TARGET2
TARGET2 started operations on 19 November 2007, when the first group of countries (Austria, Cyprus, Germany, Latvia, Lithuania, Luxembourg, Malta and Slovenia) migrated to the SSP.
[7][8] In October 2020, the system and TARGET2 Securities experienced an almost-11-hour outage, attributed to a "software glitch in a third-party network device" by the ECB, per a report.
Much shorter service interruptions of different sorts have hit Target2 in July 2019, November 2018 and December 2017, and in October 2020 Euronext NV, a stock market on the continent, also experienced some outages, per the report.
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.
[10] 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.
He proved that the ECB system compensated the interruption and reversal in capital flows triggered by the 2007–2008 financial crisis by shifting refinancing credit among national central banks.
Similarly, the increase in money balances in the country whose central bank honours the payment orders reduces the demand for fresh refinancing credit.
Sinn illustrated that from an economic perspective, TARGET credit and formal rescue facilities serve the same purpose and involve similar liability risks.
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.
Moreover, they show the extent to which TARGET credit financed current account deficits or capital flight in Greece, Ireland, Portugal, Spain and Italy.
They advocate the establishment of a similar system in Europe to end the ECB's role as a provider of international public credit that undercuts private market conditions.
[18][19] A number of economists took a stand on the issue of the TARGET balances in a publication of the Ifo Institute, confirming Sinn's analysis.
So the pressure on Germany is to keep the balances growing, in order to avoid crystallization of losses that would be hugely damaging not just to Berlin but also to central banks and governments in Paris and Rome".
[22][23] However, in early 2012, Bundesbank chief Jens Weidmann wrote a letter to ECB head Mario Draghi on the subject which "found its way into the columns of the conservative Frankfurter Allgemeine Zeitung newspaper.
[25] The Ifo Institute's regularly updated "Exposure level indicator" ('Haftungspegel') shows Germany's potential financial burden should the crisis-stricken euro countries exit the currency union and declare insolvency.
[26] In another development, the Institute of Empirical Economic Research at the University of Osnabrueck collects and publishes TARGET2 data from all euro countries on the basis of the balance sheets of each central bank.
[30] Sinn points out that the option of self-rescue for the crisis-affected countries by drawing TARGET credit forces Germany to approve the formal rescue facilities and eventually to accept eurobonds as well.
Analysis of TARGET2 balances countering the Ifo conclusions have been advanced by economist Karl Whelan at University College Dublin.
In summer 2012, Thomas A. Lubik, a senior economist and research advisor, and Karl Rhodes, a writer, both at the Federal Reserve Bank of Richmond (Virginia, US), cited Whelan's work and also drew parallels and distinctions between the US Fed and the ECB in analysing the balances.
The claims represented half of the Germany's net foreign assets and were on track shortly to reach €1 trillion if trends continued unchecked.
