Abstract
It has recently been argued that intra-eurosystem claims and liabilities in the form of TAR- GET2 balances would raise fundamental issues within the European monetary union. This article provides a framework for the economic analysis of TARGET2 balances and discusses the key arguments behind this recent debate. The analysis is conducted within a system of nancial accounts in which TARGET2 balances can arise either due to current account transactions or cross-border capital ows. It is argued that the recent volatility of TARGET2 balances reects capital ow movements, while the previously prevailing current account positions did not nd a
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