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Target2 Imbalances and the ECB’s Asset Purchase Programme: An Alternative Account

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  • Eladio Febrero
  • Jorge Uxó
  • Ignacio Álvarez

Abstract

The aim of this paper is to investigate the cause behind rising Target2 imbalances since early 2015, coinciding with the implementation of a quantitative easing program by the ECB. Two facts have captured our attention. Firstly, the official explanation of rising Target2 imbalances, offered by the ECB, is not convincing because it does not fit the empirical evidence available for Italy and Spain. Further, our alternative interpretation reveals that through quantitative easing, the ECB has helped to clean up banks’ balance sheets and has indirectly funded government spending. Secondly, those who spoke out against the risks of rising Target2 imbalances in 2011-12, now remain silent on this issue, despite the fact that some of the presumed risks during the first wave of rising imbalances still hold. We interpret this silence as an implicit acceptance that the risks put forward in 2011-12 are offset by reform fatigue and anti-euro sentiments in the Euro Zone. Keywords: Target2, Public sector purchase programme, Euro Zone crisis. JEL: E42, E58, F34, F36, F45.

Suggested Citation

  • Eladio Febrero & Jorge Uxó & Ignacio Álvarez, 2022. "Target2 Imbalances and the ECB’s Asset Purchase Programme: An Alternative Account," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 69(1), pages 73-98.
    • Handle: RePEc:voj:journl:v:69:y:2022:i:1:p:73-98:id:798
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    More about this item

    Keywords

    Target2; Public sector purchase programme; Euro Zone crisis;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

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