Every day, TARGET - Europe's cross-border payments system - processes transactions worth €2.5 trillion. Under its decentralised model, TARGET generates balances between the national central banks.

These were tiny at its creation but today – after a decade spanning the financial crisis, the sovereign-debt crisis and now the pandemic recession – Germany’s TARGET balance exceeds €1 trillion.

In his The Economics of Target Balances: From Lehman to Corona (Palgrave Macmillan), Hans-Werner Sinn says these balances are a “fever thermometer” for the health of the financial system. The system as it is designed, he argues, is unsustainable.

Hans-Werner Sinn is Emeritus Professor of Economics and Public Finance at the University of Munich and was president of the Ifo Institute for Economic Research from 1999 until 2016.

Tim Gwynn Jones is an economic and political-risk analyst at Medley Global Advisors.

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