Euro Divorce Costs Go Beyond Rising Target2 Balances

ECB President Mario Draghi recently told European Parliament MPs belonging to Italy’s Five-Star party that a country seeking to leave the eurosystem would need to settle in full its Target2 balances with the ECB. It marked the first time Draghi spoke of the financial consequences of a euro divorce, even as he battles to keep the Eurozone together. The real costs might be higher, J.P. Morgan said, because Target2 balances, which are already mounting, are only one component of the net international investment position of a country. “These costs could arise either due to debtor countries finding it more difficult…