Publication

This paper analyzes two claims that have been made about the Target2 payment system. The first one is that this system has been used to support unsustainable current account deficits of Southern European countries. The second one is that the large accumulation of Target2 claims by the Bundesbank represents an unacceptable risk for Germany if the Eurozone were to break up. The authors argue that these claims are unfounded. They also lead to unnecessary fears in Germany that make a solution of the Eurozone crisis more difficult. Ultimately, this fear increases the risk of a break-up of the Eurozone.