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)
Welcome to Crash Course in International Bank Business! Indroduce my
person and my work
•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!
Introduce my person and my work
Meantime I am retired and live in Taiwan.
•Guest-speaker:
• in Taiwan at the National Taiwan University, Taipei
Tung University, Hsin-Chu,
and National Chiao
• in Germany at the Baden-Wuerttemberg Cooperative State University, Karlsruhe.
•Goethe-Institut, Taipei: Teacher of german business
students.
communication for Taiwanese
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
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?
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
Contents of crash course
•Hans Werner Sinn and his book
“The Target Trap” -5 points-
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
Personal informations of Hans Werner Sinn
•He is a German economist, Professor of Economics and Finance at the LudwigMaximilians 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.
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
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.
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
2. Book content
•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.
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
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.
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
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.
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
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.
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
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.
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
Up here is not the end yet: Hans-Werner Sinn, head of the Ifo
Institute has identified the explosiveness of TARGET2
balances first.
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
What is Germans problem and what is
danger for children in future?
You must only look to this picture and you
understand the problem.
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
•TARGET2 balances from German Central bank
•Receivables and liabilities
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
•Forderungen und Verbindlichkeiten
Contents of crash course
•Hans Werner Sinn and his book “The Target Trap”
•What is Target?
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
TARGET2
•Trans-European
•Automated
•Real-time
•Gross Settlement
•Express
•Transfer System
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
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.
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
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.
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
Real economy. Exporters and Importers
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 position of contract negotiations.
Vertragsverhandlung.
German
Exporter
GOODS
1
Greek
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
2
PAYMENT
3
Importer
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.
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
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.
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
How are TARGET balances
Here is a account
receivable against ECB
Here is a account liability
against ECB
Money
transfer
Money
transfer
credit
account
Debit
account
car
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
“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.
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
.
Money from nowhere
Commercial banks create money through electronic bookings.
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
Banks give a €
10,000 loan to a
company and
make a credit
to customers
account. This
also creates
electronic
money.
Company pays back the loan of 10,000
Euros and so the electronic money is
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
destroyed again. Germany
Company pays
10,000 Euros salaries
to employees on a
account
Private people buy goods
from this company for €
10,000.
“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.
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
From 1999 to 2006:
•The flow of money, bills and capital
movements between Germany, Greek
and other euro-countries added to the
bottom line to about zero.
German
Exporter
GOODS
1
Greek
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
2
PAYMENT
3
Importer
Contents of crash course
•Hans Werner Sinn and his book “The Target Trap”
•What is Target?
•Where is the problem?
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
“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.
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
“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.
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
“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.
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
How are TARGET balances
Here is a account
receivable against ECB
Here is a account liability
against ECB
Money
transfer
Money
transfer
credit
account
Debit
account
car
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
“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.
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
Greek car
buyer
Greek commercial bank
debit customer account
and transfer to Greek CB
German
car seller
Practically gives ECB the
Bank of Greece a
permanent overdraft
credit for 1% debit
interest.
Greek CB debit Greek
Com.Bk. and transfer
to ECB
German commercial bank
credit customer account
German CB transfer to
German Com.Bk,
Greek CB establish
a debit balance
against ECB.
German CB establish a
credit balance against
ECB.
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
“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.
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
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.
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
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.
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
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.”
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
Contents of crash course
•Hans Werner Sinn and his book “The Target Trap”
•What is Target?
•Where is the problem?
•How much are the Target balances?
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
Contents of crash course
•Hans Werner Sinn and his book “The Target Trap”
•What is Target?
•Where is the problem?
•How much are the Target balances?
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
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)
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
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.
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
Sinn- Wollmershäuser Juli 2012
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
.
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
.
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
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.
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
Contents of crash course
•Hans Werner Sinn and his book “The Target Trap”
•What is Target?
•Where is the problem?
•How much are the Target balances?
•What solutions are being discussed?
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
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.
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
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.
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
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.
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
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.
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
Reason of concern for 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.
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
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.
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
Final remarks
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
Sinn- Wollmershäuser Juli 2012
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
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.
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
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.
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
Congratulations!
You made it through the Crash Course..
I hope you know now more about casino capitalism around the
world.
You have any Questions?
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
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
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
Thank you very much for your attention.
• If you have in the future any questions please contact me:
• My e-mal adress:
Dieter.Lutzenberger@gmx.de
• My phone no.: Taiwan +886 93 0070 260
• My phone no.: Germany +49 175 183 4250
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
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作品
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Wikimedia Commons / LBBW
http://commons.wikimedia.org/wiki/File:Lbbw_barevne_logo_na_bile_pozadi.p
ng
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=978-3-44643353-3
依據著作權法第46、52、65條合理使用。瀏覽日期：2013/10/06。
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Wikimedia commons / Romy Bonitz
http://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。
16
QUERSCHUSSE
http://www.querschuesse.de/bundesbank-positiver-target2-saldo-mit-neuemrekord/
依據著作權法第46、52、65條合理使用。瀏覽日期：2013/12/14。
•Dieter Lutzenberger,
Landesbank Baden-Württemberg,
Germany
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Dieter Lutzenberger
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Wie die target-salden enstehen / Commerzbank
http://www.bds-online.info/2012/04/15/breaking-news-targets-die-eigentlichegefahr-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。
26
Geldschöpfung / Frankfurter Allgemeine Zeitung GmbH
http://www.faz.net/aktuell/wirtschaft/wirtschaftswissen/geldschoepfung-wiekommt-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。
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Dieter Lutzenberger
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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。
43
Target-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。
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany
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作品
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Target balances in the Eurozone (ended in 2011) / H. W. Sinn and T.
Wollmershäuser
http://download.springer.com/static/pdf/346/art%253A10.1007%252Fs10797
-012-9236x.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。
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Statista / Unknown
http://de.statista.com/statistik/daten/studie/233148/umfrage/ta
rget2-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。
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同上。
•Dieter Lutzenberger, Landesbank Baden-Württemberg,
Germany