The implications of TARGET2 in the European balance of payment crisis and beyond
Sergio Cesaratto ()
Department of Economics University of Siena from Department of Economics, University of Siena
The paper provides an account of the meaning and implications of TARGET 2 in the Eurozone (EZ) balance of payments crisis. In this context, it discusses Hans-Werner Sinn’s thesis about a stealth bail-out of the EZ periphery by the ECB from a heterodox perspective. Financial liberalisation, a relatively loose monetary policy and the provisional fading of devaluation risks generated ephemeral growth in some peripheral EZ countries sustained by capital flows from corecountries. This has been followed by real exchange rate revaluation and deterioration of foreign accounts. As a result, external financing flows dried up and the previous stock of loans began to be repatriated. TARGET 2 has played a fundamental role in avoiding a precipitous crisis. This distinguishes the European crisis from more traditional balance of payments crises. However, the presence of TARGET 2 does not offset the absence of the financial crisis prevention and resolution mechanisms that are characteristic of fully-fledged political and currency unions
JEL-codes: E11 E12 E42 E58 F32 F33 F34 F36 N24 (search for similar items in EconPapers)
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Journal Article: The implications of TARGET2 in the European balance of payments crisis and beyond (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:usi:wpaper:681
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