"A big problem is that the euro zone is only partly integrated. Its members have given up economic tools, such as currency devaluation and monetary policy, yet lack “federal” instruments to cope with shocks. The problem is not so much the budget deficit (though Greece was certainly profligate) as the net foreign borrowing by all actors, public and private (say to finance a trade deficit). The euro zone has only small internal transfers, and its workers tend not to move far for work. Fiscal stimulus is impossible for most governments, given their indebtedness. Structural reforms to promote growth can take years to work.
So redressing the imbalances must come through “internal devaluation”: bringing down real wages and prices relative to competitors. This was easier before 1991, when inflation around the world was higher, but has rarely been achieved since then (Hong Kong is one exception). With the ECB determined to keep inflation at around 2%, internal devaluation brings severe recession, even depression. And falling GDP wrecks the debt ratio."
They go on to say that all remedies that would avoid a depression require Germany to bear the blunt of the transition costs, which it is unwilling to do.