23 Nov 2017

Target imbalances at record levels: Should we worry?

Daniel Gros

Download Publication


The imbalances within the Eurosystem’s Target 2 payment system are an indication that financial markets are not fully integrated. But the increase in these imbalances in the wake of the large asset purchases (often called QE, for quantitative easing), which 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. And 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 contribution does not pretend to make a new contribution to the large literature on the imbalances within the Target 2 payment system of the Eurosystem. Its main purpose is to analyse the reasons for the renewed increase in the ‘T2’ imbalances since the start of the bond purchases in early 2015.

Daniel Gros is Director of CEPS. This policy contribution was prepared for the Committee on Economic and Monetary Affairs of the European Parliament (ECON) as an input to the Monetary Dialogue of 20 November 2017 between members of the Committee and the President of the European Central Bank. It is republished here with the kind permission of the European Parliament, but copyright remains with the European Parliament at all times.