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Whither the TARGET2 System Taking a Glance at the Real Economic Facets of the Euro-Area Debt Crisis

Whither the TARGET2 System Taking a Glance at the Real Economic Facets of the Euro-Area Debt Crisis

Year:    2011

Author:    Fahrholz, Christian, Freytag, Andreas

Applied Economics Quarterly, Vol. 57 (2011), Iss. 1 : pp. 15–25

Abstract

The TARGET2-system impedes economic recovery within the EMU. Hard budget constraints are a key to kick-start structural reforms in some EMU-member countries. However, the TARGET2-system is not only aggravating real misalignments but also softening budget constraints. The authors argue that the European settlement system is not only a monetary issue but of real concern for the survival of the euro area. The real economic causes of the exceptional TARGET2-balances in the euro system can be illustrated by means of the distinction between core and peripheral countries. In this respect, the core countries—such as Germany, Finland, Netherlands and, Austria—are characterized by current account surpluses (net capital exporters or net creditors), while the periphery is generally characterized by current account deficits (net capital importers or net debtors). A discussion of means to reduce the TARGET2-imbalances closes the paper.

JEL Classification: E02, E42, E44, E63, H63

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Journal Article Details

Publisher Name:    Global Science Press

Language:    English

DOI:    https://doi.org/10.3790/aeq.57.1.15

Applied Economics Quarterly, Vol. 57 (2011), Iss. 1 : pp. 15–25

Published online:    2011-01

AMS Subject Headings:    Duncker & Humblot

Copyright:    COPYRIGHT: © Global Science Press

Pages:    11

Author Details

Fahrholz, Christian

Freytag, Andreas