LESSONS FROM TARGET2 IMBALANCES: THE CASE FOR THE ECB BEING A LENDER OF LAST RESORT
LESSONS FROM TARGET2 IMBALANCES: THE CASE FOR THE ECB BEING A LENDER OF LAST RESORT

Summary/Abstract: During the global banking crisis of 2007-2009 and the Eurozone sovereigndebt crisis of 2010-2012 the so called ‘TARGET2 imbalances’ attracted considerableattention. Some economists interpreted them as a symptom of the ECB’s ‘stealth bailout’.The aim of the paper is to highlight that contrary to such claim, the emergence ofTARGET2 imbalances reflected the benefits of having a mutual central bank withina monetary union which facilitated cross-border funding in spite of the global financialturbulence. The ECB’s liquidity loans to commercial banks in the Eurozone debtorcountries shielded the Eurozone from a much deeper financial crisis than it actuallyoccurred. The emergence of the TARGET 2 imbalances was actually only an accountingphenomenon resulting from the fact that these liquidity loans were technicallyextended by the debtor countries’ national central banks which are de facto (from themonetary policy perspective) ECB’s regional branches.

• Details
• Contents