Thread by @SabriB_B

Extract of Cesifo working paper:
"Why a euro should have the same value in all bank accounts of the euro countries" 👉 € killer 💀💀💀

https://twitter.com/CESifoGroup/status/1075664826129674240?s=19

S💀F💀: Potential measures include absolute limits on the Target balances or collateralisation, perhaps in the form of the NCB regularly transferring gold holdings equal to the increase in the Target
balance to the ECB at the end of each year to secure the claims.

S💀F💀: It is often claimed that free and uncollateralised Target balances are an indispensable part of the European Monetary Union; and that any limitation of these balances would mean the end of a single monetary policy in the euro area. 😎👇

S💀F💀:The question, however, is why a euro should have the same value in all bank accounts of the euro countries, even if a NCB and the commercial banks of its jurisdiction can no longer be considered safe?

S💀S💀: For years, for example, the market value of deposits at Greek banks was ten to twenty percent lower than that of corresponding deposits at German banks, precisely because those Greek banks were perceived by the markets as less...

S💀F💀: It is true that, in extreme cases, capital markets may deny a country access to credit due to a loss of all confidence in its creditworthiness. In this case, the affected country would have to limit its expenditure on imports and impose capital controls 😎

S💀F💀: It has repeatedly been claimed in the press and elsewhere that Target balances between national central banks are not a risk for Target creditors if the euro remains unchanged 🤡

S💀F💀: It is also often argued that a central bank cannot become insolvent because it can fulfil its payment obligations at any time by printing money itself.Both allegations are false 🤔
@dav_cayla @russeurope

S💀F💀: The second is true in terms of external relations for the Eurosystem as a whole. However, it is not true with regard to internal liabilities with NCBs, because these liabilities cannot be fulfilled through the creation of common money. 😎

S💀F💀: As we will show, the
insolvency of a NCB in the Eurosystem is possible if it has Target liabilities and is itself liable for losses from money creating credit, and is thus unable to pass these losses on to other NCBs.😱

S💀F💀: One might think that the risk of loss that we have calculated cannot exist simply because the respective national government now has to support its central bank because it has an institutional liability 🍌🍌🍌

S💀F💀: However, the EU treaties do not provide for recapitalisation of the NCBs in the case of asset losses, and it is cheaper for a country to let its own NCB go BANKRUPT and set up a new NCB with new equity capital than to revive the old one...🚨🚨

S💀F💀: In fact, there is a danger that the crisis countries will find ways to evade recapitalisation if
push comes to shove. In such a scenario losses in the amount of the Target and banknote liabilities would be inevitable FOR THE OTHER NCBs 😟

S💀F💀: It has occasionally been argued that the international community could now press country A to meet
its payment obligations, as there would be no orderly political relations with the rest of the Eurozone. 😅

S💀F💀: However, this view is very optimistic in view of the fact that in the case under consideration, a sovereign bankruptcy of A can be assumed. In such a case, it is more likely that the ECB’s will decide to recapitalise NCB A by FORCING the other NCBs to assume the losses 🤒

S💀F💀: It is not only right, but also
NECESSARY in terms of properly informing the public, to speak of ‘Target credit’ which other central banks have obtained from the Bundesbank and other central banks with surplus balances via the Eurosystem.😎
@russeurope @FuestClemens 👇

S💀F💀: The fact that Target balances can lead to massive losses for creditor countries – not only when countries leave the Eurozone, but also if national financial systems collapse in countries that are still Eurozone members – is a threat that politicians cannot ignore.

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