Europe’s Optional Catastrophe: The Fate of the Monetary Union Lies in Germany’s Hands

But the combination of fiat currencies and economies that are in a slump changes the game. Money, no longer tied to gold or any other firm anchor, can be created instantly, in infinite quantities, on the technocrats’ say so. And so long as factories have spare capacity and unemployment keeps wages in check, there is unlikely to be any significant penalty from inflation.

.. By delivering on its inflation target, in other words, the ECB can help Italy and Spain compete against Germany and the Netherlands, gradually eroding the gap in labor costs that lies at the heart of Europe’s troubles.