While all EU economies experienced a sharp decline in production during the financial market and economic crisis, the "peripheral" EU countries were particularly hard hit. This is surprising given the solid macroeconomic growth before the crisis. The reasons were imbalances that had built up under an seemingly tranquil macroeconomic surface. This article traces the underlying structural mechanisms by sketching demand and productivity developments in a tradeable and non-tradeable framework. Before the crisis the countries which were most affected by the subsequent recession not only showed low productivity growth in tradeable goods (e.g., manufacturing), but also recorded a sharp increase in the production of non-tradeable goods (e.g., real estate). The developments in productivity growth were also reflected in demand patterns. These show a trend towards consumption of non-tradeable goods and services on the one hand, and an increase in international trade on the other hand.