WRITTEN QUESTION E-1880/03 by Christopher Huhne (ELDR) to the Commission. Capital flows between euro-area countries.
Date: 2003-06-06
Institutions: European Parliament, Provisional data
Subjects: capital movement, direct investment, economic concentration, euro area, financial statistics, foreign investment, impact study, third stage of EMU, trading volume

13.3.2004

EN

Official Journal of the European Union

C 65 E/99

It is important to note that in the Netherlands, the tasks of reviewing prospectuses was recently transferred
from Euronext NV to the new Financial Market Authority and Ireland envisages doing a similar change.

The Commission has not estimated the number of complaints of incompleteness or inaccuracy depending
on which kind of entity is in charge of the review of the prospectus. First, it does not consider that the
number of complaints received by competent authorities on missing or misleading information in the
context of prospectuses would permit the Commission to draw interesting conclusions. Secondly, the
Commission considers that the quality of the review is not necessarily linked to the nature of the entity in
charge of the review.

(2004/C 65 E/112)

WRITTEN QUESTION E-1880/03

by Christopher Huhne (ELDR) to the Commission

Subject: Capital flows between euro-area countries

(6 June 2003)

Further to the answer to question E-1134/01 (1), will the Commission examine the scale of gross capital
flows (not net capital flows) between the euro-area countries since the launch of the euro, compared with
the periods before, and state whether there has been an increase in the scale of such flows and if so by
how much?

(1) OJ C 261 E, 18.9.2001, p. 228.

Answer given by Mr Solbes Mira on behalf of the Commission

(14 July 2003)

Increases in cross-border capital flows can provide a positive contribution to economic growth and
efficiency increases. The introduction of the single currency has not only removed exchange rate risks for
capital flows within the euro area, but also stimulated the creation of a common capital market in the euro
area. Both effects have facilitated cross-border capital flows within the euro area and it can therefore be
presumed that the euro has positively influenced the volume of capital flows. However, at the same time a
number of other determinants matter for capital flows and it appears very difficult, if not impossible, to
single out the impact of the euro on capital flows by analysing capital flow time series. For instance, the
successful convergence of long-term interest rates in euro area economies has reduced incentives for
investors to diversify across government bonds issued by different euro area economies (at the end of
2002 the yield spreads between German ten-year government bonds and similar assets in other euro area
economies had declined to less than 20 base points).

Another difficulty arises from the rather unsatisfactory data availability. There is no single database that
provides complete and timely information for all participating economies. Observations stem mostly from
foreign direct investment (FDI) data, which are received and published by Eurostat and from balance of
institutions (e.g. national central
payments data,
banks).

in particular capital accounts, published by national

Foreign direct investment data are available for most euro area countries up to year 2001 from Eurostat’s
NewCronos database, but for some countries only equity and ‘other capital’ (loans between the mother
company and the affiliates) investment data is available (i.e. reinvested earnings are not available for some
Member State). The comparisons below refer to equity capital foreign direct investment flows. It has to be
noted that at the level of the Member States the strong impact of single transactions (e.g. telecom mergers
and acquisitions across borders in 2000) means a certain obstacle to any interpretation of these data. If
one nevertheless compares equity FDI flows between single Member States and the rest of the euro area,
some differences between the pre-euro area and the euro area years become visible.

The qualitative changes between the three last years in Stage II (1996-1998) and the first three years of
Stage III (1999-2001) could indicate a certain increase in the amount of capital flows. In all reporting
countries the amount of foreign direct investment abroad (i.e. in other euro area economies) has gone up,

C 65 E/100

Official Journal of the European Union

EN

13.3.2004

whereas in all countries except the Netherlands and Finland also the received direct investment originating
from other euro area economies has increased. A less clear picture is provided by comparisons between
single years.

Changes in FDI flows within the euro area (1996-2001) (1)

FDI abroad, equity capital
(in other euro area economies)

FDI in the country, equity capital
(originating from the euro area)

1999-2001
against
1996-1998

2001
against
1996

2001
against
2000

1999-2001
against
1996-1998

2001
against
1996

2001
against
2000

B-L

D

GR

E

F

IRL (2)

I (3)

NL

A

P

FI

+

+

.

+

+

+

+

+

+

+

+

+

.

.

+

+

.

+

−

−

+

+

−

.

+

−

+

+

+

−

−

+

−

+

+

.

+

+

+

+

−

+

+

−

+

+

.

+

+

.

+

−

−

+

−

+

−

+

+

−

−

+

−

−

−

+

Source: NewCronos database (Eurostat). The comparisons are based on as many annual data points as available. A ‘+’ (‘−’) indicates an

increase/decline in the period against the base period. A ‘.’ indicates insufficient data availability.

(1) Comparison are based on period averages where needed. In case of a missing data point the available data have been used for

calculations.
Total direct investment.
Equity capital and other capital.

