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Target Risks without Euro Exits

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  • Clemens Fuest
  • Hans-Werner Sinn

Abstract

The Deutsche Bundesbank's Target claims arose as a result of the Eurosystem rules and the resulting forced lending by Germany’s central bank to its European central counterparts. Today, it is undisputed that these claims are at risk if Target debtors leave the Eurosystem. But what about the Target risks if the euro continues to exist? Target balances imply real risks for creditor states in this scenario too. Target risks are also particularly problematic because they limit the scope for political action and force countries with Target surpluses to keep them in check, at least apparently, by means of collective liability and tax resource redistribution systems that are constantly being redesigned. The road to a European transfer union is mapped out if we do not succeed in limiting Target balances. In their contribution, Clemens Fuest and Hans-Werner Sinn show that there are various ways of limiting the risks from Target balances without impairing the functioning of the monetary union and the common capital market.
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Suggested Citation

  • Clemens Fuest & Hans-Werner Sinn, 2018. "Target Risks without Euro Exits," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 19(04), pages 36-45, December.
    • Handle: RePEc:ces:ifofor:v:19:y:2018:i:04:p:36-45
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    References listed on IDEAS

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    1. Hans-Werner Sinn, 2015. "Der Euro: Von der Friedensidee zum Zankapfel," Books, by Staff of the ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 2015001.
    2. 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.
    3. Hans-Werner Sinn, 2015. "The Euro: From Peace Project to Bone of Contention," Books, by Staff of the ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 201510, April.
    4. Karl Whelan, 2014. "TARGET2 and central bank balance sheets [The economics of TARGET2 balances]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 29(77), pages 79-137.
    5. Sinn, Hans-Werner, 2017. "The Euro Trap: On Bursting Bubbles, Budgets, and Beliefs," OUP Catalogue, Oxford University Press, number 9780198791447, Decembrie.
    6. Alvarez, Inmaculada & Casavecchia, Fabio & Luca, Marino De & Duering, Alexander & Eser, Fabian & Helmus, Caspar & Hemous, Christophe & Herrala, Niko & Jakovicka, Julija & Russo, Michelina Lo & Pasqual, 2017. "The use of the Eurosystem’s monetary policy instruments and operational framework since 2012," Occasional Paper Series 188, European Central Bank.
    7. Stefan Homburg, 2012. "Notes on the Target2 Dispute," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(1), pages 50-54, February.
    8. Frank Westermann, 2014. "Discussion of "Target2 and Central Bank Balance Sheets"," IEER Working Papers 99, Institute of Empirical Economic Research, Osnabrueck University.
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    Citations

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    Cited by:

    1. Chmielewski Tomasz & Sławiński Andrzej, 2019. "Lessons from TARGET2 imbalances: The case for the ECB being a lender of last resort," Economics and Business Review, Sciendo, vol. 5(2), pages 48-63, June.
    2. Roberto Perotti, 2020. "Understanding the German Criticism of the Target System and the Role of Central Bank capital," NBER Working Papers 27627, National Bureau of Economic Research, Inc.
    3. Krahnen, Jan Pieter, 2019. "Target balances and financial crises," SAFE Policy Letters 71, Leibniz Institute for Financial Research SAFE.
    4. Eisenschmidt, Jens & Kedan, Danielle & Schmitz, Martin, 2022. "Euro area monetary policy and TARGET balances: a trilogy," Working Paper Series 2750, European Central Bank.
    5. Seitz, Franz & Rösl, Gerhard, 2022. "On the Stabilizing Role of Cash for Societies," MPRA Paper 113784, University Library of Munich, Germany.
    6. Eger, Thomas & Weise, Peter, 2020. "Die Target-Salden in der Eurozone: "Falle" oder Scheinproblem?," Discussion Papers 1/20, Europa-Kolleg Hamburg, Institute for European Integration.
    7. Sinn Hans-Werner, 2019. "Der Streit um die Targetsalden : Kommentar zu Martin Hellwigs Artikel „Target-Falle oder Empörungsfalle?“," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 20(3), pages 170-217, September.
    8. Perotti, Roberto, 2020. "Understanding the German criticism of the Target system and the role of central bank capital," CEPR Discussion Papers 15067, C.E.P.R. Discussion Papers.
    9. Martin Hellwig, 2019. "Target-Falle oder Empörungsfalle? – Zur deutschen Diskussion um die Europäische Währungsunion," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2019_05, Max Planck Institute for Research on Collective Goods.

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    More about this item

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G01 - Financial Economics - - General - - - Financial Crises

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