDP)
Notes: A, assets; L, liabilities; F2, deposits; F3, securities other than shares; F4, loans; F5,
shares and other equity; F6, insurance technical reserves; F7, other accounts receivable/
payable. Irish data cover 20022008 due to data availability, are not consolidated and do
not include the Central Bank.
Source: Eurostat Financial Account. Own calculations.

Greek, Spanish and Portuguese banks to corporations and households have been
more important than investments in bonds. These differences could have
implications for the risk exposure of banks, as the default probabilities of loans
and bonds can vary depending on economic conditions and risk factors. Risks
for banks are now related to repayment difculties because of the economic
downturn. In the case of ES, this risk is exacerbated by the bursting of the
housing bubble and the subsequent loss in value of collateral for loans.
On the liability side, deposits in EL, ES, PT and IE comprised a larger
share of total liabilities than in the euro area as a whole, while securities were
used less.26 In all four countries, the vast majority of securities other than
shares newly issued by FCs between 1999 and 2008 had an original maturity
longer than one year.27
26

Deposits can be either immediately convertible into currency or subject to restrictions or a


penalty when doing so (categories F22 and F29 of ESA95, respectively).

27

The European System of National and Regional Accounts (ESA95) denes an original
shortterm maturity as equal to or below one year. Correspondingly, a longterm maturity is
dened as being longer than one year. For details, see classications F331 and F332 of the
nancial accounts published by Eurostat. According to ESA95, F331 and F332 exclude
nancial derivatives, which are dened as nancial assets based on or derived from a
different underlying instrument. The underlying instrument is usually another nancial
asset, but may also be a commodity or an index. In ES, nancial derivatives include options,
futures and similar instruments, but not swaps and forward transactions. In PT, the coverage
is generally weak and few data are available.
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90%
80%

F2 (deposits)
F4 (loans)
F6+F7

F3 (other securities)
F5 (shares)

70%
60%
50%
40%
30%
20%
10%
0%
-10%

(A) (L)
EL

(A) (L)
ES

(A) (L)
PT

(A) (L)
IE

(A) (L)
EA-12

Figure 8: Changes in assets and liabilities of households (sum of ows 19992008 as


percentage of 2008 GDP)
Notes: A, assets; L, liabilities; F2, currency and deposits; F3, securities other than shares;
F4, loans; F5, shares and other equity; F6, insurance technical reserves; F7, other
accounts receivable/payable. Data are consolidated except for IE and EA12 (euro
area). Irish data cover 20022008 due to data availability.
Source: Eurostat Financial Account. Own calculations.

C. Households
Households are traditionally net lenders, providing credit to the corporate
sector via nancial intermediaries such as banks. While this was true for the
euro area in the period from 1999 to 2008, households provided fewer funds
in EL, ES and PT or were even net borrowers in the case of IE. Thus,
households role with respect to the countries negative NFA positions is
substantial.
In EL, ES, PT and IE, households mainly invest in deposits and, to a
smaller extent, in life insurance and pension fund reserves, while liabilities
are almost exclusively in the form of loans (Figure 8). On the asset side,
cumulated deposits account for a larger share of GDP than in the euro area
as a whole, whereas cumulated insurance and pension fund reserves are
relatively less important. Investments in shares and other equity as well as in
bonds are of some importance only in EL and PT.28
By looking at stocks which includes valuation effects the liabilitiestoassets
ratio rose considerably in all countries. While this was, to some extent, also the
case in the euro area as a whole, the trend was more pronounced in the countries
under consideration, underscoring their rise in liabilities (see Figure 9).

28

Investments in shares were higher than in bonds in EL and the euro area as a whole, but
were of similar magnitude in PT.

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80%

EL

70%

ES

60%

PT

347

IE

50%

EA-12
40%
30%
20%
10%
0%
1995

1997

1999

2001

2003

2005

2007

2009

Figure 9: Households liabilities to assets ratio (stocks, including valuation effects)


Notes: The graph displays the ratio of nancial liabilities to assets. EA12 refers to the
rst 12 member states of the EMU. Data are consolidated except for IE and EA12.
Source: Eurostat Financial Account. Own calculations.

