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Target Loans, Current Account Balances and Capital Flows: The ECB’s Rescue Facility

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  • Hans-Werner Sinn
  • Timo Wollmershäuser

Abstract

The European Monetary Union is stuck in a severe balance of payments crisis. Greece, Ireland, Portugal and Spain in particular have suffered from balance of payment deficits whose accumulated value, as measured by the Target balances in the national central banks’ balance sheets, was 314 billion euros in March 2011. The national central banks of these countries covered the deficits by creating and lending out additional central bank money that flowed to the euro core countries, Germany in particular, and crowded out the central bank money resulting from local refinancing operations. Thus the ECB forced a public capital flow from the core countries to the peripheral countries that partly compensated for the now reluctant private capital flows.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3500.

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Date of creation: 2011
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Handle: RePEc:ces:ceswps:_3500

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Keywords: currency union; balance of payments; bailout; payment system.;

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References

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  1. Sinn, Hans-Werner & Buchen, T. & Wollmershäuser, Timo, 2011. "Trade imbalances - causes, consequences and policy measures: Ifo’s statement for the camdessus commission," Munich Reprints in Economics 19568, University of Munich, Department of Economics.
  2. Klepsch, Catharina & Wollmershäuser, Timo, 2011. "Yield spreads on EMU government Bonds -how the Financial crisis has helped investors to Rediscover Risk," Munich Reprints in Economics 19465, University of Munich, Department of Economics.
  3. Hans-Werner Sinn, 2011. "Die europäische Zahlungsbilanzkrise - Eine Einführung," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 64(16), pages 03-08, 09.
  4. Rebecca McCaughrin & Simon Gray & Alexandre Chailloux, 2008. "Central Bank Collateral Frameworks," IMF Working Papers 08/222, International Monetary Fund.
  5. Aaron Tornell & Frank Westermann, 2012. "Greece: The Sudden Stop That Wasn’t," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 13(SPECIALIS), pages 102-103, 02.
  6. Stefan Homburg, 2011. "Anmerkungen zum Target2-Streit," Wirtschaftsdienst, Springer, vol. 91(8), pages 526-530, August.
  7. 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.
  8. Hans-Werner Sinn & Timo Wollmershäuser, 2012. "Target loans, current account balances and capital flows: the ECB’s rescue facility," International Tax and Public Finance, Springer, vol. 19(4), pages 468-508, August.
  9. repec:ces:ifofor:v:12:y:2012:i:4:p:52-56 is not listed on IDEAS
  10. Sinn, Hans-Werner, 2011. "How to rescue the euro: Ten commandments," Munich Reprints in Economics 19629, University of Munich, Department of Economics.
  11. Sinn, Hans-Werner, 2010. "Casino Capitalism: How the Financial Crisis Came About and What Needs to be Done Now," OUP Catalogue, Oxford University Press, number 9780199588275, September.
  12. Ruckriegel, Karlheinz & Seitz, Franz, 2002. "The euro system and the federal reserve system compared: Facts and challenges," ZEI Working Papers B 02-2002, ZEI - Center for European Integration Studies, University of Bonn.
  13. Helmut Schlesinger, 2011. "Die Zahlungsbilanz sagt es uns," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 64(16), pages 09-11, 09.
  14. 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.
  15. Whittaker, John, 2011. "Intra-eurosystem debts," MPRA Paper 38368, University Library of Munich, Germany.
  16. Peter M. Garber, 1998. "Notes on the Role of TARGET in a Stage III Crisis," NBER Working Papers 6619, National Bureau of Economic Research, Inc.
  17. Wilhelm Kohler, 2011. "Zahlungsbilanzkrisen im Eurosystem: Griechenland in der Rolle des Reservewährungslandes?," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 64(16), pages 12-19, 09.
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