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The implications of TARGET2 in the European balance of payment crisis and beyond

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  • Sergio Cesaratto

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Abstract

The paper provides an account of the meaning and implications of TARGET 2 in the Eurozone (EZ) balance of payments crisis. In this context, it discusses Hans-Werner Sinn’s thesis about a stealth bail-out of the EZ periphery by the ECB from a heterodox perspective. Financial liberalisation, a relatively loose monetary policy and the provisional fading of devaluation risks generated ephemeral growth in some peripheral EZ countries sustained by capital flows from corecountries. This has been followed by real exchange rate revaluation and deterioration of foreign accounts. As a result, external financing flows dried up and the previous stock of loans began to be repatriated. TARGET 2 has played a fundamental role in avoiding a precipitous crisis. This distinguishes the European crisis from more traditional balance of payments crises. However, the presence of TARGET 2 does not offset the absence of the financial crisis prevention and resolution mechanisms that are characteristic of fully-fledged political and currency unions

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Paper provided by Department of Economics, University of Siena in its series Department of Economics University of Siena with number 681.

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Date of creation: Aug 2013
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Handle: RePEc:usi:wpaper:681

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  1. Raphael A. Auer, 2013. "What Drives Target2 Balances? Evidence from a Panel Analysis," CESifo Working Paper Series 4216, CESifo Group Munich.
  2. Michael D. Bordo & Harold James, 2013. "The European Crisis in the Context of the History of Previous Financial Crises," NBER Working Papers 19112, National Bureau of Economic Research, Inc.
  3. Sergio Cesaratto, 2010. "Europe, German Mercantilism and the Current Crisis," Department of Economics University of Siena 595, Department of Economics, University of Siena.
  4. Sergio Cesaratto, 2012. "The endless eurozone crisis, where do we stand? a classical-kaleckian overview," STUDI ECONOMICI, FrancoAngeli Editore, vol. 2012(107), pages 35-63.
  5. Martina Cecioni & Giuseppe Ferrero, 2012. "Determinants of TARGET2 imbalances," Questioni di Economia e Finanza (Occasional Papers) 136, Bank of Italy, Economic Research and International Relations Area.
  6. Sergio Cesaratto, 2007. "Are PAYG and FF Pension Schemes Equivalent Systems? Macroeconomic Considerations in the Light of Alternative Economic Theories," Review of Political Economy, Taylor & Francis Journals, vol. 19(4), pages 449-473.
  7. 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.
  8. Sergio Cesaratto, 2012. "Controversial and novel features of the Eurozone crisis as a balance of payment crisis," Department of Economics University of Siena 640, Department of Economics, University of Siena.
  9. Paul Dalziel, 1996. "The Keynesian Multiplier, Liquidity Preference, and Endogenous Money," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 18(3), pages 311-331, April.
  10. Christian Fahrholz & Andreas Freytag, 2012. "Will TARGET2-Balances be Reduced again after an End of the Crisis?," Global Financial Markets Working Paper Series 30-2012, Friedrich-Schiller-University Jena.
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