money continues to pour out of Italian and Spanish banks for safer havens. This month I note a curious side effect: A huge amount of money went into French banks instead of German banks. The following table shows the winners and losers.

Target 2 Imbalances in Billions of Euros

Country Symbol Dec Target2 Balance Nov Target2 Balance Month-Over-Month Change Comment Spain ES -254.1 -241.8 -12.3 Highest Since 2012 Italy IT -248.9 -229.6 -19.3 Highest Ever Greece GR -94.4 -97.3 2.9 Lowest Since 2014 Q4 ECB ECB -83.8 -73.8 -10 Highest Ever France FR -29.2 -73.5 44.3 Remarkable Comeback Germany DE 584.2 592.5 -8.3 Second Highest Since 2012 Luxembourg LU 147.6 140.4 7.2 Highest Ever Netherlands NL 54.7 49.4 5.3 Highest Since 2002 Finland FI 20.1 31.8 -11.7 Lowest Since 2014 Q4 Cyprus CY 2.4 2.4 0 Second Highest Ever

I created the above table using data from the ECB Statistical Data Warehouse

European Country Codes

The above from Eurostat Country Codes.

Lack of Trust

To encourage more lending, ECB president Mario Draghi cut the deposit rate for money parked at the ECB from -0.2% to -0.3% on December 3.

Clearly that did not work.

Europe Fears Bail-Ins

Stepping back a bit, here's a key question: What caused the depositors to flee their banks in the first place?

The answer is fear of bail-ins, confiscations, capital controls, and bank failures like we have seen in Greece and Cyprus.

Target2 Refresher Course

Target2 imbalances are an excellent measure of capital flight from eurozone countries to other eurozone countries.

Those needing a further explanation of Target2 should consider Discussion of Target2 and the ELA (Emergency Liquidity Assistance) program; Reader From Europe Asks “Can You Please Explain Target2?”