Inflation Targeting and Financial Stability by Michael Heise

Author:Michael Heise
Language: eng
Format: epub
ISBN: 9783030050788
Publisher: Springer International Publishing

There is one exception to the observation that low interest rates have mostly benefitted southern countries: Italy. First, Italian households are not highly indebted and second, they stand out due to their particular investment behavior. In Italy, households hold more bonds privately than those anywhere else in the euro area.

4.3 Target II Imbalances

One much-discussed side effect of monetary policy in the euro area has been the emergence of significant intra-euro area imbalances in central banks’ payment system (Target II). Critics claim that the Target II imbalances are tantamount to invisible credit lines between member countries and a form of risk sharing through the back door. They have triggered a lengthy debate about whether the ECB’s asset purchase programs are in compliance with EU treaties (especially Article 123, which prohibits monetary financing of state deficits). Among the issues discussed have been whether purchases of government bonds on secondary markets constitute monetary financing of public debt and whether the potentially unlimited purchases through the OMT program contravene the no-bailout clause of EU treaties. Whatever legal positions one might take on these issues, it seems clear that economically there has to some extent been a redistribution of risks between the countries of the currency union.7 A major factor has been the build-up of  Target II imbalances (Fig. 4.5).

Fig. 4.5Target II (im)balances rise to ever higher levels

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