The weakest eurozone economies have seen a significant flight of private capital in recent years. Investors have been seeking “safe havens”, where the perceived risk of bank closures and currency defaults is lower, and where there may be investment opportunities resulting from the influx of funds. International Wealth examines where individuals from Portugal, Italy, Ireland, Greece and Spain – the so-called “PIIGS” countries – have been moving their money, and whether you should follow their example.

If you want to see at a glance how imbalanced the Eurozone has become in recent years, look no further than the IFO Institute’s latest graph of annual euro transfer activity (below). The economic think-tank’s analysis shows just how much money the European Central Bank (ECB) has, in effect, loaned to some Eurozone countries and borrowed from others in order to reconcile cross-border payments via the system known as “Target2”.

Whenever someone with a commercial bank account transfers euros from one Eurozone country to another, Target2 keeps track of what is happening. At the ECB, a debit appears on the central bank account of the country where the transfer originated, and a credit appears on the equivalent account of the destination country.

In “normal times”, the total debit and credit balances for each country should cancel each other out. Indeed, before the global financial crisis started in 2007-08, the books were relatively balanced. By August 2012, however, the picture looked decidedly skewed: Germany had a net Target2 balance of €751 billion, while the PIIGS countries of Portugal, Italy, Ireland, Greece and Spain collectively owed the system almost €1 trillion. Plotting the resulting data for the past decade presents a crude but nonetheless striking image of how much private capital has flowed from the Eurozone’s weakest countries to its strongest.

The trend has reversed a little in recent quarters thanks to the mid-2012 pledge by ECB chairman Mario Draghi to do “whatever it takes” to save the euro and a corresponding rise in market confidence. Nevertheless, there are emergency measures in place across the Eurozone designed to prevent the movement of large amounts of cash, massive underlying problems with the fiscal positions of many Eurozone countries, and many upcoming political events that have the potential to cause problems.

So, while the crisis endures, individuals with assets in vulnerable Eurozone countries are looking carefully at ways to balance their wealth across other, more stable economies. And that means identifying the continent’s most stable environments and favoured “safe havens”.

51% of all £1m+ houses sold in London since 2011 were bought by non-Brits.


Buyers from around the world have been flocking to London in recent years to buy prime residential property. The UK capital is perceived to be a highly stable and secure environment, one of the world’s most desirable destinations for both business and culture and under-supplied so far as this category of upmarket housing is concerned. Buyers from the Eurozone have also been motivated by the knowledge that their capital is being transferred into a relatively stable currency.

Prices for luxury property in London have grown 45 per cent since the depths of the financial crisis, according to global property company Knight Frank, and of all the London residential property sold in 2011 and 2012 at over £1m, 51 per cent was purchased by non-British nationals. The anecdotal evidence for an influx of Eurozone buyers is also strong.

According to Philip Selway, chief executive of London property agency The Buying Solution, “at the start of 2012 there was more property in London bought by Italians than by any other nationality.” French buyers have also been snapping up property, he adds, ever since president François Hollande came to power with the promise of a 75 per cent income tax for high earners.

Until recently, one of the most popular ways to invest in UK property has been to use an offshore company as a vehicle. The main advantage of this approach is privacy: the property is owned by the company, not the individual directly and it may also help to avoid some taxes such as capital gains tax and stamp duty.

However, one point to note is that the UK government has recently begun to clamp down on such activity: in April 2013, company-owned properties worth over £2m were subject to a 7 to 7.5 per cent tax on their value – the Annual Tax on Enveloped Dwellings.

Raising finance can also be tricky. The advantage of having a mortgage on your property is that interest payments can be offset against rental income. However, some retail banks will not lend to buyers unless they are resident and domiciled in the country. “The only real option for overseas borrowers is the private and/or specialist banks,” says Jonathan Harris, director of London-based specialist mortgage broker Anderson Harris. Barclays, for example, provides just such a service for its international banking customers.

“If the property is of good quality, in a suitable location and the borrower’s income and asset profile is strong, then they should meet the more flexible criteria of these lenders,” Harris adds.


Bordered by four Eurozone countries, Switzerland has seen a massive influx of private capital since 2008, with many stories emerging of Italians and Greeks attempting to smuggle large amounts of cash and gold across the border, in anticipation of bank runs at home.

However, their favoured country has not been without a degree of unpredictability. In September 2011, for example, the Swiss central bank stunned currency traders around the world by announcing that it would act to prevent its currency falling below a rate of CHF1.20 to the euro (as we go to press, one euro buys CHF 1.22). One consequence of this policy has been a dramatic boom in the Swiss property market, which saw prices rise to six times the average domestic income in the last three months of 2012.

In an effort to stabilise the market, the Swiss government announced new lending restrictions which took effect 1 October 2013. These restrictions mean banks are obliged to hold an additional one per cent in risk-weighted assets on loans against residential properties (a buffer that could yet be raised to 2.5 per cent, if the Swiss central bank deems it necessary).

However, it remains to be seen whether this tough new measure will have the desired effect. The housing market has not been cooled either by recent increases in borrowing rates or the central bank’s currency intervention. In February, the Swiss government warned that rising mortgage debt and residential real estate prices “pose a significant risk to the stability of the banking sector and to that of the economy” and Swiss bank UBS added that the housing bubble was “clearly in the risk zone”.


German banks have seen a constant inflow of euros since 2008 – partly because savers in peripheral Eurozone countries have been worried about the strength of their own banks.

German property has also an increasingly popular destination for foreign investment within the EU. Berlin, Frankfurt, Munich and Hamburg were among the top 10 European cities for residential property purchases in 2012, with transactions totalling around €2 billion for that year in the capital alone.

Many investors in Germany have also transferred money out of government bonds and into property, taking advantage of historically low interest rates to pursue of higher yields. As a result, house prices across the country have risen steadily.

In November 2012, the German central bank warned that some regions may be overheating. That said, housing bubbles are usually fuelled by rapid rises in credit availability, and mortgage lending in Germany has only risen by one per cent per year in the past four years.


Norways GDP grew by 0.6 per cent in 2013, while the rest of Europe continued to stagnate. It also expects to maintain its highly secure fiscal position with a 380 billion kroner (£43.1 billion) budget surplus. “We have a solid economy and solid finances,” finance minister Sigbjørn Johnsen told The Wall Street Journal recently. “We can increase spending, and grow our savings account at the same time.”

The yields on 10-year Norwegian government bonds have dropped steadily for decades. They reached a record low of 1.7 per cent in July 2012 and have been hovering around the two per cent mark ever since. So Norway has become a highly secure place to invest, as far as the bond markets are concerned. And since the Swiss pegged their currency to the euro in September 2011 (see above) its safe-haven status has risen with private investors too.

The Norwegian krone appreciated over five per cent against the euro in 2012, with the central bank attributing this in part to private capital flight.

All this does not necessarily, however, make Norway an ideal place to invest. The European Union (EU) has long ranked as the country’s biggest trading partner, with around 80 per cent of Norwegian exports going to EU countries, so the on-going Eurozone debt crisis could yet cause it problems. What is more, Norway’s recent growth has a lot to do with its oil industry, which has benefited from the high global prices coupled with a further string of major oil-field discoveries.