The Eurozone’s external wealth
I'm continuing from my last post on the balance of payments by investigating the consequences of capital inflows, outflows, and refluxes on wealth stocks, that is, on the total amount of foreign assets (extra-Eurozone) held by Eurozone residents, and assets issued in the Eurozone held by foreign residents (which are therefore liabilities for the Eurozone: if an American were to buy a BTP for some reason, it would be an asset for him, but for us it would still be public debt).
There are essentially two structural changes in the financial balance (that is, net of errors and omissions, in the algebraic sum of the current account and capital account balances). The first, between 2011 and 2012, is the transition from a situation of substantial balance, with an average balance of zero, to a surplus, that is, with net capital outflows/foreign inflows averaging over $300 billion per year. The second, located at the same point, concerns the composition of the financial balance: this average increase of $300 billion is explained primarily by the portfolio investment component (which, I remind you, is made for liquidity management purposes, not for corporate control). The flow of portfolio investment, in fact, goes from a deficit of around 150 billion dollars per year (capital inflow/net borrowing) to a surplus of over 100 billion dollars per year (capital outflow/net lending), essentially explaining almost all of the 300 billion increase in overall net foreign lending.
In terms of stock, we therefore expect the net financial position (assets minus liabilities) to start improving from 2012, and that this will depend in particular on portfolio investments, the (net) stock of which should increase (in the sense that foreign securities in European portfolios should increase, net of European securities in foreign portfolios).
The trend of stocks is in fact more or less consistent with these considerations:
Although there are discrepancies, which we will discuss later. The graph shows the Eurozone's gross assets and liabilities with the rest of the world (left-hand scale) and the net position (assets minus liabilities, right-hand scale). Indeed, the net position began to improve (since 2014 rather than 2012), returning to positive territory in 2024. Since liabilities are constantly growing, this improvement is due to assets growing faster, as we also saw in this graph, referring to flows, presented in the previous post:
The dynamics of stocks are therefore consistent with that of flows: if lending is higher than indebtedness, credits grow more than debits and the net position improves.
Regarding the composition of the net position, this chart:
He clarifies that, in fact, what has improved above all is the net portfolio investment position, which overall is and remains indebted (that is, there are more European securities – stocks and bonds – placed abroad than foreign securities purchased by Europeans), but since 2013 it has decreased in absolute value, that is, it "improves" (or worsens: this type of evolution could also mean that abroad they are less willing to lend us money, but I won't go into that now).
In the stock data, I repeat, we therefore see the dynamics of the flow data reflected quite faithfully, with one significant exception: why did the net international credit position (NIIP) decrease from 1999 to 2013, despite the fact that the net credit flow towards foreign countries was on average essentially zero?
This isn't actually difficult to understand based on our personal experiences: those of us who manage to maintain a flow of savings invest it in financial instruments, and in principle, the sum of these savings over the years is individual wealth. However, the value of this wealth, of course, isn't simply the sum of accumulated savings, but is also affected by the value of the investments made: €100 of savings invested in stocks in year t (savings flow) can become €120 or €80 at the end of the year depending on whether the stock price has risen or fallen. The net international position measures a country's wealth, not savings, and is therefore affected by the value of investments, which is why it can move up or down depending on the movements in interest rates, stock prices, and exchange rates, even if the financial balance (FAB) is essentially zero. Yes, because since we're talking about international investments, exchange rates obviously also matter!
For example, imagine a European resident issuing a euro-denominated security and selling it to a US resident at a hypothetical exchange rate of 1. The 100 euros of European debt to the US therefore correspond to 100 dollars of European debt to the US. If the euro then appreciates, rising, for example, to 1.2 dollars per euro (a certain-for-uncertain rate: one euro buys 1.2 dollars), the debt is still 100 euros, but in the meantime, unfortunately, it has risen to 120 dollars, and therefore the net financial position expressed in dollars worsens. This is exactly what happened in Europe in the first decade of the century, and the ECB explains it clearly in this explanatory box from 2010 , while in this subsequent Occasional paper from 2017 it clarifies that these effects were not, however, decisive in the phase of returning from negative net positions (i.e. from net debt exposures), an operation for which the old method of tightening one's belt (i.e. bringing the CAB and therefore the FAB, the current account and therefore the financial balance into positive territory) had proven irreplaceable.
And so we have placed another little piece in the mosaic of our understanding.
Of course, stay tuned for more tips… because now we need to get back to the LVI discussion, which I don't think everyone has grasped every nuance of (and it's definitely worth exploring further)…
This is a machine translation of a post (in Italian) written by Alberto Bagnai and published on Goofynomics at the URL https://goofynomics.blogspot.com/2026/03/la-ricchezza-esterna-delleurozona.html on Tue, 24 Mar 2026 17:46:00 +0000. Some rights reserved under CC BY-NC-ND 3.0 license.