- This topic has 15 replies, 7 voices, and was last updated 11 years, 5 months ago by
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These countries seem to be the destination for billions of Euros from the Eurozone nations, Germany, Netherlands and Luxembourg mainly, in Spain’s case 65 Billion left in March alone:
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@angie wrote:
Am I wrong in thinking that 65 billion Euros leaving just Spain alone in one month is rather alarming, how long could Spanish banks sustain that? 😯 Not only Spain but leaving Italy and other countries in huge numbers too, headed to Germany mainly 😯
I believe there is an interbank settlement system called Target2 which means that bank transfers between eurozone countries go via the respective central banks. So if money is transferred from a Spanish bank to a German bank, the money paid to the German bank goes via the Bank of Spain and the Bundesbank. I admit I find this system rather complicated, however some people have pointed out that the liability ends up with the Bundesbank. If money is transferred out of Spain into a German bank then the Bundesbank has to lend it back to the Bank of Spain, or something along those lines. Anyway it seems to have caused alarm in Germany, with some people claiming that it has trapped Germany in the eurozone, forever rebalancing the payments as money floods in from other eurozone countries.
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Worth pointing out also that we had all this scare-mongering and scary graphs last summer… but by the year end things had reverted to normal again…
Anyone notice that Spain’s borrowing costs on the markets hit a three-year low today? It seems only a few months ago that certain posters were highlighting the higher borrowing costs, and how it all spellt doom. No doubt now they’ll say it’s all fixed – and they may have a point 🙂
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Higher borrowing costs were mentioned then because they were relevant at that time, it was current and could affect decision making, as capital flight could do as was tried in Cyprus before capital controls were imposed. These are pretty major events in the Eurozone, markets go up and down constantly 🙂 😉
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I wouldn’t read too much into the Bloomberg article, the US has been in direct competition with the Eurozone for a decade, fearing that the Euro would knock the Dollar off the top spot as a reserve currency, which is probably what the founders of the Euro intended when they set it up.
They nearly succeeded, until Lehmans brought the lot down and the US held on with Dollar printing while the ECB sat on its hands and watched its southern countries implode. The trouble for the West is far from over, the US’s debt is mind boggling and the Eurozone is hanging on by a thread.
The outcome is anyone’s guess, even gold had lost its lustre. The whole world is shifting money around like headless chickens.
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@angie wrote:
Don’t quite understand your post Chopera, but sad Ubeda never answers direct questions even polite ones, lives and works in Spain but doesn’t like living near Spaniards, weird or what? 😆
Ubeda, I doubt Germany would need your expertise 😆 😆
I don’t quite understand Target2 either, but I think it goes something like this: euros leave a Spanish bank for example and are deposited with a German bank, the German bank is then obliged to deposit them with the German central bank, which in turn is obliged to deposit them with the Spanish central bank. It’s a mechanism for preventing all the euros ending up in one country.
And indeed what has been happening is euros have been leaving bank accounts in Spain and other eurozone countries and ending up in German bank accounts (either through trade imbalances or people moving money around privately, it comes to the same thing). And the result is the German central bank has extremely large deposits in other eurozone central banks, which is what the graph above shows.
Some comentators are saying this makes it harder for Germany to leave the eurozone because it would effectively devalue the Bundesbank’s deposits with other central banks.
Well that’s my interpretation (which could be completely wrong)
You can read about it here:
http://en.wikipedia.org/wiki/TARGET2
(good for insomnia)
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@angie wrote:
It’s getting through to my brain cells a bit more now chopera, it’s quite interesting really, it appeared to be making Germany particularly stronger but can see problems with them ending up with too many euros from other countries, oh and Ubeda’s 😉
yes that’s it I think – the Bundesbank has got lots of euros – but they’re deposited with other central banks in the eurozone. If Germany leaves the euro then the euro will devalue against the Mark and so will those deposits. It is quite interesting how this is all interlinked and a bit counter intuitive. I just wish I could understand it better.
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