D. The Government
Cumulated public sector liabilities in all four countries in the period from 1999
to 2008 were predominantly nanced by bonds with an original maturity longer
than one year, but shortterm nancing was of relative importance in PT and IE.
In PT, cumulated government bond issuance with shortterm maturities of less
than one year accounted for 7% of 2008 GDP while longterm bonds accounted
for 20%. This implies that a rather large percentage of government debt was
being renanced frequently. In IE, shortterm borrowing was also relatively
important, but partly due to cyclical tax revenues the government sector
has not accumulated net nancial liabilities over the past decade.29
On the asset side, cumulated nancial assets are largely deposits and other
accounts receivable (in EL, PT and IE) as well as securities other than shares
owned by the government (in ES and IE) (see Figure 10).

V. The Loan Market and Concomitant Regulatory and


Economic Developments
Borrowing in the form of loans is the primary source of nancing for both NFCs
and households in the euro area. This section describes the main loan developments according to the ECBs MFI statistics and relates the ndings to the
literature in order to gain a better understanding of the underlying driving forces.
29

In IE, shortterm borrowing regained importance relative to longterm borrowing from


2004 onwards following a sharp drop in 2002 and 2003. In ES, this development took place
from 1997 to 2003 and uctuated afterwards.
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Andr Ebner
F6+F7
F5 (shares)
F4 (loans)
F3 (other securities)
F2 (deposits)

55%
45%
35%
25%
15%
5%
-5%

(A) (L)
EL

(A) (L)
ES

(A) (L)
PT

(A) (L)
IE

(A) (L)
EA-12

Figure 10: Changes in assets and liabilities of governments (sum of ows 19992008 as
percentage of 2008 GDP)
Notes: A, assets; L, liabilities; EA12, euro area and covers the rst 12 member states of
the EMU; F2, currency and deposits; F3, securities other than shares; F4, loans; F5,
shares and other equity; F6, insurance technical reserves; F7, other accounts receivable/
payable. Data are consolidated except for EA12.
Source: Eurostat Financial Account. Own calculations.

While the focus below is more on households than on NFCs, I discuss developments in lending to the corporate sector at the end of this section.
From the total loan portfolio of households, we can see that mortgages
represent by far the dominant component. Loans for house purchases
account for the bulk of households liabilities and have increased signicantly in relation to GDP over the past decade (see Figure 11). In 2003,
mortgages comprised a similar share of GDP in ES, IE and the euro area
overall (approximately 30%). In January 2010, this share exceeded 60% in ES
and IE, reecting the housing boom in these countries, while it merely
increased to 40% in the euro area as a whole. Mortgages in EL started from
a lower level but have more than doubled since 2003, while Portugal always
displayed a large amount of outstanding mortgages as a percentage of GDP.
Moreover, there was a signicant increase in consumer loans (see Figure 12)
in EL, PT and IE, which contrasted with the broad stagnation in the euro
area as a whole. Although the household sector has only accumulated
signicant negative NLB in recent years in the case of IE, higher loan
borrowing than in the euro area overall has resulted in lower net lending.30
30

In EL, the outstanding amount of mortgages and loans to NFCs as a percentage of GDP
was still lower than in the euro area overall in 2010, but mortgages and consumer loans were
rising fast. For ES, there is also evidence that household savings not earmarked for debt
service, that is gross savings less the repayment of the debt incurred, have fallen since 1995
and even turned negative in 2006. See Nieto (2007).

