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The euro was sold to us as a modernization program for Europe, and we were also told that it would push the Community toward stability. But, in reality, it has drifted apart and become a truly unstable entity.

The euro was sold to us as a modernization program for Europe, and we were also told that it would push the Community toward stability. But, in reality, it has drifted apart and become a truly unstable entity.

There is no reason why the euro should be coming under pressure. The decision to introduce it was smart and far-sighted.

thanks to the common currency, it's no longer possible, for example, to wage speculative attacks on individual currencies. This eliminates a key disruptive factor that massively destabilized markets in the past.

Still, thanks to the common currency, it's no longer possible, for example, to wage speculative attacks on individual currencies. This eliminates a key disruptive factor that massively destabilized markets in the past.

But that's exactly the problem! In the past, exchange rates served as a valve.

Starbatty: But that's exactly the problem! In the past, exchange rates served as a valve. Individual countries could control their economies by allowing their currencies to gain or lose value.

SPIEGEL: What would happen if the old currencies were reintroduced in the euro zone tomorrow? Bofinger: It would be a catastrophe. The German mark would have to appreciate significantly -- I'd say by 10 percent to 20 percent. Everything that we've worked so hard to attain in terms of competitiveness would vanish overnight.

What would happen if the old currencies were reintroduced in the euro zone tomorrow? Bofinger: It would be a catastrophe. The German mark would have to appreciate significantly -- I'd say by 10 percent to 20 percent. Everything that we've worked so hard to attain in terms of competitiveness would vanish overnight.

SPIEGEL: Would it have been better if all countries in Europe had kept their own currencies? Starbatty: Yes. A community can't function when it's made up of unequal partners who are supposed to behave as equals. With the euro, Germany has created an artificial competitive advantage for itself, which has enabled us to conquer markets all over the world.

Starbatty: Yes. A community can't function when it's made up of unequal partners who are supposed to behave as equals. With the euro, Germany has created an artificial competitive advantage for itself, which has enabled us to conquer markets all over the world.

Since 1995, there have been almost no appreciable wage increases in Germany, partly as a result of pressure brought on from increases in subcontracted labor. Politicians have done everything to relieve employers of the burden of paying social security contributions because we fell into this strange panic, believing we weren't globally competitive. With our economic policies, we placed too much of a lopsided emphasis on exports.

Politicians have done everything to relieve employers of the burden of paying social security contributions because we fell into this strange panic, believing we weren't globally competitive.

Maybe Draghi’s policies can buy time for deeper “structural changes” in the periphery, although quite what those are and what difference they would make in the near term remains elusive

More likely, a shift in ECB policies would make the European situation uglier. For one, Draghi would essentially be conceding fiscal dominance, demonstrating that if governments run budget deficits, they can count on the central bank to finance them.

Perhaps Draghi is planning the same game with fiscal authorities that the Banca d’Italia used to play with Italian politicians in the 1980s and early 1990s -- keep interest rates low enough to prevent fiscal collapse, yet high enough to keep fiscal prudence as a priority. Make no mistake about it, inflation or not, this is a strategy of high real interest rates.

recent analyses, carried out in conjunction with the establishment of the new BRICS bank, have demonstrated the woeful inadequacy of official assistance and concessional lending for meeting Africa’s infrastructure needs, let alone for achieving the levels of sustained growth needed to reduce poverty significantly.

the conditionality and close monitoring typically associated with the multilateral institutions make them less attractive sources of financing. What politician wouldn’t prefer money that gives him more freedom to do what he likes? It will be years before any problems become manifest – and, then, some future politician will have to resolve them.

So, are shortsighted financial markets, working with shortsighted governments, laying the groundwork for the world’s next debt crisis?

he risks will undoubtedly grow if sub-national authorities and private-sector entities gain similar access to the international capital markets, which could result in excessive borrowing.

Signs of default stress are already showing. In March 2009 – less than two years after the issue – Congolese bonds were trading for 20 cents on the dollar, pushing the yield to a record high. In January 2011, Côte d’Ivoire became the first country to default on its sovereign debt since Jamaica in January 2010.

