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Seminar Paper
The impact of the European debt crisis on the TARGET balance of France: a comparative analysis of
French and Spanish International Accounts
Presented by:
Landgraf, Max Anton Ludwig
Course: Seminar International Finance (FIN661), Spring 2021
Lecturer: Prof. Dr. Eva Stumpfegger
Due Date: 15.03.2021
2
Abstract
This paper
peak of the European debt crisis by analysing and comparing data from the
international accounts of France and Spain. TARGET imbalances started to emerge in
2008, but the years 2011-12 accelerated this phenomenon. The TARGET balances of
the GIIPS countries decreased, whereas those of the core Eurozone countries
increased. While being involved in one-eighth of TARGET transactions, France has
kept a balance close to zero, even so in periods of financial stress. By conducting a
comparative analysis of the balance of payments of France and Spain for the years
2011-12, we find that France, like Spain, was hit by capital outflows chiefly in the
form of deposit flight. However, contrary to Spain, French banks sold debt securities
to the rest of the world to meet their increased liquidity needs. The estimation of an
alternative scenario for French banks using balance of payments identities suggests
that the disposal of these assets prevented increases .
3
Table of Contents Page
Index of Figures ........................................................................................................4
Index of Tables .........................................................................................................5
Index of Appendices .................................................................................................6
Index of Abbreviations..............................................................................................7
1. Introduction.......................................................................................................8
2. Literature Review and hypothesis formulation ................................................. 10
3. The TARGET system and the accounting of TARGET balances ..................... 10
3.1 The TARGET2 system ............................................................................ 10
3.2 The accounting of TARGET balances...................................................... 11
3.3 TARGET imbalances and their causes ..................................................... 14
4. TARGET balances and the balance of payments ............................................. 17
4.1 Accounting identities ............................................................................... 17
4.2 TARGET as a bailout system................................................................... 19
5. The Euro debt crisis and the TARGET balances of France and Spain .............. 23
5.1 Presentation of the methodology .............................................................. 23
5.2 Analysis of international accounts ........................................................... 24
6. Conclusion ...................................................................................................... 36
Reference List ......................................................................................................... 37
Appendices ............................................................................................................. 41
4
Index of Figures Page
Figure 1: NCB A and NCB B balance sheets before the transfer of deposits via
TARGET (adapted from ECB, 2011, p. 38) ............................................................ 12
Figure 2: NCB A and NCB B balance sheets after the transfer of deposits from NCB
A to NCB B via TARGET, unbalanced entries (adapted from ECB, 2011, p. 38) .... 13
Figure 3: NCB A and NCB B balance sheets after the transfer of deposits from NCB
A to NCB B via TARGET, adjusted entries (adapted from ECB, 2011, p. 38) ......... 13
Figure 4: NIIP, cumulated BOP transactions and TARGET balances: Spain,
Germany, Italy, France, 01-12-2000 = 0 (01-2001 to 10-2020) ................................ 21
Figure 5: France: FA breakdown by functional category and change in the TARGET
liability, three-month moving average (06-2010 to 12-2012) ................................... 27
Figure 6: Spain: FA breakdown by functional category and change in the TARGET
liability, three-month moving average (06-2010 to 12-2012) ................................... 28
Figure 7: France and Spain actual TARGET balances compared to the hypothetical
--2010 to 12-2012) ..... 33
5
Index of Tables Page
Table 1: France: rearranged quarterly BOP accounts, billions of euros .................... 25
Table 2: Spain: rearranged quarterly BOP accounts, billions of euros ...................... 25
Table 3: France: BOP breakdown by functional category and economic sector,
cumulated flows from 2011Q1 to 2012Q4, millions of euros ................................... 30
Table 4: Spain: BOP breakdown by functional category and economic sector,
cumulated flows from 2011Q1 to 2012Q4, millions of euros ................................... 32
6
Index of Appendices Page
Appendix 1: Stylised balance sheet of a central bank (adapted from ECB, 2013, p.
106) ........................................................................................................................ 41
Appendix 2: TARGET balances of France, Germany, Italy, Spain (2008 to October
2020) ...................................................................................................................... 41
Appendix 3: Balance sheet effects when agent A (Spain) pays agent B (Germany)
(adapted from Whelan, 2017, pp. 1011) ................................................................ 42
Appendix 4: TARGET balances of France, Spain, Italy (01-2011 to 12-2012) ........ 42
Appendix 5: France: NIIP of the central bank and breakdown by investment function,
billions of euros ...................................................................................................... 43
Appendix 6: Spain: NIIP of the central bank and breakdown by investment function,
billions of euros ...................................................................................................... 43
Appendix 7: France: Other investment/central bank/net, compared to first differences
............................................ 44
Appendix 8: Data series and sources ....................................................................... 44
7
Index of Abbreviations
APP Asset purchase programme
BdE Banco de España
BdF Banque de France
BIS Bank for International Settlements
BOP Balance of Payments
CA Current account
CKA Current and capital account
ECB European Central Bank
EEA European Economic Area
EO Net errors and omissions
ESCB European System of Central Banks
EU European Union
FA Financial account
GIIPS Greece Ireland Italy Portugal Spain
IIP International investment position
IMF International Monetary Fund
KA Capital account
LTRO Longer-term refinancing operations
MFIs Monetary financial institutions
MRO Main refinancing operations
NCB National central bank
NIIP Net International investment position
OCA Optimum currency area
PIIGS Portugal Ireland Italy Greece Spain
RTGS Real-time gross settlement system
TARGET Trans-European Automated Real-time Gross settlement Express
Transfer System
TARGET2 Second-generation Trans-European Automated Real-time Gross
settlement Express Transfer system
8
1. Introduction
The adoption of the euro on January 1, 1999, by eleven EU member states was an
important milestone in the history of European integration (ECB, 2021c). The creation
of a monetary union the euro area in the case of Europe is the penultimate stage
before reaching full economic integration (Balassa, 1961, p. 2). In the euro area
1
, the
monetary policy is defined and conducted by the Eurosystem; the European Central
Bank is the sole decision-making body (European Union, 2016, Chapter III).
2
Scholars
have questioned the prosperity of the euro area, notably by drawing parallels with
Mundells (1961) optimum currency area (OCA) theory. Blake (2018, pp. 423), in
this regard, argues that the economic, legal, and cultural differences between EU
countries are too significant for the euro area to qualify as an OCA. Critics of the euro
bring forward the role of the free exchange rate as a financial channel in offsetting
trade and capital flow disparities between countries; economic research has shown
mixed results in this matter (Kearns & Patel, 2016). The global financial crisis and the
European debt crisis broadened the gap between the eweakest economies,
often referred to derogatorily as the PIIGS, and the strongest economies, comprising
Germany and the Benelux.
