Target2 Taboo

undertheradar's picture

Today I'd like to talk a bit about the virtual radio silence in the Netherlands on its growing Target2 balances. While a healthy but acrimonious debate has raged on this topic in Germany, there is almost nothing to be heard about it in the Dutch media. I did three google news searches using:


Target2 + Dutch


Target2 + Nederland

In an admittedly quick look, I came up with a grand total of one article of three sentences:

In it, our Finance Minister, De Jager, explains that "in the extreme and unlikely scenario that multiple countries leave the euro, the problem would pose financial risks to the Netherlands."

So there you have it, the importance of this topic according to the articles our media deems worthy of including or at least keeping in the Google News aggregator. It is so bad, I think the only reference to Dutch Target2 balances I have read has been right here on ZH, for those paying attention. I will do a rough, and highly speculative calculation, how I do these things in a rush when I don't feel like doing the research and just want a ballpark figure to get an idea anyway:

German Target2 inbalances are 615 billion euros according to Reuters:

So our economy, being about a 16/81 fraction of germany's, we should have around 121 billion euros, give or take 20 billion I would think. No small change. And these imbalances in Target2 are only growing larger and larger at an accelerating pace as the euro crisis continues.

In my opinion, the lack of debate is not healthy. It is just a reflection of how things are often done here. We say we live in a consultation culture, where all parties to an issue are present and are allowed to add their two cents. But that is simply not true in many many areas. And this is one that particularly bothers me at the moment. It is simply not solid economics to just argue it away as extremely unlikely to form a risk. I think ZH readers are much more open to this kind of thinking.

Since the coalition broke up Saturday, we have heard a relentless stream of economists and others hysterically warn us about downgrades and rising debt costs because we will not be able to conform to Brussels criteria for us in 2013. Of course, when you hear figures like 4 billion euros in extra interest expenses bandied about, which is no chump change for such a tiny country, anyone logically gets concerned. So the logic is always: lose your AAA status, because you do not conform to Brussels, pay way more interest on your debt.

Whether austerity is wise in trade surplus countries in the eurozone is a big question mark. But of course, you have the argument that we have to pay off debt because debt is bad. We know from posts here on ZH that that is of course true, but the mechanisms in place and the policies enacted simply do not lead to debt reductions.

So what all these economists argue, and I'm not going to name them because I refuse to do any advertising for them whatsoever, is that austerity is going to reduce our debt and that is good because we will certainly maintain our AAA status. But NONE of the economists mentioned that our AAA status also depends to a large degree on the size and structure of the emergency programmes being conjured up to save the euro. Isn't that convenient. The arguments here lack so much subtlety that it makes me sick. Meanwhile, all these economists believe what they are saying and think that they are saving the country, but in my opinion they are simply earning oversized salaries and teaching students hogwash.

We cannot argue away the discussion of Target2. Our media must also gain a better understanding of all factors at play in determining our credit status. Or they will simply be giving all these lazy economists (modern day preachers) the right to determine exactly how they want to frame the debate. I don't believe the IMF, the EU, or governments are bringing us closer to resolving this euro crisis. We need journalists who can figure that out and create a debate in this country. The level of debate on important issues in this country is absolutely despicable. Just as it is anywhere I suppose.

I did read an article on Target2 in the NRC paper a while ago, and it made a tiny mention here and there but the evidence and memory of it have disappeared. I encourage anyone to post references which one day may trickle back into the debate here. They were certainly lacking in all articles about the uncertain future we are now facing with elections likely any time between June and September.

Thanks for reading.

