Using the Business Cycle Accounting methodology, this paper analyzes the dynamics of the EMU‐periphery economies before and during what was called the sovereign debt crisis. TFP dynamics and the labor wedge explain most of the dynamics before and during the crisis. The bond wedge, corresponding to the risk premium, made a low contribution, moving counter‐cyclically. The capital wedge made a modest contribution to the fall in output during the crisis. Additional evidence links the dynamics of the TFP and the labor wedge with changes in the interest rates and a spike in import prices at the onset of the crisis, corresponding to the general mechanisms of the large capital inflows, in the wake of the introduction of the Euro, followed by sudden stops.