Abstract
Germany abolished all controls on international capital flows in 1981 and, in the course of the 1980s, the country’s international financial integration increased steadily, but from a low base. Between the late 1990s and 2008, when Germany generated a large current account surplus, international financial integration increased strongly, with a marked growth of both portfolio investment and bank lending from Germany to other countries. The bank lending was predominantly to other European countries, with the largest part going to Euro area countries. German banks also extended their lending in the US during this period and, in addition to funds from Germany, German banks drew extensively on funds raised in the US itself. As a result, German banks were strongly exposed to the financial crisis when it broke in the US in 2007. Following the dramatic deepening of the crisis in September 2008, German international financial integration was partly scaled back and German banks reduced their lending abroad at the same time that there was an outflow of foreign funds held in German banks. However, as a result of increased international financial uncertainty following the outbreak of the financial crisis, there was a large inflow of funds from other countries into German government bonds, which consequently registered unprecedentedly low interest rates.
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Notes
- 1.
The large net inflow of direct investment in 2000 was principally due to the hostile takeover of Mannesmann by Vodafone (see Chap. 11 for details).
- 2.
Due to a lack of disaggregated time series data, this figure probably understates the true amount since separate figures for the liabilities to affiliated enterprises abroad, which have been negative in recent years (reverse investment), were not available.
- 3.
The peak lending by German banks in the US was in October 2008. Total consolidated lending amounted to 600 billion euros of which 257 billion euros originated from banks in Germany.
- 4.
The following details draw on ECB (2012).
- 5.
For a more critical account of the Financial Services Action Plan see Frangakis (2009).
- 6.
Claims and liabilities against the TARGET system are subject to the same interest rates as deposits and loans with the ECB .
- 7.
According to De Grauwe and Ji (2012) in 2011, the ratio of TARGET claims to GDP was 24% for Germany, 25% for the Netherlands , 40% for Finland and 278% for Luxemburg.
References
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Data Sources
Deutsche Bundesbank (2012) Time series data base, Frankfurt. http://www.bundesbank.de/Navigation/EN/Statistics/Time_series_databases/Macro_economic_time_series/macro_economic_time_series_node.html. Accessed 3 Mar 2012
Euro Crisis Monitor (2012) Institute of empirical economic research, Osnabrück. http://www.eurocrisismonitor.uos.de. Accessed 15 Nov 2012
Statistisches Bundesamt (2012) Genesis-online data base, Wiesbaden. https://www-genesis.destatis.de/genesis/online. Accessed 15 Mar 2012
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Detzer, D., Dodig, N., Evans, T., Hein, E., Herr, H., Prante, F.J. (2017). Germany’s Integration into International and European Financial Markets. In: The German Financial System and the Financial and Economic Crisis. Financial and Monetary Policy Studies, vol 45. Springer, Cham. https://doi.org/10.1007/978-3-319-56799-0_5
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