An evaluation of the French proposal for a restructuring of Greek debt

Christian Kopf

CEPS Papers from Centre for European Policy Studies

Abstract: This paper analyses the implications of a continued divergence of TARGET2 balances for monetary policy in the euro area. The accumulation of TARGET2 claims (liabilities) would make the ECB’s liquidity management asymmetric once the TARGET2 claims in core countries have crowded out central bank credit in those regions. Then while providing scarce liquidity to banks in countries with TARGET2 liabilities, the ECB will need to absorb excess liquidity in countries with TARGET2 claims. We discuss three alternatives and their implications for absorbing excess liquidity in core regions: 1) using market-based measures might accelerate the capital flight from periphery to core countries and would add to the accumulation of risky assets by the ECB; 2) conducting non-market based measures, such as imposing differential (unremunerated) reserve requirements, would distort banking markets and would support the development of shadow banking; and 3) staying passive would lead to decreasing interest rates in core Europe entailing inflationary pressure and overinvestment in those regions and possibly future instability of the banking system.

Pages: 9 pages
Date: 2011-07
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.ceps.eu/system/files/book/2011/07/No%20 ... g%20Greek%20debt.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.ceps.eu/system/files/book/2011/07/No%20247%20Kopf%20on%20France%27s%20proposal%20for%20restructuring%20Greek%20debt.pdf [301 Moved Permanently]--> https://www.ceps.eu/system/files/book/2011/07/No%20247%20Kopf%20on%20France%27s%20proposal%20for%20restructuring%20Greek%20debt.pdf)

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:eps:cepswp:5833

Access Statistics for this paper

More papers in CEPS Papers from Centre for European Policy Studies Contact information at EDIRC.
Bibliographic data for series maintained by Margarita Minkova ().