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70%

349

Loans for house purchases, 2003


Loans for house purchases, 2010

60%
50%
40%
30%
20%
10%
0%
EL

ES

PT

IE

EA

Figure 11: Mortgage loans to households (outstanding amount as a percentage of GDP)


Notes: Outstanding amount in January 2003 as a percentage of 2002 GDP. The
outstanding amount in January 2010 is the outstanding amount in January 2003
multiplied by growth rates based on notional stocks. It is shown as a percentage of
2009 GDP. EA refers to the euro area and changes in composition: 2000, EA11; 2006,
EA12; 2007, EA13; 2008, EA15 and 2009, EA16.
Source: ECB MFI statistics. Own calculations.

What are the underlying driving forces of this strong credit expansion?
While it is difcult to establish causality, it may still be useful to gain some
insights from the developments that took place at the beginning and during
the period of increasing loan extension.
Overall, lending rates fell during the runup to the launch of the EMU due to
expectations of convergence and the lifting of credit restrictions, but the decline
varied by sector. In EL, interest rates on consumer loans fell largely compared
with business loans and even mortgages, which were already close to euro area
18%

Consumer loans, 2003

16%

Consumer loans, 2010

14%
12%
10%
8%
6%
4%
2%
0%
EL

ES

PT

IE

EA

Figure 12: Consumer loans to households (outstanding amount as a percentage of GDP)


Notes: Outstanding amount in January 2003 as a percentage of 2002 GDP. The
outstanding amount in January 2010 is the outstanding amount in January 2003
multiplied by growth rates based on notional stocks. It is shown as a percentage of
2009 GDP. EA refers to the euro area and changes in composition: 2000, EA11; 2006,
EA12; 2007, EA13; 2008, EA15 and 2009, EA16.
Source: ECB MFI statistics. Own calculations.
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Andr Ebner

rates (see Kamberoglou and Stavrianou 2007). To some extent, the credit
expansion also reected a catchingup effect as former credit limitations were
lifted. Some administrative restrictions were still in force until mid2003 in EL,
holding down lending to households. In addition, the Bank of Greece imposed a
high reserve ratio on credit institutions until mid2000 in order to lower
inationary pressure and offered high interest rates to collect voluntary bank
deposits.31 When, at the end of 2000, the Bank of Greece lowered its reserve
requirements and aligned its bank deposit rates with those offered by the ECB,
banks expanded credit to corporations and households. Furthermore, it became
less attractive for banks to invest in Greek government bonds, as yields had
declined signicantly, thereby depriving banks of further convergence gains.32
Consequently, banks were looking for higher returns and turned to the private
sector, especially the household sector, where interest rates and prot margins
were relatively high. In ES, the nancial industry was liberalized and deregulated
in the 1980s, leading to lower interest rates and longer mortgage terms, thereby
improving nancing conditions for NFCs and households. Similar developments
also took place in PT where reserve requirements were sharply reduced from
17%, the rate that had been in place since 1987, to 2% in 1994 (see
Ribeiro 2007). During the 1990s, loan spreads fell signicantly, credit ceilings
were abolished (1991), a high tax on consumer credit was lifted (1995) and the
mortgage market was liberalized.
Finally, securitization has become an additional instrument to nance
credit since 1997. The growth of bank loans in the runup to the launch of
the EMU resulted in banks becoming net debtors, inducing them to resort to
the unied money market in order to nance the gap between credit and
customer deposit growth after the introduction of the euro.33
The deregulation and liberalization of nancial markets may have contributed
to increased borrowing during the runup to the launch of the EMU and in its
early years. However, the strong credit expansion since 2003 might also be related
to other developments. Since the introduction of the EMU, shortterm interest
rates have been low, especially compared with the previous rates in the countries
under investigation. This low interest environment, combined with economic
growth and job creation, might have increased households condence and
31

Until mid2000, credit institutions in EL had to hold 12% of the deposits as reserves
compared with merely 2% in the euro area.
32

Greek government securities represented slightly above 10% of Greek banks assets in 2005,
down from more than 20% in 1998.

33

This made the funding structure of banks more vulnerable when capital markets shut
down. Furthermore, the high exposure in propertyrelated lending and loosening of lending
standards contributed to the current problems in the nancial sectors of the countries under
consideration.

