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d, for reasons best

known to itself, the ECB -- in clear contravention of both previous market precedent and financial logic -- has insisted that the senior bondholders be repaid in full and has lent the Irish banks, institutions which it must have known were hopelessly insolvent, €70bn to do so.

German exporters were major beneficiaries of this growth. German banks and financial institutions helped finance the growth.

Exports have provided the majority of Germany’s growth in recent years. Germany is heavily reliant on a narrowly based industrial sector, focused on investment goods—automobiles, industrial machinery, chemicals, electronics and medical devices. These sectors make up a quarter of its GDP and the bulk of exports.

Germany’s service sector is weak with lower productivity than comparable countries. While it argues that Greece should deregulate professions, many professions in Germany remain highly regulated. Trades and professions are regulated by complex technical rules and standards rooted in the medieval guild systems. Foreign entrants frequently find these rules difficult and expensive to navigate.

This coincided with the bubble years in peripheral Eurozone countries (2003-07). The effect of this is that Germany accumulated large net claims on Eurozone countries, which at the end of 2011 amounted to €634 billion.

These current account surpluses did not lead to TARGET2 claims during the bubble years because the counterpart of these surpluses were increasing claims held by (mainly) German banks against the other Eurozone countries.

the German banking system was lending the money to other Eurozone countries to allow them to buy surplus German products – a highly risky affair.

Now, the large 82.8% German government debt to GDP ratio is a source of shame for many because Germany was a driving force in enshrining the 60% government debt to GDP hurdle into the Maastricht Treaty that set out terms for the euro zone.

From this survey it appeared that the median German household had the lowest wealth of all Eurozone countries

The median households in countries like Belgium, Spain and Italy appear to be three to four times wealthier than the median German household. Even the median Greek household is twice as wealthy as the German one.

In fact, some economists view the German reform narrative as a myth

Wage restraint was instead a function of weak demand after the collapse of the reunification-fueled construction boom in the mid-1990s.

Even if one accepts the story, economists also point out that Germany undertook its labor-market reforms when the winds of the world economy were extremely favorable. The global economy was growing, and China and other emerging economies were sucking in machine tools and other capital goods in which German manufacturers excelled.

Work Like a German

In the German job-share model (known as “Kurzarbeit”), if an employer cuts an employee’s hours so that income is reduced by more than 10 percent, the government compensates workers for a large portion of wages lost. This enables companies to cut costs during downturns without having to lay workers off.

For the long-term unemployed who take significantly lower-paying jobs (typically, at minimum-wage levels), the unemployment benefits could offer stop-loss insurance to put a floor under their losses.

No, of course not. Today, we live in a currency zone that, despite everything, is significantly more stable than where the dollar or yen are used. The euro has brought growth and prosperity to Europe.

Actually, the euro was a mistake with particularly serious consequences. A monetary union requires its members to pursue the same policies and be similarly productive. The so-called convergence criteria were meant to ensure that this would happen. But -- as the dramatic developments in Greece are now showing -- they didn't.

Unfortunately, our fears have become a reality. The monetary union was launched with real self-deception.

You should look at it more holistically. We wouldn't have been able to increase our exports if the other countries had behaved like us and had not increased their demand for an entire decade.

Excluding Greece from the union would be the completely wrong approach. Greece's problem is its inefficiency in terms of public finances. That can be corrected.

Starbatty: In my experience, speculators are only successful when political promises diverge from economic reality, as has become clear in Greece.

However, Irish companies and banks are very highly indebted to foreign banks -- three times more than the Greeks.

According to Germany's central bank, the Bundesbank, German banks are Ireland's biggest creditors, to the tune of €166 billion ($226 billion), and that includes hundreds of short-term loans to Irish banks. How dangerous is the Irish crisis for Germany?

The situation is very dangerous. The German government has a vital interest in ensuring the solvency of the Irish state and its banks.

Deposit flight from Spanish banks has been gaining pace and it is not clear a euro zone agreement to lend Madrid up to 100 billion euros in rescue funds will reverse the flows if investors fear Spain may face a full sovereign bailout.

