Two questions then remain: 1) How can adjustment be smoothed? 2) How can resistance to an (abrupt) adjustment be increased? The most sensible answer to these questions are, in my view, to be found in the well-known approach agreed at several IMF and G7 meetings: (a) US: increase in domestic savings, (b) Asia: more flexible exchange rate policies, (c) Europe: structural reforms.
Europe/Euro area I will confine myself initially to the European case. And let me make clear: even if the current account position of the euro area is nearly balanced, this does not mean that the euro area has no role to play in the adjustment process.