Understanding the German criticism of Target.

The article examines whether the accumulation of large TARGET imbalances threatens the viability of the Eurozone monetary union. TARGET (Trans-European Automated Real-time Gross Settlement Express Transfer) is a real-time cross-border settlement system used by Eurozone national central banks (NCBs) to record claims and liabilities arising from cross-border payments. The author argues that, contrary to much academic opinion, a disorderly breakup of the Eurozone accompanied by a default on TARGET liabilities by debtor countries would cause real economic losses to creditor countries, as these claims are non-marketable, irredeemable, and carry zero remuneration. The paper analyzes three main scenarios generating TARGET claims—current account surpluses, capital inflows, and capital repatriation—and highlights how quantitative easing (QE) has mechanically increased TARGET imbalances, particularly benefiting creditor countries like Germany. It also critiques common defenses of the TARGET system, explains why proposals for periodic settlement of TARGET balances with marketable "breakup-proof" assets are impractical, and emphasizes that the coexistence of separate national central banks within the Eurozone underpins the vulnerabilities of the current TARGET system.