european law and life culture 第六單元： target trap -- dangers for our money and our children...

European Law and Life Culture

第六單元： Target Trap -- Dangers for our money and our children

Lecturer: Dieter Lutzenberger, Landesbank Baden-Wurttemberg

•Unless noted, the course materials are licensed under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Taiwan (CC BY-NC-SA 3.0)

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•My name is Dieter Lutzenberger. I come from Germany.

•我姓陸叫迪安 . 我是德國人 .

• I work over 40 years in one of the largest Bank in Germany.

•Therefore 20 years as Senior Vice President responsible for Foreign Commercial Business.

•Member of the European Banking Association (EBA) Clean Payment-Working group in Paris, France.

•Member of the Society for Worldwide Financial Telecommunication (S.W.I.F.T.) international Payment-Working group in Brussels, Belgium.

Welcome to Crash Course in International Bank Business! Indroduce my person and my work

•Dieter Lutzenberger, Landesbank Baden-Württemberg, Germany

Welcome to Crash Course in International Bank Business! Introduce my person and my work

Meantime I am retired and live in Taiwan.

•Guest-speaker:

• in Taiwan at the National Taiwan University, Taipei and National Chiao Tung University, Hsin-Chu,

• in Germany at the Baden-Wuerttemberg Cooperative State University, Karlsruhe.

•Goethe-Institut, Taipei: Teacher of german business communication for Taiwanese students.


Contents of crash course

•Hans Werner Sinn and his book “The Target Trap” – 5 points -

•What is Target?

•Where is the problem?

•How much are the Target balances?

•What solutions are being discussed?




•Hans Werner Sinn and his book “The Target Trap” -5 points-


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Personal informations of Hans Werner Sinn•He is a German economist, Professor of Economics and Finance at the Ludwig-Maximilians University in Munich and

•President of the Ifo Institute for Economic Research. He has written several books on economic policy issues.

•Born: 7 March 1948 (Age 65), Germany, 3 Children.


1. Book content•Hans-Werner Sinn is one of the sharpest critics of the euro bailout policy.

• In his new book, he criticized the crisis countries to solve their financial problems by printing money. Germany will pay the bill.

•The euro-crisis countries solved - using the payment system of the European Central Bank TARGET - their financial problems - at the expense of Germany.


•With the introduction of the euro, interest rates had fallen in the crisis countries.

•Cheaper loans have meant that they imported more - and wrote deficits in foreign trade.

•Until the financial crisis, this was not noticed.

2. Book content


3. Book content

•Before financial crisis countries can compensate for their deficits by private capital inflows.

•After the financial crisis the private capital inflows however runs dry.

• Instead, the crisis countries would now finance their trade deficits with the printing press.


4. Book content •Expression of this negative development are the balances of internal European payment system TARGET of the Euro Central Bank.

•About this system the banks in the euro area transfer their payments.

•The euro crisis is a acute balance of payment crisis.

• The liquidity problem, must be covered with securities.


5. book content

•Cause of concern for taxpayers!

•According to Hans-Werner Sinn, the euro crisis was never gone, even if many people would have thought.

•There has been a large transfer of risks from the investors to the taxpayers.

• Shadow banks: hedge funds, private equity funds and money market funds.


5. Book content•The financial markets have calmed down, because the taxpayers assumed the liability.

•Consequently, the taxpayer would have every reason to be worried.

• In contrast to the financial investors, the taxpayers were in good faith and trust in the state.

•This are all reasons for the danger to our money and our children in Germany and Europe.


Up here is not the end yet: Hans-Werner Sinn, head of the Ifo Institute has identified the explosiveness of TARGET2 balances first.


What is Germans problem and what is danger for children in future?You must only look to this picture and you understand the problem.


•Receivables and liabilities•Forderungen und Verbindlichkeiten

•TARGET2 balances from German Central bank

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•Hans Werner Sinn and his book “The Target Trap”

•What is Target?


TARGET2 •Trans-European •Automated •Real-time •Gross Settlement •Express •Transfer System


What is TARGET?

• It is the payment system of European central bank through which the commercial banks settle cross-border payments.

•Real-time gross settlement system for the euro.


What is TARGET?

•TARGET consists of 15 national Real-time gross settlement systems.

•These national systems are connected to TARGET of the European Central Bank.

Mechanics: How does an Open Account transaction work?

OPEN ACCOUNT: The Exporter ships the goods and the documents directly to the Importer and waits for the Importer to send payment.