In June 2012, Gabon delayed the coupon payment on its $1 billion bond, pending the outcome of a legal dispute, and was on the verge of a default. Should oil and copper prices collapse, Angola, Gabon, Congo, and Zambia may encounter difficulties in servicing their sovereign bonds.

They need not only to invest the proceeds in the right type of high-return projects, but also to ensure that they do not have to borrow further to service their debt.

But borrowing money from international financial markets is a strategy with enormous downside risks, and only limited upside potential – except for the banks, which take their fees up front. Sub-Saharan Africa’s economies, one hopes, will not have to repeat the costly lessons that other developing countries have learned over the past three decades.

Most private Greek debt holders just want to hold to maturity, they've already been subjected to two haircuts.

The simple truth is that as long as Greece's economy is moribund and its debt/GDP trajectory spiraling out of control, nobody is going to invest in Greece, capital and educated people will leave in a vicious cycle, and Greece's capacity for paying back its debt shrinks by the day. Something has to give.

The result was rapid growth combined with significant inflation: between 2000 and 2008, the prices of goods and services produced in Spain rose by 35 percent, compared with a rise of only 10 percent in Germany. Thanks to rising costs, Spanish exports became increasingly uncompetitive, but job growth stayed strong thanks to the housing boom.

Then the bubble burst.

But the flood of red ink

was a result, not a cause, of Spain’s problems.

The nation’s core economic problem is that costs and prices have gotten out of line with those in the rest of Europe. If Spain still had its old currency, the peseta, it could remedy that problem quickly through devaluation — by, say, reducing the value of a peseta by 20 percent against other European currencies. But Spain no longer has its own money, which means that it can regain competitiveness only through a slow, grinding process of deflation.

The question the German government now faces is whether to preserve the monetary union or have a stable currency.

Unfortunately, often supervisors in charge of the failing entity in the years of the debt run up were the ones charged with uncovering the problems.

Spain was the leader in the introduction of a dynamic provision – a provisioning tool that forces banks to increase provisions without reference to any specific loan. The intention of this tool was twofold: to mitigate the bad times, and to cool the booms in the good times (Holmstrom and Tirole 1997). Dynamic provisions were endorsed as part of the Basel III standards in December 2010, in part on the strength of Spain’s experience. And indeed the existing evidence (Jiménez et al. 2012) shows that the tool worked as intended, dampening the credit boom and softening somewhat the credit crunch. However, it is clear by now that their level was not nearly enough, as their size – 3% of GDP at their highest point (2004) – was simply not of a magnitude commensurate with the credit losses.

Without the provisions, the reality of the cajas' accounts would have become much faster a concern, and would have imposed itself on the regulator

Had the Banco de España ordered an audit of the system after uncovering numerous irregularities in CCM, it would have not been able to deal with the capital shortfalls uncovered as there was no appropriate resolution regime in Spain at the time

governance played a critical role in the development of the Spanish crisis. In the Spanish case, the supervisor, confronted with powerful and well connected ex-politicians decided to look the other way in the face of obvious building trouble.

More systematic evidence of the role played by these governance issues is provided in a 2009 paper (Cuñat and Garicano 2009b) where we showed that cajas with chief executives who had no previous banking experience (!), no graduate education, and were politically connected did substantially worse in the run up to the crisis (granting more real estate developer loan, up to half of the entire loan book in some instances) and during the crisis (with higher NPLs).

Such disparities of demand conditions will undoubtedly persist in the future because European countries differ substantially in industrial composition and in a variety of economic policies.

EMU is meant to be a marriage made in heaven with no possibility of divorce.

Eurobonds and a solidarity fund could promote growth and stabilize the interest rates faced by governments in crisis. Lower interest rates, for example, would free up money so that even countries with tight budget constraints could spend more on growth-enhancing investments.

Even well-managed banking systems would face problems in an economic downturn of Greek and Spanish magnitude; with the collapse of Spain’s real-estate bubble, its banks are even more at risk.

If these countries made a mistake, it was only that, like Germany today, they were overly credulous of markets, so they (like the United States and so many others) allowed an asset bubble to grow unchecked.

