One of the most mind-boggling debates going on in euroland right now – only one of many, but particularly guaranteed to make the head spin, this one – is over the build-up of so-called “Target 2” claims and liabilities. Target 2 is the mechanism by which money is transferred around the euro area to ensure that each national central bank has sufficient euros to fund its banking system.
Accumulated cross border claims are now so extreme that they threaten to leave German taxpayers with huge losses should the euro break up, or any one of its members leaves.
What makes this debate of particular importance is that it is German opposition to debt pooling in the eurozone that is generally thought, at least among the periphery nations, to be the biggest barrier to crisis resolution.
If only the Germans would agree to treat Europe’s debts as one, rather than the separate responsibility of 17 different sovereign nations, then all this nastiness would go away. Well, through Target 2, it can reasonably be argued, these debts are already being shared, only many Germans don’t yet know it and it certainly hasn’t cured the crisis. The euro has stuffed the Germans just as much as the Spanish, Italians and Greeks.
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See Also:
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Afternoon Update:
12:03 pm EDT, October 3rd, 2012 — UK hooked on debt, PIMCO boss warns
12:04 pm EDT, October 3rd, 2012 — Sub-prime feeding frenzy haunts Wall Street five years on
12:05 pm EDT, October 3rd, 2012 — Savings rates fall by almost 10pc in two months
12:06 pm EDT, October 3rd, 2012 — Britain is following Argentina on the road to ruin
12:07 pm EDT, October 3rd, 2012 — German unification: subsidizing the East
12:08 pm EDT, October 3rd, 2012 – One step forward, two back for Greece on debt
12:09 pm EDT, October 3rd, 2012 — Germany Infected by European Automotive Plague
12:10 pm EDT, October 3rd, 2012 — ‘Electric Cars Are Far Too Expensive’