Importer has the stronger posi-tion of contract negotiations. Vertragsverhandlung.

Exporter

Importer

3GOODS1

PAYMENT

Real economy. Exporters and Importers

German

Greek

2

• Dieter Lutzenberger, Landesbank Baden-Württemberg, Germany



Example:• A Greek buys a car from a German company.

•A Greek commercial bank makes a debit of the Greeks buyers (Importer) account

• and makes a money transfer to the Greek Central Bank.


Example:

•TARGET-System from ECB makes a debit of the Greek central bank account and a credit of the German central bank account.

•The German Central Bank transfers the money to the house bank of the German seller (Exporter)

•and the German house bank makes a credit on the sellers account.


Here is a account receivable against ECB

Money transfer

credit account

car

Debit account

Money transfer

Here is a account liability against ECB

How are TARGET balances



“Virtual outstanding money”.

•Actually, a good deal - just send the Greek and the German Central Banks no money back and forth, because central banks create money virtually out of nowhere.

•The German Central Bank will thus receive "only" a virtual accounts receivable addressed to intermediary of the euro zone, the ECB.


. Money from nowhere

Commercial banks create money through electronic bookings.

Banks give a € 10,000 loan to a company and make a credit to customers account. This also creates electronic money.

Company pays 10,000 Euros salaries to employees on a account

Private people buy goods from this company for € 10,000.

Company pays back the loan of 10,000 Euros and so the electronic money is destroyed again.

The bank must pay a minimum banking-reserve of 1 percent of the total, 100 Euro to the Central bank.

Central Bank gives commercial bank a credit if bank has no money. Commercial Bank gets, the credit against assets and must pay the prime rate



“Virtual outstanding money”..

•From 1999 to 2006, these accounts receivable were distributed fairly.

•The flow of money, bills and capital movements between Germany, Greek and other euro-countries added to the bottom line to about zero.

Exporter

Importer

3GOODS1

PAYMENT

German

Greek

2

•The flow of money, bills and capital movements between Germany, Greek and other euro-countries added to the bottom line to about zero.

From 1999 to 2006:





•What is Target?



“Since the outbreak of the international financial crisis, the Target 2 balances out of joint.”

•Hans Werner Sinn researched and came to the conclusion: “The system is a time bomb!”

•His message: "With the money the ECB is trying to save the euro countries in crisis - secretly and quietly.


“Since the outbreak of the international financial crisis, the Target 2 balances out of joint.”

•Only at first glance it were at Target to an irrelevant, purely technical system. This is a false impression,"

• In the current financial crisis, the private money is dried up, which had previously ensured that the balances were quickly compensated.


“ECB is a creditor!”•The target balances are de facto bank overdrafts without a fixed term and without any control, that - in car-example - Germany gives Greece.

•The ECB become de facto to a creditor for the crisis countries.


Here is a account receivable against ECB

Money transfer

credit account

car

Debit account

Money transfer

Here is a account liability against ECB

How are TARGET balances



“The money would be gone.”

•The liabilities of the German Central Bank would rise.

• This “de facto rescue packages” is not democratically legitimized.

• The risk here: Break-up the euro zone, remains seated the German Central Bank on these receivable.


Greek commercial bank debit customer account and transfer to Greek CB

Greek car buyer

Greek CB debit Greek Com.Bk. and transfer to ECB

Greek CB establish a debit balance against ECB.

Practically gives ECB the Bank of Greece a permanent overdraft credit for 1% debit interest.

German CB establish a credit balance against ECB.

German car seller

German commercial bank credit customer account

German CB transfer to German Com.Bk,



“TARGET measure loans between banks”

•The Target balances are payment balances. But they also measure loans between central banks of the Euro system.

•With the transfer of money is always a lending normally connected.

• In reality, the German Central Bank of course give any money to the Bank of Greece.

•The credit relationship is created rather by the fact, that the German Central banks make a money transfer by order of Greek Central Bank.


Receivable in German Central Bank balance sheet

•The German CB makes a credit to the German Commercial Bank.

•This is a debt of Deutsche Central Bank against German Commercial bank.

•At the same time German CB granted the Greek CB a loan which they booked as a receivable in its balance sheet.


Difference between Greek and my friend•It's as if I pay for my friend a beer bill from the beer pub who has forgotten his wallet.

• I give him with the execution of the payment a loan and so I have a claim against him. The only difference is that my friend gives me back the money at evening.

