ECB publishes Target-2 data

Frank Westermann, OMFIF online, 24.09.2015

The European Central Bank has decided this week to release data on intra-euro system claims and liabilities among national central banks that had accumulated since the 2007 financial crisis under the so-called Target-2 system, which reached a peak in recent years of more than €1tn for crisis-hit countries.

The Target-2 claims and liabilities have attracted controversy since summer 2011, when Hans-Werner Sinn, president of Germany’s Munich-based Ifo research institute, started a debate on the ECB’s role in Europe’s financial crisis. Pointing towards these claims and liabilities on NCB balance sheets, he argued there was a ‘stealth bailout’, unnoticed by the general public and ignored by European parliaments.

The lack of a common database was a major shortcoming in the subsequent debate. In a research article, Sinn and his Ifo colleague Timo Wollmershäuser were the first to illustrate how data from the International Monetary Fund can be used to approximate the Target-2 balances. However, these data came with a delay of several weeks and were accessible only to subscribers to the IMF’s statistical data base.

Regardless of which side observers and analysts take in the debate, the ECB step is a welcome move towards transparency. It facilitates academic and financial market research and reduces uncertainty. The balances are a key indicator of Europe's balance of payments position and a barometer of financial stability.

In October 2011, the Institute of Empirical Economic Research at Osnabrück University started collecting data from NCBs based on their published monthly balances, released in different formats and according to varying schedules. Only a few NCBs explicitly identified the Target-2 balances. The Bundesbank for instance initially included them in a composite balance sheet position called ‘other items'. The Osnabrück Institute collected these time series and published them, sometimes as frequently as daily, on a web-page called

Although the Osnabrück Institute was able to report the number with relatively high precision, some of the values relied on estimates and others differed with respect to the publication date. Also the data lacked the authority of an official institution, needed for research and business use. This shortcoming has now been rectified. As of September, the ECB is providing these numbers in a common database, available here.

The ECB highlights the usefulness of the balances as an indicator of the distribution of euro area liquidity. Money created in one country (say, Greece) may create excess liquidity in another country (say, Germany). Awareness of these regional allocations of liquidity helps monetary analysis.

A further perspective – first recognised in a series of articles by Sinn – concerns the relevance of the Target-2 system for the balance of payments. Under Target-2 clearing, countries can finance a balance of payments deficit by printing money (electronically), without having to run down their reserves. This is in sharp contrast to other countries hit by financial upheavals, for example in Latin America and Asia in the 1990s, which had to abandon exchange rate pegs when reserves hit a critically low level. A key insight of this research is that, owing to Target-2 availability, the euro area balance of payments need not be in equilibrium at all times.

A long-term risk attached to large Target-2 imbalances is the possibility of a euro area break-up. Should a country leave the monetary union, it is unclear how these liabilities will be settled. Even if euro area departure is considered improbable, the possibility needs to be considered in policy decisions. In the first half of 2015 when Greece was negotiating with its creditors, Target-2 liabilities increased from about €50bn to more than €100bn.

The ECB's step validates Hans-Werner Sinn’s efforts to raise this topic in public policy debate. For the Osnabrück Institute it is a welcome opportunity to discontinue its service on data collection.

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