While it is tempting to say that neither German politicians nor ECB bankers understand fallacies of composition and both are allergic to inflation, and leave it at that, there is a more satisfying answer, and it's the same one we saw in the US case: what starts with the banks ends with the banks. To really understand why Europe has been slashing itself to insolvency, we need to embed these very real ideological and political factors within an account of how the euro as a currency enabled the development of a system of banks that is too big to bail. If the US had banks that were too big to fail, Europe has a system of banks that are collectively too big to bail. That is, no sovereign can cover the risks generated by its own banks because the banks are too big and the sovereign doesn't have a printing press. In this world there can be no bailout big enough to save the system if it starts to fail. Consequently, the system cannot be allowed to fail, which is the real reason we must all be austere. In the United States we were afraid of the consequences of the banks failing. In Europe they are terrified of the same thing, and as we shall see, they are terrified for good reason.

Mark Blyth, Austerity, loc. 207