The “secret bail-out system”: Is Target2 unlawful or unconventional?

“Europe’s Silent Bail-out” for a system designed to transfer payments across the Eurozone the Target2 system has received a large body of attention from economists. The attention is focussed on the deficits and credits accumulated by Member States within the system. Some such as Sinn and Hartwich describe the possible negative impact that TARGET2 will have upon financial stability and consider it a bail-out. Under article 125 TFEU the ECB is prohibited from bailing out Member States. Labelling TARGET2 as an economic bail-out raises the question of the system’s legality. This article discusses the legality of the TARGET2 system using the legal framework as developed by the European Court of Justice in the Pringle, Gauweiler and Weiss cases. It will first look at the question whether TARGET2 should be classified as monetary or economic policy. Then it will continue by looking at a possible violation of articles 123 and 125TFEU. This article will conclude that there are serious proportionality issues but that the system, nevertheless, would most likely be considered legal.