The imbalances within the Eurosystem’s Target 2 payment system are an indication that financial markets are not fully integrated. However, the increase in these imbalances in the wake of the large asset purchases (often called QE, for quantitative easing) that started in early 2015, should not be a particular cause for concern. The imbalances had declined until the start of QE, accompanied by a reduction in risk premia. QE was associated with a further reduction in financial stress. There is thus little reason to believe that the increase since 2015 reflects renewed fears about a euro break-up. The ‘technical’ nature of the increasing imbalances in the wake of QE is illustrated by the fact that the European Central Bank (the central institution of the Eurosystem) has also run up a negative Target balance of over €200 billion. No one would argue that this is motivated by a fear of a break-up of the euro area. There are reasons to believe that the recent run-up in the negative balances of Italy and Spain is due to similarly technical reasons.
This project was awarded under the Framework Service Contract for the provision of external expertise in the field of monetary and economic affairs (Monetary dialogues) (IP/A/ECONMD/FWC/2014-026/C6) with the European Parliament. The full list of CEPS’ Framework Contracts is available here.