TARGET2 is the Eurozone’s settlement system for interbank lending, both commercial and sovereign. Settlement infrastructure mitigates the risk that a counter party to a transaction fails to cough up the money that they owe (to put it in layman’s terms). Check out Geoffrey T. Smith’s take in the WSJ (subscription needed) on the claim made by Professor Hans-Werner Sinn that the European Central Bank (ECB) is conducting a ‘stealth bailout’ of countries with debt issues through TARGET2.
I take no sides in the debate…just thought it was an informative description of the European Financial System. You know, for both of you out there that might be interested.