Courtesy of Mish.
Eurozone Target2 imbalances are on the rise again, led by Italy.
Target2 Refresher Course
Before showing the latest Target2 numbers, inquiring minds may need a refresher course as to what Target2 is, as well as the problems associated with rising imbalances.
Target2 stands for Trans-European Automated Real-time Gross Settlement System. It is a reflection of capital flight from the “Club-Med” countries in Southern Europe (Greece, Spain, and Italy) to banks in Northern Europe.
Pater Tenebrarum at Acting Man provided this easy to follow example “Spain imports German goods, but no Spanish goods or capital have been acquired by any private party in Germany in return. The only thing that has been ‘acquired’ is an IOU issued by the Spanish commercial bank to the Bank of Spain in return for funding the payment.“
Also, if people in one country (Cyprus, Greece, Italy, Spain, anywhere) no longer trust their banks, they may pull their deposits and park them elsewhere.
Please see Reader From Europe Asks “Can You Please Explain Target2?” for a more compete discussion including responsibility percentages (i.e. if Greece leaves the eurozone, what percentage of the liability falls on Germany, France, Spain, etc.)
If Greece, Spain, or Italy elects to abandon the Euro, euro-based claims in those countries would receive an immediate haircut.
Watch Italy
The recent rise in imbalances is not that large, but it primarily rests on the shoulders of Italy.
With that backdrop, Variant Perception says Target2 Imbalances Widen Again – Watch Italy.
Target2 – the payment system used for intra-eurozone transfers – has widened again, with the largest two-month move since mid 2012. A look into its breakdown reveals that it is Italy that is almost completely responsible for the increase in liabilities. Ceteris paribus, an increase in the Target2 liabilities of a central bank means capital leaving the country in question, eg through the importing of goods. …
