It’s going to take me more time to process Fritz Sharp’s lecture (PDF via Henry Farrell) on the political economy of the euro, but one point he emphasizes is that to understand the present situation, you need to understand what was happening in Germany before the crisis. There, a Red-Green coalition government under Gerhard Schroder spent 2000-2005 pursuing a basically right-wing agenda of relaxing employment regulation and cutting various benefit programs. At the same time, Germany’s labor unions worked with employers to practice very severe wage restraint.
This meant that while Spaniards and Italians and Greeks were getting richer, Germans weren’t:
One of the reasons Germany had to do this is that the adoption of the Euro produced windfall reductions in interest rates for Germany’s new partners in monetary union:
Germany used to get a major interest rate discount from the financial community thanks to its fiscal and monetary rectitude. Monetary union brought German-style interest rates to Germany’s partners, and since Germany’s inflation rate remained unusually low, it found itself with Europe’s highest real interest rates. A huge spike in unemployment was avoided only because of Schroder’s cuts and the union-business alliance to keep wages down.