Target2 Taboo

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.