Exploitation of Eurosystem loopholes and their quantitative reconstruction

Abstract

This article identifies and analyses six key strategies used to exploit the Eurosystem's financial mechanisms, and attempts a quantitative reconstruction: inflating TARGET balances, leveraging collateral swaps followed by defaults, diluting self‐imposed regulatory rules, issuing money through Emergency Liquidity Assistance (ELA), acquisitions facilitated via the Agreement on Net Financial Assets (ANFA), and the perpetual (re)issuance of sovereign bonds as collateral. These practices stem from systemic vulnerabilities or deliberate opportunism within the Eurosystem. While it does not advocate for illicit activities, the article highlights significant weaknesses in the current structure and concludes that comprehensive reforms are urgently needed.