Modern Monetary Macroeconomics
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Modern Monetary Macroeconomics

A New Paradigm for Economic Policy

Edited by Claude Gnos and Sergio Rossi

This timely book uses cutting-edge research to analyse the fundamental causes of economic and financial crises, and illustrates the macroeconomic foundations required for future economic policymaking in order to avoid these crises.
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Chapter 8: The monetary–structural origin of TARGET2 imbalances across Euroland

Sergio Rossi


The euro-area crisis that broke out near the end of 2009 is the result of a number of factors generated by the ‘original sin’ of monetary union (see Rossi and Dafflon, 2012). In fact, Euroland countries still have heterogeneous currencies, although the latter all have the same denomination since they were encapsulated in the European Monetary Union (EMU). Certainly, EMU is a misnomer, since to date there is no currency union across the area, which notably lacks a final-payment mechanism for the European System of Central Banks (ESCB). It is indeed the lack of payment finality between any two EMU member countries that has originated (observed and non-observed) soaring imbalances within the EMU, particularly since the bursting in 2009 of the systemic crisis that is devastating the euro area at the time of writing. As Goodhart (1989, p. 26) explains, the finality of a payment requires that the ‘seller of a good or service, or another asset, receives something of equal value from the purchaser, which leaves the seller with no further claim on the buyer’. Within the euro area, this occurs for residents but not (yet) for their countries, because exporting countries still have a claim on the ESCB–also called the Eurosystem, which includes the European Central Bank (ECB) and the national central banks (NCBs) of euro-area member countries–once these countries are ‘paid’ for those goods, services, and/or assets that their residents export in excess of what they import during the relevant period of time. It is therefore a payment deficit that originates intra-euro-area imbalances eventually.

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