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Financial support for Italy will be costless

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  • Whittaker, John

Abstract

Loans to Italy from other eurozone countries will not increase their risk exposure, irrespective of the method of financing. This is because loans will displace an equal amount of Italy’s Target2 debt, leaving unchanged the total claim of the eurozone creditors. Italy currently has Target2 debt of €513bn to other eurozone countries through its central bank. If Italy receives grants, this will amount to forgiveness of some of its Target2 debt, which will be no loss to the creditors because its Target2 debt is unlikely ever to be repaid at full value.

Suggested Citation

  • Whittaker, John, 2020. "Financial support for Italy will be costless," MPRA Paper 101025, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:101025
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    File URL: https://mpra.ub.uni-muenchen.de/101025/1/MPRA_paper_101025.pdf
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    References listed on IDEAS

    as
    1. Lorenzo Bini Smaghi, 2020. "Corona bonds – great idea but complicated in reality," Vox eBook Chapters, in: AgneÌ€s BeÌ nassy-QueÌ reÌ & Beatrice Weder di Mauro (ed.), Europe in the Time of Covid-19, edition 1, volume 1, chapter 1, pages 162-166, Centre for Economic Policy Research.
    2. Studener, Werner & Merriman, Niall & Karakitsos, Polychronis & Bunea, Daniela, 2016. "Profit distribution and loss coverage rules for central banks," Occasional Paper Series 169, European Central Bank.
    3. Sinn, Hans-Werner, 2017. "The Euro Trap: On Bursting Bubbles, Budgets, and Beliefs," OUP Catalogue, Oxford University Press, number 9780198791447.
    4. Whittaker, John, 2016. "Eurosystem debts do matter," MPRA Paper 69235, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Target2; eurosystem; Italian debt; recovery plan; ECB;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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