Germany amassing huge surpluses -- and huge risks (EU TARGET-2 IMBALANCES SWELLING AGAIN!)

Yet, as a result of the large imbalances within EMU that these surpluses symbolize, Germany is a long way from insulating itself against foreign-currency risks.

... The Bundesbank's balance sheet now encompasses around 37% of Eurosystem assets of €3.3 trillion (computed on a net basis that strips out individual central banks' claims and liabilities against each other under the Target-2 payments system), against 32% at the inception of EMU.

... [But] the re-appearance of large Target-2 imbalances, as pointed out in the Bulletin of the Official Monetary and Financial Institutions Forum by Frank Westermann and Andrew Hunt points to strains caused by reluctance of German creditor banks to channel funds back to peripheral euro countries, which have transferred euros to Germany to purchase goods and services or buy assets.

... [this has resulted in] large persistent claims under the Target-2 system, now back to €660 billion at the end of July, not far from the euro-crisis peak level of €751 billion in August 2012.

...

Now that the figures are rising again, this must inevitably be a source of ECB concern. On the other hand, large Target-2 imbalances -- amounting to close to half of Germany's entire net foreign assets -- can also be seen as a powerful force holding the euro area together, for Germany would be highly reluctant to countenance a breakup that would inevitably unleash large losses on the German state and its taxpayers.

Part of the rise in Target- 2 balances since January 2015 represents a direct effect of the ECB's program of quantitative easing -- opposed by the Bundesbank -- since liquidity released by central bank's asset purchases in peripheral centuries is being used to buy euro assets in Germany, in what critics say is misuse of QE to fund capital flight.