One of the more intriguing recent developments of the eurozone crisis is the shock expressed by Germany’s economic establishment that the eurozone is, in fact, a monetary union. No one had apparently told them.

The story behind this is long, but needs to be told. At issue is a rather technical debate about imbalances in the eurozone’s central payment system, known as Target 2. Germany has built up claims of now more than €500bn ($660bn) against the eurosystem – the network that consists of the European Central Bank and the various national central banks. The Bundesbank is getting nervous about a counterparty risk if the euro were to collapse suddenly.

The discovery of the importance of Target 2 was made by Hans-Werner Sinn, president of the Ifo economics institute in Germany, and his co-author Timo Wollmersh?user*. They found that the Target 2 balance mirrors current account imbalances since the outbreak of the crisis. There was no problem before 2007, when current account balances were funded by commercial banks. Once that stopped, national central banks took over this role. Spanish banks can now refinance themselves with no limit from the Bank of Spain. If a Spanish company buys a German product, for example, the chain of transactions goes from the buyer’s Spanish bank to the Spanish central bank, which effectively creates the money for this transaction, and then sends it on to the Bundesbank, which records this transaction as a claim against the eurosystem.