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This paper investigates the large current account deficits observed in most newEU member states using an intertemporal model. The standard model is extendedto include: (1) the persistence of current account positions and (2) the relevanceof the fiscal balance. Specifically, a closed form solution for consumption in thepresence of habit persistence and liquidity constraints is derived, yielding adynamic model for the current account where fiscal deficits have an effect. Themodel is estimated for a panel of 33 countries. A key finding is that currentaccounts in most new EU member states are broadly in line with their structuralcurrent account positions.JEL classification: F32, F41