•While Target receivables remain indefinitely and never becomes due.

•So Greece receives the German goods and can ” put money on the cuff,” without deliver back Greek goods to Germany.


From ECB protocol:

•“Participants do not have restrictions by net debit limits or they have high level credit limits.

•Each participant can determined themselves time and extent of the balances arising.”




•What is Target?



How much is 15 trillion US-Dollar?


15 trillion (deutsch Billion) USD is a digit of USD 15,000,000,000,000

is 15 thousand thousand thousand thousand = 15 x 1000 x 1000 x 1000 x 1000 (multiply)(1 Billion engl.=Milliarde deutsch 1.000.000.000)


TARGET banlance July 2012•The German central bank had in July 2012 a TARGET positive balance of 727 billion euros.

•The crisis countries Greece, Ireland, Portugal, Spain and Cyprus had until July 2012 together a negative TARGET balance of 692 billion Euros.


Sinn- Wollmershäuser Juli 2012



.



German liability 27% •The German liability resulting alone from its capital share in the ECB.

•Which for Germany at around 27 percent.

•So in the end would remain an open item, if Greece would leave the euro zone and the balances of individual banks would be charged, Germany would be liable according to the ECB-shares for it.




•What is Target?



•What solutions are being discussed?


View to USA:

•The U.S. has a similar system called Fedwire payments, in which the differences between the regional branches of the U.S. Federal Reserve are balanced.

•The imbalances are corrected once a year by securities that are in the collections of the Fed's offices.


View to USA:

•This could be done in Europe like in USA.

•But Europe arises the question of the quality of the securities that are in the balance sheets of central banks.


Return of higher quality requirements

•For now accept the euro central banks because of the debt crisis papers of questionable quality.

•Therefore, German Central Bank President Jens Weidmann calls for a return to the higher quality requirements of central banks deposited papers that had been considered before the financial crisis.


Reason of concern for taxpayers!

•According to Hans-Werner Sinn, the euro crisis was never gone, even if many people would have thought.

•There has been a large transfer of risks from the investors to the taxpayers.


•The financial markets have calmed down, because the taxpayers assumed the liability.

•Consequently, the taxpayer would have every reason to be worried.

• In contrast to the financial investors they were in good faith and trust in the state.

•Such is the business of politics.

Reason of concern for taxpayers!


Better collateral for refinancing loans

•Hans-Werner Sinn and Timo Wollmershäuser (2012) call for a better collateral for refinancing loans to protect the taxpayer

• the repayment of the TARGET2 balances with valuable papers.


Final remarks


Sinn- Wollmershäuser Juli 2012



Final remarks:

•The target balances are an receivable, who Germans never can really use.

•There is no hope that the Target balances will ever converted back into a usable wealth.

•The existing Target balances only help to prolong the crisis.


Final remarks:

•TARGET balances are in the best interests of the banks and investors from around the world.

•Because they can take out their in the crises countries invested capital and invest in another crisis-stable countries.

•This is the real danger for Europe and mainly for Germany and so for the future of our children.

Congratulations! You made it through the Crash Course..


You have any Questions?

I hope you know now more about casino capitalism around the world.

What´s about your feeling after Crashcourse?


•Did not understand more about money

•Little bit understand more about money

•Understand good, better feeling about money as before

Thank you very much for your attention.• If you have in the future any questions please contact me:• My e-mal adress:

[email protected]• My phone no.: Taiwan +886 93 0070 260• My phone no.: Germany +49 175 183 4250


mailto:[email protected]

頁碼作品版權圖示來源 / 作者

4-66Wikimedia Commons / LBBWhttp://commons.wikimedia.org/wiki/File:Lbbw_barevne_logo_na_bile_pozadi.png本作品屬公共領域之著作。瀏覽日期 2013/10/19。

6

Hanser Verlag / Hans-Werner Sinn 著， 2012，《 Die Target-Falle –

Gefahren für unser Geld und unsere Kinder》， Germany： Hanser Verlag。http://www.hanser-literaturverlage.de/buecher/buch.html?isbn=978-3-446-43353-3依據著作權法第 46、 52、 65條合理使用。瀏覽日期： 2013/10/06。

6

Wikimedia commons / Romy Bonitzhttp://commons.wikimedia.org/wiki/File:Hans_Werner_Sinn.png以創用CC「姓名標示－非商業性－相同方式分享」臺灣3.0版授權釋出。瀏覽日期： 2013/10/19。

