Recent capital flow developments in the euro area

This section examines recent trends in balance of payment flows to and from euro area economies. Current account imbalances have receded in the euro area, reducing vulnerable countriesí net funding requirements. This external rebalancing has been largely matched by lower net debt inflows. Furthermore, since the crisis a clear change in the composition of gross capital flows is detectable in the form of the pre-crisis debt bias largely disappearing. The section further assembles evidence of a gradual normalisation of financial market conditions and its impact on both capital flows and sectoral balance sheets, finding that deposit flight and safe haven flows have receded in the second half of 2012. Furthermore, monetary financial institutions appear to be engaging in cross-border debt deleveraging and net claims of central banks on the ECB seem to no longer be building up.