7. TARGET2: Off the TARGET

Gunzinger and Sturm (2016).

See Germain and Schwartz (2014), Jones et al. (2016), Copelovitch et al. (2016).

Whelan (2014b).

The system is based on a single platform infrastructure and the entire application is based on an integrated central technical infrastructure i.e. “Single Shared Platform” (SSP). The SSP is operated by three central banks which are Banque de France, Deutsche Bundesbank and Banca d'Italia. The payments settled via TARGET2 are mostly related to the refining operations with the central banks, transactions between credit initiations and settlement in central bank money conducted by more than 80 other financial market infrastructures. There are over 1000 direct and over 700 indirect participates with over 5000 correspondents. There are over 57,000 banks (including branches and subsidiaries) which can be addressed via TARGET2. Please see ECB (2017b) for details insight into the history and functions of TARGET2.

Whelan (2014b).

Sinn (2020).

Sinn (2011). In their remarkable study, Sinn and Wollmershäuser (2012, p. 469) argued that the “Target credit financed substantial portions, if not most, of the current account deficits of Greece and Portugal during the first three years of the crisis, and a sizeable fraction of the Spanish current account deficit. In the case of Ireland, they financed a huge capital flight in addition to the country’s current account deficit”.

Sinn and Wollmershäuser (2012).

Burda (2012).

Hume (1752).

David Hume in 1752 wrote “Where one nation has gotten the start of another in trade, it is very difficult for the latter to regain the ground it has lost…. But these advantages are compensated, in some measure, by the low price of labour in every nation which has not an extensive commerce and does not much abound in gold and silver. Manufactures, therefore gradually shift their places, leaving those countries and provinces which they have already enriched, and flying to others, whither they are allured by the cheapness of provisions and labour; till they have enriched these also, and are again banished by the same causes. And, in general, we may observe, that the dearness of everything, from plenty of money, is a disadvantage, which attends an established commerce, and sets bounds to it in every country, by enabling the poorer states to undersell the richer in all foreign markets”.

for instance, Buiter et al. (2011a, 2011b, 2011c), Jobst et al. (2012), Merler and Pisani-Ferry (2012), Bornhorst and Mody (2012), Cecchetti et al. (2012) and Whelan (2014b).

Sinn and Wollmershäuser (2012).

Whelan (2014b) reported strong association between TARGET2 balances and central bank lending, in Spain, Italy, Ireland and Portugal, whereas the regression analysis showed very trivial impact of TARGET2 balances on Current-account balance. But an important point here to account for is that the lending was to accommodate financing gap emerged due to the capital flight and the gap at first place was due to the current-account deficit. Surplus nations do not need to often worry about the capital flight as they have their own savings. See Comments made by Frank Westermann and Ethan Ilzetzki in Whelan (2014b).

Karl Whelan (2014b).

Dullien and Schieritz (2012).

Buiter et al. (2011), also see, Sinn (2012a), Sinn and Wollmershäuser (2012), Dullien and Schieritz (2012), Tornell and Westermann (2011).

They argued that the TARGET2 Imbalances: (a) Cannot be automatically linked to current-account deficits in those countries; (b) Do not automatically reduce central bank credit to commercial banks in other member states (and any reduction of central bank credit should not be interpreted negatively, as implying reduced funding for banks and their customers); and (c) Should not be interpreted as a measure of the risk exposures of the National Central Banks of TARGET2 creditor countries (Buiter et al., 2011, p. 5).

Chmielewski and Sławiński (2019).

Auer (2014).

As suggested by Lane (2012) and Lane and Milesi-Ferretti (2001).

Fahrholz and Freytag’s (2012).

Furthermore, that the “TARGET2 is a disguised market-distorting subsidy of whole economies in the periphery of the Euro-system (p. 17)”.

Erler and Hohberger (2016).

Fahrholz and Freytag (2012).

Sinn (2011a).

Sinn (2011b).

Sinn (2012a).

Buiter et al. (2011).

Brandon Sheehan (2009).

Fahrholz and Freytag (2012).

Recent estimates for Portugal also showed improvement to −1.4 in 2016.

The large German surplus has become a political issue in the year 2016 it was around €270 billion ($297 billion) or 8.6% of Deutschland’s annual GDP. Nevertheless, the bilateral trade surplus of $65 billion with the United States has just fuelled the fire of rhetoric and blame coming from Washington. The Germany including Japan, China, South Korea and Taiwan have been put on the watch list of potential currency manipulators under the Trade Facilitation and Enforcement Act (2015). There has been different proposal and comparison and critique of them is provided by Nasir (2017).

Fratzscher (2017).

See Fratzscher (2013) and DIW (2013) for detailed insight into the investment needs in Germany.

See Buti and Mohl (2014).

Ruscher and Wolff (2012) and Cuerpo et al. (2013).

Buti and Mohl (2014).

Hansen (1939) introduced the term “secular stagnation” expressing concern about the low birth rates and the end of America’s farmland expansion would generate under-investment, deficient aggregate demand, and slow growth. “This is the essence of secular stagnation-sick recoveries which die in their infancy and depressions which feed on themselves and leave a hard and seemingly immovable core of unemployment” (p. 5). See Teulings and Baldwin (2014), for a detailed insight into the secular stagnation.

EIB Investment Report 2019–20 available at https://​www.​eib.​org/​attachments/​efs/​economic_​investment_​report_​2019_​en.​pdf.

Summers (2014).

See Abiad et al. (2015) also, see Arslanalp et al. (2010) on rule of public capital in growth.

Moro (2016).

Whelan (2014a) and Verhelst (2012).

Germany had a budget surplus of €23.7 billion in 2016 which is less than 10% of its trade surplus (€270 billion). It has been consistently running surplus from 2014–2019.

Buiter et al. (2011).

Lavoie (2015).

Barredo-Zuriarrain et al. (2017).

Capital controls are prohibited in EU according to Article 63 of European Treaty.

Sinn (2012b).

See Cour-Thimann (2013) for comparison between the Federal Reserves and Euro system.

Whelan (2014b), also see Lubik and Rhodes (2012) and Koning (2012) for a detailed insight into the settlement of Inter-District Settlement Accounts (IDS).

See Smaghi (2013) and Wright (2013).

In addition to the banknotes, the Euro-system balance also emerged due to the Foreign exchange reserves transferred from NCBs to ECB after inception of EMU and also contribution to the capital by the NCBs to ECB (Both items are a claim by the NCBs on the ECB).

Whelan (2014b).

See Appendix for the Euro Are Capital share.

(See De Grauwe and Polan [2005] analysis on 160 countries for detailed insight).

Correlation coefficient ranging between 0.85 and 0.95.

Moro (2016).

Bicu and Lieb (2015).