“Above all, capital flight drives the Target balance”


Frank Westermann, economics professor at the University of Osnabrück
Photo: private

With its monetary policy, the ECB supports capital flight to Germany, says Frank Westermann, economics professor in Osnabrück. It’s not without risks.

Mr Westermann, the German balance from the European Target 2 payment system has now risen above the one trillion euro mark for the first time in history. That sounds spectacular. What do you think is behind it?

In my opinion, this is primarily a flight of capital. Investors are fleeing Italian and Spanish stocks.

Why should they do that, and why does that increase the German Target balance?

In the Corona crisis, investors want to part with risky securities in southern Europe and prefer to purchase safe assets in Germany. They do this by depositing the unsecured papers with their national central banks in the Eurosystem as collateral and receiving loans that they can use to acquire secure assets in Germany, for example. These cross-border transactions result in corresponding movements in Target balances. The German balance is increasing, the southern European balance is becoming more negative.

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