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Federal Reserve Bank of Richmond
Richmond Fed Economic Brief
TARGET2: symptom, not cause, of eurozone woes
Thomas A. Lubik
Karl Rhodes

In recent years, large positive and negative balances have arisen in TARGET2, the interbank settlement and payments system of the Eurozone. These balances show that the Deutsche Bundesbank, the central bank of Germany, has become a large net creditor to the European Central Bank (ECB). Conversely, they show that central banks in the periphery nations of Portugal, Ireland, Italy, Greece, and Spain have become significant net debtors to the ECB. Critics of the Eurosystem have portrayed these balances as a "stealth bailout" of the periphery nations, but TARGET2 merely reflects persistent imbalances in current accounts and capital accounts. It does not cause them.

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Thomas A. Lubik & Karl Rhodes, "TARGET2: symptom, not cause, of eurozone woes" , Federal Reserve Bank of Richmond, Richmond Fed Economic Brief, issue Aug, 2012.
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Keywords: Financial markets ; Financial institutions ; Payment systems
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