page_title: TARGET2
section_title: Relation to the world financial and European debt crisis
hierarchical_section_title: TARGET2 / Relation to the world financial and European debt crisis
caption_attribution_description: Deutsch: Target2 Salden
context_page_description: TARGET2 is the real-time gross settlement system for the Eurozone, and is available to non-Eurozone countries. It was developed by and is owned by the Eurosystem. TARGET2 is based on an integrated central technical infrastructure, called the Single Shared Platform. SSP is operated by three providing central banks: France, Germany and Italy. TARGET2 started to replace TARGET in November 2007.
  TARGET2 is also an interbank RTGS payment system for the clearing of cross-border transfers in the eurozone. Participants in the system are either direct or indirect. Direct participants hold an RTGS account and have access to real-time information and control tools. They are responsible for all payments sent from or received on their accounts by themselves or any indirect participants operating through them. Indirect participation means that payment orders are always sent to and received from the system via a direct participant, with only the relevant direct participant having a legal relationship with the Eurosystem. Finally, bank branches and subsidiaries can choose to participate in TARGET2 as multi-addressee access or addressable BICs.
context_section_description: The main subjects of criticism are the unlimited credit facilities made available since the establishment of the TARGET system by the national central banks of the Eurosystem on the one hand and by the ECB on the other.
  The issue of the increasing TARGET balances was brought to public attention for the first time in early 2011 by Hans-Werner Sinn, president of the Munich-based Ifo Institute for Economic Research. In an article in Wirtschaftswoche, he drew attention to the enormous increase in TARGET claims held by Germany's Bundesbank, from €5 billion at the end of 2006 to €326 billion at the end of 2010, and to the attendant liability risk. In the German daily Süddeutsche Zeitung he put the entire volume of the TARGET liabilities of Greece, Ireland, Portugal, and Spain at €340 billion at the end of February 2011. Moreover, he pointed out that if these countries should exit the Eurozone and declare insolvency, Germany's liability risk would amount to 33% of that sum, or €114 billion, relating these sums to the other rescue facilities of euro countries and the International Monetary Fund. Before he made them public, TARGET deficits or surpluses were not explicitly itemised, usually being found buried in obscure positions of central bank balance sheets.
  Shortly thereafter, Sinn interpreted the TARGET balances for the first time within the context of current account deficits, international private capital movements and the international shifting of the refinancing credit that the national central banks of the Eurosystem grant to the commercial banks in their jurisdiction. He proved that the ECB system compensated the interruption and reversal in capital flows triggered by the financial crisis by shifting refinancing credit among national central banks. The increase in TARGET liabilities is a direct measure of net payment orders across borders, i.e. of the portion of the current account deficit that is not counterbalanced by capital imports, or, equivalently, the sum of the current account deficit and net capital exports. Indirectly, they also measure a country's amount of central bank money created and lent out beyond what is needed for domestic circulation. Since every country needs a relatively steady amount of central bank money for its domestic transactions, payment orders to other countries, which reduce the domestic stock of money, must be offset by a continuous issuing of new refinancing credit, i.e., the creation of new central bank money. Similarly, the increase in money balances in the country whose central bank honours the payment orders reduces the demand for fresh refinancing credit. Hence, a country's TARGET liabilities also indicate the extent to which its central bank has replaced the capital markets to finance its current account deficit, as well as any possible capital flight, by creating new central bank money through corresponding refinancing credit. Sinn illustrated that from an economic perspective, TARGET credit and formal rescue facilities serve the same purpose and involve similar liability risks. Sinn's presentation on 19 May 2011 at the Munich Economic Summit motivated an op-ed column in the Financial Times. They reconstructed the data on the basis of the balance sheets of the Eurosystem's national central banks and the balance-sheet statistics of the International Monetary Fund.
  Later, in June 2011, Hans-Werner Sinn and Timo Wollmershaeuser compiled the first panel database of the Eurozone's TARGET balances. The authors point out that the additional creation of money by the central banks of the crisis-stricken countries was provided by a lowering of the standards for the collateral that commercial banks have to provide to their national central banks to obtain refinancing credit. Furthermore, they showed that the commercial banks of the Eurozone's core countries used the incoming liquidity to reduce the refinancing credit they drew from their national central bank, even lending the surplus liquidity to this central bank, which implies that the TARGET balances indirectly also measure the reallocat
caption: TARGET2 balances of selected countries of Euro system starting 2001
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