Financial Balance Sheets of the Total Economy
It is frequently argued that financialization, with respect to the liberalization of the international financial transactions, is directly related to the surge in balance of payments imbalances. This relationship has been the object of deep analyses in the case of European countries, in general, and principally in the case of the eurozone economies. Thus, in the latter case, a number of papers have studied the joint impact of the monetary integration process and the financial liberalization of the generation of structural imbalances in the balance of payments of these countries (see, for instance, Carrasco and Peinado 2015; Carrasco and Serrano 2014; Dodig and Herr 2015a).
First, we will analyse the performance of the financial balance sheets of the total economy before the onset of the Great Recession. To that end, we have calculated the difference between the size of financial assets and liabilities and net financial assets between the year 1999 and 2008 (or the first available year). In this period we have obtained four groups, formed by the following countries:
- • Group 1: Austria, Cyprus, Germany, Luxembourg and Netherlands.
- • Group 2: Belgium, Estonia, France, Greece, Ireland, Italy, Latvia, Lithuania, Malta, Portugal, Slovenia and Spain.
- • Group 4: Slovakia.
- • Group 5: Finland.
Therefore, the 17 countries included in groups 1 and 2 would have recorded a clear financialization process, due to the larger size of the financial balance sheets of these economies. The opposite result takes place in Slovakia, where both financial assets and liabilities decline, being the only country where a de-financialization process took place before the Great Recession.
As a whole, before the crisis the size of net financial assets rose in 6 countries, falling in the remaining 13 ones. The size of financial assets increased in 18 countries (falling in 1 country), and, finally, the size of financial liabilities increased in 17 countries (falling in 2 countries).
The performance of financial balance sheets since 2008 (calculated as the difference between the values of the different items in the year 2014 and 2008) offers different outcomes. Now, the Eurozone countries can be gathered together in five groups:
- • Group 1: Austria, Finland, Latvia, Lithuania, Malta, and the Netherlands.
- • Group 2: France, Greece, Ireland, Italy, Luxembourg, Portugal, Slovakia, Slovenia, and Spain.
- • Group 3: Belgium and Germany.
- • Group 5: Estonia.
- • Group 6: Cyprus.
Therefore, since the beginning of the crisis net financial assets have increased in 9 countries (declining in 10 countries), and the size of financial assets and liabilities increased in 16 countries (falling in 3 countries).
Comparing both periods, we can notice that there is a change of group in 10 countries. Slovakia now joins the set of countries that record a financialization process due to the larger size of the financial assets and liabilities. Moreover, during the Great Recession a definancialization process has taken place in Belgium and Germany where there is a fall in the size of the financial balance sheets.
For the whole set of euro economies, there has not been a significant change in the national financialization processes. Before the crisis net financial assets had declined in 13 countries, while during the Great Recession this decline happened in only a few less countries (10). In the case of financial liabilities, the number of countries where there was an increase in their size fell from 17 to 16, and the number of countries that have recorded a rise in the financial assets declined from 18 to 16 countries.
These results show the large differences in the evolution of the financial balance sheets of Eurozone countries before and during the Great Recession. These differences, which confirm the hypothesis of the variegated process of financialization in the eurozone, stand out even more so when we analyse the net financial position of the national financial balance sheets and their evolution.
Between 1999 and 2008 only Belgium kept positive net financial assets, thereby maintaining a creditor position against the rest of the world. On the contrary, a debtor position occurred in 13 countries: Austria, Cyprus, Estonia, Finland, Greece, Ireland, Italy, Latvia, Lithuania, the Netherlands, Portugal, Slovenia, Slovakia, and Spain. Two countries, Germany and Luxembourg, moved from a net debtor to a net creditor position; finally, France and Malta changed from a creditor to a debtor position.
During the Great Recession, Belgium and Germany maintained their net creditor position, while Cyprus, Estonia, France, Greece, Ireland, Italy, Latvia, Lithuania, Portugal, Slovakia, Slovenia, and Spain maintained their net debtor position. Luxembourg went from a creditor to a net debtor position, and four countries (Austria, Finland, Malta and the Netherlands) went from a debtor to a creditor position.
All these results, however, may hide different performances at a sectoral level. Therefore, in the next subsections we will analyse how the sectoral financial balance sheets have evolved.