(2)
(3)

The increases in equity capital flows among euro area economies in the three-year periods before and after
the introduction of the single currency have to be seen against the background of a strongly increasing
mergers and acquisitions (M & A) activity in the world economy in the years 1999 and 2000 as for
instance documented in the annual Direct Investment Reports by the United Nations Conference on Trade
and Development (Unctad). It could be premature to link the increase in capital flows in 1999 and 2000
to the effects of the introduction of the single currency. Similar caveats apply to the interpretation of data
of the sharp decline in world foreign direct investment in 2001 (more than 50 %; all data in brackets
according to Unctad) and 2002 (about 27 %) has to be taken into account. The decline in foreign direct
investment in the euro area in 2002 (− 16 %) has been much smaller than for instance in the United States
(US) economy (− 75 %) and in the United Kingdom (− 67 %), but it appears difficult to link this difference
to the single currency as other determinants (e.g. accounting scandals in the US) have contributed as well.

As regards capital accounts there is anecdotal evidence about the difference between developments
between euro area Member States on the one hand and between single Member States and the rest of the
world on the other hand:

(cid:1) For Germany the Bundesbank regularly reports about origins and destinations of German capital flows
(e.g. Bundesbank, International Capital Links, May 2002) and it provides long series in a publicly
accessible online database. According to Bundesbank data capital exports (volumes) from Germany to
the rest of the euro area more than doubled in 2002 (from EUR 72 billion in 2001 to EUR 160 billion
in 2002), while the total amount of German capital exports to all countries declined in 2002 (from
EUR 282 billion in 2001 to EUR 256 billion in 2002). However, year-on-year increases can be
severely affected by large single transactions suggesting to perform also comparisons on the basis of
multi-year periods. Capital outflows to euro area countries from 1999 to 2002 (annual average of
EUR 65 billion) have also more than doubled as compared to those from 1995 to 1998 (annual
average of EUR 142 billion). The development of capital inflows from other euro area economies
displays a different pattern (no increase at all) and also a closer look to the components (substantial
changes in relative importance of direct and portfolio investment over the years) suggests to be
cautious in interpreting data.

13.3.2004

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Official Journal of the European Union

C 65 E/101

(cid:1) For the Netherlands the Dutch central bank publishes data on regional components of direct
investment flows. As regards direct investment the inflows from euro area economies have been
higher in each of the first euro area years than in any other year before 1999. In terms of four-year
averages inflows have increased from EUR 5,2 billion (1995-1998) to EUR 19,3 billion (1999-2003).
In the same period the average share of foreign direct investment from euro area economies in total
inflows has increased from 39 % to 43 %. A similar increase is registered in terms of Dutch foreign
direct investment in other euro area economies. The levels of outflows recorded in all euro area years
have never been seen before. The annual average outflow increased from EUR 8 billion (1995-1998)
to EUR 24 billion (1999-2002), while the share of direct investment outflows to euro area economies
in total Dutch outflows increased from 35 % (1995-98) to 44 % (1999-2002).

(2004/C 65 E/113)

WRITTEN QUESTION E-1881/03

by Christopher Huhne (ELDR) to the Commission

(6 June 2003)

Subject: Intra-EU foreign direct investment

Will the Commission update the figures given in answer to E-0033/02 (1) to include the latest available
year? It should provide figures on a comparable basis to those given for the European Union for intra-EU
foreign direct investment (in graph 12) of the report from the Commission ‘Economic reform: report on
the functioning of Community product and capital market’ (2). Is the Commission also able to provide a
series including reinvested earnings? Will the Commission also give the figures for each individual EU
Member State that is not yet in the euro?

(1) OJ C 160 E, 4.7.2002, p. 171.
(2) COM(2001) 736 final.

Answer given by Mr Bolkestein on behalf of the Commission

(17 July 2003)

Tables 1 and 2 present data on the value in current prices of foreign direct investment (FDI) from different
sources to various targets between 1996 and 2001. These are sent direct to the Honourable Member and
to Parliament’s Secretariat. In particular, figures are provided for each Member State that is not yet part of
the euro area. As in the previous year, the eurozone and the non-eurozone Member States are identified in
order to arrive at statistics that are comparable to those presented in graph 12 of the report from the
Commission ‘Economic reform: Report on the functioning of Community product and capital markets’.

Table 1 presents data on the value in current prices of foreign direct investment flows excluding reinvested
earnings (the standard approach Eurostat uses in its annual reports and in the Cardiff Report).

Table 2 presents data on the value in current prices of foreign direct investment flows including reinvested
earnings. Figures are missing for some individual countries over several years; this is due to the fact that
confidenciality, methodological and timeliness issues prevent some individual Member States from
providing detailed information, particularly concerning reinvested earnings. The future approval of a
Regulation concerning the balance of payments provision of information from Member States should
improve the availability of FDI data, as this Regulation will replace the present ‘gentlement agreement’
between the Member States and the Commission.

Among the investor sources listed in both tables, ‘Extra EU 15’ means the world beyond the 15 Member
States.

In both tables, for consistency, almost all figures shown are outflows recorded from the source investor.
The only exception is FDI flows from the rest of the world, where inflows are used as recorded by the
target.