Target Risks Without Euro Exits

The Deutsche Bundesbank's Target claims arose as a result of the Eurosystem rules and the resulting forced lending by Germany’s central bank to its European central counterparts. Today, it is undisputed that these claims are at risk if Target debtors leave the Eurosystem. But what about the Target risks if the euro continues to exist? Target balances imply real risks for creditor states in this scenario too. Target risks are also particularly problematic because they limit the scope for political action and force countries with Target surpluses to keep them in check, at least apparently, by means of collective liability and tax resource redistribution systems that are constantly being redesigned. The road to a European transfer union is mapped out if we do not succeed in limiting Target balances. In their contribution, Clemens Fuest and Hans-Werner Sinn show that there are various ways of limiting the risks from Target balances without impairing the functioning of the monetary union and the common capital market.