Germany’s financial links with the rest of the world again increased markedly in 2007. Overall, Germany’s external assets rose by 10% to €5,004 billion and its external liabilities by 11½% to €4,360 billion. As a result, net foreign assets at the end of 2007 amounted to €645 billion, or 26½% of GDP (2006: €636 billion).

The slight rise in the net external asset position reflects opposing developments. The current account surplus of €184 billion recorded in 2007 led to a corresponding increase in foreign assets. By contrast, exchange-rate-related changes resulting from the appreciation of the euro and, additionally, the share price increases in the equity market ‑ which had a greater impact on German external liabilities than on its assets ‑ had a dampening effect.

The increasing internationalisation of the portfolios was particularly evident in the case of monetary financial institutions (excluding the Bundesbank). Their external assets were up by 11%. The growth of €243 billion to €2,432 billion in their assets was caused primarily by increased lending and a rise in the institutions’ portfolio stocks. Taking into account the growth of just under €208 billion in external liabilities, the German banking system extended its net creditor position by €35 billion to €400 billion in 2007.

The external assets of German enterprises and individuals, which also include investment funds (excluding money market funds), increased by €144 billion (+6½%) to €2,351 billion. Here, a sharp rise of €81 billion in foreign direct investment played a significant role. Furthermore, enterprises and individuals increased both their deposits with foreign banks and their purchases of foreign mutual fund shares by €45 billion, respectively. By contrast, there were net sales of foreign equity in the course of the year. Overall, holdings of foreign equity fell by €50 billion; this was underpinned by the fact that exchange-rate-related losses exceeded price rises. The increase of 14% (€191 billion) in liabilities was attributable primarily to the rise of €77 billion (+20½%) to €457 billion in the stock of German equities held by non-residents; the growth in this area was driven largely by the above-mentioned share price increases in the German equity market and only to a marginal extent by share purchases. All in all, the enterprises and individuals sector was once again by far the largest German net creditor to non-residents at the end of 2007 despite a decline in net claims of just over €48 billion to €781 billion.

In 2007, the external liabilities of general government rose by €35 billion (5%) to €742 billion. This was due largely to the fact that foreign investors invested more heavily in Federal bonds (+6%), one probable reason, among others, being the uncertainty in the financial markets. General government external assets, the majority of which are bank deposits and holdings in international organisations, are traditionally less significant. They decreased overall by €8 billion to €42 billion. The net external liabilities of general government consequently amounted to €700 billion at the end of last year.

The net external position of the Bundesbank rose by €64 billion to just under €163 billion in the course of last year. The reserve assets increased by 9% to €93 billion as valuation gains ‑ particularly for gold ‑ and, to a minor extent, transaction-related rises exceeded exchange rate losses in the foreign currency position. In addition, there was a significant increase (of €67 billion) in other external assets. However, this was almost solely the result of a rise in claims within the large-value payment system TARGET [1], which are generally of a transitory nature.

The longer-term development of Germany’s external position is investigated in an article to be published in the October issue of the Bundesbank’s Monthly Report. The article contains an annex with methodological notes, which includes information on changes in how portfolio positions are recorded.

1 Since 19 November 2007, TARGET2-Bundesbank.