IDEAS home Printed from https://ideas.repec.org/a/ces/ifosdt/v66y2013i01p14-24.html
   My bibliography  Save this article

Target Losses If The Euro Breaks Up – A Response to De Grauwe and Ji

Author

Listed:
  • Hans-Werner Sinn

Abstract

If the euro were to break up, the size of Germany’s estimated losses would depend largely on the nature of the Target claims, which are now huge, accumulated by the Bundesbank via the ECB settlement system. De Grauwe and Ji have tried to prove that such losses would not occur in the event of a break-up. Their central argument is that money today is often artificial (Fiat Money) and would retain its value even if the Bundesbank were to lose its Target claims. Hans-Werner Sinn shows why the authors are mistaken, and why Target balances represent real value that would be lost if the euro were to disintegrate. Society’s ability to consume would fall to the full extent of the Target losses. The burden of the losses would rest on the state and its citizens, whose banks would have transferred part of the savings deposited with them to the Bundesbank.

Suggested Citation

  • Hans-Werner Sinn, 2013. "Target Losses If The Euro Breaks Up – A Response to De Grauwe and Ji," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 66(01), pages 14-24, January.
    • Handle: RePEc:ces:ifosdt:v:66:y:2013:i:01:p:14-24
    as

    Download full text from publisher

    File URL: https://www.ifo.de/DocDL/ifosd_2013_01_2.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Stefan Homburg, 2012. "Notes on the Target2 Dispute," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(SPECIALIS), pages 50-54, February.
    2. Hans-Werner Sinn, 2012. "The European Balance of Payments Crisis: An Introduction," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(SPECIALIS), pages 03-10, February.
    3. Ingo Sauer, 2012. "The Dissolving Asset Backing of the Euro," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(1), pages 63-72, February.
    4. Hans-Werner Sinn, 2012. "Target Losses in Case of a Euro Breakup," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(04), pages 51-58, December.
    5. Ingo Sauer, 2011. "The weakening of the asset-protection function of the euro," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 64(16), pages 58-68, September.
    6. 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.
    7. Helmut Schlesinger, 2012. "The Balance of Payments Tells Us the Truth," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(1), pages 11-13, February.
    8. Gene M. Grossman (ed.), 1996. "Economic Growth," Books, Edward Elgar Publishing, volume 0, number 553.
    9. Thomas Mayer & Jochen Möbert & Christian Weistroffer, 2011. "Macroeconomic imbalances in the euro area and the euro system," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 64(16), pages 31-38, September.
    10. Hans-Werner Sinn & Robert Koll, 2000. "The Euro, Interest Rates and European Economic Growth," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 1(03), pages 30-31, October.
    11. Stefan Homburg, 2011. "Comments on the Target2 debate," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 64(16), pages 46-50, September.
    12. repec:ces:ifofor:v:13:y:2012:i:specialissuejanuary2012:p:63-72 is not listed on IDEAS
    13. Helmut Schlesinger, 2012. "The Balance of Payments Tells Us the Truth," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(SPECIALIS), pages 11-13, February.
    14. Peter Bernholz, 2012. "The Current Account Deficits of the GIPS Countries and Their Target Debts at the ECB," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(1), pages 33-34, February.
    15. Franz-Christoph Zeitler, 2012. "Ways Out of the European Sovereign Debt Crisis after the Decisions of the July 2011 Summit," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(05), pages 93-95, February.
    16. Friedrich L. Sell & Beate Sauer, 2012. "Money, Capital Markets and Welfare: An Analysis of the Effects of Target2 Balances," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(SPECIALIS), pages 55-62, February.
    17. Franz-Christoph Zeitler, 2011. "Ways out of the European sovereign debt crisis after the July 2011 Summit decisions," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 64(16), pages 87-89, September.
    18. Jens Ulbrich & Alexander Lipponer, 2012. "Balances in the Target2 Payments System – A Problem?," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(1), pages 73-76, February.
    19. Christian Fahrholz & Andreas Freytag, 2012. "A Way to Solve the Euro pean Balance of Payments Crisis? Take a Chance on Market Solutions!," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(1), pages 77-82, February.
    20. Klaus Reeh, 2011. "Balance of payments in the currency union: recent events make an old question appear in a new light," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 64(16), pages 90-94, September.
    21. Buti,Marco & Deroose,Servaas & Gaspar,Vitor & Martins,João Nogueira (ed.), 2010. "The Euro," Cambridge Books, Cambridge University Press, number 9789279098420.
