by Mish

The above charts shows most of the major countries, not all of them.

Italy’s target2 hit a record low -€326.9 billion in July. This is a 6th consecutive monthly record for Italy, minimum, possibly dating back to 2nd quarter of 2015.

Spain’s target2 deficit hit -€313.6 billion. In 2012 Spain hit -€337.3 billion.

Target2 Discussion

No discussion of eurozone problems would be complete without a discussion of Target2, an abomination created by the eurozone founders and one of the fundamental flaws of the euro.

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Target2 stands for Trans-European Automated Real-time Gross Settlement System. It is a reflection of capital flight from the “Club-Med” countries in Southern Europe (Greece, Spain, and Italy) to banks in Northern Europe.

Pater Tenebrarum at the Acting Man blog provides this easy to understand example: “Spain imports German goods, but no Spanish goods or capital have been acquired by any private party in Germany in return. The only thing that has been ‘acquired’ is an IOU issued by the Spanish commercial bank to the Bank of Spain in return for funding the payment.

This is not the same as an auto loan from a dealer or a bank. In the case of Target2, central banks are guaranteeing the IOU.

Target2 also encompasses people yanking deposits from a bank in their country and parking them in a bank in another country. Greece is a nice example, and the result was capital controls.

If Italy or Greece (any country) were to leave the Eurozone and default on the target2 balance, the rest of the countries would have to make up the default according to their percentage weight in the Eurozone.

Mike “Mish” Shedlock

Another Look at Capital Flight in Italy and Spain: ECB’s Target2 Explanation is False

The ECB claims that Target2 does not represent capital flight. Evidence says the ECB is wrong, especially for Italy and Spain.

Eurozone Capital Flight Intensifies: Target2 Imbalances Widen Again

A quick perusal of Target2 Balances for January shows capital flight from Italy and Spain to Germany intensified again.

Italy Target2 Imbalance Hits Record €432.5 Billion as Dwindling Trust in Banks Plunges

Contrary to ECB propaganda, Target2 imbalances are a direct result of an unsustainable balance of payment system. The imbalances represent both capital flight and debts that can never be paid back. If you think Italy can pay German and other creditors a record €432.5 Billion, you are in Fantasyland.

Capital Flight in Eurozone Continues

Capital flight from one Eurozone country to another, continues to rise. That capital flight is a measure of trust of of a nation’s banks.

Italy Capital Flight Escalates: Highest Two-Month Total Ever

Capital Flight in Italy escalates at a record pace. It's seen in Target2 balances and spreads rather than an EM crisis.

German Investors Dumping Italian Bonds: Italy Increasingly Dependent on ECB, Target2 Capital Flight

Italy is increasingly dependent on the ECB to hold down bond yields as foreign investors dump Italian bonds like mad.

Capital Flight to Germany in Full Swing

Capital; flight to Germany, the Netherlands, and Finland is in full swing. These sums cannot be paid back.

Target2 Imbalances Grow: ECB Overtakes Greece as Third Largest Debtor

Target2 imbalances in the eurozone continue to mount. The ECB itself now has the third largest negative balance following Italy and Spain.

Fuse is Lit! Target2 Imbalances Hit Crisis Levels: An Email Exchange With the ECB Over Target2

Eurozone Target2 imbalances have touched or exceeded the crisis levels hit in 2012 when Greece was on the verge of leaving the Eurozone. Others have noted the growing imbalances as well.