Target Losses If The Euro Breaks Up – A Response to De Grauwe and Ji

If the euro were to break up, the size of Germany’s estimated losses would depend largely on the nature of the Target claims, which are now huge, accumulated by the Bundesbank via the ECB settlement system. De Grauwe and Ji have tried to prove that such losses would not occur in the event of a break-up. Their central argument is that money today is often artificial (Fiat Money) and would retain its value even if the Bundesbank were to lose its Target claims. Hans-Werner Sinn shows why the authors are mistaken, and why Target balances represent real value that would be lost if the euro were to disintegrate. Society’s ability to consume would fall to the full extent of the Target losses. The burden of the losses would rest on the state and its citizens, whose banks would have transferred part of the savings deposited with them to the Bundesbank.