Economic Brief

2012

 

August 2012, No. 12-08

TARGET2: Symptom, Not Cause, of Eurozone Woes

Thomas A. Lubik and Karl Rhodes

In recent years, large positive and negative balances have arisen in TARGET2, the interbank settlement and payments system of the Eurozone. These balances show that the Deutsche Bundesbank, the central bank of Germany, has become a large net creditor to the European Central Bank (ECB). Conversely, they show that central banks in the periphery nations of Portugal, Ireland, Italy, Greece, and Spain have become significant net debtors to the ECB. Critics of the Eurosystem have portrayed these balances as a "stealth bailout" of the periphery nations, but TARGET2 merely reflects persistent imbalances in current accounts and capital accounts. It does not cause them.

Additional Resources

Bijlsma, Michiel, and Jasper Lukkezen, "TARGET2 of the ECB vs. Interdistrict Settlement Account of the Federal Reserve," Bruegel, March 6, 2012.

Bindseil, Ulrich, and Philipp Johann König, "The Economics of TARGET2 Balances," SFB 649 Discussion Paper 2011-035, June 14, 2011.

Euro Crisis Monitor (TARGET2 data and commentary), Institute of Empirical Economic Research, Universität Osnabrück.

Sinn, Hans-Werner, "The ECB's Stealth Bailout," VoxEU, June 1, 2011.

Tornell, Aaron, and Frank Westermann, "Eurozone Crisis, Act Two: Has the Bundesbank Reached Its Limit?" VoxEU, December 6, 2011.

Whelan, Karl, "Professor Sinn Misses the Target," VoxEU, June 9, 2011.

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