What Euro at $1.31 Says About Western Economies

Not to my particular surprise--I too believe that the world should worry about the dollar and not the euro--the common currency went back up to $1.31 after the Federal Reserve announced QE3. Oh, the irony. Here we were supposing that old Europe had been left for dead, yet even this currency used by various troubled peripheral nations alike Greece, Ireland, Italy, Portugal and Spain has managed to bounce back despite everything.

To cut a long story short concerning the battle of the moribund Western economies, consider:

1. If subprime growth [U-S-A!] combined with unlimited deficit spending is preferable to fiscal retrenchment resulting in (a hopefully short-lived and transitional) recession [E-U!], then why is the currency of the latter preferred to the former?
2. As per point (1), does the market prefer policies that involve tackling fiscal problems head-on despite the immediate costs over delaying any meaningful effort to address deficits?
3. Considering that the bond yields of the aforementioned PIIGS range from 5.01% to 20.90%, then what would the market-determined yield of US treasuries be without such heavy Fed buying distorting the market?

Both Europe and the US happen to be in sorry shape, but the latter is the biggest loser hands down--together with those poor sods dumb enough to hold its currency.