    22. Hans-Werner Sinn & Holger Feist, 1997. "Eurowinners and Eurolosers: The Distribution of Seignorage Wealth in EMU," CESifo Working Paper Series 134, CESifo.
    23. Hans-Werner Sinn, 2012. "The European Balance of Payments Crisis: An Introduction," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(1), pages 03-10, February.
    24. Thomas Mayer & Jochen Möbert & Christian Weistroffer, 2012. "Macroeconomic Imbalances in EMU and the Eurosystem," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(SPECIALIS), pages 35-42, February.
    25. Wilhelm Kohler, 2012. "The Eurosystem in Times of Crises: Greece in the Role of a Reserve Currency Country?," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(1), pages 14-22, February.
    26. Klaus Reeh, 2012. "Balance of Payments Adjustment in the Monetary Union: Current Events Help Shed New Light on an Old Question," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(1), pages 96-101, February.
    27. Ulrich Bindseil & Philippine Cour-Thimann & Philipp König, 2012. "Target2 and Cross-border Interbank Payments during the Financial Crisis," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(SPECIALIS), pages 83-92, February.
    28. Jens Ulbrich & Alexander Lipponer, 2012. "Balances in the Target2 Payments System – A Problem?," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(SPECIALIS), pages 73-76, February.
    29. Georg Milbradt, 2011. "The ECB on a crooked path," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 64(16), pages 39-45, September.
    30. Wilhelm Kohler, 2011. "Balance of payments crises in the euro system: Greece in the role of a reserve currency country?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 64(16), pages 12-19, September.
    31. Charles B. Blankart, 2012. "The Euro in 2084," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(1), pages 23-28, February.
      • Charles B. Blankart, 2011. "The euro in 2084," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 64(16), pages 20-24, September.
    32. Christian Fahrholz & Andreas Freytag, 2012. "A Way to Solve the Euro pean Balance of Payments Crisis? Take a Chance on Market Solutions!," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(SPECIALIS), pages 77-82, February.
    33. Hans-Werner Sinn, 2012. "Die Target-Falle: Gefahren für unser Geld und unsere Kinder," Books, by Staff of the ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 2012001.
    34. Christian Fahrholz & Andreas Freytag, 2011. "More market elements as one solution for the European balance of payments crisis?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 64(16), pages 73-78, September.
    35. Stefan Homburg, 2011. "Anmerkungen zum Target2-Streit," Wirtschaftsdienst, Springer;ZBW - Leibniz Information Centre for Economics, vol. 91(8), pages 526-530, August.
    36. Thomas Mayer & Jochen Möbert & Christian Weistroffer, 2012. "Macroeconomic Imbalances in EMU and the Eurosystem," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(1), pages 35-42, February.
    37. Peter Bernholz, 2011. "What do the current account deficits of the GIPS countries have to do with their target debt to the ECB?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 64(16), pages 29-30, September.
    38. Stefan Homburg, 2012. "Der neue Kurs der Europäischen Zentralbank," Wirtschaftsdienst, Springer;ZBW - Leibniz Information Centre for Economics, vol. 92(10), pages 673-677, October.
    39. Manfred J.M. Neumann, 2012. "The Refinancing of Banks Drives Target Debt," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(1), pages 29-32, February.
    40. Aaron Tornell & Frank Westermann, 2012. "Greece: The Sudden Stop That Wasn’t," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(SPECIALIS), pages 102-103, February.
    41. Friedrich L. Sell & Beate Sauer, 2012. "Money, Capital Markets and Welfare: An Analysis of the Effects of Target2 Balances," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(1), pages 55-62, February.
    42. Helmut Schlesinger, 2011. "The balance of payments tells us everything," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 64(16), pages 09-11, September.
    43. Aaron Tornell & Frank Westermann, 2012. "Greece: The Sudden Stop That Wasn’t," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(1), pages 102-103, February.
    44. Ulrich Bindseil & Philippine Cour- Thiman & König Philipp, 2011. "Further remarks on the Target2 debate during the financial crisis," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 64(16), pages 79-86, September.
    45. Manfred J. M. Neumann, 2011. "Bank refinancing drives up the Target debt," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 64(16), pages 25-28, September.
    46. Buiter, Willem & 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.
    47. Bertola, Giuseppe & Driffill, John & James, Harold & Sinn, Hans-Werner & Sturm, Jan-Egbert & Valentinyi, Ákos, 2013. "European imbalances," Munich Reprints in Economics 20284, University of Munich, Department of Economics.
