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In the global ranking for economic acronyms countries want to be a BRIC. The group of Brazil, Russia, India, and China is seen as the world’s most vibrant economies and engines of global growth.

And countries don’t want to be one of the PIIGS. The group of Portugal, Italy, Ireland, Greece, and Spain are seen as globally uncompetitive economies that could throw the European monetary union, the Euro Zone, into chaos.

The fear of that chaos has seen the euro into a tailspin. The euro traded as low as $1.4505 on December 15. To find a quote that low for the euro you have to go back to October.

And it’s been a boon for the dollar. Suddenly the dollar’s troubles versus the euro (and the yen too—see my post ) are a thing of the past. Although that’s undoubtedly only temporary.

Here’s the basic Euro Zone problem.

The PIIGS face huge budget deficits as a result of the global boom/bust that led to the Great Recession. Greece, for example, has seen its projected budget deficit for 2010 soar to 13% of GDP (gross domestic product). And the deficits after 2010 remain high enough to scare the capital markets. Greek bonds now trade with a yield about 2.5 percentage points above the yield on German bonds.

The Greek economy isn’t particularly efficient. Costs are high. Productivity is relatively low. And it’s unlikely that the country can simply grow its way out of the problem.

If Greece weren’t a member of the Euro Zone and controlled its own currency it could depreciate its way of this bind. The Greek currency would fall enough so that Greek goods would gain a price advantage in the global economy. That would reduce the Greek standard of living to be sure, but the process while painful would be relatively easy politically.

As a member of the Euro Zone, however, Greece doesn’t have this option.

Which leaves the country with only a very politically unpalatable option. The government has to cut spending drastically to reduce the current deficit and to reduce wages so that Greece regains competitiveness in the global market.

(By the way these are the policy alternatives the U.S. faces—currency depreciation, budget cuts, and wage decreases—when it finally gets around to attacking its deficits. Let’s see how well we do when it’s our turn. Cynics, and count me among that group, bet that the U.S. will try to use its control of the global currency of exchange to wiggle its way out of this crisis without addressing the underlying issues of economic competitiveness (How about a national energy policy?) and government spending. )

So far, at least, nobody believes the Greek government’s promises of budget cuts and Greek workers aren’t buying into the necessity of wage cuts.

The Greek crisis is being replayed in Spain, Portugal, Italy, and Ireland. Ireland looks like it has the best chance of finding a solution since its economy was globally competitive not so long ago and a policy of budget and wage cuts looks politically possible. So far, though, Spain, Portugal, and Italy have shown an unwillingness to bite the wage cut bullet or to produce budget cuts of the size needed.

The European monetary union isn’t set up to handle this kind of crisis. It has relatively draconian rules on the size of government deficits—no more than 3% in the long run—and a prohibition against bailing out member states. But the budget deficit rules increasingly seem to be meaningless—even stronger economies such as France are in frequent violation. And union members have shown a willingness to get around the anti-bailout language by packaging rescues as loans under the cover of participation by the International Monetary Fund, as in the case of the recent rescue of Hungary.

Make no mistake, the PIIGS are a huge challenge to the Euro Zone. Right now the politicians of the union haven’t stepped up with solutions or leadership. The recent decline in the euro is justified because the crisis is real and it is by no means over.

And it is capable of doing long-term damage to the euro as a global currency with pretensions to replace the U.S. dollar. The longer Euro Zone governments fumble to find a response to this crisis, the more the  central bankers of countries sitting on huge currency reserves—China, Russia, Saudi Arabia, etc.—will doubt the wisdom of long-term bets on the euro.