3
One of the topics that emerged from the discussions
surrounding the European debt crisis interbank reserves
settlement system, known as TARGET2, whose first iteration, TARGET, was
launched conjointly to the introduction of the euro currency in January 1999. German
economist Hans-Werner Sinn is credited for drawing public attention to the issue of
the so-called TARGET loans and TARGET imbalances.
4
This initial exposure in
German press articles was soon followed by more rigorous academic research by Sinn
& Wollmershäuser (2012) and other scholars. It is in 2008 that the TARGET positions
between Eurozone countries started to significantly diverge, reflecting asymmetric
intra-Eurozone transfers of base money and, by extension, of broad money (cf. sections
3.2 and 3.3). Since the Greek financial crisis, GIIPS countries accumulated sizeable
1
(the EU Publications
Office, 2013); in the
interchangeably.
2
The ECB and the NCBs of the member states who have adopted the euro as a currency constitute the
Eurosystem. The ECB and the national central banks of the EU constitute the ESCB (European Union,
2016, Chapter I).
3
The term PIIGS is commonly used in the economic press. See for example Romei (2016). In the
4
Sinn featured in several articles in German newspapers, see for example Sinn (2011a).
9
negative TARGET balances, whereas the balance of northern economies increased.
5
Despite representing one- (Banque de France,
2018), the French component of TARGET has intriguingly not developed critical
levels of imbalances, even in periods of financial stress.
6
5
Praet (2016) summarized the different phases of the European crisis and its dividing effects between
northern and southern euro area economies, which are reflected in TARGET positions.
6
This observation is made by comparing the French balance to that of Spain, Italy and Germany in the
relevant periods. The corresponding data is visually represented in Appendix 2.
10
2. Literature Review and hypothesis formulation
TARGET balances are fairly discussed in academia.
7
Parallels between TARGET
balances and the balance of payments (BOP) are notably established by Sinn &
Wollmershäuser (2012, pp. 488489). Cour-Thimann (2013, pp. 1920) rearranges the
accounting identities of the BOP to express changes in TARGET balances into a single
equation. However, to our knowledge, scarce are the papers that applied this theory on
BOP data to study the causes of TARGET balance changes. Further, few to no papers
dwelt on the causes of TARGET balance, whose neutral position nevertheless
deserves some attention. This paper attempts to fill this gap by estimating a model
based on the international accounting identities established in previous literature.
Hristov, Hülsewig & Wollmershäuser (2020) estimated a structural vector
autoregression model on a panel of eight Eurozone countries and found empirical
evidence that capital inflows shocks decrease the TARGET liability. Following this
logic, we hypothesise that neutral TARGET balance during the Euro debt
crisis is explained by the absence of important net capital outflows, resulting in no
significant changes in the TARGET balance of the country. Additionally, we expect
the negative TARGET balance of Spain to be explained by net capital outflows during
the years 2011-12, following the official narrative, as in Praet (2016).
3. The TARGET system and the accounting of TARGET balances
3.1 The TARGET2 system
TARGET2 is the real-time gross settlement (RTGS) system for the euro; it replaced
its less-consolidated anterior version, TARGET, in November 2007 (ECB, 2013, p.
103).
8
The payment system is owned and managed by the Eurosystem (ECB, 2016b).
9
The objective of the TARGET system is to
defining and implementing the monetary policy of the euro area and promoting the
7
TARGET2 refers to the payment system operated by the Eurosystem, TARGET balances refers to
the accounting positions of NCBs vis-à-vis the ECB as they appear on their balance sheet (cf. section
3.3).
8
TARGET2 and TARGET will
9
The project of technical consolidation allowing the transition from TARGET to TARGET2 was in the
Banque de France (2018).
11
smooth operation of payment systems, thus contributing to the integration and stability
of the euro money market. (ECB, 2019, p. 13). TARGET is best defined as the
are settled in central bank
money (ECB, 2005, p. 5). Only credit institutions established in the EEA are eligible
for direct participation.
10
As for every RTGS, transfers within the TARGET system
are settled within seconds, which reduces transaction risks to zero and improves the
liquidity management of the participants (ECB, 2005, p. 9). According to the ECB
(2016b), the value of TARGET transactions over six days is equivalent to the GDP of
the euro area and the system processed 90% of the total value of euro settlements for
the year 2016.
3.2 The accounting of TARGET balances
TARGET balances appear on the balance sheets of the central banks composing the
Eurosystem (ECB, 2013, p. 103). A positive TARGET balance is recorded as an asset,
while a negative balance is recorded as a liability (ECB, 2013, p. 105). To understand
why this is the case, the ECB (2020a) emphasises two aspects:
1. The monetary policy of the eurozone is conducted in a decentralised fashion,
where the ECB coordinates the operations and the NCBs carry out the
(ECB, 2021b). This implies the NCBs hold individual financial
accounts.
2. Central bank money (base money), whether created through loans to
commercial banks or through asset purchases, is recorded as a liability on the
(ECB, 2020a) (see Appendix 1). Base money (M0)
consists of banknotes in circulation and reserves of commercial banks, as
shown in (2).
11
10
TARGET2 direct participation is mandatory for NCBs of the Eurosystem, optional for NCBs of the
ESCB (ECB, 2019, p. 45).
11
Base money also comprises liquid deposits exceeding the level of reserves requirements, see ECB
(2017, p. 62).
12
(NW), also referred to as its capital position, is the
difference between its total assets and total liabilities (Rule, 2015, p. 14), as shown in
(2).
(1)
(2)
Changes in net worth occur when the market value of the marketable assets differs
from the created money (Whelan, 2017, p. 7). Figure 1, Figure 2 and Figure 3 offer a
three-step approach to the accounting mechanisms linked to TARGET transfers.
12
Figure 1 shows a set of stylised central bank balance sheets of two fictive national
central banks, NCB A and NCB B, before the transfer of deposits from A to B.
Contrary to Appendix 1, the banknotes in circulation does not appear because
it is not relevant to the demonstration to follow.
Figure 1: NCB A and NCB B balance sheets before the transfer of deposits via
TARGET (adapted from ECB, 2011, p. 38)
Since payments via TARGET are made in central bank money (i.e., base money),
every cross-border TARGET bank
deposits accounts (ECB, 2013, p. 105).
deposits are not transferred and remain
on the original balance sheet (ECB, 2020a). As shown in Figure 2, without any
additional adjustments, the capital position of both NCBs is affected by the transfer of
12
The accounting items affected in each step appear in red; the numbers shown on the accounts are
fictive. The demonstrations shown hereafter are adapted from ECB (2011, p. 38).
13
deposits. NCB A sees its capital position increase by ten units, while the capital
position of NCB B decreases by ten units.
