HomeInformationArchiveObjective 2: Downplaying a ‘financial nuclear bomb’ Objective 2: Downplaying a ‘financial nuclear bomb’

We can no longer ignore the massive public criticism from experts regarding the spiralling, exorbitant TARGET2 settlements. As early as 2011, Professor Hans-Werner Sinn and Professor Timo Wollmershäuser (1) highlighted in detail the extreme risks that TARGET2 could pose to the central banks of strong eurozone countries, such as the Deutsche Bundesbank, and consequently to German citizens.

In the FAZ, one of Germany’s leading newspapers, the ECB’s Deputy Director-General for Financial Market Operations, Ulrich Bindseil, defended the TARGET2 settlements on 20 February 2012. The ECB’s debts to the Deutsche Bundesbank alone now amount to around 500 billion euros – and rising! Five years ago, these liabilities still stood at zero euros! This means the ECB’s debts to the Bundesbank are significantly higher than the federal government’s total tax revenue over two years (2).

If the Bundesbank suffers losses, German citizens suffer too. Mr Bindseil – speaking on behalf of the ECB – seeks to convince us in his statement that this enormous ECB debt to the Bundesbank, amounting to 500 billion euros, is normal, necessary and entirely harmless. In his view, this is merely a matter of capital movements (?). We cannot let the ECB’s downplaying of the situation go unchallenged. The key question is whether the Eurosystem can still be saved. From the perspective of an ECB employee, the answer is simple: If the Deutsche Bundesbank stops lending to the ECB via TARGET2 and/or Germany no longer provides new guarantees, it will be the end of the euro and, with it, the ECB! And: the consequences would have to be borne by the public and taxpayers!

With this brief statement and analysis of the problems associated with TARGET2, we wish to highlight the associated risks. The consequences of TARGET2 are explained using the Deutsche Bundesbank as an example. By analogy, they can be applied to all other national and federal banks in the strong eurozone countries. The full version of our critical analysis has already been submitted to the Deutsche Bundesbank.

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this brief analysis
: (1) Prof. Hans-Werner Sinn, Prof. Timo Wollmershäuser, TARGET loans, current account balances and capital movements: The ECB’s rescue package (June 2011), ifo Working Paper No. 105, with numerous references to press releases and lectures.
(2) German government revenue in 2010: 226 billion euros, press release from the Federal Ministry of Finance, 13 January 2011