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undertheradar's picture

Adding Niederlande in the search probably would have given me the best results in the first place :)

Reptil's picture

dutch "media".



undertheradar's picture

Certain things are reported well in the Dutch media, other things are not and you can almost predict what those things are. 

misterc's picture

Great website with a lot of articles and charts regarding Target2:


(It's written in German, but one gets it by the carts)

bank guy in Brussels's picture

The indispensable Ambrose Evans-Pritchard just covered how there is totally wild disagreement among professionals, as to whether Target2 is important or not, even if the euro-zone collapses or breaks up. He writes:

« ... Mid-level officials at the German and Dutch central banks say the concerns are overblown. Any losses would be shared by the whole ECB family. Yet nobody knows what would happen if the eurozone collapses in acrimony. One official confessed that he "worried about it every night".

Professor Karl Whelan from University College Dublin said the debate is absurd, whipped up by populists and the German media. "If the euro breaks up, there are still assets to go along with the liabilities. The likely outcome would be a 'Bretton Woods weekend' with a gentleman's agreement to carve up the losses."

"Even if countries told each other to go to Hell, the euro would simply cease to exist and the Bundesbank could write a cheque to itself. There would be no inflation and no loss to the German taxpayer," he said.

"We live in a world of fiat currencies, not the Gold Standard. People making these claims don't understand how a central bank works," he said. His views are shared by ECB experts. ...

Dr Sinn's IFO Institute has refused to back down. Its latest report said Target2 violates democracy. ... Dr Sinn said Germany is on the hook for much of the €2.1 trillion (£1.72 trillion) in rescue measures for EMU debtors - often by the back-door - that will saddle Germans with ruinous losses one day. »

JOYFUL's picture

Bank guy -

I enjoyed your contribution to undertheradars'posting of yesterday, and I hope that your presence here today can be taken to mean that you have seen something more of value in his eclectic approach(and\or he has seen some value in your critique!?!) At any rate, it's good to see this shaping up to be one of the more thought provoking venues here.

There's two ways to react to something that is out of the ordinary, or not standard fare - you can say 'Hey, this isn't what I'm used to, WFT is goin on here'....or 'Hey, this is different, what's goin on here that I can use?'

Way too many of the usual contributors up in the top of the page section of ZH have been allowed to get away with repetitive dronefests of recyled ideas and never-ending self advertisment recently. I have no idea where this dude is coming from, but the breath of fresh oxygen is very welcome. Indeed, it may turn out that Holland becomes a critical element of the Euroland meltdown or survival - a true representation of it's unique(and almost forgotten) heritage as a bridge between the southern and nothern halves of the subcontinent,

Undertheradar has opened the door to a more interactive style of contributor-reader dialogue here, and I think that speaks volumes for the potential quality of his future posts...we're all hear to learn, n share what we know, for the greater good of all.

undertheradar's picture

Thanks for this comment. As you've probably read some other posts and comments of mine, you know how I've publicly set myself up here. And I'm not really sure what to add - except that I'm very worried about the way things are going and the lack of debate, especially in this country. I have the time and place here to write about it from my perspective. I consider writing and being read at all a release valve and seeing that my stuff being read is rewarding in itself. When I get stale, warn me ;)

Plus I get a lot of laughs from others, as well as information. I read the other posters here, and I like the way so many of the registered ZH readers can nail issues on the head in their comments which in turn add to my insight. 

Hey, don't forget the FC movie inspiration that drives this site.

GeneMarchbanks's picture

'Way too many of the usual contributors up in the top of the page section of ZH have been allowed to get away with repetitive dronefests of recyled ideas and never-ending self advertisment recently.'

Not by accident either. Generalized truisms being sold as 'truth'. My compliments to undertheradar and BGFB as well for breaking through with some lucid stuff so far.

ouchtouch's picture

If it happened today, BuBa could just electronically credit itself with the lost Euros. Fast forward a year or two or three, after a few trillion more euros have been credited to German banks without any corresponding transfer to BuBa, it seems like it might be a small problem.

undertheradar's picture

I don't believe Belgium has proportionately as large of a problem?

It sounds like there is a lot of BS about Target2 balances being less legitimate balances than any other electronic balances in the banking system. I don't buy that, a claim is a claim and the payback is highly uncertain if (or more likely when) the euro starts breaking up.