Sanjay Reddy over at his website (via Alex Gourevitch):
The explanation of creditor extremism which seems to me most appealing from a structural and not merely conjunctural point of view is this:
An important consequence of the Eurozone has been to help to institute pressures to increase ‘competitiveness’ through real as opposed to nominal means. These include lowering wages and taxes (which in turn has meant lowering the size of the state, especially through diminishing welfare expenditures, which are much larger in Europe than in the US) and increasing productivity, not least through increasing ‘flexibility’ in the labour market and creating consequent labour disciplines. Germany is the country to most deliberately introduce such reforms, under the pressure of reunification, but many countries have in varying degrees done so. It is also almost the only country to successfully face Chinese and to a much lesser extent other emerging country competition, because of its particular manufacturing niches and engineering expertise. This competition has in recent years challenged the viability of traditional sectors of industrial production almost everywhere else in Europe.
In the absence of nominal devaluation, labor cost reducing and tax slashing real devaluation as well as productivity enhancement are the only available tools to address such competition, but the institutional, social and political barriers to implementing them in light of European public attitudes and historical legacies are profound. Theexternal deficits of the peripheral European countries are ultimately driven not merely by the euro-raising effect of German external surpluses but also by the import increasing and export-competing effect of exports from China (and to a lesser extent other countries). The open and hidden internal imbalances in the Eurozone are indirect manifestations of the larger problem, which has not been dealt with and would have had to be addressed in any realistic economic strategy.
More here.