For the peripheral Eurozone countries, the ECB took the role of the market by providing commercial banks with unlimited liquidities, indirectly contributing to the increase of Target2 imbalances. Explaining the reason behind, we will justify this policy and put into perspective such claims of Central Banks in Northern countries.
- Target 2 in brief - Target 2 and its imbalances - Greater imbalances shouldered by
an accommodative ECB monetary policy - The consequences of these imbalances
on creditors should be put into proper
perspective - Developments
Extract - Delayed slowdown of inflation
With its non-conventional measures (such as its LTROs and easing of collateral eligibility conditions) for injecting unlimited amounts of liquidity, the ECB has taken the place of the interbank (and wholesale) market. This liquidity was then partly used to finance intra-European trade and has accordingly indirectly contributed to the rise in Target 2 imbalances.
Without this intervention, the activity downturn would have been much more marked, and asset sales and the sharp contraction in lending to offset the drying up of market finance could have plunged the Eurozone into a depressionary spiral, with the recession-credit crunch and deflation sustaining each other.
Target2 claims and debts
Since 2008-2009, Central Banks in the Eurozone's peripheral countries have accumulated debts with the Eurosystem in conjunction with the intra-Eurozone payments and settlements system dubbed Target 2.