A quick perusal of Target2 Balances for January shows capital flight from Italy and Spain to Germany intensified again.


German target2 imbalances exceed levels hit in the Eurozone crises in 2012. Things improved considerably after ECB president Mario Draghi made his famous statement “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough”.

The ECB claims this action is due to its bond-buying program. I strongly disagree.

For further discussion including my email exchange with the ECB regarding target2, please see Fuse is Lit! Target2 Imbalances Hit Crisis Levels: An Email Exchange With the ECB Over Target2.

Also consider:

  1. Germany’s Finance Minister Blames ECB For German Trade Surplus; Why the Eurozone Will Destruct
  2. Michael Pettis Calls Surplus Trade Statements by German Finance Minister “Utter Lunacy”

Finally, note that Italy is on ECB life support. Should Draghi halt QE asset purchases, demand for Italian bonds will plunge. For discussion, please see Draghi’s Dilemma: Eurozone Inflation Hits 2% with Italy on Bond Life Support.

Mike “Mish” Shedlock