The country’s Target 2 balance — the difference between incoming and outgoing cross-border payments — is €480bn in the red and growing rapidly, according to ECB data. Meanwhile, Germany’s Target 2 surplus is on track to reach €1tn.
Target 2 was set up by the ECB and eurozone national central banks to allow banks to make large payments to one another quickly. More than 1,700 banks use it to transact with one another.
The resulting balances between national central banks caused controversy in Germany during the Greek debt crisis, with some fearing that a break-up of the eurozone could potentially leave the German central bank on the hook for losses.
The issue of eurozone cohesion will come to the fore once more this autumn when Italy’s new populist Eurosceptic coalition government sets out its spending plans. The coalition’s ascent to power in May triggered a sharp market sell-off as investors recalibrated their expectations of political risk in the bloc.
Eurozone central bankers view the rise in the imbalances as a natural consequence of the €2.4tn quantitative easing programme, under which the central banks in the region buy mostly government bonds from investors.
Marchel Alexandrovich, senior European economist at Jefferies, said the growing divergence in Target 2 balances had been driven by QE. The situation may have been exacerbated in recent months by overseas investors shedding their Italian holdings, he added, but it was “hard to know how much is due to worries about Italian politics”.
“As long as the eurozone stays together, all of this is an accounting issue,” he said. “But these imbalances are the most obvious way in which eurozone countries’ taxpayers are exposed to break-up risk.”