EMU reports persistently high capital export

Once again, the latest capital account data from the eurozone give little cause for encouragement. In August, capital withdrawals amounted to a sizeable EUR 34bn – albeit an improvement on the two preceding months but still at a worrying level. All in all, the development of the capital account in the eurozone has assumed ominous dimensions in recent years: While the region was still profiting from net capital inflows even in the crisis years 2010-2012, since the end of 2014 the situation has dramatically changed. In the third quarter 2014, net capital withdrawals of EUR -100bn were not only deep in the red but at the same time marked a new record low. And the data still show no sign of recovery. Quite the reverse in fact, with the capital flight from the eurozone having accelerated further since then. This trend is being driven not only by foreign investors but also by those from EMU. The beginning of the ECB’s QE programme marked a major turning point for international capital inflows. In the six months up to the end of March 2015, the EMU bond market had profited from net capital inflows of an impressive EUR 170bn. But the euphoria was short-lived. The introduction of QE unleashed a selloff of EMU bond portfolios held abroad which since then has amounted to EUR 240bn. If interest among foreign investors already looks gloomy enough, the mood among domestic investors is even worse. In the second half of 2014, their foreign investments surged upwards and have remained at a high level since then, with foreign bond markets benefiting in particular from this trend. The result of these developments is dramatic: After the eurozone had already recorded net outflows of capital in 2014 and 2015, the volume of withdrawals this year (up to and including August) of EUR 360bn has now marked an absolute record level, three times the previous year’s level. One reason for this development among others is the lack of economic momentum in the eurozone. But the ECB is most likely responsible for the largest share by far, having squeezed many investors out of the bond market with its aggressive asset purchasing programme.

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