The difference now was that the old adjustment device – devaluation and inflation – had been eschewed. Imbalances, allowed to emerge, had even more costly consequences when those safety valves – imperfect and corrosive though they are – were not available. High debt ratios had to be sweated down or, when this was impossible in Greece, in effect written down.
The needed fiscal contraction removed demand and triggered the double-dip of the recession in several of the most affected countries, and unemployment soared, especially to the extent that the inflexibility of nominal wage rates inhibited needed restoration of costcompetitiveness.