16QUERSCHUSSEhttp://www.querschuesse.de/bundesbank-positiver-target2-saldo-mit-neuem-rekord/依據著作權法第 46、 52、 65條合理使用。瀏覽日期： 2013/12/14。

版權聲明


http://commons.wikimedia.org/wiki/File:Lbbw_barevne_logo_na_bile_pozadi.png

http://commons.wikimedia.org/wiki/File:Lbbw_barevne_logo_na_bile_pozadi.png

http://www.hanser-literaturverlage.de/buecher/buch.html?isbn=978-3-446-43353-3

http://www.hanser-literaturverlage.de/buecher/buch.html?isbn=978-3-446-43353-3

http://commons.wikimedia.org/wiki/File:Hans_Werner_Sinn.png






http://www.querschuesse.de/bundesbank-positiver-target2-saldo-mit-neuem-rekord/

http://www.querschuesse.de/bundesbank-positiver-target2-saldo-mit-neuem-rekord/




hhttp://ocw.aca.ntu.edu.tw/ntu-ocw/index.php/info/copyright_declaration

頁碼作品版權圖示來源 / 作者21、28

Dieter Lutzenberger以創用CC「姓名標示－非商業性－相同方式分享」臺灣3.0版授權釋出。

24、33

Wie die target-salden enstehen / Commerzbankhttp://www.bds-online.info/2012/04/15/breaking-news-targets-die-eigentliche-gefahr-fur-den-euro/依據著作權法第 46、 52、 65條合理使用。瀏覽日期： 2013/12/14。

26Geldschöpfung / Frankfurter Allgemeine Zeitung GmbH http://www.faz.net/aktuell/wirtschaft/wirtschaftswissen/geldschoepfung-wie-kommt-geld-in-die-welt-11637825.html依據著作權法第 46、 52、 65條合理使用。瀏覽日期： 2013/10/19。

35Dieter Lutzenberger以創用CC「姓名標示－非商業性－相同方式分享」臺灣3.0版授權釋出。

39

Anders Matzen, in “Should We Worry About Target 2 Imbalances?”, GTNews, 13 Dec,2011. http://www.gtnews.com/articles/images/NordeaImage4_000.jpg依據著作權法第 46、 52、 65條合理使用。瀏覽日期： 2013/10/21。

43Target-Salden / Frankfurter Allgemeine Zeitung GmbH http://www.zukunftskinder.org/?p=29000依據著作權法第 46、 52、 65條合理使用。瀏覽日期： 2013/12/14。







http://www.bds-online.info/2012/04/15/breaking-news-targets-die-eigentliche-gefahr-fur-den-euro/

http://www.bds-online.info/2012/04/15/breaking-news-targets-die-eigentliche-gefahr-fur-den-euro/

http://www.faz.net/aktuell/wirtschaft/wirtschaftswissen/geldschoepfung-wie-kommt-geld-in-die-welt-11637825.html

http://www.faz.net/aktuell/wirtschaft/wirtschaftswissen/geldschoepfung-wie-kommt-geld-in-die-welt-11637825.html






http://www.gtnews.com/articles/images/NordeaImage4_000.jpg

http://www.zukunftskinder.org/?p=29000







頁碼作品版權圖示來源 / 作者

46、58

Target balances in the Eurozone (ended in 2011) / H. W. Sinn and T. Wollmershäuserhttp://download.springer.com/static/pdf/346/art%253A10.1007%252Fs10797-012-9236-x.pdf?auth66=1387202354_2d33265251acbca5fcdf82834091c6fc&ext=.pdf依據著作權法第 46、 52、 65條合理使用。瀏覽日期：2013/10/21。

47

Statista / Unknownhttp://de.statista.com/statistik/daten/studie/233148/umfrage/target2-salden-der-euro-laender/依據著作權法第 46、 52、 65條合理使用。瀏覽日期：2013/10/21。

48 同上。


http://download.springer.com/static/pdf/346/art:10.1007/s10797-012-9236-x.pdf?auth66=1387202354_2d33265251acbca5fcdf82834091c6fc&ext=.pdf



http://de.statista.com/statistik/daten/studie/233148/umfrage/target2-salden-der-euro-laender/

http://de.statista.com/statistik/daten/studie/233148/umfrage/target2-salden-der-euro-laender/




european law and life culture 第六單元： target trap -- dangers for our money and our children...

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