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FT.com: The Bundesbank has no right at all to be baffled (By Wolfgang Münchau)
The discovery of the importance of Target 2 was made by Hans-Werner Sinn, president of the Ifo economics institute in Germany, and his co-author Timo Wollmershäuser*. They found that the Target 2 balance mirrors current account imbalances since the outbreak of the crisis. There was no problem before 2007, when current account balances were funded by commercial banks. Once that stopped, national central banks took over this role. Spanish banks can now refinance themselves with no limit from the Bank of Spain. If a Spanish company buys a German product, for example, the chain of transactions goes from the buyer's Spanish bank to the Spanish central bank, which effectively creates the money for this transaction, and then sends it on to the Bundesbank, which records this transaction as a claim against the eurosystem.

...

One would assume that the best policies would be those that attack the root of the problem - the imbalances themselves. One of the deep causes behind this problem is, of course, Germany's persistent current account surplus. The problem can thus easily be solved through policies to encourage Germany to raise its imports relative to its exports. You need policies that provide eurozone-wide backstops to the banking sector, and also policies to insure against asymmetric shocks. And you need to harmonise many aspects of structural policy to ensure imbalances do not become entrenched.

...

The Target 2 debate is important because it goes to the root of the problem. But Germany's economic establishment is disingenuous. What people are really saying is that they no longer want a monetary union. They want a looser single currency regime.

See more on Weidmann and Target2 here on ET.

There are three stories about the euro crisis: the Republican story, the German story, and the truth. -- Paul Krugman
by Carrie (migeru at eurotrib dot com) on Mon Mar 5th, 2012 at 05:22:04 AM EST
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From today's Eurointelligence:
ECB attacks Weidmann over ,,devastating signal" on target balance

According to Der Spiegel, there is outrage at the top of the ECB about Jens Weidmann's letter to Mario Draghi criticizing the generous conditions for banks in the 3y LTRO's and the consequences this has on the Target balances, Der Spiegel reports. The magazine claims that within the ECB this was greeted as a ,,devastating signal". Weidmann told the weekly that with the 3y LTRO's and the simultaneous loosening of collateral requirements the euroystem's central banks had taken considerable risks on their balance sheets that were ,,at the limits of their mandate". The Bundesbank president urged his colleagues to tighten those standards again as soon as possible. However there is disagreement with other powerful Governing Council members. Banque de France governor Christian Noyer warned against a precipitated exit from the ultra-loose refinancing measures. ,,We can do that once the crisis is over", Noyer said. ,,During this crisis the central banks had to invent new instruments", he said adding that the ECB's main aim remained insuring price stability. Also Handelsblatt's ,,shadow council"of senior economists criticized Weidmann for going public with his criticism on the 3y LTRO's and the Target balances.



There are three stories about the euro crisis: the Republican story, the German story, and the truth. -- Paul Krugman
by Carrie (migeru at eurotrib dot com) on Mon Mar 5th, 2012 at 05:41:23 AM EST
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Handelsblatt: EZB-Schattenrat kritisiert Weidmanns Vorstoß
Einige, vor allem deutsche Mitglieder des Schattenrats begegneten dem Anliegen Weidmanns dagegen mit mehr Sympathie. Commerzbank Chefvolkswirt Jörg Krämer regte an, die Länder mit hohen negativen Target-Salden, sollten diese mit ihren Gold- und Devisenreserven absichern müssen.
ECB shadow council criticises Weidmann's proposal
Some, principally German members of the Shado Council, meet Weidmann's proposals with more sympathy. Commerzbank Chief Economist Jörg Krämer suggested that the countries with high negative Target balances should be obliged to secure these with their Gold or foreign currency reserves.


There are three stories about the euro crisis: the Republican story, the German story, and the truth. -- Paul Krugman
by Carrie (migeru at eurotrib dot com) on Mon Mar 5th, 2012 at 06:06:42 AM EST
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10 questions before getting secured credit cards
You need one to make a hotel or plane reservation, or to rent a car, even if you plan to pay cash. Many stores require a credit card to accept your check. Responsible use of a credit card builds a good credit rating, too, marking the owner as mortgage-worthy.

But people who have never had credit or need to repair a poor credit history may not qualify for a regular credit card. For them, a secured credit card may be the only way to establish, or re-establish, credit.

If you're in that boat, here are the answers to the top 10 questions about secured credit cards.

1. What is a secured credit card?

A secured card requires a cash collateral deposit that becomes the credit line for that account. For example, if you put $500 in the account; you can charge up to $500. You may be able to add to the deposit to add more credit, or sometimes a bank will reward you for good payment and add to your credit line without requesting additional deposits.

Meet the Greek Escrow Account and the Securitised Target2 Balance: the loan where you get to pay interest for the privilege of borrowing from your own collateral.

There are three stories about the euro crisis: the Republican story, the German story, and the truth. -- Paul Krugman
by Carrie (migeru at eurotrib dot com) on Mon Mar 5th, 2012 at 06:15:18 AM EST
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Excellent article by Münchau.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Mon Mar 5th, 2012 at 06:16:36 AM EST
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Read the comments... Münchau is a self-hating German turned Brit who lives in Brussels...

There are three stories about the euro crisis: the Republican story, the German story, and the truth. -- Paul Krugman
by Carrie (migeru at eurotrib dot com) on Mon Mar 5th, 2012 at 06:19:12 AM EST
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Yes. And an important point...
So, the two "Target 2" professors deserve credit for explaining the detailed mechanisms of how a monetary union functions in the presence of a broken banking sector.


There are three stories about the euro crisis: the Republican story, the German story, and the truth. -- Paul Krugman
by Carrie (migeru at eurotrib dot com) on Mon Mar 5th, 2012 at 08:55:49 AM EST
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Zombie banks is what one get when one deny there is a need for write-downs and rights issues.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Mon Mar 5th, 2012 at 09:31:27 AM EST
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Ultimately those rights may need to be purchased by the state, which is impossible when states have their public debt debt maxed out, the Central Bank will not monetize, everyone thinks this is the gold standard, and cross-border actions are either an unacceptable fiscal transfer or an unacceptable foreign expropriation.

There are three stories about the euro crisis: the Republican story, the German story, and the truth. -- Paul Krugman
by Carrie (migeru at eurotrib dot com) on Mon Mar 5th, 2012 at 10:02:38 AM EST
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As I've said before, sucks to be in the euro.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Mon Mar 5th, 2012 at 11:23:13 AM EST
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Recall that the story of the intra-EU imbalances was picked up from Sinn by Martin Wolf, though early on he correctly interpreted it as a bank run/flight to safety and later he shifted his focus to the "the ECB is funding deficit countries" narrative. (See here).

There are three stories about the euro crisis: the Republican story, the German story, and the truth. -- Paul Krugman
by Carrie (migeru at eurotrib dot com) on Mon Mar 5th, 2012 at 04:35:03 PM EST
[ Parent ]
What a nice mirror of the "China can crush the US by selling dollars story" that from time to time pops up. The answer is always, yes they can if they want to destroy their economy.

Bundesbank owns more than €500bn as long as they don't try to collect. Pity that they do not appear to have understood the part about destroying their own economy.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Mon Mar 5th, 2012 at 09:35:23 AM EST
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