Figure 2: NCB A and NCB B balance sheets after the transfer of deposits from
NCB A to NCB B via TARGET, unbalanced entries (adapted from ECB, 2011,
p. 38)
To offset these changes in capital position, adjustments on the accounts of both NCBs
are necessary. These adjustments result in the creation of TARGET claims (assets) and
TARGET liabilities (Figure 3).
13
Once these adjustments are made, each NCB
recovers its initial capital position. TARGET balances thus serve as
for balance sheet discrepancies between deposits and assets (ECB, 2020a).
Figure 3: NCB A and NCB B balance sheets after the transfer of deposits from
NCB A to NCB B via TARGET, adjusted entries (adapted from ECB, 2011, p.
38)
13
Banque de France (2019,
pp. 122125).
14
Contrary to what may be suggested by the entries above, TARGET claims/liabilities
do not appear on the balance sheet as individual accounting blocks expressing bilateral
positions between two NCBs. Instead, consolidations a
consists of substituting all NCBs obligations by ECB obligations and the end of every
TARGET day.
14
This results in each NCB having a single TARGET position
expressed vis-à-vis the ECB. The netting process of TARGET balances is presented
in (3). The TARGET balance of NCB at a given time corresponds to the aggregated
differences between TARGET inflows and outflows since the start of TARGET (
). The equation (3) is adapted from Eisenschmidt, Kedan, Schmitz & Adalid (2017,
p. 17) and ECB (2013, p. 105).
(3)
Equation (3) implies that an
a net in- or outflow of cross-border money transfer via TARGET2.
15
The emergence
of TARGET balances is thus the result of payment flow imbalances. The expression
TARGET imbalances is usually employed when referring to the difference in the net
TARGET position of two or more NCBs.
3.3 TARGET imbalances and their causes
Appendix 2 presents the evolution of TARGET balances of France, Germany, Italy
and Spain over time. Since mid-2008, the TARGET imbalances are on an upward
trend, leading scholars to question their causes and their implications for the euro.
16
The ECB (2020a) asserts TARGET transfers to be bound to three macroeconomic
phenomena: (1) payments of goods, services, and financial assets between economic
agents, (2) interbank lending of central bank money, and (3) operations tied to the
implementation of the monetary policy. For each of these macroeconomic trends to
impact TARGET balances, transactions must be cross-border and asymmetric. All
three ECBs assertions have already been presented as a cause of the divergence of
14
This was decided by the Governing Council of the ECB, see ECB (2013, p. 105).
15
i.e., if TARGET inflows ≠ TARGET outflows.
16
The CESifo, an institute in economic research, has contributed to the literature with publications on
TARGET balances, as in Cour-Thimann (2013) and in Sinn (2020b).
15
TARGET balances in the previous literature. Phenomena 1 and 2 have been
extensively studied in the literature, notably by Sinn (2012) and Bindseil & König
(2011). Contrary to phenomena 2 and 3, phenomenon 1 is driven by the real economy.
As previously discussed, phenomena 1 relates to
savings, and investment decisions, with banks acting on behalf of these economic
agents (Eisenschmidt et al., 2017, p. 5) (see Appendix 3). Phenomenon 3 is presented
as the primary driver of TARGET imbalances from 2015 onwards due to the large-
scale asset purchase programs started by the ECB in the same period. The correlation
between the movements in TARGET balances and the implementation of the
e monetary policy is considered the official narrative. The monetary policy
of the euro area, whether conducted using conventional (MRO, LTROs) or
unconventional (APPs) tools, regulates the amount of injected central bank money and
should therefore impact TARGET balances (Cecioni & Ferrero, 2012, pp. 912). In
the case of the APPs, Peter Praet (2016), a member of the Executive Board of the ECB,
delivered a speech in which he establishes direct causality between their
implementation and TARGET imbalances. One explanation put forward to support
this claim is that the structural differences across member states in asset ownership
and financial service specialisation cause the asymmetrical flows observed in the
TARGET balances (Eisenschmidt et al., 2017, p. 3). Dor (2016, pp. 67), on the
contrary, claims this narrative contradicts the evidence stemming from the data of
BOP.
Appendix 3 describes a fictive situation in which Agent A has an account at Banco
Santander in Spain and wishes to transfer cash to Agent B, who has an account at the
Commerzbank in Germany.
17
Santander decided not to (or could not) reduce its
reserves at Banco de España and seeks the needed liquidity in the interbank market.
However, since 2008, the interbank market ceased to function correctly (ECB, 2013,
p. 107). Santander is unable to obtain market funding and thus requests a loan from
Banco de España. The loan to Santander increases the assets of Banco de España by
The transfer of deposits from the Banco de España to the Bundesbank creates
TARGET items on their balance sheets. The reverse process occurs on the other side,
and the account of Agent B is credited. The transaction closed the positions between
17
The hypothetical scenario described hereafter (and visually reproduced in Appendix 3) is adapted
from ECB (2013 pp. 105106) and in Whelan (2017, pp. 1011).
16
Agents A and B. At the same time, it created open TARGET positions between the
Banco de España, the Bundesbank and the ECB. From this example, additional
comments can be made:
• Agents A and B represent the private sector; A and B could represent
households or businesses.
• The transaction between A and B may be related to consumption
(goods/services), investments (financial assets) or savings (transfer of deposits)
(ECB, 2020a).
• As mentioned by Blake (2018, p. 24), the payment from A to B could very well
be on credit, i.e. A could take a loan from Santander to pay the goods of B.
17
4. TARGET balances and the balance of payments
All economic transactions domestic residents and the rest of the
world are recorded in its international accounts (IMF, 2009, p. 7). The international
accounts comprise the balance of payments (BOP) and the International Investment
Position (IIP).
18
Cour-Thimann (2013, p. 19) justifies the link between BOP and
TARGET balance developments by emphasising the role of banks as intermediaries
for most economic transactions. The Deutsche Bundesbank (2011, p. 34) explains that:
attributable to cross-border transactions which involve banks that participate in
TARGET2 via the Bundesbank.
operations on the money and capital markets and, on the other, by transactions carried
out by the non-banking sector, which generates payments via the banking system.
4.1 Accounting identities
The balance of payments identity net of errors and omissions, as defined by the
BPM6, is given in (3) (IMF, 2009, p. 224).
19
, (3)
where FA = financial account, CA = current account and KA = capital account.
20
If
errors and omissions are different from zero, the identity becomes (IMF, 2009, p. 224):
, (4)
where EO = net errors and omissions. According to IMF accounting standards, the
financial account is subdivided by investment functional category as expressed in
equation (5) (IMF, 2009, p. 99).
