Huge balance-of-payment surpluses and deficits (Target balances) accumulated between the euro countries because the European Central Bank (ECB) allowed those countries in balance-of-payment difficulties to solve their problems by disproportionately increasing their national money supply. Substitute credit from the Eurosystem’s national “printing presses” granted to the six crisis-afflicted countries of Greece, Cyprus, Italy, Portugal, Spain and Ireland in this manner totalled over 1,000 billion euros in summer 2012. This constituted by far the largest bail-out package during the crisis, but it lacked democratic legitimacy. Since taxpayers were already made liable for this substitute credit, politicians had no other choice but to successively provide more follow-up fiscal credit. While the topic was consistently swept aside by politicians, Bundesbank President Jens Weidmann expressed his concerns about the Bundesbank’s Target claims in a letter to the President of the ECB Mario Draghi. This may be the reason why the ECB finally launched its own database with Target data on all euro countries in September 2015, after such a database had been offered by the ifo Institute and other domestic and international institutions (e.g. by the Institut für empirische Wirtschaftsforschung at the University of Osnabrück) for years.

The public was first informed of the developments in Target balances and their importance in the crisis by Hans-Werner Sinn in 2011. The proof that the balances represent traditional balances of payment was provided by a working paper (ifo Working Paper (German), CESifo Working Paper, International Tax and Public Finance (2012)) written by Sinn and Timo Wollmershäuser in June 2011, which also traced the relationship between such balances and the asymmetrical monetary policy of the ECB.

Target Debate (Selected Publications by Others)

Roberto Perotti, "Understanding the German Criticism of Target", Economic Policy 38 (116), January 2024.

David Blake, "Target2: The Silent Bailout System That Keeps the Euro Afloat", Journal of Risk and Financial Management, December 2023.

Presentations

“Target Loans, Current Account Balances and the ECB’s Rescue Facility”, ifo Lunchtime Seminar, June 20th, 2011 | English | ifo mediathek

Refereed scientific monographs

The Economics of Target Balances: From Lehman to Corona, Palgrave Macmillan, London, November 2020, 159 pages.

The Euro Trap. On Bursting Bubbles, Budgets and Beliefs, Oxford University Press: Oxford, 2014, 416 pages. Korean edition, Hantee Media Publishing, Seoul, Korea, 2015. To Amazon.

Articles in refereed journals

"The ECB's Fiscal Policy", International Tax and Public Finance 25(6), June 2018, pp. 1404-1433; NBER Working Paper No. 24613, May 2018; CESifo Working Paper No. 7019, April 2018.

"Target loans, current account balances and capital flows: the ECB’s rescue facility" (together with Timo Wollmershäuser), International Tax and Public Finance 19 (4), 2012, pp. 468-508 (Download, 2 MB); (updated version of CESifo Working Paper No. 3500, June 2011 (Download, 1,26 MB) and NBER Working Paper 17626, November 2011); (Download, 931 KB)).

Policy Contributions in Journals and Academic Volumes

“Target Risks without Euro Exits”, CESifo Forum 19 (4), December 2018, pp. 36-48.

"European Imbalances" (with Akos Valentinyi), VOX, www.voxeu.org, March 9th, 2013.

"Mutualisation and Constitutionalisation" (with Harold James), VOX, www.voxeu.org, February 26th, 2013.

"Target Losses in Case of a Euro Breakup", CESifo Forum 13 (4), 2012, pp. 51-58; (Download, 214 KB). 

"How Target-Like Balances are Settled in the USA“, in: German American Chamber of Commerce, Inc., ed., United States-German Economic Yearbook 2012 - Annual Survey: German American Business Outlook, 2012, pp. 44-48 (Download, 10 MB).

"TARGET losses in case of a euro breakup", VOX, www.voxeu.org, October 22nd, 2012.

"Fed versus ECB: How Target debts can be repaid", VOX, www.voxeu.org, March 10th, 2012.

"The European Balance of Payments Crisis: An Introduction", CESifo Forum 13 (Special Issue January 2012), 2012, pp. 3-10; (Download, 368 KB).

"The threat to use the printing press", VOX, www.voxeu.org, November 18th, 2011.

"How to Rescue the Euro: Ten Commandments", CESifo Forum 12 (4), 2011, pp. 52-56; (Download, 355 KB). 

"Europe at a Crossroads: The Role of the State in a Globalised Economy - Introduction", CESifo Forum 12, 2011, No. 3, pp. 9-17 (Download, 1.2 MB).

