The ECB statistical data warehouse released Target2
Balance figures today.
The numbers are reflective of intensifying capital flight in Italy and
Spain.
The above charts shows most of the major countries, not all of them.
Italy’s target2 hit a record low -€326.9 billion in July. This is a 6th
consecutive monthly record for Italy, minimum, possibly dating back to 2nd
quarter of 2015.
Spain’s target2 deficit hit -€313.6 billion. In 2012 Spain hit -€337.3
billion.
Target2 Discussion
No discussion of eurozone problems would be complete without a discussion
of Target2, an abomination created by the eurozone founders and one of the
fundamental flaws of the euro.
Target2 stands for Trans-European Automated Real-time Gross Settlement
System. It is a reflection of capital flight from the “Club-Med” countries in
Southern Europe (Greece, Spain, and Italy) to banks in Northern Europe.
Pater Tenebrarum at the Acting Man blog provides this easy to understand
example: “Spain imports German goods, but no Spanish goods or capital
have been acquired by any private party in Germany in return. The only thing
that has been ‘acquired’ is an IOU issued by the Spanish commercial bank to
the Bank of Spain in return for funding the payment.”
This is not the same as an auto loan from a dealer or a bank. In the case
of Target2, central banks are guaranteeing the IOU.
Target2 also encompasses people yanking deposits from a bank in their
county and parking them in a bank in another country. Greece is a nice
example, and the result was capital controls.
If Italy or Greece (any county) were to leave the Eurozone and default on
the target2 balance, the rest of the countries would have to make up the
default according to their percentage weight in the Eurozone.
Mike “Mish” Shedlock