, (5)
where FDI = foreign direct investment, PI = portfolio investment, DER = financial
derivatives and employee stock options, OTH = other investment and RA = reserve
assets. In the balance of payments, other investments are subdivided by economic
sector (IMF, 2009, pp. 5963):
18
Data in the balance of payments corresponds to transactions (or flows), i.e., the transfer of goods,
services and financial assets between domestic residents and the rest of the world. Data in the
International Investment Position accounts is expressed in stocks (or positions) (IMF, 2009, pp. 79).
All accounts and subaccounts presented in the herein paper are described in further detail in the IMF
manual.
19
BPM6 refers to the sixth edition of the Balance of Payments and International Investment Position
Manual of the IMF.
20
All accounts presented in the accounting identities are net balances (i.e., credits minus debits/assets
minus liabilities), except for reserve assets (
RA
).
18
, (6)
where NCB = central bank, GOV
= general government, MFI = monetary and financial
institutions except the central bank and PRV
= other sectors than MFIs and general
government. Changes in TARGET balances are captured in the account OTH (NCB).
The ECB (2016a, p. 57) indicates that TARGET transfers are recorded in the BOP
other investments/currency and deposits/central bank/long-term/financial
In the publicly available data from the Banque de France, no distinction is
made between the domestic and the foreign components of the item currency and
deposits, - Due to these
constraints imposed by the limited availability of public BOP data, we keep the item
OTH (NCB) as a proxy in the forthcoming analyses to track changes in TARGET
positions, as shown in (7).
21
Moreover, balance sheet reporting methods, the items short-
term loans and long-term loans also a subcomponent of the BOP item OTH (NCB)
likewise contain data on TARGET transfers.
22
These items are therefore also
included in the proxy. Appendix 7 exposes the visual representation of the data for the
BOP account other investment/central bank/net compared to the rolling first
differences in the TARGET balance as reported by the ECB for France.
(7)
Eisenschmidt et al. (2017, p. 16) emphasise the approximation of the equality (7) by
stating that () other investments [from the central bank] include additional items
such as foreign deposits, which have risen in recent years, for instance in the case of
the Deutsche Bundesbank (). The same authors nevertheless acknowledge that
21
BOP data from the Banque de France has no recorded values for the statistical series
investments/currency and deposits/central bank/long-
the missing series is BPM6.Q.N.FR.W1.S121.S1.T.N.FA.O.F2.L.EUR._T.N.N.
22
There is no consolidated database reporting all individual TARGET balances of the participating
NCBs (ECB, 2011, p. 36). The reporting of TARGET balances is therefore done individually by the
NCBs. The ECB (2016a, p. 207)
covered through direct BdF reports. Loans of BdF covers the assets and liabilities in euro vis-à-vis the
ESCB (European System of Central Banks) recorded in BdF balance sheet as intra-ESCB transactions
handled by the TARGET2 payment system (Trans-European Automated Real-time Gross settlement
Express Transfer), as well as foreign currency placed with non-resident banks in the euro area. In
keeping with the common methodology of the euro area countries, the latter assets are not counted as
reserve assets.
19
[c]hanges in TARGET balances have generally been the most important component
of OTH (NCB) for euro area countries. This assertion is supported by the visual
representation of the data presented in Appendix 7. Rearranging the previously
presented accounting identities leads to equality (8). Including the equivalence
presented in (7) yields equality (9).
(8)
(9)
4.2 TARGET as a bailout system
The central controversy about TARGET balances is whether it is a bailout system.
Sinn (2011b) initiated the debate by qualifying TARGET as secret
bailout. One aspect of the bailout argument revolves around the characteristics of
TARGET debts and claims. TARGET debts have no maturity, and their interest rate is
the same as the MRO rate, which is 0.00% since March 2016 (Deutsche Bundesbank,
2010, p. 170).
23
TARGET liabilities/claims, as part of the NCBs reserves, are safer
financial assets than the ones tied to private debt . Appendix 3 presented
the accounting of TARGET balances based on a situation in which agent A from Spain
used cash in its savings account at Santander to pay agent B from Germany. In this
situation, both A and B fulfilled their obligations, and there is no open position left in
the private sector. The same accounting mechanisms occur if A decides to take a loan
at Santander to pay for the goods of agent B, the difference being that A now has a
debt towards Santander. Blake (2018) considers the situation in which A never repays
its loan to Santander and claims that TARGET debts serve as a way out of the private
-performing loans. This practice, known as evergreening, consists of
repeatedly extending the maturity of a loan instead of repaying it. Steinkamp et al.,
(2020) found empirical evidence that evergreening is higher in euro area countries than
in the rest of the world, especially for those countries facing financial distress.
23
See ECB (2021a) for a historical follow-up of the MRO rate and other key ECB interest rates. Interest
current account/ primary income/
investment Income/ other Investment/ interest/ central bank(ECB, 2016a, pp. 5758).
20
Another line of argument for the bailout approach is the explicit recording of
TARGET balances within the balance of payments. By using the BOP accounting
identities and by rearranging equation (9), the change in TARGET balance
is expressed as the following:
, (10)
where FA (private)
represents private capital inflows, FA (public) represents public
capital inflows plus reserve assets of the central bank, and Residual regroups net errors
and omissions and the capital account. Equation (10) suggests that the change in the
TARGET balance of a country corresponds to the financing needs from the CA that
are not covered by private and public capital inflows (imports). Sinn &
Wollmershäuser (2012, p. 489) offer a more rigorous approach to equation (10) by
distinguishing intra- from extra-euro transactions, the latter one having no effect on
TARGET balances. Hristov et al. (2020) found empirical evidence under which
TARGET2 prevented deeper economic recessions for southern eurozone countries
between 2008 and 2014, further supporting the claim that the system serves as a safety
net in periods of financial stress.
Proponents of the bailout approach do not oppose the existence of the TARGET
system per se; instead, their criticism focuses on the lack of reporting transparency
from European institutions on this issue. Sinn & Wollmershäuser (2012, p. 470)
notably point out that the difficulty to find the TARGET balances in the NCBs balance
sheet was the reason why they went unnoticed for a long time. Likewise, most scholars
who refuse to see TARGET as a bailout system are nonetheless fully aware of the
compensating role the system occupies as a liquidity provider for the distressed private
banks. However, they conclude the associated imbalances to be part of the expected
consequences of the currency union. Whelan (2017, p. 101) as such considers that the
controversy on TARGET imbalances merely concerns their accounting treatment,
before adding that the changes in intra-Eurosystem balances reflect the workings
of a monetary union with free movement of capital rather than the operation of the
Figure 4 exposes the relationship between
BOP developments and changes in TARGET balances on a panel of four Eurozone
countries.
