German Concern over ECB Funding Grows

Andrew Bosomworth, a managing director at Pacific Investment Management Co. in Munich, was quoted saying, “The Bundesbank effectively ends up with loans to the other national central banks that are reflected in the Target2 claims on the eurosystem. The eurozone is doing fiscal policy-like stuff through monetary policy, but it’s not going through the same democratic process. It’s not a good thing from a voter’s perspective when you push it to the limit.”

If commercial banks do not want to deal with one another, balances between them fall–well, out of balance. Currently other countries within the system owe the Dutch central bank a balance of 153 billion euros, and Luxembourg 110 billion euros. Germany, however, is owed the most, and it is not happy about it.

John Whittaker, an economist at Lancaster University Management School, who drew attention to the growing imbalances in papers published last year, was quoted saying, “The Germans are very much justified in their concern. The Target2 liabilities are just as risky and just as real as holding the government bonds of Greece and other peripherals.”