In all the debate on SEPA and Target2, we may lose track of economic reality. As an unexpected and pleasant surprise I stumbled on the website of dovetail systems. Where the obvious economical questions are at the center of the debate. Which is the cost-benefit rationale for EU-developments.
In their analysis on Target2, they analyze the EU-cross border traffic via current systems (EBa, Target etc), to conclude that merely 10 % of Targets traffic is cross-border. Which raises the question:
Is it worth changing the whole system (TARGET) to permit just over 10 percent of the traffic to be handled more efficiently?
Their answer is that the question of whether TARGET 2 is economic, sensible or just the right thing to do is not a banking question, or an economic one. It is a political one.
Continuing to their article: So, is SEPA worth doing?, the best is to quote the conclusion here:
The pat answer would be that it depends on the cost case. Has anyone ever made one? Will anyone argue that this regulatory reform, made by European politicians and Central Bankers in the name of European customers is worth the $9 billion it is going to cost, rather than simply justify it on the basis of a political agenda?
From a bank's perspective, the huge sum of money is being spent in the name of a small part of the business, and being subsidized by all of it, in order to conform to an idealised view of what Europe should be. Therein lies its weakness. The banks also argued that free market competition would have naturally led to solutions to some of the problems that SEPA solves. The regulators argue, tellingly, that there were no signs of these solutions emerging from the free market and, therefore that regulatory reform was necessary.
There is no doubt that the wheels of international trade need to be greased better, in particular to ease the complexity and cost burden of money transfer for corporates paying and receiving funds both cross-border and domestically. SEPA will make a difference to this, but not enough of one, mostly because the limited geographic scope of SEPA only eases the burden for part of Europe, and not at all for the rest of the world.
Regrettably, the answer as to whether SEPA gives sufficient benefit is a hesitant maybe.