Jay Shambaugh sees the euro as caught in three interlocking crises, each of which worsens the others. He sees the Euro Area's banking problem compounding the sovereign debt problem, which in turn (via austerity) hurts growth in the name of fostering competitiveness, which is undermined by deflation. … With no EU-wide fiscal authority, only a monetary one, there are no shock absorbers in the system of the type you would find in, for example, the United States. When a firm closes in Michigan and moves to Mississippi, capital flows out of one state and into another, but taxes raised in Connecticut smooth the adjustment through federal transfers. Labor is also much more mobile in the United States than in the EU, and America also lets its cities die, thus speeding adjustment. None of this happens in Europe. It turns out that cross-border borrowing in euros is, when bond markets reflect true risk premiums, just like borrowing in a foreign currency, with the result that banks increasingly want to match local loans with local assets. Although there is no exchange-rate risk to cover, if your sovereign's yields go up and your parent economy deflates, then your ability to pay back your loans declines as if you were making payments in a depreciating currency.

Mark Blyth, Austerity, loc. 251