•  The Global Implications Of The Euro
• History Repeating Itself
• Mea Culpa

World leaders must be spending more time fretting about the euro zone crisis than practically any other issue these days. That said, wised up forex traders might be a bit surprised at President Obama, who intervened recently to implore the single currency bloc to keep Greece in it ranks. At least until November 6!

Rumours are circulating of Whitehouse officials increasingly voicing their concerns over a Grexit’s potential to damage the President's hopes of a second term. Representatives from the IMF, the ECB and the European Commission - collectively the Troika - are due to report on Greece's reform efforts in time for an early October meeting of EZ FinMins, which will decide on whether to disburse Greece's next €31bn aid package. However, the Obama administration is understood to be worried that if the Troika, having decided Greece has not done enough to meet its deficit targets, withholds the money, it would automatically trigger a Grexit, barely a month before America goes to the polls.

In an attempt to square some sort of US/European circle of bust, Angela Merkel very publically reassured Greek Prime Minister Samaras last Friday that she wanted his country to stay in the euro zone. Which was reassuring enough; yet the German chancellor offered no indication of caving in to Samaras’ plea for "breathing space”.

But as governments across the single currency bloc, and indeed administrations from further afield, struggle to concur, they would do well to remember what caused it all in the first place.

Déjà Vu - All Over Again

Euro zone parliaments are nearing the completion of a process to ratify a tranche of German-instigated rules aimed at limiting the individual governments' structural borrowing to just 0.5 percent of each one’s relative annual GDP, and cap their total borrowing at 3 percent. Such a revision is supposed to head-off the currency bloc re-racking the levels of debt seen over the past decade-and-a-half that did so much to compound the wider financial crisis.

But didn't they already sign up to this back in the '90s? Well, yes. They agreed to precisely the same (German-insisted) 3 percent borrowing limit - aka the ‘stability and growth pact’ - when the euro was being set up in 1997. So what happened?

In order to even begin to tackle such a question, it might be helpful to first take a peek at the chief offenders in this Greek odyssey. Step forward Italy. The Athenian government regularly broke the 3 percent annual borrowing limit. However, before Berliners start nodding too smugly, along with those naughty Italians, the first transgressor was... Germany. After that, France followed. In fact, of the ‘big’ economies, it was the Spanish who stuck to the rules the longest. So Germany, France and Italy, surely, should be in trouble? Well, the markets have their own ideas!

Actually Germany is the "safe haven" - markets have been willing to lend to it at historically low interest rates since the crisis began. Ironically, Spain - a relative paragon of virtue - is seen by markets as almost as risky as Italy.

So, What Gives?

Leading up to the global credit crunch of 2008, an escalation of debts occurred in Spain and Italy which - in retrospect - is now difficult to conceive in today’s climate. But it had nothing to do with governments. Instead, it was lead by the private sector, taking out loans with the unprecedentedly low interest rates that prevailed across southern Europe. Thus, a debt-fuelled boom exploded.

Meanwhile, a reunified Germany became a veritable export power-house, suddenly finding itself exporting far more to the rest of the world than it was importing. That meant Germany was earning a lot of surplus cash - most of which ended up being lent to southern Europe.

But debts are only part of the problem facing the Italians and Spanish. During those now seemingly far off halcyon days, wages rocketed in the south, (and in France). But German unions agreed to hold their remuneration at a steadier pace. Thus, the workforce of Italy and Spain, and indeed France, Greece and Portugal, were faced with a huge and increasing lack of competition.

So, government borrowing has had very little to do with creating the euro zone’s woes crisis. (Albeit Greece being the exception). And even if governments don't break the borrowing rules this time, it won't necessarily stop a similar crisis from happening all over again.

Drew Hillier. Editor, ForexSpace.com