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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.

German and French banks call the shots Print Email  NormalLargeExtra Large ShareNew  0  0   Also in European Debt crisis: European shares edge lower and growth worries persist Bank of England's Tucker 'wasn't encouraged to lean on Barclays' Draghi keeps door open to further interest rate cuts Marks and Spencers sales hit by summer deluge Spain's debt tops 7pc danger level as Madrid gets more time European Home "Shocking" 2012 HoroscopeWhat Does 2012 Have In Store For You? Shockingly Accurate. See Free!www.PremiumAstrology.comExpat Health InsuranceQuick, Compare, Trusted Website Expatriate Health Insurance Quoteswww.ExpatFinder.com/Instant-Quoteshttp://www.googleadservices.com/pagead/aclk?sa=L&ai=BMEejVeb8T8fDKoSG_QaAhrTCB-q_1OYBmoqphxvAjbcB0NkREAMYAyDgw6kIKAU4AFD4gumFAmCpsL6AzAGgAairsfEDsgESd3d3LmluZGVwZW5kZW50LmllyAEB2gFfaHR0cDovL3d3dy5pbmRlcGVuZGVudC5pZS9idXNpbmVzcy9ldXJvcGVhbi9nZX

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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.

Before the new government could go on the offensive, it needed to play defense. It fended off an attack on Ireland’s 12.5 percent corporate tax rate, the cornerstone of an economic policy that transformed Ireland from a financial backwater into a European hub for companies such as Pfizer Inc., the maker of Viagra, and Google Inc.

Two days after commencing his premiership, Irish Prime Minister Enda Kenny, 62, became embroiled in what he called a Gallic spat with French President Nicolas Sarkozy after refusing to raise the tax rate in return for an interest-rate cut on aid.

“The attitude was: ‘You misbehaved and here’s what you have to do’,’”

Friday's two-notch downgrade of Italy by ratings agency Moody's explicitly mentions default risk and eurozone fracturing.

History teaches that muddle rather than conspiracy lies behind even the greatest turning points and the doubters are being too quick on the draw.

accompanied by some rowing back from the apparently significant decisions taken at the summit on June 28 and 29.

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.

but what would in normal times be a boon for the region may not help as much now, experts say.

Before the crisis, actions such as the European Central Bank rate cuts two weeks ago would have had a twofold effect in reviving the economy: Banks would have passed the lower rate on to their clients, while foreign-exchange markets would have marked the currency down, giving exporters better chances to sell their products abroad.

In today's polarized euro zone, it isn't that simple. For one thing, tThere is no certainty that euro-zone banks will pass on the cut in borrowing costs.

Almost a year ago, as the euro crisis raged, Europe’s leaders boldly pledged a union to break the dangerous link between indebted governments and ailing banking systems, where the troubles of one threatened to pull down the other.

Almost everyone involved agrees that in theory a banking union ought to have three legs.

Former ECB chief blames governments for euro-crisis

But the 71-year-old French banker said he had warned EU governments of growing economic divergences in the euro area as far back as 2005 and that he had criticised member states, notably France and Germany, for ignoring the deficit and debt rules which underpin the common currency.

Trichet noted that the ECB intervened on bond markets and bought up Greek debt as early as May 2010, when he was still chief and when the first-ever EU bailout was still being drafted. It interevened again in 2011 to buy Italian and Spanish debt when investors started to bet against the larger euro-states.

The subcommittee said that Apple had “exploited a difference between Irish and American tax residency rules” but had not broken any laws.

Among the ideas under consideration are strict rules for defining where a company has a permanent presence and measures to limit the practice of so-called transfer pricing — the shunting of profits and losses between subsidiaries by disguising them as internal corporate payments for goods or, as is increasingly common, for copyright or patent royalties.