Target Losses in Case of a Euro Break-Up

14 Pages Posted: 14 Nov 2012

See all articles by Hans-Werner Sinn

Hans-Werner Sinn

CESifo (Center for Economic Studies and Ifo Institute); National Bureau of Economic Research (NBER); Ludwig Maximilian University of Munich (LMU)

Date Written: October 22, 2012

Abstract

Evaluation of the financial costs of a Eurozone breakup depends critically on the interpretation of TARGET balances. While it has been argued that TARGET claims in the Eurozone can be written off without incurring any losses on the claimants as the value of fiat money is independent of the claims of a national central bank, the present paper shows that TARGET claims represent a shift of the ECB's refinancing credit to the crisis countries and thus a claim on the interest return from the commercial banks of these countries. If TARGET claims were to be written off, a loss of real wealth would occur to the amount of the present value of this interest return, which is exactly measured by the amount of the TARGET claims.

Keywords: currency union, balance of payments, eurosystem, Target2

JEL Classification: E500, E580, F320, F340

Suggested Citation

Sinn, Hans-Werner, Target Losses in Case of a Euro Break-Up (October 22, 2012). CESifo Working Paper Series No. 3968, Available at SSRN: https://ssrn.com/abstract=2174903 or http://dx.doi.org/10.2139/ssrn.2174903

Hans-Werner Sinn (Contact Author)

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