Target Balances and the German Financial Account in Light of the European Balance-of-Payments Crisis

21 Pages Posted: 17 Jan 2013  

Hans-Werner Sinn

CESifo (Center for Economic Studies and Ifo Institute); National Bureau of Economic Research (NBER); Ludwig Maximilian University of Munich

Timo Wollmershaeuser

Ifo Institute for Economic Research; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: December 28, 2012

Abstract

As shown in Sinn and Wollmershäuser (2012a), during the European balance-of-payments crisis, inter-governmental credit and Target credit granted by core-country central banks have replaced private international capital flows in financing the crisis countries' current account deficits, and even compensated for outright capital flight. This article offers a closer look at the components of this reversal of capital flows for the case of Germany. Its main finding is that most of the reversal materialized in the decline in foreign claims of German commercial banks. The inflow of foreign flight capital into Germany is small by comparison, with purchases of German government bonds increasing substantially, in particular by Spanish and Irish investors. Some foreign capital even left Germany. In net terms, over the years 2008, 2009 and 2011 foreigners withdrew credit they had previously provided to German financial institutions. However, in 2012, foreign credit flows to German financial institutions surged, while the flow of credit redemptions paid to German financial institutions came to a halt.

Keywords: monetary union, balance of payments, financial account, capital flight, target

JEL Classification: E500, E580, E630, F320, F340

Suggested Citation

Sinn, Hans-Werner and Wollmershaeuser, Timo, Target Balances and the German Financial Account in Light of the European Balance-of-Payments Crisis (December 28, 2012). CESifo Working Paper Series No. 4051. Available at SSRN: https://ssrn.com/abstract=2202092

Hans-Werner Sinn

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany
+49 89 9224 1276 (Phone)
+49 89 9224 1409 (Fax)

HOME PAGE: http://www.cesifo.de

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ludwig Maximilian University of Munich

Geschwister-Scholl-Platz 1
Munich, Bavaria 80539
Germany

Timo Wollmershaeuser (Contact Author)

Ifo Institute for Economic Research ( email )

Poschingerstrasse 5
Munich, 81879
Germany
+49 89 9224 1406 (Phone)
+49 89 9224 1462 (Fax)

HOME PAGE: http://www.ifo.de/link/wollmershaeuser_t.htm

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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