There are two ways of looking at the adjustment taking place in the euro area - the traditional ‘balance of payments' approach and the ‘gold standard rules' approach.

Starting with the first, before the crisis, huge current account imbalances built up as capital flooded into the periphery of the euro area. This led to net foreign indebtedness on a most unusual scale - with net foreign indebtedness of Portugal, Greece, Ireland and Spain all rising to more than 50% of GDP in 2008. Since then, some