of 1990 to dm691 billion in the middle of 1998. in the same period, the banks ’ securities liabilities abroad increased from slightly less than dm45 billion to almost dm450 billion. in other words, this also means that foreign investors ’ exposure towards germany has risen sharply in the 1990s. in the past few years the decline in net external assets has slowed down markedly. however, this was due less to a government fiscal policy which also tended to be geared towards consolidation than it was to an easing of the credit markets triggered by enterprises. first, the slowdown in residential housing after 1994 curbed demand for construction financing. second, for a long time stimuli from exports failed to have a significant impact on capital spending activities. a good part of the overall modest fixed investment could therefore be financed from internal funds. major tensions are to be feared if individuals ’ propensity to save remains at a low level, the consolidation of public sector budgets is not making consistent and rapid progress, while enterprises ’ investments are again rising more strongly. to avoid a recourse to external resources, the necessary strengthening in profitability of the private sector would then become imperative. viewed this way, a strengthening of enterprises would not only be a contribution to improving financial conditions in germany, but also to enhancing stability in europe. see a greenspan, statement to the congress, in federal reserve bulletin, may 1999, p. 304, “ only an increase in national saving or an increase in the efficiency with which we use our saving can help us meet the retirement requirements of the coming years ”.

198690 tax reform had considerably expanded households ’ scope of action in the old lander. thereafter, both cyclical and structural factors led to a lower propensity to save. in the period from 1992 – 1998 real disposable income per capita grew at an average of ¾ % and hence less strongly than real consumption ( + 1 % ). the deceleration of income growth was accompanied by a marked divergence of the income situation within the households sector which already becomes evident in the differing developments in the individual categories of income. there was a sharp reduction in employment in the 1990s. the resultant losses in income led to labour income becoming continuously less important as a source of savings within private income budgets. transfer payments were not able to provide an adequate counterweight to this. an equally negative effect came from the sharp fall in interest rates since autumn 1990 which – in terms of the yield on bonds outstanding – reached almost 5½ percentage points by the end of 1998. as a result, income from financial assets lost a considerable amount of momentum and was no longer able to act as a mainstay of savings in its own right to the same degree as it had done before. the stronger preference for investments with potential capital appreciation had the same statistical effect. according to the usual methodological definitions of the national accounts, revaluation gains are reflected neither in income nor in savings. as a rule, a certain part of the received interest payments and dividends is reinvested, although the level cannot be quantified exactly. over the longer term, this self - alimentation of savings has undoubtedly increased. this is revealed, for example, by the preference for insurance savings and see also deutsche bundesbank, overall financial flows in 1998, monthly report, june 1999, p. 26 ff. ; deutsche bundesbank, changes in households ’ asset situation since the beginning of the nineties, monthly report, january 1999, p. 33 ff. portfolio investments. if, for the sake of simplicity, total income from financial assets is used as a yardstick, in the years 1997 / 1998 this accounted for around three - quarters of the concurrent financial asset formation, but this was well down on the comparable figure at the time of the last peak in interest rates ( 82 % ). the cumulative negative influences emanating from labour and property income could no longer be offset by the relatively higher savings resulting from the stronger expansion of entrepreneurial income. households in the new lander were affected by