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351

expectations for income growth. Indeed, wages have been rising at a rapid pace,
thereby contributing to high unit labour costs and decreasing competitiveness,
but higher wages also increased households willingness and ability to borrow.
Furthermore, there is empirical evidence that lower shortterm interest rates
prior to the origination of the loans lead to more lending to NFCs with bad or
no credit history and that the loans themselves are more hazardous.34 Similarly,
there are ndings that higher ination before loan origination triggers higher
credit risk taking (see Jimenez et al. 2013). EL, ES, PT and IE all experienced
higher ination rates than the EMU average during the sample period.
In addition, loan extension and price developments may reinforce each
other, especially in the case of mortgage borrowing and house prices, which
increased considerably between 1999 and 2007 in ES, IE and, to a lesser extent,
EL.35 Different studies suggest that the causality runs both ways. On one hand,
an increase in demand for real estate through higher mortgage lending can lead
to higher property prices if the shortrun supply is relatively xed.36 On the
other hand, rising house prices lead to increased mortgage lending owing to
wealth and collateral effects as well as the necessity to take out higher
mortgages to afford more expensive real estate.37 In addition, the widespread
use of oating interest rates (EL and ES) and tax incentives (ES and IE) in the
mortgage market, immigration (ES and IE) and preferences for home ownership may have played an important role in mortgage borrowing as well.38
For evidence for ES, see Jimenez et al. (2013). The authors nd a weaker impact of long
term interest rates. For a study regarding banks in the EU15 and the United States, see
Altunbas et al. (2010). Evidence for Bolivia is provided by Ioannidou et al. (2009).
34

35

European Commission (2009a) shows the change in real house prices between 1999 and
2007 for euro area member states.

36

For studies of the link between mortgage borrowing and house prices in EL, ES and IE, see
Brissimis and Vlassopoulos (2009), who nd that in the long run mortgage loans do not
determine house prices; Gimeno and MartinezCarrascal (2010), who nd causality running both
ways; and Fitzpatrick and McQuinn (2007), who nd a mutually reinforcing relationship. For the
collateral effect, see MartinezCarrascal (2007). This mechanism is also known as the nancial
accelerator. Even if there is a cap on the loan to value ratio, the amount borrowed by taking out a
mortgage will rise. This will not be possible if banks apply a loan to income ratio.
However, rising house prices also imply that rsttime buyers or existing owners wishing to
acquire a more expensive house have to save in order to accumulate the capital required to
cover the downpayment, thus reducing consumption expenditure (European Commission
2009b). The importance of the housing wealth channel for nonhousingrelated consumption is further limited since most of the funds extracted from housing equity are reinvested
in housing (De Nederlandsche Bank 2003).

37

38

There is empirical evidence that households borrowing behaviour responds to tax


incentives. For a study concerning ES, see Martins and Villanueva (2006). For a computation
of tax incentives for house ownership, see Van den Noord (2005).
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Andr Ebner
90%

January 2003

80%

January 2010

70%
60%
50%
40%
30%
20%
10%
0%
EL

ES

PT

EA

Figure 13: Loans to NFCs (outstanding amount as a percentage of GDP)


Notes: Outstanding amount in January 2003 as percentage of 2002 GDP. The outstanding amount in January 2010 is the outstanding amount in January 2003 multiplied by
growth rates based on notional stocks. It is shown as a percentage of 2009 GDP. EA
refers to the euro area and changes in composition: 2000, EA11; 2006, EA12; 2007,
EA13; 2008, EA15 and 2009, EA16.
Source: ECB MFI statistics. Own calculations.

