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EU set for ECONOMIC CRISIS: Expert warns of MAJOR imbalance

December 21, 2018 8:22 PM
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EU set for ECONOMIC CRISIS: Expert warns of MAJOR imbalance

TWO top German economists have warned of a major imbalance in the eurozone payments system, warning the “billion-dollar risks” must be corrected immediately.

Clemens Feust, president of one of Germany’s largest economic think-tanks and most influential research institutes, joined his predecessor Hans-Werner Sinn in calling for European leaders to act quickly over imbalances in the payment system of European central banks. The pair said the Target 2 imbalances entail billions of dollars of risk for German taxpayers. Target 2 is the real-time gross settlement system for the Eurozone and is operated by three central banks, Banque de France, Deutsche Bundesbank and Banca d’Italia.

German news outlet Welt said the Target 2 system operates similarly to an overdraft between central banks in the euro area.

Welt explained if an Italian man buys a car in Germany using his Italian euros it would lead to a target claim from the Bundesbank and a liability claim from Banca d’Italia.

Recent bond-buying by the European Central Bank has caused a spike in the imbalance and the Ifo chiefs explained this poses a risk to EU members if one of the states collapses financially.

Mr Feust said: “Risk protection mechanisms, such as those that exist in the government bond purchase programme, effectively isolate other central banks if the country in crisis does not have any target debt.

Source: express.co.uk

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