Excellent article by economist Irwin Stelzer, well worth reading in full, but a sample:
By: IRWIN M. STELZER.
In fact, it is the state of the German economy, the area’s largest, that dictates interest rate policy for the entire 17-country group. When Germany was suffering under the weight of the costs of reunification, its sluggish economy needed, and got, a low-interest rate policy from the European Central Bank. That eventually proved too stimulative for, say, Ireland, which was in the midst of an inflating property bubble.
The creation of the eurozone also led lenders to assume that the credit of every member was just about as good as the credit of Germany and France. So Greece, Portugal, Spain, and Italy could sell sovereign debt at very low interest rates and use the borrowed money to finance an expansion of their welfare states—Greeks, for instance, could retire at 50 if they were in a hazardous occupation such as hairdressing (all those chemicals).
