More Target 2 Fun: Bloomberg Edition
This post was written by Karl Whelan
This could have been a useful contribution to the discussions about Target 2 if it was tweaked a bit.
For instance, the following slight re-wordings may have helped to inform rather than mislead:
Involuntary money acquisition is what happens when your spouse wins the lottery and gives you loads of money. At some point it dawns on you that you’re rich.
The bottom line: Germany’s Bundesbank—BuBa for short—has quietly, automatically received €495 billion to the European Central Bank via Target2.
Ok, no big deal. Financial journalists in getting things wrong shocker!
However, the piece does address a new aspect of the question that was not discussed in earlier discussions about the Target 2 balances. What happens if the Euro area breaks up?
Mr. Coy from Bloomberg is pretty sure it will be bad for Germany:
If the euro zone breaks into sorry little pieces, Germany could possibly lose its entire €495 billion claim. That’s more than $650 billion. It is 60 percent bigger than Germany’s annual federal budget.
But let’s take a closer look. Who is this “Germany”? Will the German residents who got their accounts credited as a result of the Target2-facilitated transfers out of Ireland now lose their money? No. There will be no losses to private citizens. Despite all this misleading stuff about “enforced lending”, German citizens will be very grateful that they managed to repatriate their money to German via Target2.
So who loses? Well, the Bundesbank has a Target2 credit from the ECB, an organisation that used to be considered sound and a good credit because they have the power to print money.
If the ECB ceases to exist and the Bundesbank wanted its balance sheet to still balance, it could simply replace the “Target2 credit” by writing itself a big check and sticking it in the vaults. Call it “Sondervermögen Ersetzen Vermögensverwaltung Früher als Target2 Kreditkarten Bekannte“ (“Special Fund Replacing Asset Formerly Known As Target2 Credit” – blame Google Translate!) Just like that, the Bundesbank’s balance sheet is balanced again.
Now watch how many commenters will try to convince you that placing a piece of paper in an empty vault will unleash hyperinflation.
Tags: Target 2