Since the recent sovereign debt crisis, the European payment system TARGET2 has become highly controversial due to the increased TARGET2 balances. The circulating money flow among EU member states within this settlement system is associated with latent risks. For creditor countries, the TARGET2 liabilities of central banks from highly indebted EU states are at risk in the event of a withdrawal from the EU or the Euro. This development has received little attention in the financial literature so far. Petra Karadzic and Andreas Keller explain the fundamentals and functioning of the TARGET2 system to clarify the emergence and impact of the TARGET2 balances. Including arguments from both supporters and critics helps to understand the opaque and complex system as a whole. Eight different scenarios outline potential consequences for Europe.