FRANKFURT (Reuters) - Money flowed into Germany and out of Italy and Spain in August, European Central bank data showed on Tuesday, showing a gap between the euro zone’s strongest economy and the struggling periphery was wide open.
The ECB is buying 80 billion euros ($89.26 billion) worth of bonds every month but data from the bloc’s bank payment system shows most of that money ends up in German banks and stays there.
The Target 2 data showed net payments made to German banks from their peers in other euro zone countries exceeded flows in the opposite directions by 17.2 billion euros in August.
Germany’s net claims towards the rest of the bloc since 2008 stood at 677.5 billion euros.
The opposite was true in Italy and Spain, which saw their net liabilities hit new three-year highs in August, when they rose by 34.9 and 20.5 billion euros each to 326.9 and 313.6 billion euros respectively.
The ECB’s chief economist, Peter Praet, said the recent widening of Target 2 imbalances was due to the ECB buying 60 percent of its bonds from sellers in Germany, typically non-euro zone institutions with an account there.
But the fact that the money was then not flowing back to other parts of the euro zone, where bond yields tend to be higher, showed investors, some six years after the sovereign debt crisis broke out, were still relucant to put their money to work in weaker economies
This is also exacerbating imbalances among euro zone banks.
German banks are sitting on a growing pile of excess cash, which, due to the ECB’s negative rate on deposits, is squeezing their profits. At the same time, some lenders in weaker countries still rely on central bank liquidity.
($1 = 0.8962 euros)
Reporting By Francesco Canepa; Editing by Angus MacSwan