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Target loans, current account balances and capital flows: The ECB’s rescue facility

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  • Sinn, Hans-Werner
  • Wollmershäuser, Timo

Abstract

This paper presents the first comprehensive Target database of the Eurozone and interprets it from an economic perspective. We show that the Target accounts measure the intra-Eurozone balances of payments and indirectly also international credit given through the Eurosystem in terms of reallocating the ECB’s net refinancing credit. We argue that the Euro crisis is a balance-of-payments crisis similar to the Bretton Woods crisis, and document to what extent the Target credit financed the current account deficits and outright capital flight in Greece, Ireland, Portugal, Spain and Italy. To prevent the ECB from undermining the allocative role of the capital market, we propose adopting the US system of credit redemption between the District Feds.

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Bibliographic Info

Paper provided by University of Munich, Department of Economics in its series Munich Reprints in Economics with number 19556.

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Date of creation: 2012
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Publication status: Published in International Tax and Public Finance 4 19(2012): pp. 468-508
Handle: RePEc:lmu:muenar:19556

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References

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  1. Hans-Werner Sinn, 2011. "How to Rescue the Euro: Ten Commandments," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 12(4), pages 52-56, December.
  2. repec:ces:ifofor:v:12:y:2012:i:4:p:52-56 is not listed on IDEAS
  3. 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, October.
  4. 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.
  5. Hans-Werner Sinn & Timo Wollmershäuser, 2011. "Target Loans, Current Account Balances and Capital Flows: The ECB’s Rescue Facility," CESifo Working Paper Series 3500, CESifo Group Munich.
  6. Catharina Klepsch & Timo Wollmershäuser, 2011. "Yield spreads on EMU government bonds — How the financial crisis has helped investors to rediscover risk," Intereconomics: Review of European Economic Policy, Springer, vol. 46(3), pages 169-176, June.
  7. Rebecca McCaughrin & Simon Gray & Alexandre Chailloux, 2008. "Central Bank Collateral Frameworks," IMF Working Papers 08/222, International Monetary Fund.
  8. Whittaker, John, 2011. "Intra-eurosystem debts," MPRA Paper 38368, University Library of Munich, Germany.
  9. 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.
  10. Stefan Homburg, 2011. "Anmerkungen zum Target2-Streit," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 64(16), pages 46-50, 09.
  11. 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.
  12. 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.
  13. 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.
  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. 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.
  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. Hans-Werner Sinn & Teresa Buchen & Timo Wollmershäuser, 2011. "Trade Imbalances – Causes, Consequences and Policy Measures: Ifo’s Statement for the Camdessus Commission," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 12(1), pages 47-58, 03.
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