Intra-eurozone Payments Imbalances: Implications for the TARGET2 Payments System

Abstract

In the wake of the recent European debt crisis, there have emerged serious payments imbalances between the core/surplus countries and the peripheral/deficit countries, which threaten the internal cohesion of the eurozone. In the absence of political union or fiscal federalism, these centrifugal dynamics appear to be irreversible. This article examines the role performed by the TARGET2 (Trans-European Automated Real Time Gross Settlement Express Transfer System) payments system and the very real possibility of default by the indebted, peripheral countries as a result of the imposition of austerity policies by the European Central Bank (ECB)/European Union (EU)/International Monetary Fund (IMF) (Troika). It is proposed that the current, neoliberal path toward austerity and wage repression (or internal devaluation) is ultimately unsustainable and, indeed, self-defeating.

JEL Classification: B5, B14, B16, B23