There was a time not so long ago when thevast majority of experts agreed that a country could not emergedecisively from a financial crisis unless it solved problems ofboth “stocks” and “flows”—that is, secured a flow of money to coverits immediate needs and found a way to manage its stock ofoutstanding debt over time.

In Europe today, this conventional wisdom appears to be fading.The temptation there is to declare victory having solved only theflow, not the stock, challenge.

The flow/stock intuition is quite straightforward. In the firstinstance, a crisis-ridden country must generate enough resources tomeet its pressing funding needs, and do so in a manner that doesnot erode its growth potential. Soon thereafter—or, even better,simultaneously—the country needs to realign its longer-term paymentobligations in a manner that is consistent with both its abilityand willingness to pay.