Why it matters if Greece leaves the eurozone

by Jill Treanor

Guardian
May 30, 2012

By rights, no one should care much about Target 2. It is an arcane piece of the plumbing in the eurozone that pushes euros around the system. It stands for Trans-European Automated Real-time Gross settlement.

The chart above, though, shows why it could start to matter if Greece (or even other countries) leaves the eurozone. Germany's banks, through the Bundesbank, have €640bn (£510bn) of balances in the system. Greece, for instance, has €107bn that it needs to pay back through the system, according to the last disclosed figures. Bank analysts at UBS point out that Spain, Italy, Ireland and Portugal are the other major debtors in Target 2.

The UBS analysts reckon that the €640bn that Germany has in credit could rise to €1tn as problems in the peripheral nations rise.

"This is a powerful incentive for the creditor nations to work on keeping the monetary union together," the UBS analysts said.

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Bundesbank Target2 balance. Source: UBS