布鲁盖尔-Analysis-of-developments-in-EU-capital-flows-in-the-global-context_222页_3mb

Summary of Final Report Bruegel FISMA/2016/032/B1/ST/OP

Core Content

This report provides an analysis of the developments in EU capital flows within the global context, focusing on the Capital Markets Union (CMU) as a key framework. It examines global and regional capital flow trends, exchange rate dynamics, and the role of equity financing in European enterprises. The report also discusses the implications of these flows for macroeconomic stability and financial integration.

Main Global Trends

• Global Imbalances: In 2017, global capital flow imbalances persisted, with the largest current account surpluses in the euro area and Japan, and the largest deficits in the US, UK, Canada, and Australia. These imbalances have not significantly decreased since 2013-16.
• Factors Behind Imbalances:
  • Differences in recovery speed and policy responses among advanced economies (particularly monetary policy).
  • Structural changes in the Chinese economy.
  • Commodity prices, especially low oil prices.
• Changes in 2017: Some factors, such as the euro area's recovery and rising oil prices, began to have an impact, though the overall level and distribution of imbalances remained largely unchanged.
• US Monetary Policy: The US monetary policy diverged from that of the euro area and Japan, leading to increased demand for US assets and a depreciation of emerging market currencies. This was accompanied by a strong appreciation of the US dollar.
• China's Exchange Rate Policy: In 2015, China introduced significant changes to its exchange rate policy to internationalize the RMB, which coincided with the US monetary tightening and a fall in the Chinese stock market. This led to a large RMB depreciation and private capital outflows.
• Emerging Markets in 2018: In mid-2018, a sell-off of currencies affected emerging markets, similar to the 2013 "taper tantrum." However, the magnitude of depreciation was larger, driven by large current account deficits and inadequate reserves.
• EU Capital Flows: The euro area (excluding intra-EU flows) has been the world's leading net exporter of capital since 2013, primarily investing in debt securities, especially in the US. This has led to a large net outflow in portfolio investment, though FDI flows have fluctuated.

EU Capital Flows and Financial Integration

• EU Financial Account Balance: The EU as a whole maintains a surplus in its financial account relative to the rest of the world, driven by the recycling of savings from surplus countries (Germany, Netherlands, Sweden) into deficit countries (Spain, Greece, Portugal, Ireland).
• Intra-EU Flows: Intra-EU gross flows increased in late 2016 and early 2017 but weakened in the second half of 2017 and early 2018, mainly due to FDI movements.
• Composition of Flows: Gross flows from the EU to the rest of the world have remained stable but have shifted in composition, with FDI contributing less due to reduced US-euro area FDI flows.
• Portfolio Investment: Intra-EU gross cross-border portfolio investment in securities is dominated by equity and investment fund shares. Portfolio debt securities transactions are less significant compared to other components of the financial account.
• Other Investment: Large and robust other investment flows mainly reflect monetary policy operations in the euro area rather than inter-bank flows.

Equity Financing in the EU

• Equity Financing Importance: The report highlights the need to improve equity financing for EU companies to address high corporate debt levels and enhance firm productivity.
• Equity Market Development:
  • The share of listed equity in the balance sheets of EU non-financial enterprises has increased, but mainly in the core euro area and large companies.
  • Listed equity issuance by euro-area companies has declined sharply in recent years.
  • Private equity has expanded rapidly, with overall financing in 2017 returning to pre-crisis levels.
• Access to Equity Finance:
  • Less than 4% of firms in any half-year period use external equity.
  • The share of firms using external equity has decreased since the financial crisis.
  • SMEs and countries in Central and Eastern Europe (CEE) and recent macroeconomic unstable euro-area countries are less likely to access external equity.
• Financing Gaps:
  • Despite improved monetary conditions, perceived financing gaps suggest that equity availability has not kept pace with growing financing needs.
  • This is particularly true for SMEs.
• Home Bias:
  • Private equity activity in the EU still shows a strong home bias.
  • Fundraising from outside the home base and eventual divestment outside national capital markets have become marginally more significant but remain limited.
  • Government agencies continue to play an important role in funding.
• Policy Implications:
  • The UK, as the most advanced equity market, remains more attractive for private equity investors than other EU countries.
  • There is a clear need to further integrate private equity funding across the EU27, especially given the UK's potential exit from the single market.
  • Improvements in corporate governance and labor market flexibility are essential to attract private equity investment.

Key Findings

• Global capital flow imbalances have remained largely unchanged since 2013-16, with advanced economies being the main surplus and deficit regions.
• The US monetary policy divergence from the euro area and Japan has had significant implications for capital flows and exchange rates.
• China's capital outflows and RMB depreciation were influenced by exchange rate policy and global economic conditions.
• Emerging market capital flows were affected by currency depreciation and policy tensions, leading to significant outflows.
• The euro area remains a major net exporter of capital, with substantial investments in the US.
• Equity financing is still a rare tool for EU firms, with private equity playing an increasing role.
• The EU's financial account remains in surplus, driven by internal capital recycling.
• There is a strong home bias in private equity flows, and further integration is needed for the EU to benefit from a more developed capital market.

Conclusion

The report underscores the importance of capital market integration and the need to address macroeconomic vulnerabilities through improved equity financing. It highlights the role of policy reforms and market developments in shaping capital flows and the potential for the EU to enhance its financial stability and growth through better access to equity markets.