How Much Bigger Can TARGET2 Imbalances Grow? Goldman Answers: "A Lot"

Tyler Durden's picture

Back in December, Goldman Sachs entered the fray of what has since become the most sensitive topic for Germans (courtesy of this particular exponentially rising chart), namely the German funding of Europe's current account via the TARGET2 balance. Since then much has been said, up to and including a letter that Jens Weidmann sent to Mario Draghi expressing a concern about the "net receivable" status of the German central bank vis-a-vis the periphery. Unfortunately, since then the Bundesbank added another nearly EUR100 billion in net deficit balance, which has hardly helped the German people sleep better at night. So in the meantime, one question has arisen: "how much more can the TARGET2 imbalances increase?" The scientific and, non-scientific answer, comes from Goldman Sachs: "a lot."

From Goldman:

How far can the imbalances increase?


The short answer is: a lot. After all, German banks still hold claims of more than €100 billion against peripheral banks and more than €300 billion against the periphery in total (all sectors, see Chart 2). Moreover, banks in the periphery hold deposits of around €2 trillion.


How much of this money will be transferred to bank accounts in the core is difficult to say. The ECB’s two 3-year LTROs should have, all else equal, reduced the capital flight from periphery to core to the extent that fears of an immediate liquidity crisis of the banking sector in the periphery were a major driving force behind these flows. There is little evidence, so far at least, for this. In any case, we think it is reasonable to assume that genuine concerns about the solvency of peripheral banks are also playing a role here and these concerns are unlikely to go away any time soon regardless of ECB liquidity operations.

But lest Goldman be perceived as stoking more money run fears, here is its follow up that is so disingenuous, one wonders just how naive, gullible and stupid the author must have been:

Rising financial risks? Compared to what?


The net claims of the Bundesbank against peripheral central banks do not pose a genuine financial risk as long as peripheral central banks are part of the Euro area. This is not to say that the generous liquidity provision does not also imply a higher financial risk for central banks. But these risks are unrelated to TARGET2 and are shared among all Euro area central banks according to their capital quota. It is only if countries were to step out of the Euro area that the remaining central banks would have claims against these central banks that would probably need to be written down (depending on the extent to which these countries would be able to repay Euro liabilities, which would then be foreign-denominated liabilities for these countries).


However, it is important to note in this respect that core countries already faced significant exposure vis-à-vis the periphery even before TARGET2 imbalances started to increase (Chart 2). Although this financial risk was concentrated in the banking sector, it is reasonable to assume that a significant part of potential losses would have ended up on public balance sheets if an orderly adjustment had not been accompanied by ECB liquidity operations and the TARGET2 imbalances. Thus, comparing the financial risk of the current TARGET2 imbalances in the event of a Euro breakup with a pre-crisis situation, without taking into account the risks that already existed, is necessarily distorted.

Uh, of course we are talking about a euro breakdup: if Goldman does not understand this, they need to plant at least another head of a central bank in addition to the ECB: namely the Bundesbank. Because the question is just what the bill to the German taxpayers will be when everything falls apart, up to and including the euro. And that question Goldman was already kind enough to answer: "a lot"

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scatterbrains's picture

The other question is who do the Germans go after once they realize they've been hoodwinked again ?

battle axe's picture

Or the other question is when does the Bundesbank say "fuck off" and turn off the tap? Watch the French elections, that could be another "canary in the coal mine" event.

GetZeeGold's picture



Oh come on.....that's crazy talk. The Germans love to support their marxist Euroland comrades.


Some 53 year old retired Greek is sitting on the beach phoning Angela......"need more money down here super pronto"!!!!


Oh regional Indian's picture

I think Germany needs a new name.



GetZeeGold's picture



...or howsa bout SugerFührer?


falak pema's picture is very dark in there...

Oh regional Indian's picture

Falak, since Wald the word is unknown to me, I'll say you have too much info on Herr Merkel! ;-)


falak pema's picture

here is a link :

Thuringian Forest - Wikipedia, the free encyclopedia


Funny place : Looks romantic, you could be forgiven to mistake a man for a woman! 

I am more equal than others's picture

It is called the balance equation or what goes around will take you down.  The chart needs to be extended back to the Weimar days and see who owed what to whom and how it was paid back in hyper-inlated marks.  I hear the jack boots stomping now....

jus_lite_reading's picture

A little OT but maybe not...

Just in case any of you bitchez still do "business" with Bank of Fraudmerica, this is for you...

Why isn't BofA boycotted for all its corruption, shady practices and now this?

francis_sawyer's picture

I've said this a million & one times... The EURO is a NWO 'pet project' which they arrogantly believed would just work flawlessly as a stepping stone to a one world currency...

The ship hit an iceberg and there aren't enough lifeboats...

There are multiple (distraction) balls up in the air (including, US elections, French elections, Iran war, China, Putin coming back, or even the fucking Olympics [oh no! please not a repeat of Munich]) that can kick this can forward until they're ready with a Plan B... I would imagine that the 100 year charter of the US Federal Reserve also factors in there somewhere...

Before the Euro 'calliope' crashes to the ground, there will still be much more very unpleasin', sneezin', wheezin'...

WonderDawg's picture

Good call on the tune, Francis. One of my all time favorites.

francis_sawyer's picture

I think its original was actually written by Springsteen...

