With the election of the Lega Nord and Five Star Movement in Italy, Target2 imbalances are growing again. The gap between the creditor nations (mostly Germany and the Netherlands) and the debtors (the PIIGS, less Ireland) is now back at levels last seen at the height of the Eurozone crisis.
But wait. What are Target2 balances? Are they the result of Germany’s enormous current account surplus, or is there something else at work?
More importantly, should you care about them, and do they mark the beginning of the end for the Eurozone?