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Target-Balances - Anchor of Stability

Press Release of October 30, 2013

Since the beginning of the crisis, large Target 2 positions developed on the balance sheets of the national central banks in the euro area. At the height of this development in the middle of 2012, the German Bundesbank disclosed Target-claims vis-à-vis the ECB amounting to around 750 billion euro. Since then, the balances decreased and currently amount to 570 billion Euro, which is still considerably higher than before the crisis. Should the monetary union break apart or should individual members exit the currency union, the remaining creditor countries would face substantial losses; in this regard the Target-balances represent a risk for the stable countries within the monetary union. However, it is essentially the liquidity injections of the Eurosystem and the use of liquidity via the Target payment system that aim to prevent such a situation. The support of banks in the crisis countries through the liquidity provisions of the European Central Bank, the assistance being also reflected in the large Target imbalances, constitutes a cushion against adverse developments in capital and financial markets. The support in turn provides the time necessary to implement structural reforms as well as fiscal and bankregulatory measures.

Target 2 - the payment system of the Eurosystem - caused a controversial debate in Germany during the recent past. This report reaches the conclusion, that any fear expressed with respect to potentially too large risks for Germany is to a large extent unfounded. Rather, Germany should be regarded as a beneficiary of the Target system. In the course of the crisis, financial risk in the Euro area was, in fact, reduced through Target 2. This was particularly advantageous to both, the German government and German private investors and banks. Since 2007, German investors reduced their exposure in the crisis countries by almost 400 billion Euros, and they still hold assets in these countries worth around 740 billion Euro.