Fuse is Lit! Target2 Imbalances Hit Crisis Levels
Eurozone Target 2 imbalances have touched or exceeded the crisis levels hit in 2012 when Greece was on the verge of leaving the Eurozone.
For those not familiar, Target 2 stands for Trans-European Automated Real-time Gross Settlement Express Transfer System version 2. It is a settlement system for the flow of euros among central banks within the Eurozone. The huge imbalances can be due to a handful of factors, but the key and ominous ones are (1) private investors are taking advantage of the ECB’s money printing and bond buying programs and dumping their peripheral country sovereign debts at a profit and stuffing it to the taxpayers, and (2) capital flight out of the peripheral countries into Germany and Luxembourg.
As of the end of 2016, the Bundesbank’s (German central bank) Target 2 balance is close to €800 billion, versus a deficit of €364 for the Italian CB (22% GDP) and €328 billion for the Spanish CB (30% GDP).
It is nothing to worry about. Unless, that is, one of the countries decides to leave the Eurozone or defaults.
Full article: https://mishtalk.com/2017/02/24/fuse-is-lit/#more-44337