IDEAS home Printed from
   My bibliography  Save this article

The dynamics of international investment positions


  • Francesca D'Auria
  • Jan in 't Veld
  • Robert Kuenzel


Focusing on euro area countries with large net external liabilities, this chapter presents an overview of recent developments in external assets and liabilities and analyses their economic implications, their sustainability and related adjustment needs. It also provides a discussion of adjustment dynamics. Over the last decade, differences in the external positions of euro area countries have increased substantially. Some Member States have accumulated large net external liabilities, raising concerns about their implications for growth and external sustainability. The same period has also witnessed a build-up in gross asset and liability holdings. In the countries concerned, rising external liabilities have led to deteriorating investment income balances, entailing a rising wedge between GDP and GNI. The deterioration of income balances due to higher liabilities has been partly contained by rapid economic growth (at least in pre-crisis years) and favourable yield developments, but these factors have now turned much less supportive. External positions can be subject to large valuation effects, which, however, seem to have a large temporary component. Beyond the effect on GNI, available empirical evidence indicates that high net external liabilities can weigh on growth and increase the economyís vulnerability to shocks, raising the issue of the sustainability of external positions in some euro area countries. In recent years, euro area Member States with large external liabilities have gone through a current account rebalancing process that was first driven by demand compression but has also been gradually supported by improvements in competitiveness and export market shares. As a result of this process, external imbalances have diminished. A quantitative assessment of external sustainability shows that, notwithstanding recent progress, in 2011 some Member States had not yet moved to a sustainable NIIP trajectory. In these countries, further adjustment was still needed, the short-term impact of which ó particularly in terms of employment ó will depend on economic policies, especially in terms of structural reforms.

Suggested Citation

  • Francesca D'Auria & Jan in 't Veld & Robert Kuenzel, 2012. "The dynamics of international investment positions," Quarterly Report on the Euro Area (QREA), Directorate General Economic and Financial Affairs (DG ECFIN), European Commission, vol. 11(3), pages 7-20, October.
  • Handle: RePEc:euf:qreuro:0113-01

    Download full text from publisher

    File URL:
    Download Restriction: no

    More about this item


    international investment position;


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:euf:qreuro:0113-01. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ECFIN INFO). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.