Answer given by Mr Rehn on behalf of the Commission

25.8.2011

The global financial and economic crisis that originated in the United States in 2007 and subsequently spread across the globe has had a profound impact on international investment flows, including on foreign direct investment (FDI). The 75 % fall in inward FDI into the EU‑27 from outside the EU between 2009 and 2010 was indeed very sharp, but needs to be placed in the context of widespread falls in global FDI flows over this period.

Both in- and outflows of FDI in many advanced economies recorded a drop between 2009 and 2010. This was particularly true for outward FDI from 27 Member States into non-EU countries, which fell by 62 % from EUR 281 billion to EUR 107 billion. Furthermore, greater intra-EU flows of FDI have, to some extent, offset the drop in inward investment from non-EU countries: FDI in 27 Member States originating from other EU economies rose by 13 % between 2009 and 2010. In previous years intra-EU FDI flows have been the single largest source of inward FDI in EU economies, accounting for around two-thirds of total inward FDI in the EU.

It should also be borne in mind that FDI flows tend to be highly volatile. For instance, between 2007 and 2010 FDI flows in and out of the EU‑27 have varied by a factor of 8 (in) and 5 (out) between the weakest and the strongest year. Generally speaking, global FDI flows are usually volatile because of the presence of large individual mergers and acquisitions (M&A) deals.

In addition, the crisis may also explain the volatility through the widespread liquidation and repatriation of cross-border asset positions, driven by acute liquidity squeezes for corporations and heightened risk aversion. In the case of FDI, this is likely to have occurred through disinvestment in enterprises located abroad, primarily through inter-company loans.

Finally, looking at individual EU countries' recent FDI performance, there appears to be no straightforward link between the seriousness of a country's economic challenges — be they fiscal, financial or growth-related — and the evolution of FDI throughout the crisis. For instance, Irish and Spanish inward FDI rose between 2009 and 2010, while Greek FDI inflows remained unchanged over the same period. By contrast, countries with comparatively smaller macroeconomic imbalances such as France, Poland, the United Kingdom and Austria all recorded lower inward FDI in 2010 than in 2009.