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Target Losses in Case of a Euro Breakup

  • Hans-Werner Sinn

Evaluation of the financial costs of a Eurozone breakup depends critically on the interpretation of TARGET balances. While it has been argued that TARGET claims in the Eurozone can be written off without incurring any losses on the claimants as the value of fiat money is independent of the claims of a national central bank, the present paper shows that TARGET claims represent a shift of the ECB's refinancing credit to the crisis countries and thus a claim on the interest return from the commercial banks of these countries. If TARGET claims were to be written off, a loss of real wealth would occur to the amount of the present value of this interest return, which is exactly measured by the amount of the TARGET claims.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/ZS/ZS-CESifo_Forum/zs-for-2012/zs-for-2012-4/forum4-12-special1.pdf
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Article provided by Ifo Institute for Economic Research at the University of Munich in its journal CESifo Forum.

Volume (Year): 13 (2012)
Issue (Month): 4 (December)
Pages: 51-58

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Handle: RePEc:ces:ifofor:v:13:y:2012:i:4:p:51-58
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  1. Hans-Werner Sinn, 2012. "Target Losses in Case of a Euro Break-up," CESifo Working Paper Series 3968, CESifo Group Munich.
  2. 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.
  3. 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.
  4. Hans-Werner Sinn & Holger Feist, 1997. "Eurowinners and Eurolosers: The Distribution of Seigniorage Wealth in EMU," NBER Working Papers 6072, National Bureau of Economic Research, Inc.
  5. Stefan Homburg, 2012. "Der neue Kurs der Europäischen Zentralbank," Wirtschaftsdienst, Springer, vol. 92(10), pages 673-677, October.
  6. Buiter, Willem H. & Rahbari, Ebrahim, 2012. "Target2 Redux: The simple accountancy and slightly more complex economics of Bundesbank loss exposure through the Eurosystem," CEPR Discussion Papers 9211, C.E.P.R. Discussion Papers.
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