• Home
  • About/Contact Us
  • …Donate…
  • Subscribe
  • Commenting
  • Privacy
  • DISCLAIMER
  • Interesting Stuff

Eurozone Inter-bank Imbalances Surging to Highs

Submitted by Taps Coogan on the 8th of February 2017 to The Sounding Line.

In the recent post ‘Europe is On a Precipice’ we remarked about the convergence of events in 2016 and 2017 that threaten the EU and the Eurozone. Among those events are: Brexit, Trump, the re-emergence of the Greek debt crisis, and the upcoming Dutch, French, and (assumed) Italian elections, all of which feature anti-EU candidates/parties polling in first or second place. Given that the ascendancy of at least one of these candidates/events is not only plausible but probable, the risk of some form of Eurozone sovereign debt crisis appears massively underestimated.

In addition to these adverse political developments, the underlying economic imbalances in the Eurozone are once again accelerating. One way to visualize these imbalances is to refer to the Target2 interbank settlement system for the Eurozone. We first talked about the Target2 system back in early 2016 as part of our trilogy ‘The Euro – Help or Hindrance’ and summarized:

The Target2 balance represents the money ‘owed’ to the ECB by the various national central banks in the Eurozone. A fairly concise explanation of the statistic can be found here (link). Put simply, if someone with a Greek bank account owes money to someone with a German bank account, that debt can be settled through the Target2 system which allows the monitoring of the net balance of payments owed by the various central banks. Positive values indicate that the central bank is owed money and negative values indicate that it owes money’

As the chart below shows, the financial imbalance between Germany and the rest of the EU has returned to the highs of the 2012 European debt crisis. Perhaps it is fatigue with perennial Eurozone economic crises, but the level of alarm being raised today does not appear commensurate with that of 2012 or of the current instabilities in the system.

Source: ECB via Eurocrisismonitor.com

Not only is the positive German balance approaching all-time highs, but Italy’s balance is making all-time lows. Since the Italian banking crisis emerged in 2016, Italy has surpassed Spain to emerge as the largest loser in this system. Interestingly, the European Central Bank (ECB) has surpassed Greece to have the third largest negative balance. This is likely a result of their purchases of sovereign debt as part of their endless QE programs.

Quite a debate has raged about the extent to which the Target2 system is showing household wealth flight versus the flight of capital from low to high quality financial assets. Given that the flight to ‘high quality’ assets is evidently code for ‘German’ assets, the differentiation is essentially academic. Whether capital is moving to Germany as a result of household consumption of German products or whether it is moving as a result of consumption of German financial assets isn’t particularly relevant. The point is that the flow of money is massively imbalanced.

This is the moment when the Eurozone most needs pro-growth structural economic and fiscal reforms. Monetary stimulus clearly isn’t working. Unfortunately, it is not clear if a political mechanism even exists within the Eurozone to implement such a structural multi-state reform program.

In the meantime we wait on the outcomes of a year chock full of elections.

 

February 8, 2017 Taps Coogan

Post navigation

Chart of the Day – Global Natural Gas Trade → ← Europe is On a Precipice
Subscribe
Notify of
guest
guest
2 Comments
Inline Feedbacks
View all comments
Austin LeMont
Austin LeMont
3 years ago

You called exactly this over a year ago, well done!

0
0
Reply
FoamingGerman
FoamingGerman
3 years ago

Move along, nothing to see here, only Versailles II in progress, subscribed by chancellor Kohl and fulfilled by chancellor Merkel.

