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Horst, M., Neyer, U. Do Large TARGET2 Balances Bear Risks for the Euro Area?. Credit and Capital Markets – Kredit und Kapital, 55(1), 3-34. https://doi.org/10.3790/ccm.55.1.3
Horst, Maximilian J. and Neyer, Ulrike "Do Large TARGET2 Balances Bear Risks for the Euro Area?" Credit and Capital Markets – Kredit und Kapital 55.1, 2022, 3-34. https://doi.org/10.3790/ccm.55.1.3
Horst, Maximilian J./Neyer, Ulrike (2022): Do Large TARGET2 Balances Bear Risks for the Euro Area?, in: Credit and Capital Markets – Kredit und Kapital, vol. 55, iss. 1, 3-34, [online] https://doi.org/10.3790/ccm.55.1.3
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Do Large TARGET2 Balances Bear Risks for the Euro Area?

Horst, Maximilian J. | Neyer, Ulrike

Credit and Capital Markets – Kredit und Kapital, Vol. 55 (2022), Iss. 1 : pp. 3–34

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Publisher Name
Duncker & Humblot
DOI
https://doi.org/10.3790/ccm.55.1.3
Language
English
Pages
32
Keywords

Author Details

Corresponding Author. Maximilian J. Horst, Heinrich Heine University Düsseldorf, Chair of Monetary Economics, Universitätsstraße 1, 40225 Düsseldorf.

Prof. Dr. Ulrike Neyer, Heinrich Heine University Düsseldorf, Chair of Monetary Economics, Universitätsstraße 1, 40225 Düsseldorf.

References

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  78. Hellwig, M./Schnabel, I. (2019a): Do Target Balances Create Risks for Taxpayers? Wirtschaftsdienst, Vol. 99(8), 553–561.  Google Scholar
  79. Hellwig, M./Schnabel, I. (2019b): Target Balances, Current Account Balances, Money Creation, Banks and Capital Markets, Wirtschaftsdienst, Vol. 99(9), 632–640.  Google Scholar
  80. Homburg, S. (2019): Targetsalden sind nicht empörend, sondern gefährlich, Perspektiven der Wirtschaftspolitik, Vol. 20(2), 98–102.  Google Scholar
  81. Horst, M. J./Neyer, U. (2019): The Impact of Quantitative Easing on Bank Loan Supply and Monetary Policy Implementation in the Euro Area, Review of Economics, Vol. 70(3), 229–265.  Google Scholar
  82. Horst, M. J./Neyer, U./Stempel, D. (2020): Asymmetric Macroeconomic Effects of QE-Induced Increases in Excess Reserves in a Monetary Union, DICE Discussion Paper No. 346.  Google Scholar
  83. Siekmann, H. (2017): Die Einstandspflicht der Bundesrepublik Deutschland für die Deutsche Bundesbank und die Europäische Zentralbank, Institute for Monetary and Financial Stability, Goethe University Frankfurt, Working Paper Series No. 120.  Google Scholar
  84. Sinn, H.-W. (2018): Fast 1.000 Milliarden Target-Forderungen der Bundesbank: Was steckt dahinter? ifo Schnelldienst, Vol. 71(14), 26–37.  Google Scholar
  85. Sinn, H.-W. (2019a): Der Streit um die Targetsalden, Perspektiven der Wirtschaftspolitik, Vol. 20(3), 170–217.  Google Scholar
  86. Sinn, H.-W. (2019b): Der Streit um die Targetsalden – Kommentar zu Martin Hellwigs Artikel “Target-Falle oder Empörungsfalle?”, ifo Working Papers No. 316, 1–100.  Google Scholar
  87. Sinn, H.-W. (2020): The Economics of Target Balances – From Lehman to Corona, Springer Nature.  Google Scholar
  88. Sinn, H.-W./Wollmershäuser, T. (2012): Target Loans, Current Account Balances and Capital Flows: The ECB’s Rescue Facility, International Tax and Public Finance, Vol. 19(4), 468–508.  Google Scholar
  89. Spahn, P. (2019): Targetsalden und die Vollendung der Währungsunion, Perspektiven der Wirtschaftspolitik, Vol. 20(2), 103–106.  Google Scholar
  90. van Suntum, U. (2019): Targetsalden und andere Risiken in der Europäischen Währungsunion. Perspektiven der Wirtschaftspolitik, Vol. 20(2), 107–114.  Google Scholar

Abstract

Large increases in TARGET2 balances in the euro area since 2008 have led to concern and debate about the appropriate interpretation and policy reaction – in particular in TARGET2 creditor countries such as Germany. Against this background, we examine the main drivers of the increases and asymmetries in TARGET2 balances that have emerged in the context of the financial and sovereign debt crises as well as in the context of the Eurosystem’s implementation of quantitative easing (QE) and the COVID-19 pandemic. Moreover, this paper analyzes the potential risks for euro area member states in the case of (i) the unchanged continuity of the monetary union, (ii) the withdrawal of a member state with (large) TARGET2 liabilities, and (iii) the break-up of the whole monetary union. Depending on the outcome of exit negotiations and the operational handling, there can be direct risks in the form of default losses of TARGET2 balances and indirect risks in the form of threat potentials if TARGET2 debtor countries pretend to plan to leave the euro area. Based on this, we discuss adaption options for the TARGET2 payment system and consider an exit from the ECB’s accommodative monetary policy in order to scale back the high amount of excess liquidity in the euro area banking sector which is the prerequisite for the emergence of TARGET2 balances.

Table of Contents

Section Title Page Action Price
Maximilian J. Horst / Ulrike Neyer: Do Large TARGET2 Balances Bear Risks for the Euro Area? 1
Abstract 1
I. Introduction 1
II. A Technical Note on the TARGET2 Payment System and the Emergence of TARGET2 Balances 4
1. Institutional Aspects of TARGET and TARGET2 4
2. TARGET2 Balances 5
3. TARGET2 Balances as Actual Claims and Liabilities 9
III. Development and Interpretation of TARGET2 Balances 9
1. TARGET2 Balances and the Balance of Payments 1
2. TARGET2 Balances in “Normal Times” 1
3. TARGET2 Balances in the Financial and Sovereign Debt Crises 1
4. TARGET2 Balances and the Eurosystem’s Asset Purchase Program (APP) 1
5. TARGET2 Balances in the COVID-19 Pandemic 1
IV. Potential Risks of Large TARGET2 Imbalances – Three Scenarios 1
1. Unchanged Continuity of the Monetary Union 2
2. Withdrawal of a Euro Area Member State 2
3. Dissolution of the Monetary Union 2
4. Solution Approaches 2
V. Summary 2
References 3

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