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Andrea Terzi

With the implementation of the Eurosystem's asset purchase programme (APP), national central banks' TARGET balances have risen. For the European Central Bank, this reflects cross-border payments and portfolio rebalancing in the context of the APP. disagree and claim that the causes of rising TARGET balances (2015–2017) have been the persistent current-account surplus of Germany and ‘capital flight.’ This comment explains that rising TARGET balances occur under specific monetary policy configurations and that the context of the APP was critical to account for rising TARGET balances. It then questions the decomposition approach employed by the authors by arguing that it shows accounting correspondences, not causality, and concludes that there is no established two-way association between TARGET balances and actual vulnerabilities of the euro area.

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Andrea Terzi

Notwithstanding the modified ECB practice that saved the day, the euro area is failing to restore economic prosperity. The problem is visibly political, yet an effective solution must be economically viable. This essay articulates the reason behind the prolonged deflationary bias of euro area policies by means of a simple (‘T-shirt’) model, where private spending depends on desired savings and sustainable indebtedness. This savings–debt constraint means that any policy that inhibits debt also inhibits financial savings, spending, and jobs. After providing a solution to the conundrum of the consequence of savings in a monetary economy, this essay makes a case for reclaiming the fiscal instrument. The EU Commission's belief that it is possible to create jobs without creating new debt underscores a serious conceptual fault and a delusion that the savings–debt constraint to spending can be ignored. As long as policy-makers defy the savings–debt constraint, the euro area will continue to live dangerously.