However, there were clear warnings that the short-term orientation could have negative side effects in the medium to long term. 5 As we now know, the side effects manifested themselves in a spectacular build-up of monetary and financial imbalances. The sudden unwinding of these imbalances marked the beginning of the current crisis.
True, when countries like Greece, Ireland, Italy, Spain and Portugal got into trouble, the traditional safety valve of devaluation was no longer available. But, one needs to recall that it  5  By 1994 trade with the UK was well below that predicted by a simple gravity model (such as that of Brülhart and Kelly, 1999).