Target2

The Money Drain in Spain – Businessweek.

File:TARGET2 balances.png

Chart from Wikipedia

Target2 is the settlement system used by the Eurozone countries through the ECB. Rather than moving money around from place to place, each country receives credits and debits depending on whether money is deposited or withdrawn from its financial system. If you examine the chart in totality, the whole system makes sense. The debtor countries of Europe all have negative balances, and the creditor countries correspondingly have credit balances.

If the Eurozone were to break up, Germany would never get its money back. The rest of the Eurozone owes it about €800. The Germans would have to print a ton of marks to recapitalize their banks in case of a breakup. On the other hand, countries like Spain, Italy and Greece would immediately lose hundreds of billions in liabilities.

Germany will do everything it can to save the euro, because it is too expensive not to. The debtor countries have more incentive than the mainstream believes to revert to a national currency.

Advertisements

One thought on “Target2

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s