When you get down to it a currency is just a way of trading goods and services. You work, and in exchange are given money (hopefully), and then you use that money to buy stuff. The more you work, the more money you get (in theory), and so the more stuff you can buy.
When you go to another country you find that they have a different currency, and there is a rate of exchange, for example you may get 1.5 of a local currency for each US dollar you have.
Of course the goods in local currency are priced at a rate around the same as it would have been in $, but as the exchange rate changes you may find that things cost you more or less that they were a week or year ago.
You may have wondered why currencies move the way they do. Well think about it this way:
If you go to France, you will see that every August everyone is on vacation, and every day in the summer in the south everyone takes a two or three hour lunch break. Now compare this to the country next door (Germany) there most people work from 8am until 5:30pm (much longer days) and take six to eight weeks a year holiday. While in the US, most people work from 9 until 5 and take about 2 weeks a year holiday.
So some countries spend more time working while others spend less. But everyone still needs to have a house, eat food, pay bills etc. so the value of an hour worked in one country is different to the value of an hour worked in another country. People get paid different amounts depending on the social values and efficiency of the work they do.
Without exchange rates in place, how to do manage these differences?
In the US (before the civil war) there was in effect 2 different social value sets each with different economic models. When these two groups were forced to follow the same currency, it put huge pressure on people to be the same. People didn’t want to be the same and so had a war over it.
In Europe the same pressures can be seen under the Euro. In some countries where all of a sudden their money was worth much more they were able to borrow huge amounts of money causing hyper inflation, and a massive debt bubble.
While in other European countries, companies moved their workforces out to places where the cost of a work force was much less, causing massive unemployment and due to the already in-place social systems, bankrupting the governments as their tax revenues could no longer keep up with their costs.
Countries in the middle (Germany) benefited from the pain from the two extremes.
So today you have a three tier Europe, caused by the single currency (The Euro).
Can it be fixed?
Well history shows that there are only three ways to fix the issues caused by the merging of multiple currencies.
1. Stop the madness – go back to the previous model of multiple currencies. This is almost impossible for Europe today, as the cost of deconstructing now, may actually take the whole of the region into the dark ages,
2. Force everyone to change their social values for the good of the European union. Make them move to where the factories are, and live the life you need them to live for purely economic reasons. This model has been tried before; fascists forcing people to follow the rules of an undemocratic ruling force, can work but is the most unpleasant possible existence imaginable.
3. Civil war. Also not a pleasant option, but the one that has been seen most through history (Roman empire falling , Spanish civil war, British Empires collapse, French revolution, United States of America’s civil war are just a few examples)
My guess is that the Europeans will find a fourth way. One that will take a hundred years of slow decay before a better idea is found for the remaining economy to find its health again.