Bundesbank has lent a half trillion euros to ECB

There is some fear mongering here but it’s something to keep an eye on:

Germany’s Bundesbank—BuBa for short—has quietly, automatically lent €495 billion to the European Central Bank via Target2. That lending has balanced correspondingly huge borrowings from Target2 by the central banks of weaker nations including Greece, Ireland, and Portugal—and lately Spain, Italy, and even France.

The article paints a picture about risks to Germany. To me, the story reads as if some nerdy economists were digging deep into some ECB numbers and getting overly excited.

The real story isn’t the risks of a breakup but rather the increasing strain in banking and the financial system.

At the end of 2006, Target claims represented just 7 percent of the Bundesbank’s assets. By this October they represented 64 percent.