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Whither the TARGET2 System? Taking a Glance at the Real Economic Facets of the Euro-Area Debt Crisis

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  • Christian Fahrholz
  • Andreas Freytag

Abstract

The TARGET2-system impedes economic recovery within the EMU. Hard budget constraints are a key to kick-start structural reforms in some EMU-member countries. However, the TARGET2-system is not only aggravating real misalignments but also softening budget constraints. The authors argue that the European settlement system is not only a monetary issue but of real concern for the survival of the euro area. The real economic causes of the exceptional TARGET2-balances in the euro system can be illustrated by means of the distinction between core and peripheral countries. In this respect, the core countries—such as Germany, Finland, Netherlands and, Austria—are characterized by current account surpluses (net capital exporters or net creditors), while the periphery is generally characterized by current account deficits (net capital importers or net debtors). A discussion of means to reduce the TARGET2-imbalances closes the paper.

Suggested Citation

  • Christian Fahrholz & Andreas Freytag, 2011. "Whither the TARGET2 System? Taking a Glance at the Real Economic Facets of the Euro-Area Debt Crisis," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 57(1), pages 15-25.
    • Handle: RePEc:aeq:aeqaeq:v57_y2011_i1_q1_p15-25
    DOI: 10.3790/aeq.57.1.15
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    References listed on IDEAS

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    1. 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;International Institute of Public Finance, vol. 19(4), pages 468-508, August.
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    Cited by:

    1. David Blake, 2023. "Target2: The Silent Bailout System That Keeps the Euro Afloat," JRFM, MDPI, vol. 16(12), pages 1-126, December.
    2. 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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    More about this item

    Keywords

    TARGET2; monetary arrangements; current account deficits; balance of payments;
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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