The Economics of Target Balances

Target balances are the largest single item in some of the balance sheets of the Eurosystem's national central banks (NCBs), and yet very little is known about them by the general public and even by economists. This book shows that Target balances measure overdraft credits between the NCBs that resemble ordinary fiscal credit and which have grown disproportionately, exceeding one billion euros. There is, however, no parliamentary legitimation for the Target balances. The book sheds light on the economic significance of the balances, questions their limitlessness, and addresses controversial views that have been expressed regarding them. It uses the Target statistics to analyze the course of the euro crisis and the ECB's policy reactions from the time of the Lehman bankruptcy up to the outbreak of the Corona crisis. It analyses the credit risks involved for the Eurosystem and concludes with a reform proposal.

Chapter 1: Target: An obscure aspect of the Eurosystem. - Chapter 2: The Target credit. - Chapter 3: Current account, capital movements and Target balances. - Chapter 4: The cash balance. - Chapter 5: How the Target balances came about: the first phase of the crisis. - Chapter 6: The case of Greece. - Chapter 7: External crowds out internal money. - Chapter 8: The QE program and the Target balances. - Chapter 9: The rate of interest on Target balances. - Chapter 10: Interest spreads and tiering. - Chapter 11: The Corona Crisis. - Chapter 12: The risks of Target and cash balances. - Chapter 13: Conclusions and policy recommendations.