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Target Loans, Current Account Balances and Capital Flows: The ECB’s Rescue Facility

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  • Hans-Werner Sinn
  • Timo Wollmershäuser

Abstract

The European Monetary Union is stuck in a severe balance of payments crisis. Greece, Ireland, Portugal and Spain in particular have suffered from balance of payment deficits whose accumulated value, as measured by the Target balances in the national central banks’ balance sheets, was 314 billion euros in March 2011. The national central banks of these countries covered the deficits by creating and lending out additional central bank money that flowed to the euro core countries, Germany in particular, and crowded out the central bank money resulting from local refinancing operations. Thus the ECB forced a public capital flow from the core countries to the peripheral countries that partly compensated for the now reluctant private capital flows.

Suggested Citation

  • Hans-Werner Sinn & Timo Wollmershäuser, 2011. "Target Loans, Current Account Balances and Capital Flows: The ECB’s Rescue Facility," CESifo Working Paper Series 3500, CESifo.
    • Handle: RePEc:ces:ceswps:_3500
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    currency union; balance of payments; bailout; payment system.;
    All these keywords.

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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