THE REFINANCING OF BANKS DRIVES TARGET DEBT

The European Central Bank (ECB) annually reports at length about how wonderfully fast and smoothly its real-time payment system TARGET2 (Trans-European Automated Real-time Gross settlement Express Transfer system) functions (European Central Bank 2010). The ECB does not report, however, that within this payment system huge disequilibria have developed since 2008. Hans-Werner Sinn must be credited for focusing on these disequilibria and interpreting them as balance of payments disequilibria (Sinn 2011; Sinn and Wollmershäuser 2011). This has provoked criticism from academia as well as in the media. These disputes cannot and will not be addressed in detail here. The aim of this paper is to examine the close relationship that exists in several euro member countries between increased refinancing of the banks at their central banks and the build-up of debt between the national central banks via the Target system. This will be done with the help of an empirical analysis of the development of the Greek banking system (see Neumann 2011). One conclusion of this analysis is that the Eurosystem ought to agree on regulation that effectively limits the future refinancing possibilities of the banks. [PUB ABSTRACT]