Germany’s financial links with the rest of the world again increased sharply in 2005. Overall, Germany’s external assets rose by 17½% to €4,069 billion and its external liabilities by 12½% to €3,621 billion. As a result, net foreign assets at the end of 2005 amounted to €448 billion, or 20% of GDP.

The sharp rise in Germany’s assets and liabilities vis-à-vis non-residents was due to the buoyancy of cross-border portfolio transactions and to the increase in lending. Valuation changes also had a positive effect. For example, there were nominal exchange rate gains in the case of positions denominated in foreign currency because in 2005 the euro depreciated against major currencies, especially the US dollar. However, an increase in holdings on both the asset and the liability sides of the balance sheet was also the result of price developments in the capital markets, primarily holding gains on shares, with a consequent rise of about one-quarter in the DAX and the Dow Jones EuroStoxx.

Particularly noticeable is the increased internationalisation of the assets held by German enterprises and individuals, which include investment funds (but not money market funds). Their external assets rose by €321 billion (+18½%) to €2,035 billion. This development was due primarily to the increased holdings of foreign securities, which accounted for nearly two-thirds of this build-up. Most of these securities were shares, 61% of which were denominated in foreign currency and whose increase was driven largely by price rises in the capital and foreign exchange markets. By contrast, the increase in bond holdings was largely attributable to increased purchases. Furthermore, holdings of mutual fund shares rose by just under one-third to €199 billion. Foreign direct investment also grew sharply, namely by 15½% to €617½ billion. With regard to the liabilities of enterprises and individuals, it was primarily the increase of €99½ billion (+41%) to €343 billion in German equities held by non-residents that made its mark, the
increase being due more or less equally to purchases and price rises. All in all, this sector again constituted the largest group of German net creditors at the end of 2005 with assets of €880 billion compared with €704 billion a year earlier.

The German monetary financial institutions (excluding the Bundesbank) increased their lending and deposit business with non-residents more or less to the same extent. The growth of €237½ billion to €1,853 billion in assets was due partly to increased lending and a rise in portfolio stocks. If account is taken of the changes on the liability side, where bond purchases predominated, the German banking system more than tripled its net creditor position from €32½ billion to €102½ billion.

In 2005, the external liabilities of general government rose by €93 billion (+15%) to €709 billion and involved Federal bonds held by foreign investors for the most part. Indeed, most of the increase in liabilities is due to the heavy foreign demand for Federal bonds. By contrast, the external assets of general government are less significant. They rose by €6 billion to €50½ billion.

The net external position of the Bundesbank rose from €85 billion to €124 billion last year. This was due to both an increase in reserve assets (+€15 billion) – primarily as a result of revaluations owing to the increase in the gold price and the value of the dollar – and the increase in other external assets (+€22½ billion). The increase in other external assets was almost solely the result of the rise in claims within the large-value payment system TARGET, which are generally of a temporary nature.