Recently, Mario Draghi—in a letter responsing to questions about TARGET2 imbalances to two members of the European Parliament—says the following:

If a country were to leave the Eurosystem, its national central bank’s claims on or liabilities to the ECB would need to be settled in full.

Since many years many economists, led by Karl Whelan have refused to accept this. There has been a denial via various arguments. The main argument of this camp has been that TARGET2 assets of the ECB doesn’t really matter, presumably because central banks create money and can be capitalized using a bookkeeper’s pen. That is a strange argument because if a country were to leave the Eurosystem and cannot settle its claims to the ECB, the ECB will take a loss. It has less interest earning asset than otherwise and since the ECB’s profits ultimately get distributed to national treasuries, treasuries’ income doesn’t matter according to this argument.

Another way to see this argument is wrong is to think of the international investment position of the remaining region if a country leaves. It’s net international investment position falls. Does international investment position not matter?

Yet another argument. Suppose the day before a country leaves the Euro Area and the Eurosystem, the ECB were to buy that country’s government bonds. The leaving country’s NCBs’ liabilities to the rest of the Eurosystem will fall and its government’s liability will rise. This transaction is a purely financial account transaction in international accounts. How it is that one is debt and the other not debt? Those who claim that the intra-Eurosystem debts do not matter seem to believe that it’s not debt.

Of course, Mario Draghi’s position can be legally challenged. There’s hardly any mention in the legal documents of the Euro Area explicitly stating what happens. But since intra-Eurosystem claims (i.e., NCB TARGET2 balances) earn or pay interest, this makes the case for the settlement of the claims. In law, the reasons why they were created are sometimes used if something is not explicitly stated.