The Trans-European Automated Real-time Gross Settlement Express Transfer System (TARGET) is the central mechanism for settling cross-border payments within the euro area. TARGET exhibits important similarities to John Maynard Keynes’s vision of an International Clearing Union designed to prevent destabilizing external adjustments and deflationary spirals, even though existing research has offered critical perspectives on its effects. Our study evaluates the impact of TARGET on the Greek economy during the 2010 debt crisis in a concrete and quantitative manner. We show that, absent the liquidity support provided through the TARGET system, the contraction in Greece’s economic activity would have been substantially deeper and the recovery significantly slower. Our findings underscore the macroeconomic importance of the TARGET system for the euro area.