Many banks are reorganising, or being forced to reorganise, along national lines, accentuating a deepening north-south divide within the currency bloc.

Since government credit ratings and bond yields effectively set a floor for the borrowing costs of banks and businesses in their jurisdiction, the best-managed Spanish or Italian banks or companies have to pay far more for loans, if they can get them, than their worst-managed German or Dutch peers.

Ms. Lagarde's empathy is wearing thin and this is unfortunate—particularly as the Greek failure mostly demonstrates how wrong a single currency is for Europe.

During the next stage of the crisis, Europe's electorate will be rudely awakened to the large financial risks which have been foisted upon them in failed attempts to keep the single currency alive. When Greece quits the euro, its government will default on approximately 121 billion euros of debt to official creditors and about 27 billion euros owed to the IMF.

Last year Germany, not China, ran the world’s biggest current account surplus. And measured as a share of G.D.P., Germany’s surplus was more than twice as large as China’s.

Instead, however, Germany failed to make any adjustment at all; deficits in Spain, Greece and elsewhere shrank, but Germany’s surplus didn’t.

Fundamental to the argument that Spain (or Greece, or anyone else) has a moral obligation to repay in full its debt to Germany are two assumptions. The first assumption is that “Spain” borrowed the money from “Germany”, and that there is a collective obligation on the part of Spain to repay the German collective. The second assumption is that Spain had a choice in what it could do with the German money that poured into the country, and so it must be held responsible for its having mis-used hard-earned german funds.

There was plenty of irresponsible behavior in every country, and it is absurd to think that if German and Spanish banks were pouring nearly unlimited amounts of money into countries at extremely low or even negative real interest rates, especially once these initial inflows had set off stock market and real estate booms, that there was any chance that these countries would not respond in the way every country in history, including Germany in the 1870s and in the 1920s, had responded under similar conditions.

The winners have been banks, owners of assets, and business owners, mainly in Germany, whose profits were much higher during the last decade than they could possibly have been otherwise

The bad news is that it has become increasingly clear that, at least for large countries, currency areas will be highly unstable unless they follow national borders.

Its full name is more than a mouthful. Trans-European Automated Real-time Gross Settlement System is better known as TARGET2 for short. It is the behind-the-scene payments system that conveniently enables citizens across the euro area to settle electronic transactions in euro. And at just over €500 billion, its TARGET2 claim on the Eurosystem is also the largest and fastest growing item on the Bundesbank’s balance sheet, as well as a source of much misunderstanding and debate.

The allocation of TARGET2 balances among the seventeen national central banks, which together with the ECB make up the Eurosystem, reflects where the market allocates the money created by the ECB. The fact that the Bundesbank has a large TARGET2 claim (asset) on the Eurosystem, while national central banks in southern Europe and Ireland together have an equally large TARGET2 liability, simply reflects that a lot of the ECB’s newly created money has ended up in Germany. Why? Because of capital flight.

Since the euro eliminated exchange rate risk among its member states, Germany has invested a substantial portion of its savings in Europe’s current account deficit countries. Some of those savings are now returning home. That’s the capital flight.

Mr. Weber, who is also a member of the European Central Bank’s governing council, said that the statistics reflected Ireland’s status as a financial center: much of what is recorded as claims on Ireland is in fact money funneled through Irish subsidiaries of German banks, and ultimately bound for elsewhere, Mr. Weber said. He said total German exposure was closer to $30 billion.

In both cases more than half of the exposure was to Ireland’s private sector, rather than lending to the government or Ireland’s beleaguered banks.

Taxpayers will bear the cost, but they may never find out how much. The bad bank, known as FMS Wertmanagement, has no plans to release financial statements, according to Soffin, the German government organization that oversees bank rescues.

it is hard to commit today to practice fiscal rectitude tomorrow. Official debt caps, such as the Maastricht fiscal criteria and the Stability and Growth Pact (SGP), failed because they were unenforceable.

The introduction of Eurobonds – joint, aggregate eurozone liabilities – could be part of the solution, if designed properly. There is certainly demand for them in China and other major emerging countries, which are desperate for an alternative to low-yielding US government securities.