There is an intense though often technical debate about the large balance sheet positions of the euro area’s national central banks (NCBs). These positions are known as “Target balances” after the settlement system through which payments are managed across the single currency area. In the debate, launched by German economist Hans-Werner Sinn, rising imbalances in the Target system have been criticised as reflecting unwarranted external financing for stressed nations and hidden risks for other countries.

Large imbalances in the Target system emerged when commercial banks in stressed eurozone countries found it increasingly difficult to finance themselves in the market. To cover net capital outflows – a large share of which went towards “core” euro area countries – the banks had to turn to their NCBs for liquidity on a substantial scale. As a result, NCBs across the eurozone accumulated large liabilities (if their countries saw capital outflows) or claims (if their countries saw inflows) in the Target system.

These liability and asset positions have risen to about €1tn or about 10 per cent of euro area gross domestic product. The NCBs of nations such as Greece, Ireland, Italy, Portugal and Spain have liabilities. The claims are held mainly by the Bundesbank, with about €700bn, and the NCBs of the Netherlands, Luxembourg and Finland.