Is Brussels Ready to Get Tough With Germany

Germany is running a huge current account surplus which is second in the world next to China as a % of GDP.  As the leader of the European Union this is not a good thing and does not help it's partners with their dilemma.  With Germany running a trade balance surplus this means that they are exporting more than they are importing.  With it's neighbors struggling it needs to do just the opposite.  Instead of saving it needs to spend.Germany needs to accept higher inflation within it's boarders in order to allow the periphery to get out of their mess.  Without higher inflation in Germany, the periphery countries need to undergo a massive amount of deflation in order to right their ships.  This is not without precedence.  In the late 1990's the shoe was on the other foot and the German economy was hurting and it was the periphery that was willing to take in all of the excess liquidity that was required for Germany to export it's way out of it's financial mess.

Paul Krugman explains it better than I do in this piece:

The creation of the euro was followed by the emergence of huge imbalances, with vast amounts of capital flowing from the core to the periphery. Then came a “sudden stop” of private capital flows, forcing the peripheral nations to eliminate their current account deficits, albeit with the process slowed by the provision of official loans, mainly through loans among central banks. The really bad news for the periphery is that so far the adjustment has taken place mainly through depressed economies rather than regained competitiveness; so the counterpart of that “improvement” for Spain is 25 percent unemployment.
Normally you would and should expect the adjustment to be more or less symmetrical, with surplus countries reducing their surpluses as deficit countries reduced their deficits. But that hasn’t happened. Germany hasn’t adjusted at all; all of the rise in peripheral European current accounts has taken place at the expense of the rest of the world.
And that’s a very bad thing. We are still in a world ruled by inadequate demand, and very much subject to the paradox of thrift. By running inappropriate large surpluses, Germany is hurting growth and employment in the world at large. Germans may find this incomprehensible, but it’s just macroeconomics 101.
You might argue that it’s not the German government’s fault that it runs surpluses — but you’d be wrong. (I’ve fallen into this trap, but acknowledged the error.) For one thing, Germany has pursued fiscal austerity despite its creditor status, contributing to an overall tightening of policy in the eurozone. And one way to think about Germany’s role within the euro is that it is in effect engaging in huge foreign exchange intervention via Target 2, which holds down the “shadow Deutche Mark”:

Article in Reuters about European Commission putting pressure on Germany here.