Like loans to households, corporate loans grew signicantly in EL and PT


and even more so in ES and IE (see Figures 13 and 14). Like households,
corporations beneted from lower (real) interest rates, nancial liberalization and the banks improved opportunities to nance themselves abroad. In
600%
January 2003
500%
January 2010
400%
300%
200%
100%
0%
IE

Figure 14: Loans to NFCs in IE (outstanding amount as a percentage of GDP)


Notes: Outstanding amount in January 2003 as a percentage of 2002 GDP. The
outstanding amount in January 2010 is the outstanding amount in January 2003
multiplied by growth rates based on notional stocks. It is shown as a percentage of
2009 GDP. EA refers to the euro area and changes in composition: 2000, EA11; 2006,
EA12; 2007, EA13; 2008, EA15 and 2009, EA16.
Source: ECB MFI statistics. Own calculations.
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ES and PT, the increase in indebtedness in the late 1990s was partly
associated with the internationalization of business by large NFCs and in
PT, additionally, by the use of privatepublic partnerships to nance road
building. Since the turn of the century, the construction and property
development sectors have had the highest debt increases in ES against the
backdrop of sharp increases in house prices.39

VI. Developments in Gross External Debt


An economy whose spending and investment are higher than its savings
relies on capital inows from abroad. This section examines gross external
debt, a measure of the debt owed by residents of a country to nonresidents,
and its decomposition across sectors. The analysis complements the data on
NLB from sector accounts that do not differentiate between domestic and
foreign creditors.
Starting from an already high level of foreign indebtedness in 2004, debt
outside the country increased substantially in EL, ES and PT, reaching levels
well above 100% of GDP by 2007 (see Figures 15 and 16).40 Banks play an
important role as intermediaries between foreign capital and domestic
borrowers, and the banking sector was most indebted abroad in ES and PT.
Thus, FCs balanced NFA positions masked their considerable effects on loan
borrowing as a result of channelling savings to borrowers, especially in
predominantly bankbased economies. By contrast, the public sector incurred the highest foreign debt in EL, exceeding government debt in ES and
PT as a share of GDP. The foreign debt owed by corporations and households
also rose signicantly, most of which might be attributable to the corporate
bonds acquired by nonresidents, since the crossborder loan market is still
quite limited in the euro area outside the banking sector. In IE, gross foreign
debt increased substantially in all sectors of the economy, amounting to
almost eight times GDP in 2007. However, this gure includes the IFSC,
which has a signicant impact on Irish data. Creedon et al. (2012) show that
in Q2 2012 Irelands total external debt including the IFSC was 1,047% of
GDP but, of this, fully 737% of GDP, or 70% of the Irish total, was related to
the IFSC. Nevertheless, this means that Irish external debt excluding the
IFSC still amounted to 300% of GDP, almost double the euro area average.
Isolating this impact can be useful, as it explains the positions of sectors that
39

See Ribeiro (2007) and MartinezCarrascal (2007).

40

Ireland is not included in Figures 15 and 16 as its gross foreign debt is off the scale because
of its position as a nancial centre and the fact that many European headquarters of foreign
companies are located there.
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Andr Ebner
200%
180%
160%

EL

140%

ES

120%

PT

100%
80%
60%
40%
20%
0%
General Monetary
GovernmentAuthorities

Banks

Other
Sectors

Direct
Total
Investment Economy

Figure 15: Gross external debt sector decomposition 2004 (as a percentage of GDP)
Notes: Other sectors refer to the corporate and household sector.
Source: Joint External Debt Hub (JEDH). Own calculations.

are more tied to the domestic economy. Thus, it may be a more informative
measure when assessing Irelands external vulnerability.
In summary, the data on foreign debt ll out the picture that emerged
from cumulated NLB. The statistics suggest that banks play a major role in
attracting foreign savings that are distributed to domestic borrowers. Moreover, the Greek and Portuguese governments as well as NFCs in Spain relied
increasingly on foreign capital in the runup to the global nancial crisis.
Owing to the limited role of crossborder lending, foreign debt is thus likely
to have been less important for households.