"Germany’s Capital Exports under the Euro", VOX, www.voxeu.org, August 2nd, 2011.

"Trade Imbalances – Causes, Consequences and Policy Measures: Ifo’s Statement for the Camdessus Commission", (with Teresa Buchen and Timo Wollmershäuser), CESifo Forum 12 (1), 2011, pp. 47-58; (Download, 151 MB).

"A Euro Rescue Plan", (with Wolfgang Franz, Clemens Fuest, Martin Hellwig), CESifo Forum 11 (2), 2010, pp. 101-104; (Download, 616 KB).

Short Policy Contributions and Newspaper Articles

"Banking Regulation Does not Make Target Credits Safe", SAFE Policy Blog, February 27th, 2019.

"The ECB's actions will not have a good ending", The International Economy Spring 2012, XXVI, No. 2, p. 21.

"European End Game", The International Economy, Winter 2012, XXVI, No. 1, p. 10.

"How to Rescue the Euro: Ten Commandments", VOX, www.voxeu.org, October 3rd, 2011.

"Italy’s Capital Flight", (ref. Project Syndicate October 2011), Les Echos (Mali), Caijing Magazine (China), China Daily Online (China), The Korea Herald (Korea, South), Taipei Times (Taiwan), Poslovni Dnevnik (Croatia), Wyborcza.Biz (Poland), Finance (Slovenia), The Guatemala Times (Guatemala), Jordan Times (Jordan), Al Shabiba (Oman), Al Raya (Qatar), Alrroya Aleqtissadiya (United Arab Emirates), Pontransat.Com (Canada), Het Financieele Dagblad (Netherlands), Expansion (Spain), L'agefi (Switzerland), European Ceo (United Kingdom).

"On and off target", VOX, www.voxeu.org, June 14th, 2011.

"The ECB’s stealth bailout", VOX, www.voxeu.org, June 1st, 2011.

"Farewell to the Euro?", (ref. Project Syndicate June 2011), The New Dawn (Liberia), Les Echos (Mali), Business Day (Nigeria), Caijing Magazine (China), The Korea Herald (Korea, South), Business World (Philippines), Lianhe Zaobao (Singapore), PoslovniDnevnik (Croatia), Aripaev (Estonia), Wyborcza.biz (Poland), Finance (Slovenia), ElCronista (Argentina), O Estado de Sao Paulo (Brazil), Mercados & Tendencias (Costa Rica), The Guatemala Times (Guatemala), JordanTimes (Jordan), Al Jarida (Kuwait), Al Shabiba (Oman), Al Eqtisadiah (Saudi Arabia), Business Insider (USA), L'Echo (Belgium), Il Sole - 24 Ore (Italy), Finanz und Wirtschaft (Switzerland), L'Agefi (Switzerland), European CEO (United Kingdom).

"The ECB’s Secret Bailout Strategy", (ref. Project Syndicate April 2011), Les Echos (Mali), Caijing Magazine (China), China Daily (China), The Japan Times (Japan), The Korea Herald (Korea South), Wyborcza.Biz (Poland), Wyborcza.Pl (Poland), Finance (Slovenia), The Guatemala Times (Guatemala), Al Jarida (Kuwait), Al Eqtisadiah (Saudi Arabia), The International Economy (United States), Die Presse (Austria), DeTijd (Belgium), L'echo (Belgium), Borsen (Denmark), La Tribune (France), Il Sole - 24 Ore (Italy), Expansion (Spain), L'agefi (Switzerland), European Ceo (United Kingdom).

"Why the rescue fund is large enough", VOX, www.voxeu.org, February 19th, 2011.

Newspaper Interviews and Discussions (since 2002)

"The German Current Account Surplus is the Result of the Rescue Operations", Crash, March 7th, 2014, pp. 25-30.

Ifo Viewpoints

Ifo Viewpoint No. 139: The Logic of the Target Trap, Nov 30, 2012.

Ifo Viewpoint No. 132: Fed versus ECB: How Target debts can be repaid, Mar 14, 2012.

Ifo Viewpoint No. 130: Buying Out the Store with the Printing Press, Nov 10, 2011.

Ifo Press Releases

"Further Relief Planned on Bailout Loans to Greece", ifo press release, February 11th, 2014.

"Bailing out Greece means haircuts totalling 47 billion euros at the expense of public creditors", ifo press release, November 30th, 2011

Unpublished Discussion Papers

"The Effective Rate of Interest on Target Balances", CESifo Working Paper No. 7878, September 2019 (Download, 214 KB)