布鲁盖尔-Analysis-of-development-in-EU-capital-flows-in-the-global-context_126页_3mb

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

Core Content

This report provides an in-depth analysis of developments in EU capital flows within the global context, focusing on the Capital Markets Union (CMU) as a key framework. It explores the evolution of global and European capital flows, exchange rates, financial account openness, and the role of financial institutions in managing capital imbalances. The report also delves into the challenges of non-performing loans (NPLs) in the EU and the potential for developing secondary loan markets to address these issues.

Main Viewpoints

• Global Capital Flows:

  • Since the financial crisis, there has been a shift in current account imbalances. Previously concentrated in China and oil exporters, capital is now mainly exported from the euro area, Japan, and other advanced economies.
  • The US, UK, Canada, and Australia have become major absorbers of global savings, while emerging markets have seen a decline in inflows.
  • The transition of China from an investment-driven to a consumption-based growth model has led to a shift from being a net receiver of FDI to a net exporter.
  • Low oil prices have reduced the external capital supply from oil-exporting economies.

• Capital Account Openness:

  • Emerging market economies have either reversed their capital account liberalization or seen stalled progress.
  • Capital controls have been reintroduced or maintained due to concerns about exchange rate volatility, domestic economic overheating, and spillovers from advanced economies' monetary policy changes.
  • The report highlights the risk of inefficient international capital allocation due to these controls.

• Monetary Policy Impact:

  • The US and UK have implemented monetary tightening (rate hikes), while the euro area and Japan have adopted more accommodative policies.
  • The European Central Bank's Public Sector Purchase Programme (PSPP) has had a significant impact on capital flows in and out of the euro area.

• EU Capital Flow Patterns:

  • The euro area has become the largest capital exporter, with significant net outflows.
  • Euro-area debtor countries continue to experience small net capital outflows, while creditor countries maintain high capital exports.
  • Central and Eastern Europe (CEE) countries share similarities with euro-area debtors in terms of net liability positions and capital inflows that have since dried up.

• Non-Performing Loans (NPLs):

  • The EU faces a €1 trillion stock of NPLs, requiring a more developed secondary loan market for efficient resolution.
  • The current market for distressed loans is underdeveloped, with limited turnover relative to the size of the NPL stock.
  • The resolution of NPLs is critical for improving the balance sheet management of European banks and enhancing financial stability.

Key Information

Global Trends

• Current Account Balances:

  • The global surplus was previously concentrated in China and oil exporters but has shifted to the euro area, Japan, and other advanced economies.
  • The US, UK, Canada, and Australia have absorbed the majority of global savings.
  • Emerging markets have seen a reduction in inflows, while oil-exporting economies have reduced their capital supply due to falling oil prices.

• Exchange Rates and Reserves:

  • Exchange rate movements have a substantial impact on net international investment positions (NIIP).
  • The UK's NIIP improved after the Brexit referendum due to the depreciation of the pound.
  • Global NIIP has grown, with Japanese and euro-area creditors increasing their net asset positions at the expense of US liabilities.

• Banking Sector Developments:

  • Cross-border balance sheet down-sizing has halted in the euro area.
  • French banks have expanded their foreign exposures, particularly from the US and Japan.
  • The report notes that capital flows in the euro area are becoming entrenched.

European Capital Flow Analysis

• Euro Area Creditor Countries:

  • These countries continue to export capital and maintain high net international investment positions.
  • The PSPP has had a notable effect on capital flows.

• Euro Area Debtor Countries:

  • These countries have shifted from capital recipients to providers.
  • Despite this, they still experience low foreign direct investment (FDI) inflows.

• Benelux:

  • The Benelux countries (Belgium, Netherlands, Luxembourg) have experienced significant capital inflows, but these have declined in recent years.

• France and Italy:

  • France and Italy have specific characteristics that make them difficult to group with other countries.
  • France has seen increased foreign exposure, while Italy continues to face significant NPL challenges.

• Northern EU:

  • Northern EU countries have maintained a more stable capital flow pattern.

• Central and Eastern Europe:

  • CEE countries share similarities with euro-area debtors, including large net liability positions.
  • Recent inflows have re-emerged, including in non-FDI flows, which have clashed with the objective of maintaining exchange rate stability with the euro.

NPL Resolution and Secondary Loan Markets

• NPL Market Development:

  • The secondary loan market in the EU is underdeveloped and needs to be expanded to address the €1 trillion NPL stock.
  • Market imperfections such as high fixed costs, information asymmetry, and externalities hinder efficient NPL resolution.

• Regulatory Barriers:

  • While the report does not identify significant regulatory barriers, licensing requirements still restrict the transfer of title and the ability of non-bank investors to provide credit during restructuring.
  • The EU Council's initiatives to improve loan documentation and liquidity through transaction platforms are seen as positive steps.

• Implications for the Banking Sector:

  • The development of secondary loan markets could offer capital relief to European banks.
  • It would also allow greater flexibility in balance sheet management and improve the efficiency of loan workouts.

Conclusion

The report emphasizes the need for an integrated secondary loan market in the EU to resolve NPLs and improve financial stability. It also highlights the importance of addressing persistent capital account imbalances and the role of monetary policy and exchange rates in shaping these flows. The analysis underscores the potential risks of capital controls and the necessity for regulatory reforms to support more efficient capital allocation and market development.