A balanced current account in the euro area has disguised sizable imbalances at the country level, exposing the common currency area to severe pressures during the financial crisis. The key contribution of this paper is to evaluate the adjustment process using the New Multi Country Model (NMCM) at the country and sectoral levels. The model suggests that a recovery in wage competitiveness reduces external deficits but has only mildly expansionary effects at the cost of higher net borrowing by households. It also suggests that the impact of an aggregate demand shock in Germany is not enough to lead to a rebound in economic activity and address external imbalances in the rest of the euro area. Finally, the presence of supportive external conditions, while facilitating the implementation of vital reforms, would not necessarily unravel intra‐euro‐area imbalances.