Target2 Imbalances and the ECB’s Asset Purchase Programme. An Alternative Account

  • Eladio Febrero University of Castilla-La Mancha, Department of Economics and Finance, Spain
  • Jorge Uxó University of Castilla-La Mancha, Department of Economics and Finance, Spain
  • Ignacio Álvarez Autonomous University of Madrid, Department of Economic Structure and Complutense Institute of International Studies, ICEI, Spain

Abstract

The aim of this paper is to investigate the cause behind rising Target2 imbalances since early 2015, coinciding with the implementation of a quantitative easing program by the ECB. Two facts have captured our attention. Firstly, the official explanation of rising Target2 imbalances, offered by the ECB, is not convincing because it does not fit the empirical evidence available for Italy and Spain. Further, our alternative interpretation reveals that through quantitative easing, the ECB has helped to clean up banks’ balance sheets and has indirectly funded government spending. Secondly, those who spoke out against the risks of rising Target2 imbalances in 2011-12, now remain silent on this issue, despite the fact that some of the presumed risks during the first wave of rising imbalances still hold. We interpret this silence as an implicit acceptance that the risks put forward in 2011-12 are offset by reform fatigue and anti-euro sentiments in the Euro Zone.
Key words: Target2, Public sector purchase programme, Euro Zone crisis.
JEL: E42, E58, F34, F36, F45.

How to Cite
Febrero E., Uxó J., & Álvarez I. (2019). Target2 Imbalances and the ECB’s Asset Purchase Programme. An Alternative Account. Panoeconomicus, Advance online publication, 1-21. doi:10.2298/PAN180627008F
Section
Original scientific paper