If you read Michael Pettis, he makes a very common-sense argument that the only way to rebalance the situation in Europe is for Germany and other creditor nations to take a write-down on how much they are owed.
As long as Germany wants to run a trade-surplus, it must finance this surplus by lending money to other countries to buy its products.
Eventually, Germany is owed more than it can be repaid, and I think we’ve effectively passed this point. The ESM mechanism of having the surplus countries lend even more money to the deficit countries is really not going to help this problem.
The US faced a similar situation after WW2, where they had lent the Allies huge amounts of money to finance the war, which were probably never going to be paid back. The Marshall Plan was a very innovative solution, where it gave a gift to European countries, with the provision that it be used to buy US exports. The end result was a win-win solution for both Europe and the US. If the US had instead tried to squeeze Europe for the money it was owed, it would have collapsed the European economies and hurt US exports.
Germany could get ahead of the curve and do something similar and just give (or have the ECB print) a huge amount of money to the deficit countries, provided that they use it to buy German exports, but I don’t see that happening anytime soon.
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