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Exploitation of Eurosystem loopholes and their quantitative reconstruction

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  • Karl Svozil

Abstract

This article identifies and analyses six key strategies used to exploit the Eurosystem's financial mechanisms, and attempts a quantitative reconstruction: inflating TARGET balances, leveraging collateral swaps followed by defaults, diluting self‐imposed regulatory rules, issuing money through Emergency Liquidity Assistance (ELA), acquisitions facilitated via the Agreement on Net Financial Assets (ANFA), and the perpetual (re)issuance of sovereign bonds as collateral. These practices stem from systemic vulnerabilities or deliberate opportunism within the Eurosystem. While it does not advocate for illicit activities, the article highlights significant weaknesses in the current structure and concludes that comprehensive reforms are urgently needed.

Suggested Citation

  • Karl Svozil, 2025. "Exploitation of Eurosystem loopholes and their quantitative reconstruction," Economic Affairs, Wiley Blackwell, vol. 45(1), pages 17-26, February.
    • Handle: RePEc:bla:ecaffa:v:45:y:2025:i:1:p:17-26
    DOI: 10.1111/ecaf.12688
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    References listed on IDEAS

    as
    1. Gibson, Heather D. & Hall, Stephen G. & Petroulas, Pavlos & Spiliotopoulos, Vassilis & Tavlas, George S., 2020. "The effect of emergency liquidity assistance (ELA) on bank lending during the euro area crisis," Journal of International Money and Finance, Elsevier, vol. 108(C).
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    6. Marc Flandreau, 2000. "The economics and politics of monetary unions: a reassessment of the Latin Monetary Union, 1865-1871," Sciences Po Economics Publications (main) hal-03416539, HAL.
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