ITALY: Capital outflows rise to €27 bln in March

A net total of 27 bln euros in capital flowed out of Italy in March, according to a publication by the Banca d’Italia.

“This could be partially due to speculative overseas bank transfers by Italian banks, which are now investing the money that they received from the European Central Bank’s bond acquisitions in the context of the QE program outside of Italy,” explained Hans-Werner Sinn, President of the Ifo Institut.
The outflow seems to mark a continuation of a process triggered by the announcement of QE that started as early as August 2014, with limited temporary backflows occurring in October 2014 and January 2015. The Target overdraft credit that Italy has received from the Eurosystem – and that made such capital outflows possible – now stands at 192 bln euros.
It remains unclear where the money from Italy has been transferred to, added Sinn.
Germany is one potential destination. The Bundesbank has stated that its own claims against the Eurosystem rose by a substantial 18 bln euros in March and now total 532 bln euros. This means that the Bundesbank has granted other central banks in the Eurosystem overdraft credit totalling 532 bln euros via the Target system. Target claims cannot be declared due and, unlike in the US Federal Reserve System, they are not settled in the Eurosystem. Interest is merely added to the debt at a rate of 0.05%.
Target debt arises from automatic overdraft credit granted by other central banks in the Eurosystem when they carry out payment orders without a corresponding countertrade. These payment orders are primarily private and are made to repay international debts, to purchase foreign assets or to buy foreign goods.