Wage cuts and the battle for exports.

Given fixed exchange rates, or a currency union, currency crises are generated when demand for foreign currency exceeds the demand for the domestic currency. There are really only two ways out, neither are pretty. 1) decrease demand for foreign currency (raising interest rates, and decreasing income and import demand) and increase the demand for domestic currency by becoming more competitive and export more. Rebecca Wilder points out that this generates an interesting problem for the Eurozone:

"Latvia's model: drop wages to increase export income. Greece: drop wages to increase export income. France, Germany, Spain, Portugal, etc., etc. It's impossible that the whole of the Eurozone will drop wages to increase export income. It's especially bad for countries like Latvia or Hungary, where the lion's-share of trade occurs within the boundaries of Europe."