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The picture is one in which there are many fewer euros floating around the euro area than markets expected a half decade ago, and the distribution of those euros is moving northward.

It seems reasonable to argue that the distributional shift needed to occur, given the actual productivity performance.  The overall slowdown in euro spending growth, however, looks like an unnecessary and painful complication to adjustment.

This has all been the result of the commitment to keep just one euro. But that commitment is painful, and the alternative—more than one euro—is looking more attractive.

Since 2010, Spanish home prices have dropped over 20%, while German home prices are up a smidge.

Where prices were more flexible, as in asset markets, price adjustment was quick. Over the past two years, Spanish equities have fallen 24%, while German equities are up 8%.

The northward euro shift had two nasty effects, then: it shrank asset values while also (via wage rigidity) creating substantial unemployment.

This threatened to accelerate into a full-scale run and collapse until the ECB intervened.

as markets observed the periphery's reduced ability to pay off its debts, they moved their euros northward even faster

For the periphery to raise its external surplus (necessary in order to service its large and growing debts) it must rely much more on import compression than on export growth.

He says it doesn’t make sense that the stock market has held up as well as it has amid the Fed’s debt purchases and its policy of maintaining short-term interest rates near zero, a measure taken in a crisis that is supposed to be over.

“How do you know there has been an economic recovery and the patient is breathing normally when it’s in an oxygen tent?”

“It will be extremely difficult for the U.S. economy to escape its Great Recession hangover with this poor profits backdrop,” Mr. Edwards wrote. “Indeed it leaves the economy extremely vulnerable to adverse shocks,” like declining growth in Asia.

“We’re keeping a very close eye on China,” Ms. Patterson said. “If there are signs that it’s slowing more than we expect, that would hurt our view of emerging markets and worsen the outlook for developed markets due to contagion” because of the increasing importance of China in the global economy.

American real estate companies and European banks, for instance — but he is keeping 13 percent of his fund in cash because of a dearth of attractive investment choices.

Mr. Morris finds a wider array of opportunities. He likes shares of consumer-discretionary companies, which provide the products and services that people want but do not need. The sector includes businesses as diverse as hotels, carmakers and clothing stores.

“You can’t just unwind quantitative easing, with all of its distortions, and achieve stability without some pain along the way,” he warned. “What that pain is, when it happens, that’s where the uncertainties lie. The margin to maneuver is getting less and less with the passage of time.”

That is the lowest level since 1972.

Its trade deficit has been shrinking — down 28 percent for the first 10 months of this year,

“From 2008, we suddenly realized that we had lost a lot of competitiveness and needed to work very hard to improve things, particularly in terms of labor issues and logistics,

Over all, Spain’s unit labor costs — a measure of productivity — are down 4 percent since 2008, according to Eurostat, the European statistics agency.

In a related measurement, the most recent Eurostat data put Spain’s average hourly labor cost at 20.60 euros which was well below Germany’s 30.10 euros and France’s 34.20 euros.

The car sector employs 280,000 people in Spain, including parts suppliers, and accounts for a tenth of the country’s economic output. About 85 percent of the industry’s workers are on long-term contracts.

Now, if Spain were an American state rather than a European country, things wouldn’t be so bad. For one thing, costs and prices wouldn’t have gotten so far out of line: Florida, which among other things was freely able to attract workers from other states and keep labor costs down, never experienced anything like Spain’s relative inflation. For another, Spain would be receiving a lot of automatic support in the crisis: Florida’s housing boom has gone bust, but Washington keeps sending the Social Security and Medicare checks. But Spain isn’t an American state, and as a result it’s in deep trouble.

None of this should come as a big surprise. Long before the euro came into being, economists warned that Europe wasn’t ready for a single currency.

What we’ll probably see over the next few years is a painful process of muddling through: bailouts accompanied by demands for savage austerity, all against a background of very high unemployment, perpetuated by the grinding deflation I already mentioned.

Yes, some governments were irresponsible; but the fundamental problem was hubris, the arrogant belief that Europe could make a single currency work despite strong reasons to believe that it wasn’t ready. More Articles in Opinion »

The problem is that deflation — falling wages and prices — is always and everywhere a deeply painful process. It invariably involves a prolonged slump with high unemployment. And it also aggravates debt problems, both public and private, because incomes fall while the debt burden doesn’t.

Earlier this week, when it downgraded Greek debt, Standard & Poor’s suggested that the euro value of Greek G.D.P. may not return to its 2008 level until 2017, meaning that Greece has no hope of growing out of its troubles.

farm spending remained the largest single portion of the budget, accounting for about 38 percent of the total — although that was down from about 42 percent in the previous seven-year budget period.

More importantly and less known to German taxpayers, Greece will also default on 155 billion euros directly owed to the euro system (comprised of the ECB and the 17 national central banks in the euro area). This includes 110 billion euros provided automatically to Greece through the Target2 payments system—which handles settlements between central banks for countries using the euro. As depositors and lenders flee Greek banks, someone needs to finance that capital flight, otherwise Greek banks would fail. This role is taken on by other euro area central banks, which have quietly lent large funds, with the balances reported in the Target2 account. The vast bulk of this lending is, in practice, done by the Bundesbank since capital flight mostly goes to Germany, although all members of the euro system share the losses if there are defaults.

No responsible bank would claim these sums are minor risks to its capital or to taxpayers. These claims also amount to 43 percent of German Gross Domestic Product,

Further complicating the picture, the Venezuelan government has not allowed companies to repatriate profits for the last five years.

The government has also failed to pay companies the hard currency it had promised them for imports bought on credit from suppliers, and in many cases suppliers are now refusing to ship more goods to Venezuela until they receive payment.

Third, floating exchange rates are flawed shock absorbers. In theory, market-determined currency values are supposed to isolate the domestic economy from the vagaries of international finance, rising when money floods in and falling when the flows are reversed. In reality, few economies can bear the requisite currency alignments without pain.