The debate about the so-called target-2-System of Central Banks is focused so mainly on the monetary level. The Target 2 system ensures that works of payments between the central banks of the euro system. The significant expansion of the Target-2 balances in the balance sheets of the national central banks on the one hand because the private sector dissolves in the periphery and restructures in the core countries.
Funding beyond this financial consolidation and capital flight, the peripheral countries continue to import goods from the central bank money creation in the Target 2 system. This has real economic consequences.
The projects financed through Target-2
Imports of goods into the periphery cement so the local non-competitive production structures and fuel are on the other side of the export and the positive developments on the labour market in Germany. To pre-Euro times, exchange rate movements would have triggered an early structural change. The current system introduces real economic misallocation and makes credit more likely events in the periphery. They should be classified as a peripheral country bankrupt and leave the euro, the ECB, the information in their possession as well as the sovereign debt write off their Bundesbank Target-2-requirements.
The potential burden on the taxpayer amounts already present in approximately the level of the annual federal budget. So what to do? Here we look at things from several perspectives. Basicallyр, it comes to three variants. Here is how the facts really are. From the theory of market failure, there are three alternatives. First, the policy could introduce a ceiling for Target 2 balances. Second, the ECB could get a special discount for government bonds, which she accepts, as collateral for refinancing operations contrary to rise.
Third, there is a very efficient alternative. It is for creating a market for debt rights in the eurozone, where one sets a maximum limit of loan growth. The countries would rata rights allocated debt that they could trade with each other. Negative externalities caused by excessive debt would be off so far as possible. Without reform of the Target 2 system running other reforms into space and save the euro would move further and further away.
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Surrounding the European debt crisis and the search for new institutional arrangements for the European Monetary Union increasingly gives the impression that Europe is no longer a vision. Only 49 percent of Europeans rate their country’s membership as positive and only 42 percent trust the European institutions.
Nevertheless, Europe’s cultural heritage acts. Otherwise, the creation of the European Union as we know it today would not have been possible. Nevertheless, always the accession of new countries are increasingly altering the quality. A political union, which goes well beyond what has been achieved with the common foreign and security policy and cooperation on crimes, cannot be realized in a space that goes from the Atlantic to the Urals. At the same time, no one wants to endanger the peace of this area.
What we need is a Europe of different integration areas. There are three steps have in this context to the front:
1. Differentiated integration spaces
Differentiated integration spaces are not a rejection of the younger members of the Union. On the contrary, they offer the chance of a realistic design, given the different starting positions and preferences. It can also be used for the integration of large-area connections such as infrastructure networks and defines – make that go far beyond national interests and generate region-wide externalities.
2. A common currency
We can afford diplomatically as Europeans not to fail on the international stage. Europe therefore needs a common currency, to avoid being marginalized in world politics of the U.S. and China.
3. Europe for the sake of peace
Strengthening of Germany and France can succeed only if the potential of cultural similarities is re-evaluated. Despite all the conflicts of the past, Europe is for the sake of peace. Peace through law, peace through secularization of politics, education, reason and liberty. See Europe as a basis of convenience. Although we are too different culturally. According to some, the big problem is considered in addition to the financial industry worldwide. It is necessary classic “feudal” system in each country, so you have to prune the state institutions heavily on their real tasks.
The situation of the municipal budget has been deteriorating since the early 90s and it is increasingly dramatically. Perhaps those of you who know more about the problem they thought such a development. However, what are the reasons? This is due mainly to the sharp increase municipal cash advances.
These are basically a short-term bridging liquidity problems. In fact, cash advances from many communities are misused. Since the early 90s, more and more cash advances to long-term finance consumption spending are included. These numerous examples of many local North Rhine-Westphalia, Lower Saxony and Saarland.
Financing deficits there were increasingly financed through cash advances, while the long-term credit market debt has fallen. The reason is that in many municipal constitutions already are restrictions on the issuance of long-term, investment-loans. However, the institutional and legal hurdles for taking cash advances have fallen.
For example, in 1994, abolished in North Rhine-Westphalia, the need for one-off approval limits borrow money after the financial regulation. Even a complaint duty in an unlawful, perpetual prolongation does not exist. In the following period, the cash advances were piled on a high pedestal and can be removed only with difficulty.
Presumably, the situation of municipal budgets will be exacerbate even more in the future. The country into debt within the constitutional debt limit from 2020 are no longer allowed. In the same time local authorities are excluded from the constitutional debt limit, has a load shift to the detriment of local communities.
The load shift may be in the form of a pass-new, costly duty tasks or by a reduction of investments and allocations, as the local legal restrictions have fallen for the cash borrowing is assumed that the municipalities try to close the resulting financing gap on cash advances. The problem is the spending and the lack of responsibility of decision-makers. There is lack of participation of citizens, which is why the municipalities may make expenditures, as they consider necessary.