Moreover, Germany is on the hook in either case: if the euro or the economies on the periphery collapse, the costs to Germany will be high.

While structural problems have weakened competitiveness and GDP growth in particular countries, they did not bring about the crisis, and addressing them will not resolve it.CommentsView/Create comment on this paragraph

Eastern Valencia said it was asking for central government help as it could not refinance loans that must be paid off this year.

Valencia, which has long been run by Rajoy's PP, is emblematic of Spain's current crisis. A property crash has hit both regional government income and the region's banks, with its three main banks having to be rescued. Local politicians, meanwhile, have a growing reputation for corruption and frivolous spending.

Valencia mopped up a quarter of the €17bn (£13.2bn) of extra money made available by central government in April to pay a backlog of regional government bills.

Last year the regions not only failed to meet government-set deficit reduction targets, but actually increased their joint deficit.

Analysts believe most regions will miss this year's 1.5 percent deficit target. The government last week asked at least eight of them to revise their 2012 budgets, threatening to take over the finances of some of them.

At its peak, the Zambia Consolidated Copper Mines company employed more than 65,000 Zambians and carried out services like water delivery and waste collection for five cities in the Copper Belt Province.

Mining employment has dropped to just 30,000, half of its glory-days peak, and the job of maintaining all that company housing and infrastructure has reverted back to the government.

The stats identify Switzerland as Zambia’s primary export market. This is not an indicator that Zambia hosts a thriving chocolate and suspenders sector, but rather that its copper trades are booked in the jurisdiction where they are least likely to be taxed.

Many of the mining companies pay just 0.6 percent royalties to Zambia, far below the already-meager industry standard of three percent.

This is Namwile Uzondile, the director of a rural health education project.

Last year Namwile conducted a survey of prostitutes here in Kitwe, and found that at least half of them had education certificates, but couldn’t find work. Most had been married off early, 15 or 16, and since then had either left their husbands or lost them to AIDS.

First, you go to the tribal chief. Ninety-four percent of the land in Zambia is customary or traditional, no one has a title to it. It’s not just sitting there, people are living on it, farming, grazing animals, it’s just technically under the control of a chief.

In Zambia most of the chiefs require a gift just to get a meeting. This might mean taking them lunch at a restaurant in Lusaka, or it could mean buying their daughter a car—it’s up to them.

Another reason Zambia lacks skills is that some parts of the workforce operate as cartels. Take lawyers. Zambia only has 1,000 of them, and they’re concentrated where the money is: Lusaka (government), Copper Belt (mining) and Livingstone (safari tourists).

Last year, only six lawyers were admitted to the bar out of 164 who took the exam. The year before that, it was 16 out of 145. Keep in mind, these aren’t people coming in off the streets. These are people who have a law degree.

More than 60 percent of Zambia’s government revenue comes from the copper mines.

Taxing all this informal activity would be costly in both resources and voter goodwill. In 2012, Zambia collected just $2.3 million in income taxes from its citizens.

It goes as high up as you want to follow it. Michael Sata, the president of Zambia, appointed his uncle the finance minister, his nephew the deputy finance minister, his niece the local government minister, and cousins as ambassador to Japan and chief justice.

Zambia’s cabinet has ballooned to 20 ministers and 47 deputy ministers, the largest in Africa. With salaries three to four times higher than opposition MPs and each ministerial post bundled with perks like a company car, free fuel, house servants, and mobile phone talk-time, you get the feeling politicians aren’t jumping from opposition into government on moral sentiment alone.

In 2011, Zambia spent a total of $4.3 billion running itself. Stretch that to cover every man, woman, and child, and it amounts to just $325 per person per year. That amount—less than a dollar per person per day—has to cover education, health care, infrastructure, law enforcement, foreign debt … everything.

Now she goes all NGO. “Little government capacity,” she says, is the nicest way to put it. “There are simply no systems for routine government services,” she says. Getting a license, a permit, certificates, approvals to start work, visas for expats to fly down here—nothing is in one place, nothing is fast or easy.

“Sometimes we have to pay for the inspectors to come to our mines,” Jane says.

