Sinn target ebook

Media The Economics of Target Balances. Save Not today. Format ebook. Author Hans-Werner Sinn. Publisher Springer International Publishing. Section 2.

A payment within a country is basically a transfer of central bank money. The situation is a bit different when the Greek olive oil producer wants to acquire a German automobile. The idea behind this is very important: the Greek NCB removes money from its balance sheet but keeps the assets the money was created with. To compensate this, it now has a Target debt towards the Bundesbank. But it does not receive any asset in exchange, so it is compensated with a claim towards the Greek NCB depicted in red in figure 2, cf.

As TARGET balances normally do not fully balance out over the day, there is an eurosystem agreement that all these claims and liabilities are transferred to and netted out at the ECB at the end of a business day cf. This leads to two important consequences: First, the total amount of money in both economies stays the same the blue part of table 2 and 3. This is what was called outside money in section 2. In a country that imports more than it exports, this current account deficit is fi- nanced by money from abroad by selling assets.

This money outflow from current account surplus countries is a net capital import for them. It also includes borrowing money, as bor- rowing is nothing else than trading debt certificates. For instance: Greece imports more than it exports and has thus a current account deficit.

Germany on the other hand exports more than it imports and has a current account surplus. The first public lecture given on the Target balances took place at the Humboldt University of Berlin on 9 May Martin Wolf took up this issue and called Sinn's analysis "brilliant" in the Financial Times 1 June The Financial Times also published the curves for the Target balances that Sinn had calculated based on the central banks' balance sheets.

That was the break-through that resulted in widespread recognition of the Target arguments, even if Wolf faced heavy criticism from the ECB and the financial sector at the time. The paper explains that Target balances are balances of payment and precisely documents the relationship between current account balances, capital movement balances and Target balances for the individual crisis countries.

It is shown that Target balances constitute public credit relations in the same way as credit that is given via official rescue packages. The paper also shows the displacement of domestic capital and refinancing loans in the core countries by the external capital flowing in from the periphery countries. The paper also shows that the German Target claims represent an exposure risk should the euro break up and that this exposure would equal the total claims, and not just a share of Target exposure to the crisis countries.

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