21
Figure 4: NIIP, cumulated BOP transactions and TARGET balances: Spain,
Germany, Italy, France, 01-12-2000 = 0 (01-2001 to 10-2020)
The transaction data from the BOP accounts and the TARGET balances presented in
Figure 4 are transformed into stocks. Therefore, the BOP accounts do not accurately
replicate the . The NIIP, on the contrary, provides
a better picture of the cou net external debt. The data from the NIIP is
transformed to monthly frequency using the Denton (1971) method. All items are
accumulated since January 2001, including the TARGET balance.
data on TARGET balances are used for the item Net TARGET liability (claim). We
use data corresponding to the TARGET liability instead of the net TARGET balance
because, in BOP terms, an increase in the TARGET liability is considered to be a net
import of capital (Deutsche Bundesbank, 2011, p. 34). Several observations are made
from the BOP developments shown in Figure 4.
22
• Spain and Italy: The NIIP shows that both countries are net borrowers to the
rest of the world due to the funding needs emerging from their CA deficits.
Spains cumulative CA deficit is almost double that of Italy. Private capital
inflows, while being sufficient to fund the CA deficit of the two countries from
2001 to 2011, abruptly decreased from 2011 to the end of 2012.
24
During the
same period, the two countries built sizeable TARGET liabilities. Conversely,
a partial return of private capital inflows, as for Spain from 2013 to 2014, seems
to decrease the TARGET liability.
• Germany: the cumulated CA shows consistent surpluses since 2001, and
according to the NIIP data, Germany remained a net lender to the rest of the
world. Germany gradually built a TARGET claim since 2008 that amounts to
1 trillion euros in 2020. to that of Spain and
Italy. The TARGET system funded a share of German exports.
• France: The French BOP is neutral, such that the item Net errors and
omissions is comparable in volume to the accumulated financial account
balance. The 2008 financial crisis entailed a decrease in net investment inflows
and an increase in the TARGET liability. However, during the same period,
the NIIP evolved in the opposite direction to the financial account. The NIIP,
contrary to the financial account, includes a revaluation in addition to changes
in asset ownership (transactions).
25
Capital inflows decreased in 2011-2, but to
a much lesser extent than Spain and Italy. Further, Frances deteriorating CA
position is compensated with sufficient net private capital inflows.
Overall, we observe that countries with less neutral BOP developments also have
either substantial TARGET surpluses or deficits. Conversely, FrBOP is
reflected in a TARGET balance close to zero.
24
The item in Figure 4 includes investments from the general
government, but these investments make only a small contribution to the financial account balance.
25
The valuation effect includes changes in asset prices and changes in the foreign exchange rates and
(IMF, 2009,
p. 8).
23
5. The Euro debt crisis and the TARGET balances of France and Spain
The BIS (2017, p. 7) states that the increase in the TARGET liability of the GIIPS is
mostly explained by an intra-euro flight of private capital from these countries to core
countries, like Germany, Luxembourg and the Netherlands. Praet (2016) claims the
sovereign debt crisis of 2010-12 to have:
renewed intensification of bank funding pressures, but in a much more country-
specific way than before. As redenomination risk surfaced, entire national banking
systems lost access to wholesale funding markets. Liquidity outflows accelerated from
countries perceived as more vulnerable, like Spain, to those perceived as more stable,
such as Germany. This triggered a precipitous increase in the total TARGET balance
to a peak of over EUR 1 trillion by mid-2012.
5.1 Presentation of the methodology
The methodology consists of a comparative analysis of the international accounts of
France and Spain from 2011Q1 to 2012Q4. The comparison of France and Spain is
justified by similar BOP and TARGET balance developments over the first half of the
year 2011. Trends in the financial flows between the two economies started to diverge
during the third quarter of 2011, and this difference in evolution is likewise observed
in the TARGET balance. A first analysis is made by rearranging the data of the main
BOP accounts of both countries, following a similar logic to that of equation (10).
Analysis 1 allows a first view on the evolution of the financial flows and the TARGET
balances of France and Spain and pinpoints the primary differences in trends. Analysis
2 focuses on the financial account and the NIIP of the two countries. It consists of
rearranging and comparing the data on the breakdown by functional category and
economic sector of the financial accounts of France and Spain. For analyses 1 and 2,
the period of study is from 2011Q1 to 2012Q4. For Analysis 2, all transactions (flows)
are aggregated over the period of study to underline the critical transaction trends. The
goal of Analysis 2 is to complement the primary inferences stemming from Analysis
1. Finally, Analysis 3 quantitatively assesses the consequences of the asset disposal by
French banks on the TARGET balance of France. We use the accounting identities of
the BOP to estimate a model where the item OTH (NCB) is set as the output variable.
At a given date, we swap a variable of interest from the financial account of France
with that of Spanish accounts while keeping all other variables unchanged. We then
look at the reaction of the output variable. The output variable, OTH(NCB), serves as
a proxy to estimate the resulting change in the TARGET balance.
24
5.2 Analysis of international accounts
Analysis 1
Table 1 and Table 2 present quarterly data from the rearranged BOP accounts of France
and Spain. A first turning point is identified in the French accounts, marked (*) on the
table, which occurs during the fourth quarter of 2011. Data from the preceding period,
corresponding to the first three quarters of 2011, exhibit the similar BOP developments
of the two countries:
• The summed CA deficits from 2011Q1 to 2011Q3 amounted to
919 million for France and Spain, respectively.
• The summed private financial outflows from 2011Q1 to 2011Q2 amounted
million for France and Spain, respectively.
26
The
financial flows between the two countries started to evolve in different
directions from 2011Q3 onwards.
26
As presented in Table 1 and Table 2, a positive number in the financial account corresponds to a net
financial outflow and a negative number to a net financial inflow. As suggested by the accounting
identities in section 4.1, a CA deficit, which bears a negative sign, will be offset by any negative amount
in the financial account.
25
Table 1: France: rearranged quarterly BOP accounts, billions of euros
Source:
BdF
2011
Q1
2011
Q2
2011
Q3
2011
Q4*
2012
Q1
2012
Q2
2012
Q3
2012
Q4
CA
-13.9
-4.6
1.94
-1.05
-9.7
-6.4
-11.5
-2.93
KA
0.053
0.039
-0.51
0.26
-0.64
-0.59
-1.6
-0.53
CKA
-13.89
-4.58
1.42
-0.79
-10.33
-6.97
-2.77
-34.64
FA
private
-21
-16.75
99.53
-37.01*
-46.12
-40.50
-17.53
57.51
FA
public27
8.87
-2.48
-5.85
-0.33
-0.39
1.65
-1.42
8.12
CKA–FA
(private
+public)
-1.76
14.64
-92.27
36.55
36.18
31.87
16.17
-69.09
EO
2.09
-16.91
-6.78
-17.02
0.52
-1.49
-4.36
-8.45
OTH
(NCB)
0.33
-2.27
-99.05
19.53
36.70
30.37
11.81
-77.54
2,
ECB
data28
-2.10
-1.95
-34.65
-55.10
42.35
12.58
34.69
-57.66
Table 2: Spain: rearranged quarterly BOP accounts, billions of euros
27
(RA). In the BOP, changes in TARGET balances
are recorded independently from changes in RA (ECB, 2016a, p. 207).
