May 31, 2018
Hans Werner Sinn demands German euro exit
He didn't say it in so many words, but Hans Werner Sinn's suggestion that the Bundesbank should introduce capital controls to limit the growth of the Target2 balances amounts to the same. He sees this as the only lever for Germany to pressure for a repayment of the Target2 balances. He argues further that Target2's lack of a legal basis in the Maastricht treaty would make this possible.
The problem is not that this is pernicious nonsense, of the kind that takes an order of magnitude more effort to debunk than to spout. The problem is that lots of people in Germany believe this stuff. Sinn has been banging on the Target2 drum for so long that Die Welt doesn't feel the need to write even one introductory line to the interview, explaining what Target2 actually is. The arcana of the eurozone's payment settlement is household knowledge in Germany by now.
A cap on balances like Sinn is proposing would preclude the Bundesbank clearing inbound payments from other eurozone countries. That is why it amounts to taking Germany out of the eurozone. One also wonders what Sinn believes Target2 balances could be settled in, as they are already central bank money, a liability of the eurosystem. Euro banknotes newly issued by the other member states? Gold ingots? Artwork from Gli Uffici gallery in Florence?
As to the lack of basis in the treaties, the protocol on the statute of the European System of Central Banks, attached to the TFEU, states in its article 3 that promoting the smooth operation of payment systems is one of its basic tasks. It's not an additional policy objective to be carried out without prejudice to monetary policy. It's a basic task. Moreover, Target2 itself, as an internal arrangement designed by the eurosystem, probably falls within Article 22 of the statute. This allows the ECB and national central banks to provide facilities, and the ECB to issue regulations, to ensure sound and efficient payment systems. In the absence of Target2 balances between the individual national central banks and the eurosystem itself, we would have each national central bank keeping balances with each of the other eighteen national central banks. The net balance of the Bundesbank would still be nearly one trillion euro right now, only spread out among 18 different accounts. That would not be an efficient clearing system.
The more pertinent question is not whether Hans Werner Sinn speaks the truth as he advertises from the title of his recent autobiography, but whether anything can be done to expunge the German debate of the fake news propagated by him.