EU set for ECONOMIC CRISIS: Expert warns of MAJOR imbalance - ‘It must be corrected’

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

کد خبر: ۸۶۲۶۰۱

تاریخ: ۰۱ دی ۱۳۹۷ - ۰۸:۴۷

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.

The two financial experts called for a risk limitation on target balances.

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.

Welt reported the Bundesbank has accumulated claims totally nearly €1trillion.

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.

“But if such debts exist, the other central banks of the euro system, especially the Bundesbank, are exposed to a significant default risk,"

Mr Feust added that risk would impact Germany’s federal budget, despite the decisions being made by the council of the European Central Bank rather than the German parliament.

The warning comes as the euro is due to celebrate its 20th anniversary.

However the economic experts added they did not want their comments to be taken as criticism of the single currency.

They told Welt: “As convinced Europeans who see no alternative to the progress of European integration, we do not want our analysis to be understood as a fundamental criticism of the euro and certainly not of European integration itself.”

However they added: “It needs to be corrected urgently.

"When it comes to Eurozone's currently under negotiated reforms both greater risk sharing and risk mitigation measures are discussed.

Limiting the risk of bank overdrafts (target balances) by providing collateral within the euro system could be part of the risk mitigation measures adopted under the overall package."