FRANKFURT/MILAN Italy's debt and Germany's credit with the European Central Bank hit all-time highs last month, data showed on Tuesday, as money flowed into the euro zone's strongest economy and out of one of its stragglers.
The data lays bare the yawning economic imbalances inside the euro zone and highlights the potential for colossal sovereign defaults if the bloc were to fall apart, as that debt would then need to be repaid.
Italy's net debt to the ECB's Target 2 payment system, which settles cross-border payments in the euro zone, rose to a record 386.1 billion euros (334.84 billion pounds) in February just as Germany's net claims set their own all-time high at 814.4 billion euros.
The gap is testament to Germany's strong exports but also reflects savers' preference for parking their money in what is perceived to be the euro zone's safe haven while banks in Italy are under pressure and anti-euro sentiment is on the rise.
As these payments are not settled by national central banks, their total amount only represents the money that each of them would have to pay or receive if the currency club were to be dissolved, as ECB President Mario Draghi recently said in a letter to two Italian lawmakers.
The threat of defaults on cross-border debts has often been credited as one element keeping the euro zone together throughout the financial crisis.
Italy's Target 2 position worsened during the euro zone's sovereign crisis as foreign investors dumped Italian assets and withdrew funding to its banks.
The Bank of Italy has said the widening seen since last year was driven instead by Italians selling some of their domestic government bonds to put a larger share of their savings into foreign assets.
The ECB has also blamed the growing Target 2 imbalances on the massive bond purchases it is carrying out to boost euro zone inflation, as many of the sellers are foreign institutions with bank accounts in Germany.
But this fails to explain why more of those proceeds are not then reinvested in other euro zone countries, which would rebalance the countries' Target 2 positions.
($1 = 0.9460 euros)
(Editing by Giulia Segreti and Hugh Lawson)