[The] core problem at the heart of the euro zone is NOT a problem of “Mediterranean profligacy”. Many people, particularly in Germany, express the view that the Italian, Greek or Portuguese governments (and by association their people) are to blame for this crisis – accessing cheap loans from Northern European banks, not paying enough taxes, not working hard enough, etc…..
One thing is clear from the remarks that continue to emanate from Europe’s main policy makers. They do not understand basic accounting identities.
…….The European Monetary Union bloc as a whole runs an approximately balanced current account with the rest of the world. Hence, within Euroland it is a zero-sum game: one nation’s current account surplus is offset by a deficit run by a neighbor. And given triple constraints — an inability to devalue the euro, a global downturn, and the most dominant partner within the bloc, Germany, committed to running its own trade surpluses — it seems quite unlikely that poor, suffering nations like Greece or Ireland could move toward a current account surplus and thereby help to reduce its own government “profligacy”.
via New Economic Perspectives: ARE WE APPROACHING THE ENDGAME FOR THE EURO?.
Pegging the Euro countries to the Euro removed their vital currency shock-absorber (strong countries currency rises, weak economies currencies fall).
China pegging its currency to the US is causing imbalances China is having to finance the US to maintain its trade the status quo.
Germany is pegging its currency to the PIIGS but relatively unwilling to finance them to maintain the status quo, and getting away with (in the press) blaiming the PIIGS for the problems caused by it pegging its currency to them.