Just picture a wealthy German running into a wealthy Greek on a beach in Greece. The Greek laments that he has 10 MEUR in his account with, say, Alpha Bank which he would like to transfer offshore to his account with Deutsche Bank in Frankfurt. Alpha Bank has told him that they don’t have enough liquidity to make the transfer but if the Greek could come up with a new depositor who would put 10 MEUR into Alpha Bank, they could effect the transfer.
So the Greek now says to the German: “You are very wealthy. Why don’t you take 10 MEUR of the monies which you have on deposit with Deutsche Bank in Frankfurt and deposit them with Alpha Bank in Athens so that they can effect my transfer of 10 MEUR to my account with Deutsche Bank in Frankfurt?”
The German says to the Greek: “Do you still have all your marbles in place? You don’t expect me to transfer my money to a Greek bank so that you can transfer your money out of Greece; do you?”
That is exactly what Target-2 makes possible in an automatic way (i. e. the Greek bank doesn’t even have to condition the transfer abroad on the receipt of new deposits; it just makes the transfer and gets the necessary liquidity from the ECB).
The German on the beach thought that it was ridiculous to even think that he would put his money into a Greek bank so that his Greek counterpart could transfer his money offshore. Little does the German know that this is exactly what is happening behind his back. And not only for capital flight but, above all, to replenish the funds which Greece loses because Greece is spending so much on imports.
The German government has officially denied that this is taking place. They argue that Target-2 claims are not loans. They argue that Target-2 claims are just “reconciling items to make the books balance”. Well, the monthly charges to a credit card are not loans from, say, MasterCard. Instead, MasterCard sends out bills for payment of the monthly charges and those bills are “reconciling items to make sure that the books balance”.