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but it also forced losses on bondholders — a credit event, and therefore a trigger, for the swaps.

Before investors doubted Greece’s solvency, the swaps offered insurance at what turned out to be an extremely cheap price. At the start of 2008, an investor buying protection on Greek debt had to pay only $22,000 annually to insure against default on $10 million of Greek bonds over five years, according to Markit, a data provider. Now, the protection would cost about $7.6 million.

Investors will most likely continue to want default swaps to protect against losses on Greece’s new bonds. These bonds, to be issued Monday, are expected to have yields of well over 15 percent, according to advance pricing. This suggests investors have strong doubts about Greece’s creditworthiness even after its restructuring. Fitch Ratings said on Friday that it would probably give Greece’s new bonds a low, junk-bond rating.

It is the second time the ECB declined to accept Greek bonds as collateral. The first was in February, after Athens imposed steep losses on private creditors in a debt restructuring. That suspension ended after a little more than an week, when the ECB received guarantees from euro-zone governments that Greek bonds posted to the ECB as collateral would be repaid.

For banks, which are already under intense pressure, it means that they will have to resort to emergency liquidity assistance which will lend them with a higher rate.It is bad news and all we can hope for is that it won't last for long," a senior Greek banker said.

The problem is that deflation — falling wages and prices — is always and everywhere a deeply painful process. It invariably involves a prolonged slump with high unemployment. And it also aggravates debt problems, both public and private, because incomes fall while the debt burden doesn’t.

Earlier this week, when it downgraded Greek debt, Standard & Poor’s suggested that the euro value of Greek G.D.P. may not return to its 2008 level until 2017, meaning that Greece has no hope of growing out of its troubles.

More importantly and less known to German taxpayers, Greece will also default on 155 billion euros directly owed to the euro system (comprised of the ECB and the 17 national central banks in the euro area). This includes 110 billion euros provided automatically to Greece through the Target2 payments system—which handles settlements between central banks for countries using the euro. As depositors and lenders flee Greek banks, someone needs to finance that capital flight, otherwise Greek banks would fail. This role is taken on by other euro area central banks, which have quietly lent large funds, with the balances reported in the Target2 account. The vast bulk of this lending is, in practice, done by the Bundesbank since capital flight mostly goes to Germany, although all members of the euro system share the losses if there are defaults.

No responsible bank would claim these sums are minor risks to its capital or to taxpayers. These claims also amount to 43 percent of German Gross Domestic Product,

The International Monetary Fund will not disburse Greece's next bailout tranche until the country completes a voluntary buy back of its debt, an IMF spokesman said

Who will actually sell the debt at a 70% discount?

Two thirds of the private holders of Greek debt are Greek banks (22 billion euro). These are certainly not going to sell because doing so forces them to realize losses on the debt,

There is a simple and obvious solution, which will then force itself. The official creditors should take really substantial losses on Greek debt.

The only real alternative is Greece leaving the euro

This situation is basically a slow asphyxiation.

The second element of the debt-relief package would be more innovative: If Greece’s economy performs well, the generous extension of maturities can be clawed back or the interest rate raised. A formula for this could be linked to the debt/GDP ratio

Why bother? Because the very premise of the current deal and the expectations it sets out are wrong. First, the notion that there is a smooth transition path for the debt/GDP ratio from 200% to 124% is fanciful. Second, even if, by some miracle, Greece did reach the 124% mark by 2020, the claim that its debt will then be “sustainable” is absurd.

Make no mistake: policymakers’ track record on forecasting Greek economic performance during the crisis has been an embarrassment. In May 2010, the International Monetary Fund projected – presumably in concurrence with its European partners – that Greece’s annual GDP growth would exceed 1% in 2012. Instead, the Greek economy will shrink by 6%. The unemployment rate, expected to peak this year at 15%, is now above 25% – and is still rising. The debt/GDP ratio was expected to top out at 150%; absent the substantial write-down of privately held debt, which was deemed unnecessary, the ratio would have been close to 250%.CommentsView/Create comment on this paragraphIn September 2010, four months after the official Greek bailout was put in place, the IMF issued a pamphlet asserting that “default in today’s advanced economies is unnecessary, undesirable, and unlikely.” The conclusion was that official financing would carry Greece past its short-term liquidity problems. Calls for immediate debt restructuring went unheeded. Six months later, after substantial official funds had been used to pay private creditors, the outstanding private debt was substantially restructured.CommentsView/Create comment on this paragraphSuch were the errors committed over short time horizons.

And, again, even if Greece somehow did achieve the 124% milestone, its debt would still not be sustainable.

Staying the course, as Summers warns, will lead only to “needless suffering” before that course inevitably collapses, bringing Greece – and much else –­ crashing down.

At least, this will clarify the situation: the plan is about bailing out a Eurozone government, in direct violation of Art. 125 of the European Treaty, the so-called no-bail-out clause.

So, one more time, a (dwindling) group of deficit-stricken countries will have to provide money to increasingly large debtors. In fact, this process means that ultimately there is no national debt anymore, at least for the next few years.

However, as of last week, the country's four biggest banks had committed to sell just 67% of their total portfolio, hoping to hold on to the balance. This amount now is believed to have increased to almost 100% as they receive bonds issued by the European Financial Stability Fund—the euro-zone's temporary rescue fund—in exchange for Greek debt. "Greek banks were under pressure from the European Central Bank to take part in the buyback," said a senior official at one of the Greek banks. "Now the bonds they will use to borrow money from the ECB will be EFSF bonds, which means that the central bank is reducing its exposure to Greece."

In Germany the mean household wealth is almost four times larger than the median.

We find that in Germany the median household in the top 20% of the income class has 74 times more wealth than the median household in the bottom 20% of the income class. Judged by this criterion Germany has the most unequal distribution of wealth in the Eurozone.

The facts are that Germany is significantly richer than southern Eurozone countries like Spain, Greece and Portugal. There does seem to be a problem of the distribution of wealth in Germany: First, wealth in Germany is highly concentrated in the upper part of the household-income distribution. Second, a large part of German wealth is not held by households and therefore must be held by the corporate sector or the government.