Target2 Redux: The simple accountancy and slightly more complex economics of Bundesbank loss exposure through the Eurosystem

Willem Buiter and Ebrahim Rahbari

No 9211, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This study shows that Target2 net claims are a poor measure of Bundesbank loss exposure, and even more so of German loss exposure to the rest of the Eurozone. This is true even under plausible assumptions about a comprehensive break-up scenario that leaves Germany as the only member of the euro area and the Bundesbank as the sole owner of the ECB. In this implausible scenario, the discrepancy between the Bundesbank?s Target2 net credit balance and its likely loss exposure has two principal sources. First, the 16 national central banks (NCBs) that exit the Eurosystem (which will on balance be net Target2 debtors) and their sovereigns will not automatically walk away completely from their Target2 debts - defaulting on their debts with a zero recovery rate for the Bundesbank. Legally, the Target2 claims are not extinguished by exit from the Eurosystem by the debtor NCBs. Politically and realistically, many of the exiting NCBs would be able and willing to honour their obligations to Target2 in part or even in full. Second, in the comprehensive break-up scenario, future seigniorage revenues of the Bundesbank would likely go up, as it would be left with a larger share (in our example 100 percent) of the ownership of the ECB. Changes in German exposure to the rest of the euro area (or to the periphery) can differ in magnitude and in sign from Bundesbank exposure.

Keywords: Bundesbank; Capital flight; Ecb; Eurosystem; Imbalances; Target2 (search for similar items in EconPapers)
JEL-codes: E01 E42 E63 F32 F33 F36 (search for similar items in EconPapers)
Date: 2012-11
New Economics Papers: this item is included in nep-eec and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

Downloads: (external link)
https://cepr.org/publications/DP9211 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:9211

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP9211

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().