So, my 11 year old daughter heard me moaning about TARGET2 the other day and asked me what it was.
My daughter, as an 11 year old, does not understand the nature of modern currency regimes.
However, as an 11 year old, she does understand magic and fairies. So here’s the little analogy I came up with to explain TARGET2..
Many, many years ago, there was trouble in the fairy lands. The Second Great Fairy War had ended, the wood fairies having being finally defeated by the alliance of the plains fairies supported by the elves from the west and the dwarves from the east.
The dwarves from the east had laid claim to large parts of the fairy realm they had captured. The elves from the west, being kind elves had helped the fairies they had liberated rebuild their villages and return their lives to normality.
The fairies, tired of war, had decided to try to work together and to concentrate on helping each other so that they all would do well, rather than try to defeat each other through battle.
An alliance was stuck between the wood fairies (who still had half their kingdom occupied by the dwarves) the flower fairies, the fruit fairies and the herb fairies. After some more negotiation, the tooth fairies and the leprechauns were allowed to join.
For many years, peace reigned over the fairy alliance. But then, the dwarf kingdom collapsed, ending years of oppression in the fairy lands to the east.
This meant that the kingdom of the wood fairies could finally be reunited. While on the face of things, the other fairies welcomed this as a final ending to the Second Great Fairy War, inside they worried that a reunited kingdom of Wood Fairies might return to their old ways.
So, the fairies hatched a brilliant plan.
All fairies need to use magic to go about their business. Fairy magic makes the flowers bloom, the fruit ripen, the herbs healthy and the woods grow. But each group of fairies had their own kind of magic that they used, and each had their own chief fairy who was the only fairy would could do the sorcery needed to create the magic.
Under the plan, the fairies decided that they should all use the same magic to undertake their tasks. They also realised that if they got their sorcerers to work together, the magic they would make would be stronger magic than any fairy sorcerer could make on their own.
It would also mean that the wood fairies would not make magic themselves; instead they would share the magic with the other fairies. Many wood fairies were alarmed at this idea. Their magic was used to grow trees so they thought it was stronger and lasted longer than the short lived flower and fruit magic. Wiser wood fairies knew that all magic was more or less the same and that all that mattered was that the total amount of magic that existed was controlled.
Too much magic would mean that fairies would use magic for everything and get lazy. Eventually they would not bother with the flowers and the fruits and the herbs as they would think they wouldn’t need them anymore. This would be a disaster as without the fairies hard work, nothing would grow. On the other hand, if there was too little magic, then the flowers, fruits and herbs would not grow no matter how much work the fairies put in.
So, the fairies agreed that they would pool the power of their sorcerers and create a new magic that would be called Everything Universal Really Outstanding magic.
We should mention at this stage that the tooth fairies decided not to join in with the new magic. They said that the magic that they used was too different to the other fairies magic as their magic could only create the metal discs that they needed to exchange for the teeth that they (rather weirdly, the other fairies thought) craved.
The wood fairies laid down the ground rules for the new magic. They argued that as they were best at managing magic, the meetings of the sorcerers should happen in the wood fairy village of Sausage. At the first meeting all the sorcerers agreed that each would get an amount of magic that would be enough for each of their groups of fairies to do their job.
The new fairy magic was a resounding success!
All across the fairy lands, everything grew at rates never before seen. The sorcerers carefully managed the amount of magic that the fairies had available, and they managed it well.
But then, a terrible catastrophe hit. The weather turned against the fairies. Long cold winters were followed by damp summers without much sunlight for 4 years in a row.
The flower, fruit and herb fairies did all they could to use their magic to make their plants grow, but they were fighting against terrible winds and driving rain and no green shoots appeared.
The fairies turned to the sorcerers and pleaded for more magic. There was a big argument amongst the sorcerers as the sorcerer from the wood fairies said that there was no need for more magic. The wood fairies’ trees were not hurt by short term changes in weather; it was the fault of the other fairies for trying to grow such weak things as plants.
The other fairies countered by saying that without the flowers and fruits and herbs they produced, the wood fairies would have nothing to eat, nothing to cure themselves with and no beauty in their lives.
Eventually, the wood fairy sorcerer relented. They would allow enough extra magic to be created to help relieve the worst of the suffering of the other fairies, but not so much that they wouldn’t learn to be more careful in future.
In order to keep account of this extra magic, the sorcerers agreed to add it to the Tally All Right, Get Even Truly (TARGET) system that was used to distribute all the magic across the fairy lands.
But as this extra magic was only used in some areas of the fairy lands - the fruit fairies were by far the hardest hit and took the lion’s share of the new magic. This meant that they had, according to the TARGET system over-used the magic. But as this was all agreed beforehand, this didn’t matter.
As the wood fairies didn't need any of the extra magic the TARGET system said that their share of the new magic had gone to the fruit fairies. But again, this didn’t matter as it had all been agreed beforehand and there was no shortage at all of magic in the wood fairy kingdom.
Unfortunately, some wood fairies who were not sorcerers (and therefore did not understand how magic and the TARGET system worked) saw the fruit fairies getting more than their share of magic and decided that this meant there was less magic for others, particularly the wood fairies. They decided that the extra magic created was to the cost of the wood fairies, and that therefore the fruit fairies were effectively stealing from the wood fairies.
Even though the sorcerers knew that this was a silly idea, they could not convince the wood fairies who had made their mind up about the fruit fairies. Some of the wood fairies even called for the fruit fairies to be kicked out of the magic alliance. Fortunately, the sorcerers and the chief fairy of the fairy clans knew this was a very bad idea. The magic alliance was a way of bringing all fairy kingdoms together. Breaking the alliance might put the fairies back on the road towards another war, which no fairy in their right mind wanted.
As to the wood fairies that were trying to cause trouble with their mis-interpretations of TARGET, they shouted and roared, but eventually people stopped listening to them as the things they said would come to pass never did.
To which my daughter said “so TARGET balances are extra magic?”
“No, that was an analogy. TARGET balances are extra money created through monetary policy operations, but unevenly allocated across the eurosystem by the ECB”
Overall, not sure how well it worked, but there you go. At least she won’t ask again.