Yet if the capital suddenly flees, these countries face a painful downward adjustment of domestic wages and prices.

ECONOMIST: Exchange rates

Some research suggests that such high deficits tend to be unwound quickly, by a rapid downward adjustment in the currency.

ECONOMIST: Worth less than a euro | The

But continued downward adjustment of the housing market makes this less likely.

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It is true that Greece can survive within the euro only with a gruelling downward adjustment of wages and prices, which demands painful budget cuts and structural reforms.

ECONOMIST: The euro crisis