Lessons from TARGET2 Imbalances: the Case for the ECB Being a Lender of Last Resort

Abstract

During the global banking crisis of 2007-2009 and the Eurozone sovereign debt crisis of 2010-2012 the so called 'TARGET2 imbalances' attracted considerable attention. Some economists interpreted them as a symptom of the ECB's 'stealth bailout'. The aim of the paper is to highlight that contrary to such claim, the emergence of TARGET2 imbalances reflected the benefits of having a mutual central bank within a monetary union which facilitated cross-border funding in spite of the global financial turbulence. The ECB's liquidity loans to commercial banks in the Eurozone debtor countries shielded the Eurozone from a much deeper financial crisis than it actually occurred. The emergence of the TARGET 2 imbalances was actually only an accounting phenomenon resulting from the fact that these liquidity loans were technically extended by the debtor countries' national central banks which are de facto (from the monetary policy perspective) ECB's regional branches.

European Monetary Unification through Novation. The Political Economy of the TARGET System

“…The literature on TARGET2 has continued to evolve in a number of ways, especially with the advent of the Eurosystem's Asset Purchases Programmes (APPs) in 2014. There are econometric studies of how to interpret TARGET2 balances (Abad et al 2013;Auer 2014;Eisenschmidt et al 2017;Chmielewski and Sławiński 2019;Cheung, Steinkamp, and Westermann 2020), technical analyses considering how NCBs can exit the TARGET2 system (Papadia 2014;Malinen et al 2016), scholars analysing the TARGET2 system in relation to the 1944 Keynes Plan for an International Clearing Union (Lavoie 2015;Amato et al 2016;Barredo-Zuriarrain, Molero-Simarro, and Quesada-Solana 2016;Rossi 2016;Mazier and Valdecantos 2019;Kregel 2019), the TARGET2 system as a risk-sharing mechanism (Schelkle 2017), as well as sociological studies focusing on the conceptual ambiguities of the TARGET2 system and how individuals deal with it (Krarup 2016;Sahr 2019). However, we still lack a proper political economy account of the role that the TARGET and TARGET2 systems play for European monetary unification that includes the politics connected to their introduction, the institutional reality they have created, and the process of institutional transformation they have triggered.…”

Dysfonctionnement du système des paiements intra-européens

“…Avant le déclenchement de la crise financière globale, le marché monétaire interbancaire constituait un canal par lequel les réserves liquides excédentaires étaient recyclées en douceur des banques des pays créanciers vers les banques des pays débiteurs (Schoenwald et Zeuner, 2018; Chmielewski et Sławiński, 2019.…”