0
0
Reply

TOP NEWS STORIES

  • Archaeologists Excavating Anglo-Saxon Cemetery Reveal 3000 Ornate Grave Goods
  • Japanese Utilities Hunt for Oil to Meet Robust Winter Power Demand amid Faltering LNG Stocks
  • Powell Sees ‘Exuberant Spending’ After Pandemic
  • Ireland Has Corals that Survive in Extreme Conditions at the Edge of a Submarine Canyon
  • China Possibly Committed ‘Genocide’: US Commission
  • NASA Test of Mega Moon Rocket Engines Cut Short
  • China Stonewalls WHO Investigators
  • United States Cut China Aid in Half in 2020
  • China Building Ground-Effect Vehicles to Defend South China Sea Claims: Leaked Documents
  • Massive Inflation in Shipping Costs – the Reasons
  • Quantum Internet Signals Beamed Between Drones a Kilometre Apart
  • Two Northern White Rhino Embryos Successfully Created. Finally a Glimmer of Hope for Species with Just Two Living Members
  • NASA Gives up Trying to Burrow Under Mars Surface with ‘Mole’ Probe
  • One Company to Rule Them All: Google Closes Fitbit Deal Amid Ongoing U.S. DOJ Review, Offers Empty Platitudes About Privacy
  • Race Is on to Commercialize Fusion Energy
  • Ukraine in Talks to Dump Kalashnikovs for NATO Compatible Rifle
  • Most Distant Quasar Ever Found Is Hiding ‘Biggest’ and ‘Youngest’ Black Hole
  • Russia Might Issue Fines for Using SpaceX Starlink Internet Service for Circumventing Government Censors
  • Astronomers May Have Detected Background Ripples in Spacetime Itself
  • Parler App CEO, Family Go into Hiding After Receiving Death Threats
  • WhatsApp Users’ Mobile Numbers from Desktop App Found Via Indexing on Google Search
  • 2,700-Year-Old Tombs of High-Ranking Nobles Unearthed in North China’s Shanxi Province
  • You Can’t ‘Just Build Your Own Twitter’
  • Food Inflation Fuels Anti-Government Protests in Pakistan Occupied Kashmir
  • Turkey Accused of Trading Uighurs for Chinese Covid-19 Vaccine
  • Russia Building Coastal Base for ‘Doomsday Nuke’ – Reports
  • Can the U.S. Navy Keep up with China? (Not Without Becoming Industrially Competitive Again…)
  • More Than a Quarter of US Households Will Cut the Cord in 2021
  • Is US Energy Independence on the Way out?
  • China Mulls Allowing Some Australian Coal Imports amid Ban
  • Exodus: Tech Workers Are leaving San Francisco Behind
  • U.S. Navy to Arm Amphibious Vessels with Long-Range Missiles
  • Malaysia Takes WTO Legal Action Against EU over Palm Biofuel Curbs
  • Trump’s Parting Shot to China Should Be Full U.S. Recognition of Taiwan
  • US Troop Levels in Afghanistan Reduced to 2500
  • Israel Launches Intense Strikes on Iranian Positions in Syria
  • 60 Palaeolithic Cave Sites Found in Central China
  • 6,000 Amazon Warehouse Workers Will Hold Union Vote in Alabama
  • Bill Gates Is Now the Biggest Owner of American Farmland
  • Astronomers Have Discovered an Alien Planet with Three Suns
  • Inside California’s Colossal Container-Ship Traffic Jam
  • China’s 2020 Copper Imports Hit Record High
  • Iron Ore Price Turns Higher Again After Record China Imports
  • Rio Tinto to Open North America’s First Scandium Plant in June
  • China, Indonesia on a Collision Course at Sea
  • South Africa May Lose All of Its Large Refineries in 2021
  • LNG’s Unprecedented Surge to Apply Brakes on India’s Imports, Consumption
  • Hundreds of Pieces of Fine Art, Worth Millions, Rushed in and out of U.K. Ahead of Brexit Cutoff
  • Canada’s Mortgage Lenders Have Set Aside a Record Amount for Bad Loans
  • Russia May Ditch Its Cursed Aircraft Carrier and Focus on Its Two New Amphibious Assault Ships
  • Goldman Sachs Warns of Bullish Perfect Storm for Natural Gas
  • Calculations Suggest It’ll Be Impossible to Control a Super-Intelligent AI
  • US to Bar Entry to Chinese Navy Officials, Business Execs Involved in Militarizing South China Sea
  • U.S. Navy Ohio Class Submarine Filmed by Iranian Navy While Submerged
  • Citing Permanent Shift to Work from Home, Dropbox Cuts 11% of Its Workforce

Seach

Categories

Login

  • Log in
  • Entries feed
  • Comments feed
  • WordPress.org
Copyright © 2020 - TheSoundingLine.com | Please read our full disclaimer and privacy policy before reading any of our content
wpDiscuz