200%
180%
160%
140%

EL
ES

120%

PT

100%
80%
60%
40%
20%
0%
General Monetary
GovernmentAuthorities

Banks

Other
Sectors

Direct
Total
Investment Economy

Figure 16: Gross external debt sector decomposition 2007 (as a percentage of GDP)
Notes: Other sectors refer to the corporate and household sector.
Source: Joint External Debt Hub (JEDH). Own calculations.
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355

VII. Conclusion
When countries run current account decits, their net borrowing increases
and NFAs decrease. Large and sharply increasing liabilities can lead to a high
interest burden and a strong dependence on foreign capital inows, rendering a countrys economy more vulnerable to negative shocks. External
imbalances in the form of decits are not necessarily problematic as they
can be justied by sustainable growth based on sound economic fundamentals. However, large current account decits and foreign liabilities may also
be related to a loss of competitiveness and internal imbalances in the form of
excessive credit growth and asset price increases.
Macroeconomic imbalances emerged and intensied in some EMU countries during the runup to the global nancial crisis, most notably in EL, IE,
PT and ES, which were the rst EMU countries to become subject to a full or
sectoral nancial assistance programme. Signicantly negative NFA positions
were an important sign of this development. In EL, ES and PT, they have
been negative and steadily deteriorating since the mid1990s, while the sharp
decline in Irish NFAs started only in 2008.
Differences in cumulated liabilities at the aggregate and sector levels seem
to be related to specic developments in the economy, in nancial markets
and on the regulatory side, although the analysis does not allow one to infer
causality. For instance, while nancial markets were deregulated and liberalized in the 1980s and 1990s, the timing and specic provisions differed by
country. Likewise, despite how interest rates in all four countries fell before
the EMUs launch and remained low in the following years, different sectors
proted from this development to a varying degrees. Furthermore, in some
countries, notably ES and IE, higher mortgage borrowing contributed to a
sharp rise in house prices, with feedback on credit lending from the
collateral effects.
Looking at the sectoral deviations of NLB from the euro area average
allows us to identify countryspecic developments at the sector level.
Between 1999 and 2008, households in EL, ES, PT and IE were saving less
than the average household in the euro area, but the extent of this varied
depending on the country under investigation. Similarly, there was no
common pattern regarding developments in the NFC or government sectors. Thus, on the question motivating the present analysis, it becomes clear
that the sectorlevel contributions to an economys indebtedness vary by
country.
From this nding, it follows that an analysis of a countrys economic
situation has to take sectorspecic developments into account. On the
one hand, this involves monitoring and containing the buildup of macroeconomic imbalances as they might be related to different sectors.
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Andr Ebner

Preventive measures are especially warranted in the setting of a single


monetary policy whose stance might not always be optimal for a domestic
economy, and where other policy measures are necessary to preserve
economic competitiveness and to keep credit growth at a sustainable
level.41 Given the absence of a mechanism for transfer payments between
member states in the monetary union, this may imply, inter alia, member
states running broadly balanced current accounts and stabilizing their
NFA positions unless justied by fundamentals. 42 On the other hand,
countryspecic sector developments mean that there is no unique remedy
to existing imbalances. Instead, each country has to nd its own way to
correct them in order for its net borrowing and lending to return to a
sustainable path. This will require the sectors of an economy to adjust to a
different extent by country. The analysis therefore highlights the importance of a sector analysis as part of the preventive and corrective arm of
the newly established macroeconomic imbalances procedure as well as of
nancial assistance programmes in the EU.
Andr Ebner
Deutsche Bundesbank
WilhelmEpstein 14
60431 Frankfurt am Main
Germany
andre.ebner@bundesbank.de

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41

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42

The European Commission sets the threshold for current accounts in the Macroeconomic
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Appendix
The Role of the International Financial Service Centre in Ireland
Owing to its size, the IFSC may have a major impact on Irish data. This is
shown by data from the Irish Central Statistics Ofce, which divides the
NIIP into an IFSC component and a nonIFSC component (see Figure A1).43
Overall, the NIIP was less negative than the nonIFSC component in the
period from 1999 to 2010, although the two data series almost completely

43

No further breakdown at the sector level is provided.