28
ΔT2, ECB data = first difference in the quarterly TARGET balance as reported by the ECB.
Source:
BdE
2011
Q1
2011
Q2
2011
Q3
2011
Q4
2012
Q1
2012
Q2
2012
Q3
2012
Q4
CA
-13.79
-4.53
-3.60
-7.05
-10.25
0.27
5.67
5.19
KA
0.68
0.53
0.61
1.72
0.6
0.86
1.29
2.65
CKA
-13.11
-4.0
-2.99
-5.34
-9.65
1.13
6.96
7.84
FA
(private)
-24.45
-5.93
30.82
70.34
92.94
130.70
-5.71
-22.03
FA
(public)
3.46
0.38
0.19
10.23
0.067
3.01
-1.93
-34.38
CKA–FA
(private
+public)
7.87
1.55
-34
-85.90
-102.66
-132.58
14.6
64.26
EO
4.68
-3.51
-4.94
1.35
2.77
-1.27
-3.30
3.97
OTH
(NCB)
12.55
-1.96
-38.93
-84.56
-99.9
-133.85
11.3
68.22
2,
ECB
data
10.16
-6.93
-35.27
-67.24
-102.04
-119.71
-48.04
67.05
26
From 2011Q3 onwards, trends in financial flows strongly diverged between the two
countries. Francetotal net private financial inflows amounted to 83 billion (Table
1), while Spain recorded total net financial outflows 266 billion (Table 2). The
data on French accounts show that France faced a private financial outflow of almost
100 billion in 2011Q3. During the same quarter, other investments/central bank
our proxy for changes in the TARGET balance also decreased by
summed ECB data (ΔT2, ECB data) from 2011Q3 to 2011Q4 show a decrease in
89 billion. Appendix 4 shows that
balance reached levels comparable to Spanish and Italian balances in September 2011;
all three countries had a . Following September
2011, however, the French TARGET balance stabilised before increasing towards a
balance of zero. This stop in the decrease of the TARGET balance coincides with the
capital flow reversal observed from the BOP data during 2011Q3.
Analysis 2
As shown in equation (5) of section 4.1, the financial account of a country is broken
down into five functional categories: direct investment, portfolio investment,
derivatives and employee stock options, other investments and reserve assets. Figure
5 and Figure 6 track the evolution of French and Spanish portfolio investments (PI),
other investments excluding the central bank (OTH (ex. NCB)), portfolio plus other
investments (PI + OTH) and changes in the TARGET liability (ΔTARGET liability)
from June 2010 to December 2012. Changes in direct investments and reserve assets
are omitted because the accounts do not present significant evolutions over the
reference period. For changes in the TARGET liability
used.
29
A three-month moving average is applied to the monthly data to ease the visual
interpretation of the financial flows.
29
As previously mentioned, negative value in the data on TARGET balances (corresponding to a net
TARGET deficit) is considered in BOP terms as a financial inflow and a positive value a financial
outflow (Deutsche Bundesbank, 2011, p. 34). To visually emphasize the repercussions of net financial
outflows on TARGET balances, changes in the net TARGET liability are used as the reference.
27
Figure 5: France: FA breakdown by functional category and change in the
TARGET liability, three-month moving average (06-2010 to 12-2012)
Figure 5 suggests that started in March 2011 and
extended to October 2011. Actual transaction data from the BOP for the same period
show net outflows of 260 billion in other investments and net inflows of 226 billion
in portfolio investments. 72 billion.
By looking at the summed changes in portfolio and other investments (PI + OTH), it
can be inferred that the 226 billion of portfolio investments inflows recorded in the
French accounts compensated for the simultaneous outflows of other investments. As
we shall see later, other investments are predominantly composed of transactions
involving s. In this regard, a deposit flight, as it
occurred during the sovereign debt crisis, translates into a net outflow in other
investments.
28
Figure 6: Spain: FA breakdown by functional category and change in the
TARGET liability, three-month moving average (06-2010 to 12-2012)
In the case of Spain, both portfolio and other investments contributed to the increase
in the TARGET liability. Actual transaction data from the BOP reveals that financial
outflows corresponding to other investments amounted to 205 billion from
September 2011 to June 2012. For the same period, portfolio investments outflows
amounted to 0 billion. By comparing the summed investments flows (PI + OTH)
with data on the TARGET liability, we see that portfolio and other investments almost
exclusively contributed to changes in Spains TARGET liability from March to
September 2012. Contrary to France, portfolio investments recorded in Spanish
accounts did not compensate for other investments outflows but aggravated the capital
flight. Beyond this noticeable difference in flows is the apparent difference in timing
in the periods of financial stress experienced between the two countries.
capital flow crisis lasted six months and came to an end in October 2011. Outflows
stopped after this date. period of capital flight started almost at the date where
it ended for France and lasted one year, from June 2011 to June 2012.
Appendix 5 and Appendix 6 present the NIIP of French and Spanish central banks,
respectively, broken down by investment functional category. As mentioned before,
the data recorded in the NIIP correspond to closing balances (or positions) and include
valuation effects. Appendix 5 and Appendix 6 aim to assess the change in the central
in absolute terms (closing positions) rather than the
29
relative terms provided by the BOP transactional data. While investment positions in
reserve assets and portfolio investments remained stable for both NCBs, the
contribution of TARGET balance (Appendix 6) to total investments positions
of the Spanish central bank increased significantly. In 2011Q1, TARGET-related
investment positions represented 20% of the total investment stocks of the central
bank. This number increased to 80% in 2012Q4. The sudden financial outflows that
hit France in 2011Q3 likewise translated to a larger contribution of TARGET-related
investments to total investments, but to a lesser extent than Spain. Naturally, the
increased contribution in volume in the Spanish TARGET balance is also observable
in the balance sheet of Banco de España. Sinn (2020, p. 2) points out that in recent
years, for some NCBs, TARGET balances even make up the largest single item of
their balance sheet.
Table 3 and Table 4 provide a breakdown of the BOP by functional category and
economic sector, from 2011Q1 to 2012Q4. The functional categories again refer to the
presented in equation (5) of section 4.1.
The second classification is based on four mutually exclusive economic sectors:
central bank, monetary and financial institutions other than the central bank (MFIs ex.
NCB), general government and other sectors than MFIs and general government.
