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Cross-Border Flows Drive European Dis-Integration

Tyler Durden's picture




 

Despite reassurances from Draghi this morning, the truth of the matter is that cross-border capital flows - which reflect the degree of integration in the global financial system - have plunged in recent years. As of the end of 2012, cross-border capital flows - including lending, foreign direct investment, and purchases of equities and bonds - remain more than 60% below their peak. In the decade up to 2007, Europe accounted for half of the growth in global capital flows, reflecting the increasing integration of European financial markets. But today the continent’s financial integration has gone into reverse. Clearly, cross-border lending, which dominated capital flows in the years leading up to the crisis, has proven to be short term and can dry up quickly.

 

As McKinsey notes:

Cross-border capital flows - including lending, foreign direct investment, and purchases of equities and bonds - reflect the degree of integration in the global financial system. While some of these flows connect lenders and investors with real-economy borrowers, interbank lending makes up a significant share. In recent decades, financial globalization took a quantum leap forward as cross-border capital flows rose from $0.5 trillion in 1980 to a peak of $11.8 trillion in 2007. But they collapsed during the crisis, and as of 2012, they remain more than 60 percent below their former peak (Exhibit E2).

 

 

 

As with financial deepening, it is important to disentangle the different components of growth and decline in capital flows. In the decade up to 2007, Europe accounted for half of the growth in global capital flows, reflecting the increasing integration of European financial markets. But today the continent’s financial integration has gone into reverse. Eurozone banks have reduced cross-border lending and other claims by $3.7 trillion since 2007 Q4, with $2.8 trillion of that reduction coming from intra-European claims (Exhibit E3). Financing from the European Central Bank and other public institutions now accounts for more than 50 percent of capital flows within Europe. With hindsight, it appears that capital mobility in Europe outpaced the development of institutions and common regulations necessary to support such flows.

 

 

 

Outside of Europe, global lending flows have also slowed. The modest increase in assets of banks in the United States, United Kingdom, Canada, and Australia is not nearly enough to fill the gap left by retreating European banks.

 

Clearly, cross-border lending, which dominated capital flows in the years leading up to the crisis, has proven to be short term and can dry up quickly.

 

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Thu, 03/07/2013 - 14:59 | 3309426 DblAjent
Thu, 03/07/2013 - 15:07 | 3309452 zuuma
zuuma's picture

Off Topic!! and...

 

KRUGMAN!!

 

He IS Broke!!!

Thu, 03/07/2013 - 15:08 | 3309454 NotApplicable
NotApplicable's picture

Ummm... settle down there friend. That article is satire.

Thu, 03/07/2013 - 15:27 | 3309526 zuuma
Thu, 03/07/2013 - 15:51 | 3309597 chubbyjjfong
chubbyjjfong's picture

Chubby.. Ha Ha

Thu, 03/07/2013 - 15:08 | 3309456 Say What Again
Say What Again's picture

We've already been through this.

It's a hoax.  Its still good for a laugh, but it is a joke.

Thu, 03/07/2013 - 15:10 | 3309460 NotApplicable
NotApplicable's picture

Hey now, don't smear good satire with a "hoax" label. Those two words are NOT synonymous.

Thu, 03/07/2013 - 15:12 | 3309469 Say What Again
Say What Again's picture

Sorry,

I don't know what I was thinking.

BTW -- Isn't the action in ES starting to get interesting?

Thu, 03/07/2013 - 15:31 | 3309541 NotApplicable
NotApplicable's picture

Well, you've got a pretty good track record, so I'll let it slide this time. ;-)

Thing is, I've actually seen real attempts to discredit satire by calling it a hoax. (damn those sophists!)

Thu, 03/07/2013 - 15:45 | 3309581 Say What Again
Say What Again's picture

Hmmmm

Sophism -- from WIKI

"Sophism in the modern definition is a specious argument used for deceiving someone."

Does that remind you of anyone?

Shall we expand on this concept a bit moar

Thu, 03/07/2013 - 14:59 | 3309429 Say What Again
Say What Again's picture

Is this anything like inter-species breeding?

Thu, 03/07/2013 - 15:04 | 3309441 Abraxas
Abraxas's picture

Integration is the trend, not the other way around. Eventually, we'll all be 'integrated' under one big umbrella. There will be no more 'I' in this world, only omnipresent and omnipotent 'US' (and THEM, of course)

Thu, 03/07/2013 - 15:07 | 3309451 NotApplicable
NotApplicable's picture

Of course that's accomplished by the disintegration of existing social structures.

Interesting times, indeed. I'm sure Hegel would be proud.

Thu, 03/07/2013 - 15:25 | 3309491 Abraxas
Abraxas's picture

Kant would be proud too. Not cunt. Kant.

Thu, 03/07/2013 - 15:29 | 3309532 magpie
magpie's picture

The end of history, as predicted in 1789, 1848, 1917, the 1950s, 1968, 1989, 1990, 2001 etc etc stay tuned.

Thu, 03/07/2013 - 15:32 | 3309546 NotApplicable
NotApplicable's picture

The end is the beginning is the end...

Thu, 03/07/2013 - 15:39 | 3309564 McMolotov
Thu, 03/07/2013 - 15:08 | 3309455 LawsofPhysics
LawsofPhysics's picture

Are the suitcases full of fiat and PMs counted in these numbers?

Thu, 03/07/2013 - 15:13 | 3309472 Winston Churchill
Winston Churchill's picture

Gnomes talk less than unicorns shit skittles.

Thu, 03/07/2013 - 17:26 | 3310087 Kirk2NCC1701
Kirk2NCC1701's picture

Hotels and banks in Malta and Cyprus are doing well. Bell hops not so much, as the people checking in are adamant about carrying own suitcases. ;-)

Thu, 03/07/2013 - 15:25 | 3309519 adr
adr's picture

All weakness is due to 2012 having less than 53 weeks. I read it in Buckle's report. The reason why sales were down in 2012 is because 2012 was missing a 53rd week.

Which is odd because 2012 had a whole extra day over 2011.

I'm pissed though, I'm pretty sure I only got paid for a 365 day year in 2011, and here I should have been paid for 372.

Man, just think of the YoY GDP growth if we added four more weeks. Smarch is the greatest retail time of year, makes December sales look like the dead of April.

Thu, 03/07/2013 - 15:43 | 3309575 youngman
youngman's picture

It should be down..that is what got them into the problems they are today..If no one would have loaned Greece so much money they would be better off today too...the era of easy money is over..now its just pay to survive...or so they think...

Thu, 03/07/2013 - 16:42 | 3309876 are we there yet
are we there yet's picture

The EU is a big pile of IKEA.

Thu, 03/07/2013 - 17:32 | 3310104 Kirk2NCC1701
Kirk2NCC1701's picture

They did ok until the big banks got into derivatives and went for Wall Street's toxic assets/ass-shits. Now they are all paying that bill.

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