WonderDawg's picture

Indeed. No offense to Springsteen, but I like MM's version better.

francis_sawyer's picture

Me too... MUCH better (MM version)...

jus_lite_reading's picture

Rumors are just rumors but...

I have marked June 23rd as the rough day the UN says what the NWO plans are... 

Hober Mallow's picture

"would probably need to be written down"

they just talk about formailities, these guys live in a world of formalities.

The money is already lost, gone. It doesn't matter if those assets are taken out of the books or not.

LongSoupLine's picture

Fade the Goldman "muppet analysis".

GetZeeGold's picture



I'll keep my eyeballs.....thank you very much.


schatzi's picture

Best hostage taking tool EVAR. The larger the Target2 Bundesbank balance grows, the more Germany has to lose should they leave. Germany is royally fucked whatever they do, they'll be coughing up dough for generations to come. I don't envy them.

bank guy in Brussels's picture

Some disagreement as to whether Target2 is catastrophically important or not, even if the euro-zone collapses or breaks up. Ambrose Evans-Pritchard in the UK Telegraph has summarised the opposing views:

« ... 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. »

GetZeeGold's picture



That almost makes sense........almost.


Quinvarius's picture

>>>"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. ...<<<

Makes me laugh how they insist such nonsense.  I understand how a central bank works in the real world.  That is why I know there is no such thing as a functioning world of fiat currencies.  We are on a gold standard and always have been.  Gold just reminds bankers of that every now and then when it forcibly revalues upwards to back their "world of fiat currencies".

Debt based fiat currency can not survive in anything but the best of times.  It falls with a feather's touch.  If the money itself has no value beyond the demand to pay back debt or taxes.  It will be destroyed in a bad economy where debts are defaulted on and taxes are not paid.  It will also be destroyed in printing.  Gold retains value whether it is owed in a debt or not.  You can hold it in savings even if everyone defaults and no one pays taxes.  Gold can not be printed.

Today's central bankers are a joke.  They are part of a ponzi scheme and will insist all is well because that is their job.  They are not economists or historians.  They paid to engineer short term political outcomes.  Therefore they will always be fighting reality and wreaking havoc on the economy.  Everything they do will have the exact opposite effect they intend.  Suppress gold?  Miners go out of business gold becomes scarce and prices go ballistic.  Suppress food prices?  Farmers go out of business and people start starving.  Suppress oil?  refiners go out of business and we run out fuel.  Intervene in any futures market?  Destroy hedges and cause losses to companies that were smart.  Pump stocks with printed money?  Welcome to Socialism where the government owns everything.

BurningBetty's picture

 "People making these claims don't understand how a central bank works," he said."

His statement makes me laugh. In other words, what he is saying is that; Central Banks have monopoly on printing money. We can do it, but you cannot. If we screw up, we just print new money. If you screw up, you own us money. Well F*** that. How about we all start printing the money we need.

The sooner the people understand this, the sooner we can get another and better monetary system.

falak pema's picture

Central bank impunity to print to infinity (ECB/FED/BOE/BOJ) : 

That makes sense for reserve currencies,  like ECB/Euro, as long as non Euro countries continue to value Euro as reserve currency. The shit hits the fans when they dump USD and surrogate Euro; whatever the order in which it happens. Its now a financial shooting match between debt ridden first world and credit driven BRIC world. If the economic growth stays low in first world the credit gap and monetary strain will get bigger and bigger with time, as BRIC economies roar ahead on cheap labour arbitrage.

Why should Chindia buy into first world money unless they feel it brings them something?

What could it bring them ? Oil sector Stability....? Nope! All the oil is outside first world.

Technology pipeline? ...Less and less, as they make their own products on license. Either you give them tech transfer or you lose access to world's biggest future market! 

Nuclear and conventional arms stability?... If things fall out between say China and India, or India and Pakistan, or Indonesia and Japan or Philippines and China, etc. etc.....?  Maybe! As USA/Europe does control the weapons pipeline. Along with Russia.

What other arguments are there...? 

Zilch. So its down to brass tacks and in the end, Military and financial complexes run the world imbalance. As industry has now been totally outsourced. Our current first world Oligarchy HAS TO LINK CURRENT FINANCIAL CONSTRUCT TO ARMS AND MILITARY ARGUMENT : OUR MONEY STAYS OR ITS ARMAGEDDON TIME...

We are in that logic. Now if the first world financial systems implodes ALL ON ITS OWN DUE TO INTERNAL DISSENSION, THATS ANOTHER STORY. THAT IS WHY FRENCH ELECTION FALL OUT COULD BE A PROBLEM FOR PAX AMERICANA. Big domino there if it goes sour. 

Remember, all Empires collapse, first from within. The guy in DC knows that only too well...That tells you where the first world is heading.


evolutionx's picture

Good overview BANK CDS and Target 2


CDS of the most important banks are exploding...


q99x2's picture

What. They gave the banksters all the money and none of the people want to take on the responsibility of the debt for them--imagine that.

Probably not a good idea to subject the Germans to bankster bailouts.

alexanderstollznow's picture

for a bunch a Goldman Sachs haters/bashers, ZH sure republishes a lot of its research.