This FT article states that "Foreign holdings of Portuguese and Irish bonds fell to 65% of total debt at the end of the second quarter from 85% in 2009. They fell to 55% from 70% in Greece and to 38% from 43% in Spain during the same period." As foreigners stopped buying the bonds of these countries, domestic institutions (mostly banks, but apparently also pension funds and insurance companies) were buying them.
As a result holdings by other countries of these bonds fell. The table below shows the foreign assets of the German banking sector of other Eurozone countries at the end of 2008 as well as in September this year and the %-changes. In combination, German banks reduced their holdings of assets in Greece, Ireland, Portugal and Spain by more than 15% whereas they increased the assets relating to neighbouring Eurozone countries by almost 5%. Furthermore, they also decreased the assets of the other southern European countries, most notably Italy.
As a result holdings by other countries of these bonds fell. The table below shows the foreign assets of the German banking sector of other Eurozone countries at the end of 2008 as well as in September this year and the %-changes. In combination, German banks reduced their holdings of assets in Greece, Ireland, Portugal and Spain by more than 15% whereas they increased the assets relating to neighbouring Eurozone countries by almost 5%. Furthermore, they also decreased the assets of the other southern European countries, most notably Italy.
German banks' foreign assets holdings (in €mln)
| Dec 2008 | Sep 10 | %-change | |
| Belgium | 25.392 | 31.700 | 20% |
| Finland | 8.401 | 8.713 | 4% |
| France | 152.400 | 171.338 | 11% |
| Greece | 28.550 | 29.044 | 2% |
| Ireland | 188.051 | 157.519 | -19% |
| Italy | 144.257 | 115.338 | -25% |
| Luxembourg | 191.005 | 189.383 | -1% |
| Malta | 7.643 | 7.154 | -7% |
| Netherlands | 118.075 | 120.170 | 2% |
| Austria | 76.688 | 78.098 | 2% |
| Portugal | 27.859 | 25.665 | -9% |
| Slowakia | 2.727 | 2.809 | 3% |
| Slovenia | 4.425 | 3.593 | -23% |
| Spain | 176.909 | 149.762 | -18% |
| Cyprus | 8.017 | 7.021 | -14% |
| SP,GR,IR,PO | 421.369 | 361.990 | -16% |
| AT,NL,FR,BE,LU | 563.560 | 590.689 | 5% |
| IT,FI,SL,SL,CY,MA | 175.470 | 144.628 | -21% |
| Total | 1.160.399 | 1.097.307 | -6% |
Source: German Bundesbank
But also in terms of trade flows, a similar picture emerges. The table below shows the German exports and imports from June-Aug 2010 compared to the same period in 2007. Exports to Portugal, Ireland, Greece and Spain decreased by almost one fourth, highlighting the weak state of these economies. However, imports from these countries also dropped by a significant 7%. In contrast, German exports to its neighbouring Eurozone countries (France, Netherlands, Austria, Belgium, Luxembourg) increased slightly by 2% whereas imports from neighoubirng countries increased by a significant 6%. In between is the group of non-SGIP/non-neighbouring Eurozone countries (Italy, Finland, Slovenia, Slovakia, Malta, Cyprus) where Germany saw its exports drop by almost 8% and imports drop by 3%. Interesting is also the development of German trade flows vs. its non-Eurozone neighbours (Poland, Denmark, Czech Republic, Switzerland, Liechtenstein) which have increased significantly vs. 2007.
German imports and exports Jun-Aug 2010 in €bn & %-changes vs. same period 2007
Source: German Statistics Office, Research Ahead
Source: German Statistics Office, Research Ahead
Yes, Germany is exporting its improved business environment via higher imports, but mostly to its neighbouring countries and less to the fiscally challenged SGIP.
Overall, the combination of the changes in cross-border holdings of financial assets as well as in the composition of trade flows suggests that the group of fiscsally challenged countries - Spain, Greec, Ireland, Portugal - is seeing its economic ties with the rest of the Eurozone weaken significantly, i.e. to some degree they have been disintegrating from the rest of the Eurozone. As a result, so far they could not profit that much from the economic rebound in the north-eastern Eurozone countries.
On the other side, the already rather strong economic integration of the north-eastern Eurozone countries is intensifying further.
Should these economic developments run further - disintegration of the fiscally challenged economies from the rest of the Eurozone, intensifying integration of the economically stronger north-eastern countries - political realities could start to mirror these developments via the formation of a north-eastern political club with a weakening of the will for ongoing support measures to the rest of the Eurozone.
Overall, the combination of the changes in cross-border holdings of financial assets as well as in the composition of trade flows suggests that the group of fiscsally challenged countries - Spain, Greec, Ireland, Portugal - is seeing its economic ties with the rest of the Eurozone weaken significantly, i.e. to some degree they have been disintegrating from the rest of the Eurozone. As a result, so far they could not profit that much from the economic rebound in the north-eastern Eurozone countries.
On the other side, the already rather strong economic integration of the north-eastern Eurozone countries is intensifying further.
Should these economic developments run further - disintegration of the fiscally challenged economies from the rest of the Eurozone, intensifying integration of the economically stronger north-eastern countries - political realities could start to mirror these developments via the formation of a north-eastern political club with a weakening of the will for ongoing support measures to the rest of the Eurozone.
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