Target 2 imbalances: the eurozone’s Achilles’s heel?

Held on Tuesday, June 11


  • Jens Eisenschmidt (ECB)

  • Prof Tim Congdon and Juan Castaneda (Institute of International Monetary Research)

  • Prof. Paul De Grauwe (London School of Economics)

  • Fabio Balboni (HSBC)



I must confess that I have never really got my head around the issue of Target 2 imbalances – but I know they are large. Indeed, as of March 2019, the Bundesbank’s net creditor position in the system was €941 billion – followed by Luxembourg (€214 billion) and The Netherlands (€80 billion). On the liability side, the market leaders are, as one might expect, Italy (€475 billion) and Spain (€402 billion) – followed, oddly, by the ECB itself (€250 billion). For Germany, its credit position is now around 25% of GDP – which, in some eyes, makes Berlin “a hostage to EMU”.

This is a relatively recent development. Imbalances have essentially doubled since Draghi pledged to “do whatever it takes” – and they are, therefore, closely linked to the ECB’s asset purchase programme. But there are other factors at work – individual countries’ surpluses/deficits vis-à-vis the rest of the bloc, capital flight etc.

The real question is whether this matters – or, perhaps, under what conditions might these imbalances begin to matter? And, as a corollary of that, should it be a priority of the eurosystem to work those imbalances down?

In a world of Brexit, one might argue that it’s no skin off our national nose, and that we should let our Continental friends sort out the problem (if there is one) as best they can. But, to misquote Donne, no country is an island entire unto itself – and it is not in our interest to see another crisis in the Eurozone. Plus, any macroeconomist worth his or her salt has a faintly prurient interest in this tricky issue.

Hence, this roundtable – for which (drumroll, please) we have assembled a stellar panel to share their thoughts:

  • Jens Eisenschmidt is the principal economist in the monetary policy strategy division at the ECB in Frankfurt – where he has been for almost 12 years, joining its graduate programme having completed his PhD at the Technical University in Dresden. His team models and monitors the ECB’s balance sheet from a monetary policy perspective.

  • Tim Congdon and Juan Castaneda are, respectively, chairman/founder and director of the Institute of International Monetary Research, housed at the University of Buckingham. Tim, who is well-known to all of us, is widely regarded as the UK’s leading exponent of the ‘monetarist’ school of economic thought.

  • Paul De Grauwe holds the John Paulson chair in European Political Economy at LSE, where his research interests include monetary integration and FX markets. He is the author of “The Economics of Monetary Union”, now in its 12th edition.

  • Fabio Balboni joined HSBC from the European Commission and HM Treasury, where he was a senior economist (responsible for Greece and Cyprus at the peak of the crisis). He has an MSc from LSE and a PhD from the University of Bologna.

There’s enough brain power there to light up a mid-sized city – but the issues around Target 2 warrant that kind of attention. If you (or a colleague) would like to join us, please let us know by emailing or by calling the Centre 0207 621 1056. Fortunately, there will be wine and sandwiches for sustenance.

Many thanks,

Andrew Hilton