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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.


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