30
The data on flows is summed over the entire period to underline the key transaction
trends. Data discrepancies are collected under Margin of error.
31
30
-financial corporations, non-profit
institutions serving households (NPISH) and households.
31
actual reported data on total financial assets (liabilities).
30
Table 3: France: BOP breakdown by functional category and economic sector,
cumulated flows from 2011Q1 to 2012Q4, millions of euros
The most noticeable trends in capital flows for France are reflected in the cumulated
incurrence of liabilities recorded for the item other investment/currency and
deposits/MFIs (ex. NCB), which amount to In IIP terms, negative
liabilities correspond to a net purchase of domestic securities by foreign investors
(IMF, 2014, pp. 1213). In the case of the item currency and deposit, it implies that
foreign banks purchased deposits of French residents (in reality, banks transferred the
deposits on behalf of their clients). The second noteworthy trend corresponds to the
assets recorded in the item portfolio investments/MFIs (ex. NCB), which amounts
to billion and make up for most of previously observed
Source: Banque de France
Assets,
acquisition
of
Liabilities,
incurrence
of
Net
outflow
(inflow)
Direct investment
85364
56058
29306
Portfolio investment
-186027
94181
-280208
Central Bank
8907
0
8907
MFIs (ex. NCB)
-141385
-3286
-138099
• of which long-term debt securities
-96523
16231
-112754
• of which short-term debt securities
-29095
-24798
-4297
General government
-4286
70144
-74430
Other sectors than MFIs and general
government
-49263
27323
-76586
Other investments
14787
-171834
186621
Currency and deposits
16064
-198715
214779
Central Bank
5128
47302
-42174
MFIs (ex. NCB)
-29300
-247115
217815
General government
23
1098
-1075
Other sectors than MFIs and general
government
40213
0
40213
Loans
-2577
22613
-25190
Central Bank
-14232
24185
-38417
MFIs (ex. NCB)
-24437
0
-24437
General government
36048
30901
5147
Other sectors than MFIs and general
government
44
-32473
32517
Other instruments, total economy
1300
4268
-2968
Derivatives and employee stock options
-65371
-37126
-28245
Reserve assets (NCB)
-1497
0
-1497
Margin of error
235
6
229
Total financial flows
-152509
-58715
-93794
31
in Figure 5. MFI portfolio investments concern
transactions of debt securities. In IIP terms, negative assets correspond to a net sale of
foreign securities by domestic investors (IMF, 2014, pp. 1213). This implies that
French banks sold foreign securities (most of which long-term) to foreign investors
while selling French deposits to foreign banks. Sinn & Wollmershäuser (2012, p. 489)
specify that the effects of TARGET flows resulting from the net sale of financial assets
are identical to those of the net sale (i.e., export) of goods and services. Both cases
would mechanically lead to an inflow of foreign currency and thus entail an increase
(decrease) in TARGET claims (liabilities). From the reconstructed BOP data, we can
assert that French banks used the proceeds from the asset disposals to meet their
increased liquidities needs arising from the deposit flight instead of requesting a loan
from the BdF.
32
The private sector (excluding MFIs) also recorded negative assets,
indicating that non-financial corporations also sold foreign securities to the rest of the
world, albeit to a lesser extent.
32
As previously seen in section 3.3 (and illustrated in Appendix 3), if French commercial banks had
requested a loan to the BdF, this would have led to the emergence of TARGET liabilities on the BdF
balance sheet.
32
Table 4: Spain: BOP breakdown by functional category and economic sector,
cumulated flows from 2011Q1 to 2012Q4, millions of euros
The BOP breakdown data of Spain suggests a similar deposit flight scenario to that
observed in France. Cumulated liabilities recorded for the item other
investments/currency and deposits/MFIs (ex. NCB) amount to It is
interesting to note that this amount is lower than the 247 billion observed in Frances
data, suggesting that France was more intensively hit by the deposit flight phenomenon
than Spain from 2011 to 2012. Spain did not, however, benefit from any compensating
inflows in portfolio investments from the banking sector, as the associated assets
increased by only 14 billion. The absence of asset disposals from Spanish private
banks can be explained twofold: either Spanish banks did not possess such foreign
Source: Banco de España
Assets,
acquisition
of
Liabilities,
incurrence
of
Net
outflow
(inflow)
Direct investment
30590
35769
-5179
Portfolio investment
-46847
-121059
74212
Central Bank
-9355
0
-9355
MFIs (ex. NCB)
14365
-73708
88073
• of which long-term debt securities
10339
-66784
77123
• of which short-term debt securities
6955
-8890
15845
General government
-5972
-8890
2918
Other sectors than MFIs and general
government
-45885
-38461
-7424
Other investments
73038
166667
-93629
Central Bank (currency and deposits,
loans)
19300
286422
-267122
Currency and deposits
28736
-169735
198471
MFIs (ex. NCB)
27956
-169735
197691
General government, loans and deposits
385
0
385
Other sectors than MFIs and general
government
395
0
395
Loans
24820
53071
-28251
MFIs (ex. NCB)
3812
0
3812
General government
21700
57231
-35531
Other sectors than MFIs and general
government
-692
-4160
3468
Other instruments, total economy
182
-3091
3273
Derivatives and employee stock options
-
-
-6393
Reserve assets (NCB)
12533
0
12533
Margin of error
-
-
-970
Total financial flows
-
-
-19426
33
assets in the first place, or these assets were considered too risky for foreign investors.
As observed in Table 1, France faced a decisive private capital flow reversal that
started from 2011Q4 onwards. The sudden outflows recorded for the period 2011Q3
were widely offset by steady inflows in the subsequent periods. The data in Table 3
revealed that a non-negligible component of these inflows resulted from the sale of
foreign debt securities from French banks to the rest of the world.
Analysis 3
An alternative scenario is estimated and exhibited in Figure 7 to estimate the
. The
figure presents the actual TARGET balances of France and Spain (FR/ES T2 actual)
compared to hypothetical TARGET balance had the level of debt securities
disposal of French banks been as low as Spanish banks (FR T2 - no sale).
Figure 7: France and Spain actual TARGET balances compared to the
hypothetical TARGET balance of France under the “no-sale” scenario (12-2010
to 12-2012)
The modified variable corresponds to the financial account item portfolio
investment/Debt securities/MFIs (ex. NCB)/Assets; equation (11) presents the model
34
in which this input variable, marked (*), is modified to estimate changes in the output
variable (Δ
TARGET
).
