Financial support for Italy will be costless

Whittaker, John (2020): Financial support for Italy will be costless.

Abstract

Loans to Italy from other eurozone countries will not increase their risk exposure, irrespective of the method of financing.

This is because loans will displace an equal amount of Italy’s Target2 debt, leaving unchanged the total claim of the eurozone creditors. Italy currently has Target2 debt of €513bn to other eurozone countries through its central bank.

If Italy receives grants, this will amount to forgiveness of some of its Target2 debt, which will be no loss to the creditors because its Target2 debt is unlikely ever to be repaid at full value.

• Item Type: MPRA Paper
• Language: English
• Keywords: Target2, eurosystem, Italian debt, recovery plan, ECB
• Subjects: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E42 - Monetary Systems ; Standards ; Regimes ; Government and the Monetary System ; Payment Systems; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies; F - International Economics > F3 - International Finance > F33 - International Monetary Arrangements and Institutions; F - International Economics > F3 - International Finance > F34 - International Lending and Debt Problems

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