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ECB shifts towards transparency

by Frank Westermann

ECB shifts towards transparency

The European Central Bank has decided to release data on intra-euro system claims and liabilities among national central banks that had accumulated since the 2007 financial crisis under the Target-2 system, which reached a peak of more than €1tn for crisis-hit countries.

The Target-2 claims and liabilities have attracted controversy since summer 2011, when Hans-Werner Sinn, president of Germany’s Munich-based Ifo research institute, started a debate on the ECB’s role in Europe’s financial crisis. Pointing towards these claims and liabilities on NCB balance sheets, he argued there was a ‘stealth bail-out’, unnoticed by the general public and ignored by European parliaments.

The lack of a common database was a major shortcoming in the subsequent debate. In a research article, Sinn and his Ifo colleague Timo Wollmershäuser were the first to illustrate how data from the International Monetary Fund can be used to approximate the Target-2 balances. However, these data came with a delay of several weeks and were accessible only to subscribers to the IMF’s statistical database.

Regardless of which side observers and analysts take in the debate, the ECB step is a welcome move towards transparency. The balances are a key indicator of Europe’s balance of payments position and a barometer of financial stability.

In October 2011, the Institute of Empirical Economic Research at Osnabrück University started collecting data from NCBs based on their published monthly balances, released in different formats and according to varying schedules. Only a few NCBs explicitly identified the Target-2 balances. The Bundesbank initially included them in a composite balance sheet position called ‘other items’.

Although the Institute was able to report the number with relatively high precision, some of the values relied on estimates and others differed with respect to the publication date. Also the data lacked the authority of an official institution, needed for research and business use. This shortcoming has now been rectified. As of September, the ECB is providing these numbers in a common database.

Frank Westermann is Professor of International Economic Policy and Director of the Institute for Empirical Economic Research, Osnabrück University.