This leaves peripheral countries in a trap: they cannot readily generate an external surplus; they cannot easily restart private sector borrowing; and they cannot easily sustain present fiscal deficits. Mass emigration would be a possibility, but surely not a recommendation. Mass immigration of wealthy foreigners, to live in now-cheap properties, would be far better. Yet, at worst, a lengthy slump might be needed to grind out a reduction in nominal prices and wages. Ireland seems to have accepted such a future. Spain and Greece have not. Moreover, the affected country would also suffer debt deflation: with falling nominal prices and wages, the real burden of debt denominated in euros will rise. A wave of defaults - private and even public - threaten.
A Fistful of Euros makes the same point. If the currency area is not optimal, political will is necessary to overcome pain caused by imbalances. This has already been seen in the 1980s in the UK when divergent economic conditions in the north and south caused schism. The left-leaning Labour councils in Liverpool and other northern cities seeking to stimulate their local economies could be overcome by Thatcher and the central government. Will we get the same kind of conflict between Brussels and some of the periphery governments?