EFTA01461078

10% • 9 March 2015 Special Report. Euroglut here to stay. trillions of outflows to go Figure 13 Korea's NIIP accelerated by Japan czation of BoK but was a Ong time in waiting [ ==aCuireld .ass. 41111 •POP (M) -10% Figure 14. Debt reduction driven by transactions, but iJapanization of Bel< means depreciation helps transition eCurtent *moult •••••••••518. •—•••USIYKRW1•111) a3{ IIInnli -6% .10% i -20% •I -20% .26% 1980 1985 1990 1995 2000 2005 2010 2016 1998 Sort.. Di nine int H Ini. {at lid V its-Facin• :Cc?' rotor Ootemil• 8- .Iles A03 The Korean case therefore illustrates two of our fundamental predictions regarding Euroglut: QE will accelerate it powerfully, but it will still take the rest of the decade to play out fully. The Scandinavian economies similarly transformed themselves into net creditor nations in the 1990s. Denmark experienced a current account reversal in 1987 and has run large surpluses since. Denmark was considerably more indebted than the Euromne by the time it consolidated its external account, with the NIIP standing at -50% of GDP, so the transition inevitably took longer than it will in the Eurozone. What is remarkable about Denmark's case, nevertheless, is that its NIIP has not stabilized since turning positive in 2009, despite exceeding 30% of GDP. As a small open economy, Denmark's surpluses are bound to be larger than the Eurozone's, but its adjustment supports our view that the euro area will continue to accumulate foreign assets until its NIIP reaches levels above 30% of GDP or so. Finland is an interesting case study in that it illustrates that a small positive NIIP does not necessarily turn an economy into a mature creditor nation a la Japan. The country started its current account consolidation in 1993, following a severe banking crisis. The trajectory of its NIIP over the next two decades illustrates the importance of valuation effects. On joining the Euro at an overvalued rate, its net debt position deteriorated rapidly before stabilizing as the Euro depreciated. Since hese initial hiccups large current account surpluses gradually pulled Finland towards c e r.g a "e: creditor nation. Most interestingly, the recent reversal of the • 1800 • 1700 • 1603 . 1503 1400 r. 1303 1200 1100 1000 WI< (Nodes lo brow BOJ 900 800 2013 Fig ve 15 DenTata $ NIP yet to stabilize after 25 years of Figure 16 Finland only recently turned into a net lender. but surpluses far from being a mature one if. 000P 6%, 3%) twat+ anti ward - 40% -12% 1970 1974 1976 1962 1966 1990 WN 1996 2002 2008 2010 2014 fart. teem, 14.1.5 nor k••• •••• v i•• • • :GL Page 8 %WOO) 12% wl,,,camet maul a411P %Of OM 1193% 120% 60% 0% 4051 -120% 1970 1974 on van ism IMO 1904 1906 2002 2006 X10 2014 St ,, o 01/1:11801. „. . ., _1. . ; 1 1 Deutsche Bank AGLondon CONFIDENTIAL — PURSUANT TO FED. R. CRIM. P. 6(e) CONFIDENTIAL DB-SDNY-0 122899 SDNY_GM_00269083 EFTA01461078