TARGET Imbalances at Record Levels: Should We Worry? In-depth Analysis

Andrew Hughes Hallett

Research output: Book/ReportReportResearch

Abstract

TARGET is the payments system for making settlements between euro area economies and five other EU economies. Cross-border transactions generate claims/surpluses and liabilities/deficits among national central banks which “net
out” for the system as a whole. These imbalances are manageable in relative terms, but look large in absolute terms. None are larger than one third of their corresponding public debt ratios; and despite a big build up in the 2010-13 period, the imbalances now appear to be on a non-expanding cyclical path. The implications for the EU economies and their policymakers are less easy. The main drivers, beyond the need to fund persistent current account deficits or
surpluses, are the use of different funding sources (some outside the euro area), internal and external portfolio re-balancing, loose monetary policy and exchange rate risks. TARGET imbalances support quantitative easing, but are not driven by it. The main threats are the divergence that interrupts further economic integration; and the increasing liabilities taken on by the ECB since 2015. That said, self-correcting mechanisms are weak which makes symmetric adjustments by both creditor and debtor countries essential (because of the adding up constraint); and the difficulty that the imbalances cannot always be eliminated simply by balancing current accounts around the system.
Original languageEnglish
Place of PublicationLuxembourg
PublisherPublications Office of the European Union
Number of pages20
ISBN (Print)9789284621811
ISBN (Electronic)9789284621828
DOIs
Publication statusPublished - Nov 2017
SeriesMonetary Dialogue

Cite this

Hallett, A. H. (2017). TARGET Imbalances at Record Levels: Should We Worry? In-depth Analysis. Luxembourg: Publications Office of the European Union. Monetary Dialogue https://doi.org/10.2861/118636
Hallett, Andrew Hughes . / TARGET Imbalances at Record Levels : Should We Worry? In-depth Analysis. Luxembourg : Publications Office of the European Union, 2017. 20 p. (Monetary Dialogue).
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Hallett, AH 2017, TARGET Imbalances at Record Levels: Should We Worry? In-depth Analysis. Monetary Dialogue, Publications Office of the European Union, Luxembourg. https://doi.org/10.2861/118636

TARGET Imbalances at Record Levels : Should We Worry? In-depth Analysis. / Hallett, Andrew Hughes .

Luxembourg : Publications Office of the European Union, 2017. 20 p. (Monetary Dialogue).

Research output: Book/ReportReportResearch

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Hallett AH. TARGET Imbalances at Record Levels: Should We Worry? In-depth Analysis. Luxembourg: Publications Office of the European Union, 2017. 20 p. (Monetary Dialogue). https://doi.org/10.2861/118636