Euro Area M2

Think of it this way

Imagine you are counting a family's money. M2 counts what they have at hand: cash and bank accounts, including short-term deposits. What that family has put into financial products is not included here; it goes into M3. It is the same cut the United States uses, and that is why these two figures can be added together.

What is Euro Area M2?

M2 is the European Central Bank's intermediate tier: currency and overnight deposits, plus deposits with an agreed maturity of up to two years and those redeemable at notice of up to three months. It leaves out marketable instruments (repos, money market funds and debt with a maturity of under two years), which are what M3 adds. That boundary is what makes it comparable with US M2: both stop at money deposited in banks and do not include money parked in markets.

How to read Euro Area M2

Monthly line in euros. Look at it together with M3 on the same chart: the gap between the two —around 1.2 trillion euros— is exactly the money the euro area holds in short-term market instruments rather than in accounts. When that gap widens, money is migrating toward money market funds and repos. Lag: up to 90 days.

What Euro Area M2 means for the market

It is the European piece of this section's global aggregate, precisely because it shares its definition with the US one. Its transmission to dollar-denominated assets runs through the exchange rate, so the relationship is noisier than that of US M2.

Where the money flows

The same picture but for the euro area: currency in circulation plus what households and businesses hold in accounts and short-term deposits. It rises when European banks grant credit and falls when more is repaid than is lent.

What to watch in Euro Area M2

Overlay it on European M3 on the same chart and look at the gap between the two: some 1,200 billion euros sit in money market funds and repos instead of accounts. When that gap widens, European savers are moving money out of the bank into market products, which usually happens when rates rise and deposits stop paying.

The European tier equivalent to US M2. It is the one that can actually be compared.