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Target loans, current account balances and capital flows: The ECB’s rescue facility

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  • Sinn, Hans-Werner
  • Wollmershäuser, Timo

Abstract

This paper presents the first comprehensive Target database of the Eurozone and interprets it from an economic perspective. We show that the Target accounts measure the intra-Eurozone balances of payments and indirectly also international credit given through the Eurosystem in terms of reallocating the ECB’s net refinancing credit. We argue that the Euro crisis is a balance-of-payments crisis similar to the Bretton Woods crisis, and document to what extent the Target credit financed the current account deficits and outright capital flight in Greece, Ireland, Portugal, Spain and Italy. To prevent the ECB from undermining the allocative role of the capital market, we propose adopting the US system of credit redemption between the District Feds.

Suggested Citation

  • Sinn, Hans-Werner & Wollmershäuser, Timo, 2012. "Target loans, current account balances and capital flows: The ECB’s rescue facility," Munich Reprints in Economics 19556, University of Munich, Department of Economics.
  • Handle: RePEc:lmu:muenar:19556
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    References listed on IDEAS

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    1. Hans-Werner Sinn, 2011. "How to Rescue the Euro: Ten Commandments," CESifo Forum, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 12(4), pages 52-56, December.
    2. Stefan Homburg, 2011. "Anmerkungen zum Target2-Streit," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 64(16), pages 46-50, September.
    3. Helmut Schlesinger, 2011. "Die Zahlungsbilanz sagt es uns," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 64(16), pages 09-11, September.
    4. repec:ces:ifofor:v:12:y:2012:i:4:p:52-56 is not listed on IDEAS
    5. 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.
    6. Rebecca McCaughrin & Simon T Gray & Alexandre Chailloux, 2008. "Central Bank Collateral Frameworks; Principles and Policies," IMF Working Papers 08/222, International Monetary Fund.
    7. Peter M. Garber, 1998. "Notes on the Role of TARGET in a Stage III Crisis," NBER Working Papers 6619, National Bureau of Economic Research, Inc.
    8. Ruckriegel, Karlheinz & Seitz, Franz, 2002. "The euro system and the federal reserve system compared: Facts and challenges," ZEI Working Papers B 02-2002, University of Bonn, ZEI - Center for European Integration Studies.
    9. Hans-Werner Sinn & Teresa Buchen & Timo Wollmershäuser, 2011. "Trade Imbalances – Causes, Consequences and Policy Measures: Ifo’s Statement for the Camdessus Commission," CESifo Forum, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 12(1), pages 47-58, March.
    10. Feist, Holger & Sinn, Hans-Werner, 1997. "Eurowinners and Eurolosers: The Distribution of Seigniorage Wealth in EMU," CEPR Discussion Papers 1747, C.E.P.R. Discussion Papers.
    11. Catharina Klepsch & Timo Wollmershäuser, 2011. "Yield spreads on EMU government bonds — How the financial crisis has helped investors to rediscover risk," Intereconomics: Review of European Economic Policy, Springer;German National Library of Economics;Centre for European Policy Studies (CEPS), vol. 46(3), pages 169-176, June.
    12. John Hawkins, 2003. "Central bank balance sheets and fiscal operations," BIS Papers chapters,in: Bank for International Settlements (ed.), Fiscal issues and central banking in emerging economies, volume 20, pages 71-83 Bank for International Settlements.
    13. 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.
    14. Wilhelm Kohler, 2011. "Zahlungsbilanzkrisen im Eurosystem: Griechenland in der Rolle des Reservewährungslandes?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 64(16), pages 12-19, September.
    15. Hans-Werner Sinn, 2011. "Die europäische Zahlungsbilanzkrise - Eine Einführung," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 64(16), pages 03-08, September.
    16. 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.
    17. Whittaker, John, 2011. "Intra-eurosystem debts," MPRA Paper 38368, University Library of Munich, Germany.
    18. Buti,Marco & Deroose,Servaas & Gaspar,Vitor & Martins,João Nogueira (ed.), 2010. "The Euro," Cambridge Books, Cambridge University Press, number 9789279098420.
    19. Sinn, Hans-Werner, 2012. "Casino Capitalism: How the Financial Crisis Came About and What Needs to be Done Now," OUP Catalogue, Oxford University Press, number 9780199659883.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • 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
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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