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Target Losses in Case of a Euro Breakup

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  • Hans-Werner Sinn

Abstract

Evaluation of the financial costs of a Eurozone breakup depends critically on the interpretation of TARGET balances. While it has been argued that TARGET claims in the Eurozone can be written off without incurring any losses on the claimants as the value of fiat money is independent of the claims of a national central bank, the present paper shows that TARGET claims represent a shift of the ECB's refinancing credit to the crisis countries and thus a claim on the interest return from the commercial banks of these countries. If TARGET claims were to be written off, a loss of real wealth would occur to the amount of the present value of this interest return, which is exactly measured by the amount of the TARGET claims.

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Bibliographic Info

Article provided by Ifo Institute for Economic Research at the University of Munich in its journal CESifo Forum.

Volume (Year): 13 (2012)
Issue (Month): 4 (December)
Pages: 51-58

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Handle: RePEc:ces:ifofor:v:13:y:2012:i:4:p:51-58

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Keywords: Wechselkurspolitik; Internationaler Zahlungsverkehr; Währungsunion; Euromarkt;

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  1. Stefan Homburg, 2012. "Der neue Kurs der Europäischen Zentralbank," Wirtschaftsdienst, Springer, vol. 92(10), pages 673-677, October.
  2. Sinn, Hans-Werner & Feist, Holger, 1997. "Eurowinners and Eurolosers: The distribution of seigniorage wealth in EMU1," European Journal of Political Economy, Elsevier, vol. 13(4), pages 665-689, December.
  3. Buiter, Willem H. & Rahbari, Ebrahim, 2012. "Target2 Redux: The simple accountancy and slightly more complex economics of Bundesbank loss exposure through the Eurosystem," CEPR Discussion Papers 9211, C.E.P.R. Discussion Papers.
  4. Feist, Holger & Sinn, Hans-Werner, 1997. "Eurowinners and Eurolosers: The Distribution of Seigniorage Wealth in EMU," CEPR Discussion Papers 1747, C.E.P.R. Discussion Papers.
  5. Sinn, Hans-Werner & Wollmershäuser, Timo, 2012. "Target loans, current account balances and capital flows: The ECB’s rescue facility," Munich Reprints in Economics 19556, University of Munich, Department of Economics.
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Cited by:
  1. Hans-Werner Sinn, 2013. "Die Target-Verluste im Fall des Auseinanderbrechens des Euro – Eine Replik auf De Grauwe und Ji," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 66(01), pages 14-24, 01.
  2. Stephen Cecchetti & Robert McCauley & Patrick McGuire, 2012. "Interpreting TARGET2 balances," BIS Working Papers 393, Bank for International Settlements.
  3. Huck, Steffen & Valasek, Justin Mattias, 2012. "Institutionalizing eurozone exit: A modified NEWNEY approach," Discussion Papers, Research Unit: Economics of Change SP II 2012-304, Social Science Research Center Berlin (WZB).
  4. Hans-Werner Sinn & Timo Wollmershäuser, 2012. "Target Balances and the German Financial Account in Light of the European Balance-of-Payments Crisis," CESifo Working Paper Series 4051, CESifo Group Munich.

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