33
,
(11)
where CKA is the sum of the current account and the capital account. The error term
captures the cumulated statistical discrepancies between the BOP data and the ECB
data on TARGET balances; it is expressed as follows:
(12)
In the estimated model presented in equation (11), the variable PI (MFI debt, assets) is
modified by replacing monthly transaction data recorded on France BOP with the
equivalent Spanish data from October 2011 onwards. No modification is made on the
variable prior to this date, and no other variables/accounts are modified over the entire
period. Each observation of the output variable other investments/central bank (OTH
(NCB)) is adjusted for its differences from the values of TARGET balances reported
by the ECB for the same month, as presented in equations (11) and (12). This
adjustment sets PI (MFI debt, assets) as the only variable differentiating FR T2 – no sales
from FR T2 actual. The variables FR T2 actual and ES T2 actual correspond to the
TARGET balances of France and Spain as reported by the ECB. The visual
representation of the data (Figure 7) suggests that the isolated sale of foreign securities
by French banks played a significant role in determining the level of
TARGET liabilities. This inference is based on the difference between
TARGET balance for the no-sale and its actual TARGET balance. The last
observation of the two balances in December 2012 shows that the no-sale TARGET
level of its actual observed level. Two limitations are
to be noted on the analysis and the model leading to these conclusions. The first
limitation concerns the use of OTH (NCB) as a proxy to track changes in the TARGET
balance, whose accuracy is reflected in the error term .
34
For the last observation,
33
Public BOP data on the
available in quarterly frequency. A temporal disaggregation is performed to convert the data to monthly
frequency, using the Denton (1971) method.
34
See also Appendix 7.
35
corresponding to December 2012, the accumulated differences between OTH (NCB)
and the ECB reported data in the case of France amounts to 53 billion.
35
As mentioned
in section 4.1, there is no data on TARGET balances collected and consolidated at the
ESCB level. The regrouped data on TARGET balances reported by the ECB and
available on the ECB statistical data warehouse are themselves reconstructed from
IMF data: [t]here is no single database grouping together the TARGET2 balances of
all NCBs, but an imperfect proxy can be calculated on the basis o
International Financial Statistics (ECB, 2011, p. 36). The second limitation stems
from the fact that the model leaves all variables other than PI (MFI debt, assets) unchanged
and thus ignores changes in other accounts that could have occurred during the
simulated private financial outflow.
Aside from the European debt crisis is another episode worthy of attention,
corresponding to the period of asset purchase programs (APP) conducted by the NCBs.
As suggested by the visual representation of TARGET balances in Appendix 2,
likewise remained close to zero during the APP period,
similar to what we observed for the period of the Sovereign debt crisis. The launch of
the pandemic emergency purchase programme in March 2020 by the ECB
in response to the COVID-19 pandemic and its associated volume of transactions
translated into developments in the TARGET balances of Spain, Italy and Germany
that are in the same configuration as in March 2014 (ECB, 2020b).
36
TARGET balance, despite exhibiting signs of increased volatility, did not deviate
significantly from zero.
35
Without the adjustment presented in equation (11), the proxy would overestimate the TARGET
36
See Appendix 2.
36
6. Conclusion
As observed throughout the analyses 1 to 3, Francebalance did not decline
because it received sufficient private capital inflows. On the other hand, the breakdown
of the financial account showed that the evolution of financial flows was disparate
according to the functional category of the investment. The breakdown of the balance
of payments by functional category of Spain and France revealed that TARGET
balances were mostly driven by portfolio and other investments. The stock approach
of the net international investment position showed that the ratio of TARGET-related
investments to total investments increased a lot in the case of Spain. Private banks,
being financial intermediaries, played a determinant role in the largest capital entry
and exit trends. French banks were hit by the deposit flight episode of the European
debt crisis, but the simultaneous disposal of foreign debt securities to the rest of the
world partially relieved their liquidities and counterbalanced the capital outflows. If
the balance of payments shows that debt securities accounted for most of the sold
assets, further investigation is needed on the financial accounts of French and Spanish
banks to determine the modalities and establish the context of these transactions. The
estimated model and the reproduction of a counterfactual scenario emphasised the
notable effects of this disposal
However, the estimated model is prone to limitations, primarily explained by the
approximative nature of the balance of payment component related to changes in the
central banks TARGET balance. These approximations arise from the absence of the
needed disaggregated balance of payments accounts and the lack of reporting
standards in public databases.
37
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Appendices
Appendix 1: Stylised balance sheet of a central bank (adapted from ECB, 2013,
p. 106)
Appendix 2: TARGET balances of France, Germany, Italy, Spain (2008 to
October 2020)
42
Appendix 3: Balance sheet effects when agent A (Spain) pays agent B
(Germany) (adapted from Whelan, 2017, pp. 10–11)
Appendix 4: TARGET balances of France, Spain, Italy (01-2011 to 12-2012)
43
Appendix 5: France: NIIP of the central bank and breakdown by investment
function, billions of euros
Source:
Banque de
France
2011
Q1
2011
Q2
2011
Q3
2011
Q4
2012
Q1
2012
Q2
2012
Q3
2012
Q4
A. Reserve
assets
122
123
133
133
134
137
147
140
B. Other
investment
(including
TARGET)
-111
-111
-213
-198
-159
-134
-118
-196
C. Portfolio
investment
119
124
141
146
140
136
139
139
NIIP central
bank
130
136
61
81
116
139
168
83
Other
investments
contribution37
32%
31%
44%
42%
37%
33%
29%
41%
Appendix 6: Spain: NIIP of the central bank and breakdown by investment
function, billions of euros
37
Contributions are calculated by dividing TARGET-related investments (item B.) by the sum of the
absolute values of A, B and C. The NIIP is equal to the sum of the items A, B and C.
38
Source:
Banco de
España
2011
Q1
2011
Q2
2011
Q3
2011
Q4
2012
Q1
2012
Q2
2012
Q3
2012
Q4
A. Reserve
assets
23
23
28
36
36
41
40
38
B. TARGET
balance38
-18
-20
-59
-144
-244
-378
-366
-298
C. Portfolio
investment
48
46
48
49
47
44
42
41
NIIP central
bank
54
49
16
-58
-160
-292
-284
-219
TARGET
balance
contribution
20%
23%
44%
63%
75%
82%
82%
79%
44
Appendix 7: France: Other investment/central bank/net, compared to first
differences in France’s TARGET balance as reported by the ECB
Appendix 8: Data series and sources
Data series
Source
France Balance of Payments and international
investment position
Webstat BDF Banque de
France
Spain Balance of Payments and international
investment position
Banco de España
TARGET balances of participating NCBs
ECB Statistical Data
Warehouse
Statutory Declaration
I declare on oath that I completed this work on my own and that information which
has been directly or indirectly taken from other sources has been noted as such.
Neither this, nor a similar work, has been published or presented to an examination
committee.
Munich, 13.03.2021
_________________________
Max Anton Ludwig Landgraf