The conversation goes like this: Jane tells the local certification body that she needs an inspector to sign off for a permit. The local certification body tells her that they would be happy to come out to the site, but they don’t have fuel for their cars, or enough petty cash to pay per diems. Jane offers to pay their costs, but only their costs, and the payments aren’t related to clearing the inspection.

The company has even paid the police to follow up on complaints or to investigate thefts. “They say, ‘We don’t have this in our budget’ or ‘We’ll need you to pay for it,’” Jane says. So the company fixes the police cars, covers their travel expenses, treats them to lunch.

“We tell them, ‘The company I work for, we’re not going to pay up.’ But at the end of the day, they know you’re on a short timeline, and they aren’t.”

Thomas’ family told him his nephews didn’t need to be in school. From their perspective, that’s not totally irrational. In a country with so few formal jobs and so much competition for getting them, I can see how spending hundreds of hours, thousands of kwachas, on education would seem superfluous. Thomas’ daughter wants to become a lawyer. You could almost forgive Thomas if he told her that the bar exam failure rate is more than 90 percent, so what’s the use?

International investors pledged $750 million last year to build infrastructure.

Today, a fifth of U.S. energy consumption is fueled by coal, mainly from Appalachia and the West, a long-term energy source that has provided jobs for millions, a century-old way of life

Roughly speaking, burning coal produces twice as much carbon dioxide as burning the equivalent amount of natural gas. Almost all domestic coal is used to generate electricity—it produces 38 percent of the U.S. power supply. Fracking is swiftly changing this: in 2011, utilities reported plans to shut down 57 of the nation’s 1,287 coal-fired generators the following year. Largely in consequence, U.S. energy-related carbon-dioxide emissions have dropped to figures last seen in 1995. Since 2006, they have fallen more than those from any other nation in the world.

In the sort of development that irresistibly attracts descriptors like ironic, Germany, often touted as an environmental model for its commitment to solar and wind power, has expanded its use of coal, and as a result is steadily increasing its carbon-dioxide output. Unlike Americans, Europeans can’t readily switch to natural gas; Continental nations, which import most of their natural gas, agreed to long-term contracts that tie its price to the price of oil, now quite high.

Several researchers told me that the current towel-snapping between Beijing and Tokyo over islands in the East China Sea is due less to nationalistic posturing than to nearby petroleum deposits.)

What is known, says Timothy Collett, the energy-research director for the USGS program, is that some of the gulf’s more than 3,500 oil and gas wells are in gas-hydrate areas.

In Dutch-disease scenarios, oil weakens all the pillars but one—the petroleum industry, which bloats steroidally.

Because the national petroleum company, with its gush of oil revenues, is the center of national economic power, “the ruler typically puts a loyalist in charge,” says Michael Ross, a UCLA political scientist and the author of The Oil Curse (2012). “The possibilities for corruption are endless.” Governments dip into the oil kitty to reward friends and buy off enemies. Sometimes the money goes to simple bribes; in the early 1990s, hundreds of millions of euros from France’s state oil company, Elf Aquitaine, lined the pockets of businessmen and politicians at home and abroad.

“How will the royal family contain both the mullahs and the unemployed youth without a slush fund?”

It seems fair to say that if autocrats in these places were toppled, most Americans would not mourn. But it seems equally fair to say that they would not necessarily be enthusiastic about their replacements.

Why should Japanese politicians risk infuriating their farmers when any agreement can be torn up on Capitol Hill?

Europe’s leaders will now doubt America’s commitment, given how feebly Mr Obama has fought for fast-track. Trade sceptics, such as French farmers, are drooling. Angela Merkel, Germany’s chancellor, who is already furious about American spying, may decide that a trade deal is not worth battling for.

He seldom mentions, for example, that cheap imports help the poor by cutting their shopping bills, and so reduce inequality of consumption.

Last year, Brazilian politicians used subsidies and the threat of continued high tariffs on imports to persuade Foxconn — which makes smartphones and computers in Asia for dozens of technology companies — to start producing iPhones, iPads and other devices in a factory north of São Paulo.

“Closing our border is a 20th-century thought, and it will only weaken the economy over the long term,”