ECB’s TARGET2 System- A Stealth Bailout?

In case people feel blogging has been weak, people now know the answer.

I have been working on this paper for a while. I have not really blogged much about this TARGET2 debate as I realised I knew nothing about it. It looked like a highly technical issue and needed some wide-scale reading and figuring ou things.

Here is the outcome in form of a paper on TARGET2 controversy.  There is still a lot of chaos around the topic. Let me know your comments/suggestions.

After working recently on RBI’s monetary operations (Part I & Part II) and now on this ECB’s TARGET2 system, I realise how granted we take a few things. We just assume central banks target inflation and cut policy rates. In case of RBI there are other functions as well.

However, what makes these decision tick via various monetary operations etc.  is highly unknown and we assume something must be going on.The details of this are hugely interesting and complex at the same time. Central banks should do much more to demystify their balance sheets and operations by publishing primers on the issues. It will really help clear the chaos and confusion..

4 Responses to “ECB’s TARGET2 System- A Stealth Bailout?”

  1. sachin Says:

    “As these economies form a part of monetary union, rise in TARGET balances becomes the unfortunate victim in absence of adjustment via their own currency. The issue to resolve is to find ways to reverse the capital flight in the periphery economies.”

    Capital flows cannot balance current account deficits for ever.

    Greece’s problem with Germany is the same as US’s problem with China – currency pegging.

    By creating the Euro, Germany has pegged it’s currency to the most of EU members.

    To survive and grow in the long-term, US and, GIPS needs to break this peg.

  2. Bernd Klehn Says:

    You and a lot of other people arguing on the level of single banks and the eurozone banking system and not from the level of national economies. Looking from that level towards the problem you will see the following. The countries with the largest NIIP-deficits (Net international investment position) in the world are Portugal, Ireland, Spain and Greece with more than 100%. With ongoing current account deficits and very less industrial exports this position will soon or later turn into losses by the foreign investors. After the possibility of capital flight for the private investors via Target2 and so on the remaining investors are the public hands of the solvencies eurozone countries. Soon or later they have to right down their investments positions. There will be no return of private investors into these countries before insolvency of these economies to take that burden.

  3. Mike Yohe Says:

    Like the article. But some big picture views.
    Safehaven – There is only one safehaven currency, the dollar.
    For the Euro to have a safehaven currency it needs to clean out all the toxic junk being used as assets in the National Central Banks of the Euro members. This has to be done for the credit ratings. Some of these defaulted instruments are over 100 yrs old.
    Which is good to clean this junk up by backing it with the assets of the member country. The USA is all for the Euro being a safehaven currency.
    The biggest job openings in the USA banking are for the NSA.
    The NSA is getting ready for China to move into the world banking. So far the USA has been able to control China through Taiwan. But that’s not going to last to much longer.
    It’s all about world resources and markets.
    As a working layman watching this unfold there are certain viewpoints that come to view.
    1. Europe needs the Dawes Plan to get all the European countries running.
    2. Germany gets a lot of talk about being the frontrunner in the Euro. Let’s face the facts. Germany is not running the Euro; it is not even running its own economy. It is the Bundesbank in control.
    3. The Bundesbank is not interested in the Dawes Plan. Only corporate profit and to get all of Europe in the same contract that the Bundesbank has with the government of Germany.
    4. Americans taxpayers gave to Europe in WWI, Dawes Plan, WWII, and after WWII by sending U.S. printing plates to Europe so money could be printed. This has been at great cost to the U.S.A. taxpayers. Now Europe wants the taxpayers to help out again.
    5. The U.S. should not help out Europe until Europe removes the Bundesbank from control. Plus shows a willingness to help out each other by the Euro members.
    6. Keep in mind, that in viewing all the great past empires in Europe, they were beaten by high taxes. Europe, like the U.S.A. is at a higher tax base now that ever before. To raise taxes, like the Euro members have done, is the wrong answer.
    7. The Dawes Plan has saved Europe twice before. It needs to be used again.

  4. business database Says:

    business database…

    […]ECB’s TARGET2 System- A Stealth Bailout? « Mostly Economics[…]…

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