Central Banking

Systemic risk in Europe heightened by Target trap

Hans-Werner Sinn

Target II, the cross-border payment system owned and operated by the Eurosystem, was established to facilitate international transactions. But the Target system has effectively become a credit channel in favour of southern European countries, given that it allows for balance-of-payment imbalances without a true settlement mechanism. Huge imbalances emerged, as northern central banks carried out more payment orders for southern national central banks than the other way round. Currently the gross

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