Money continues to pour out of Italian and Spanish banks for safer havens. This month I note a curious side effect: A huge amount of money went into French banks instead of German banks. The following table shows the winners and losers.
Target2 Imbalances in Billions of Euros
| Country | Symbol | Dec Target2 Balance | Nov Target2 Balance | Month-Over-Month Change | Comment |
|---|---|---|---|---|---|
| Spain | ES | -254.1 | -241.8 | -12.3 | Highest Since 2012 |
| Italy | IT | -248.9 | -229.6 | -19.3 | Highest Ever |
| Greece | GR | -94.4 | -97.3 | 2.9 | Lowest Since 2014 Q4 |
| ECB | ECB | -83.8 | -73.8 | -10 | Highest Ever |
| France | FR | -29.2 | -73.5 | 44.3 | Remarkable Comeback |
| Germany | DE | 584.2 | 592.5 | -8.3 | Second Highest Since 2012 |
| Luxembourg | LU | 147.6 | 140.4 | 7.2 | Highest Ever |
| Netherlands | NL | 54.7 | 49.4 | 5.3 | Highest Since 2002 |
| Finland | FI | 20.1 | 31.8 | -11.7 | Lowest Since 2014 Q4 |
| Cyprus | CY | 2.4 | 2.4 | 0 | Second Highest Ever |
I created the above table using data from the ECB Statistical Data Warehouse
European Country Codes
The above from Eurostat Country Codes.
Lack of Trust
To encourage more lending, ECB president Mario Draghi cut the deposit rate for money parked at the ECB from -0.2% to -0.3% on December 3.
Clearly that did not work.
Europe Fears Bail-Ins
Stepping back a bit, here’s a key question: What caused the depositors to flee their banks in the first place?
The answer is fear of bail-ins, confiscations, capital controls, and bank failures like we have seen in Greece and Cyprus.
Target2 Refresher Course
Target2 imbalances are an excellent measure of capital flight from eurozone countries to other eurozone countries.
Those needing a further explanation of Target2 should consider Discussion of Target2 and the ELA (Emergency Liquidity Assistance) program; Reader From Europe Asks “Can You Please Explain Target2?”
Related:
George Friedman on the Looming Italian Banking Crisis
