The main economists warn against a strong imbalance in the euro system
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Clemens Fuest and Hans-Werner Sinn of the Ifo Institute see the one billion dollar risks to German tax payers and demand a target balances ceiling. The system error must be clean. But there is a considerable resistance.
ZTo celebrate its 20th anniversary, even its biggest supporters must admit that the common currency suffers from design flaws. "The twentieth anniversary of the euro can be divided into two periods: the first has foreseen a long and silent common economic cycle, the second has been characterized by a continuous crisis", said the head of the European Central Bank (ECB) Mario Draghi at the recent meeting in Frankfurt. Nobody could triumph after two decades. What is needed is a critical inventory to undertake and implement future measures to complete the monetary union.
Two prominent German economists joined the debate on euro design flaws shortly before the centenary. President Ifo Clemens Fuest and his predecessor Hans-Werner Sinn want to do something about the imbalances in the payment system of European central banks, which are known under the name of cumbersome Target 2 scales. These imbalances would entail a risk of billions of dollars for German tax payers.
The two experts ask for a limitation of the risk on the Target balances, which they consider a sort of overdraft among the central banks of the euro area. Contrary to the prevailing opinion, loans are a risk for German taxpayers, even if no countries leave the euro, but it is a member's financial collapse, which shows a high negative.
The ECB bond program has raised its balance
Target balances are created because the capital of some euro area countries is still transferred to others. For example, if an Italian man buys a car in Germany and pays his "Italian" euro, this leads to an objective credit of the Bundesbank against the euro system and an objective liability of Banca Italia. The same thing happens when an Italian opens a bank account in this country.
Recently, the ECB bond purchase program has led to an increase in balances. Newspapers are often bought by foreign investors or banks. They have their reference account in the euro area usually at the Bundesbank in Frankfurt. If the Italian central bank now buys Italian government bonds from a Japanese insurance company, the Bundesbank pays the money to the seller. Instead of receiving money from the Italian central bank, both central banks publish a request or a responsibility.
In this way, the Bundesbank has accumulated credits for 941 billion euros. This corresponds to about half of Germany's net foreign assets. The money will pay interest at the current ECB rate, ie zero percent. On the contrary, Italians and Spaniards are deeply committed to their commitment. The commitments of Italy stood at 492 billion euros at the end of November, those of Spain reached a record of 407 billion euros.
The risk would completely affect the federal budget
The economists see the unsecured loans of the Bundesbank to central banks, in particular the southern countries, in 941 billion euros. The euro system thus opens up the possibility for stable euro states to lend money to the euro states, subject to crisis, without any savings and reform requirements and without a parliamentary decision. And this is what causes deep concern between the two Ifo economists. They are asking to cover the loans.
"Risk protection mechanisms, such as those that exist in the government bond purchase program, effectively isolate other central banks if the country in crisis has no objective debt, but if such debts exist, the other central banks of the Euro, particularly the Bundesbank, are exposed to a significant risk of insolvency, "said Fuest. This risk would be completely impacted on the federal budget, which was not achieved by the decisions of the Bundestag, but only by the decisions of the Council of the European Central Bank.
The moment when the two Ifo economists launch their push is remarkable. At the end of the year, the ECB will temporarily suspend its controversial bond purchases. This could be a problem with the steady increase in budgets of the objectives of the past.
Argument for maul the euro?
The causes and risks of target budgets are very controversial among economists. For the head of the German Institute of Economic Research (DIW), Marcel Fratzscher, the debate serves the opponents of the euro just to make the common currency bad. Many Germans would continue to believe that they were deceived by their income due to the Bundesbank's objective-free interest requirement. This is total nonsense.
Fuest and Sinn, however, do not want their initiative to be interpreted as a European criticism. "As pro-Europeans who do not see alternatives to the progress of European integration, we do not want our analysis to be interpreted as a fundamental critique of the euro and certainly not of European integration itself," said the two best economists. The possibility of a definitive expansion without limits of targeted discoveries without parliamentary control was a system error. "He needs to be urgently corrected."
But the two Ifo experts admit that it would be difficult to convince the debtor states of the restrictions, as they have benefited from unlimited Target loans. They suggest a sort of global solution that would win both sides: "The reforms currently under way in the euro area are discussing both greater risk sharing and risk mitigation measures, limiting the risk of bank overdrafts (target balances). ) providing guarantees in the euro system could be part of the risk mitigation measures adopted in the global package. "