TARGET2 balances and insolvency risk for the European Central Bank: Part II

This article is the second part of an examination of the controversial issue of whether the European Central Bank (ECB) is threatened by second-generation Trans-European Automated Real-Time Gross Settlement Express Transfer (TARGET2) balances, if a member state whose national central bank (NCB) holds negative TARGET2 balances exits the euro area and these balances are unpaid. Although this may be considered a hypothetical scenario, a number of economists are concerned about the risks originating from negative TARGET2 balances. Hans-Werner Sinn warns of the dangers of positive TARGET2 balances in a collapse of the euro area, as they would constitute irrevocable receivables for the NCBs of the member states that accumulated them. ¹