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What Germany should fear most is its own fear: An analysis of Target2 and current account imbalances. CEPS Working Document No. 368, September 2012

De Grauwe, Paul and Ji, Yuemei (2012) What Germany should fear most is its own fear: An analysis of Target2 and current account imbalances. CEPS Working Document No. 368, September 2012. [Working Paper]

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    Abstract

    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. We 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. Or to paraphrase Franklin Roosevelt, what Germany should fear most is simply its own fear.

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    Item Type: Working Paper
    Subjects for non-EU documents: Countries > Germany
    EU policies and themes > Policies & related activities > economic and financial affairs > financial crisis 2008-on and consequences/reforms
    Subjects for EU documents: UNSPECIFIED
    EU Series and Periodicals: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > Centre for European Policy Studies (Brussels) > CEPS Working Documents
    Depositing User: Phil Wilkin
    Official EU Document: No
    Language: English
    Date Deposited: 02 Oct 2012 13:23
    Number of Pages: 25
    Last Modified: 11 Apr 2014 13:04
    URI: http://aei.pitt.edu/id/eprint/36822

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