    48. Friedrich L. Sell & Beate Sauer, 2011. "Money, capital markets and welfare: an impact analysis of the Target2 balances," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 64(16), pages 51-57, September.
    49. Hans-Werner Sinn, 2010. "Rescuing Europe," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 11(SPECIALIS), pages 1-22, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Niklas Potrafke & Markus Reischmann, 2013. "Explosive Target Balances," CESifo Working Paper Series 4297, CESifo.
    2. Marcel Fratzscher & Philipp König & Claudia Lambert, 2013. "TARGET Balances - An Anchor of Stability," DIW Economic Bulletin, DIW Berlin, German Institute for Economic Research, vol. 3(11/12), pages 3-11.
    3. Potrafke, Niklas & Reischmann, Markus, 2014. "Explosive Target balances of the German Bundesbank," Economic Modelling, Elsevier, vol. 42(C), pages 439-444.
    4. Markus Reischmann, 2016. "Empirical Studies on Public Debt and Fiscal Transfers," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 63.
    5. Marcel Fratzscher & Philipp König & Claudia Lambert, 2013. "Target-Salden - ein Anker der Stabilität," DIW Wochenbericht, DIW Berlin, German Institute for Economic Research, vol. 80(44), pages 19-28.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    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.
    2. PhilippineCour-Thimann, 2013. "CESifo Forum Special Issue April 2013: Target Balances and the Crisis in the Euro Area," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 0, pages 05-50, May.
    3. Sauer, Beate & Sell, Friedrich L., 2013. "Is the Eurozone not a monetary union, but an extraordinary exchange rate union?," Working Papers in Economics 2013,2, Bundeswehr University Munich, Economic Research Group.
    4. Jakob Korbinian Eberl, 2016. "The Collateral Framework of the Eurosystem and Its Fiscal Implications," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 69.
    5. 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.
    6. Hans-Werner Sinn, 2012. "Target Losses in Case of a Euro Breakup," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(04), pages 51-58, December.
    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. 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. Lars Calmfors & Giancarlo Corsetti & John Hassler & Gilles Saint-Paul & Hans-Werner Sinn & Jan-Egbert Sturm & Ákos Valentinyi & Xavier Vives, 2012. "Chapter 2: The European Balance-of-Payments Problem," EEAG Report on the European Economy, CESifo, vol. 0, pages 57-82, February.
    10. Wolf, Marvin, 2013. "Währungsunionen und Allmendeproblem," Hannover Economic Papers (HEP) dp-521, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    11. Schmid, Peter Alfons, 2012. "The crisis of the EMU," MPRA Paper 40390, University Library of Munich, Germany.
    12. Beate Sauer & Friedrich Sell & Thomas Werner, 2014. "Modelling the Eurozone as an Extraordinary Exchange Rate Union," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 20(4), pages 357-367, November.
    13. Alexander Erler & Stefan Hohberger, 2016. "Editor's Choice TARGET2: How Costly is Buying Time?," CESifo Economic Studies, CESifo, vol. 62(3), pages 491-505.
    14. Raphael A. Auer, 2014. "What drives TARGET2 balances? Evidence from a panel analysis [What drives Target2 balances? Evidence from a panel analysis]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 29(77), pages 139-197.
    15. Dirk Meyer, 2012. "Permanent stabilisation mechanism or euro exit – a cost comparison," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 65(11), pages 19-24, June.
    16. Philippine Cour-Thimann, 2013. "CESifo Forum Special Issue April 2013: Target Balances and the Crisis in the Euro Area," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 0(1), pages 05-50, May.
    17. Hans-Werner Sinn, 2012. "Target Losses in Case of a Euro Breakup," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(4), pages 51-58, December.
    18. Hans-Werner Sinn, 2012. "Die Target-Kredite der Deutschen Bundesbank," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 65, pages 03-34, March.
    19. Hans-Werner Sinn, 2014. "Austerity, Growth and Inflation: Remarks on the Eurozone's Unresolved Competitiveness Problem," The World Economy, Wiley Blackwell, vol. 37(1), pages 1-13, January.
    20. S. Devrim Yilmaz & Burak Saltoglu, 2013. "Why is it so Difficult and Complex to Solve the Euro Problem?," Centre for Growth and Business Cycle Research Discussion Paper Series 180, Economics, The University of Manchester.

    More about this item

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • G01 - Financial Economics - - General - - - Financial Crises

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ifosdt:v:66:y:2013:i:01:p:14-24. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/ifooode.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.