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359

Figure A1: The role of Irelands International Financial Service Centre (IFSC) (Net
International Investment Position as percentage of GDP)
Source: Irish Central Statistics Ofce.

converged in 2008. During the sample period, the IFSC was exporting capital
(positive NIIP), but it reached an almost balanced position in 2008. Thus,
the Irish NIIP was sustained by the IFSC until 2008, when the overall gure
became almost identical to that of the nonIFSC sector.
While IFSC entities hold large foreign assets and nonresidents hold most
of their debt, the IFSC is not isolated from the rest of the Irish economy. It is
important to keep in mind that IFSC and nonIFSC entities are intertwined
to a certain extent, with the former acting as intermediaries for the latter.
Thus, dividing the Irish NIIP into IFSC and nonIFSC components provides
additional information, but it cannot explain everything, as the intermediation role can still be masked by net gures (see Creedon et al. 2012;
Lane 2012).

Alternative Benchmarks
To check the robustness of the results of the sector analysis presented in this
study, two alternative approaches are presented below. The rst approach
uses the preEMU period as a benchmark instead of the euro area average.
The second approach scales the sector contributions by the increase in GDP
rather than the GDP of a specic year.
Figure A2 compares the average annual NLB from 1999 to 2008 with the
period from 1995 to 1998. The data are scaled in terms of GDP in 1999.
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Andr Ebner

Figure A2: Sectors contributions to changes in the countrys net nancial assets
(difference in average annual ows over 19992008 vs. 199598 as percentage of 1999
GDP)
Notes: Sectors contributions are calculated as the difference between the average annual
ows over 19992008 and over 199598 as percentage of 1999 GDP of the respective
country.
NFC, nonnancial corporations; FC, nancial corporations and GOV, government. FC
excludes the Central Bank sector, except for EA12 (euro area). Data for EA12 are non
consolidated. For Ireland no comparison is possible since data are only available since
2002.
Source: Eurostat Financial Account. Own calculations.

Owing to a lack of data, a comparison is not available for Ireland. Comparing preEMU NLB with the period after the introduction of the euro yields
results that are similar to those when comparing cumulated NLB with the
euro area average over 19992008. The average annual NLB of NFCs
decreased considerably in EL, ES and PT after the adoption of the euro
compared with the runup to the launch of the EMU. Similarly, households
net lending was lower post1999 in EL and ES and government net borrowing rose in EL and PT, but improved in ES. All these results qualitatively
conrm the results of the earlier analysis based on divergences from the euro
area average after 1999.
Figure A3 takes account of the differences in GDP growth that might
inuence the crosscountry comparison of sectors contributions when
scaling them by the GDP of a certain year. Using a countrys nominal GDP
increase in the period from 1999 to 2008 as a scaling factor does not,
however, change the main results. In these terms, NLB by NFCs deteriorated
most in EL, ES and, especially, PT due to lower GDP growth. Governments
contributed to the deteriorating NFA positions in EL and PT. In Ireland, the
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Capital Inflows to Greece, Spain, Portugal and Ireland

361

Figure A3: Sectors contribution to changes in the countrys net nancial assets (sum
of ows 19992008 as percentage of nominal GDP increase over the same period)
Notes: The sectors cumulated ow of net nancial transactions as percentage of a
countrys nominal GDP increase is displayed on the yaxis.
NFC, nonnancial corporations; FC, nancial corporations and GOV, government. FC
excludes the Central Bank sector, except for EA12 (euro area). Data for IE and EA12
are nonconsolidated except for NLB of the Irish government.
Source: Eurostat Financial Account. Own calculations.

household sector seems to have driven overall net borrowing. Overall, the
change in the NFA position accounts for a larger share of GDP growth in the
period from 1999 to 2008 in EL and PT than it does in ES and IE. This
nding is similar to the picture that emerges from Figure 3, where GDP in
2008 serves as a benchmark.

2013 John Wiley & Sons Ltd

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