TARGET 2: Capital Flight From Italy And Spain Continues

ECB on inflationECB

Take a look at the outstanding balances in the ECB’s TARGET2 payments system, which assigns debtor-creditor positions amongst banks in the region, in accordance with the transactions with their clients.

As can be seen from the table below and the subsequent graphics, Italy, where the banks have 360 billion euros of doubtful loans, as well as Spain, have again begun to show signs of weakness: there has been an increase in their net debts to the TARGET system, which means that there is a net deposit flight to other locations, as I explained in a recent blog.

This translates into a failure to pay on the part of an Italian or Spanish bank to its German counterpart, obliging the ECB to put up the money needed, which then appears as a debt in the Bank of Italy or the Bank of Spain’s account. This is what the table and the graphics reflect: both countries are once again increasing their debt in the TARGET2 system.


Why is capital to blame and not the current account? Because this is balanced: only the financial imbalance obliges direct debits to be recorded. As I said in that previous blog, “exporting is not sufficient.” Spain exports more than it imports, but that doesn’t prevent the flight of capital to safer havens.

The worst time was during the 2012 crisis, when Spain’s debtor position reached 337 billion euros and Italy’s 255 billion. After a couple of years of debt reduction, it has been rising again since 2015 (2015-2016, an accursed electoral year) and now Spain’s debtor position stands at 294.7 billion euros and Italy’s at 276 billion.


In the last graphic, we can see the deteriorating position of the debtor countries up to the 2012 peak, then the recovery in confidence up to mid-2014 and back to the beginning again up to now.



In short, the euro continues to be unstable, while the authorities refuse to look at this, which does nothing to help establish, once and for all, confidence in the system. But how will this be achieved if the division in Europe between creditors and debtors means that there is increasingly more confidence in the former than in the latter?

And all the while the politicians, like fools, are doing the parliamentary version of the Rigodon dance. But we are the real fools, believing that Europe and the euro protects us from their foolishness.

This problem of increasing asymmetry between debtors and creditors is the poison of Europe, the weakness at the origen of social unrest and the emergence of eurosceptic and breakaway parties. If we want to put things in their logical order.

*Image: Flickr

About the Author

Miguel Navascués
Miguel Navascués has worked as an economist at the Bank of Spain for 30 years, and focuses on international and monetary economics. He blogs in Spanish at: http://