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The picture is one in which there are many fewer euros floating around the euro area than markets expected a half decade ago, and the distribution of those euros is moving northward.

It seems reasonable to argue that the distributional shift needed to occur, given the actual productivity performance.  The overall slowdown in euro spending growth, however, looks like an unnecessary and painful complication to adjustment.

This has all been the result of the commitment to keep just one euro. But that commitment is painful, and the alternative—more than one euro—is looking more attractive.

Since 2010, Spanish home prices have dropped over 20%, while German home prices are up a smidge.

Where prices were more flexible, as in asset markets, price adjustment was quick. Over the past two years, Spanish equities have fallen 24%, while German equities are up 8%.

The northward euro shift had two nasty effects, then: it shrank asset values while also (via wage rigidity) creating substantial unemployment.

This threatened to accelerate into a full-scale run and collapse until the ECB intervened.

as markets observed the periphery's reduced ability to pay off its debts, they moved their euros northward even faster

For the periphery to raise its external surplus (necessary in order to service its large and growing debts) it must rely much more on import compression than on export growth.

Ford Motor Co. (F) (F) said at the end of last year it will increase capacity near Valencia as it shuts plants in the U.K. and Belgium.

In Ireland, U.S. companies such as EBay Inc (EBAY) (EBAY)., Google Inc. (GOOG) (GOOG) and Facebook Inc (FB). all have expanded in the past two years, taking advantage of a corporate-tax rate of just 12.5 percent compared to Spain’s 30 percent.

aising the retirement age, making it easier to fire workers in downturns and preventing unions from clinging to boom-time wage deals.

reducing social- security payments

It’s the mirror image of the euro’s first decade, when historically low interest rates in the periphery fueled inflationary spending booms, reflected in credit bubbles and deteriorating current accounts and government budgets.

The smaller trade imbalances really reflect a collapse in demand for imports as consumers and companies hunker down,

“At this stage it is still demand destruction which has helped current-account deficit countries balance their accounts,” said Mayer. “It’s not a healthy situation.”

They also say countries will need to run even healthier current accounts than now if they are to stabilize the debts they owe abroad.

Of course, that conflict of interest is the reason we have bank regulation. But in the years before the crisis, the rules were relaxed — and, even more important, regulators failed to expand the rules to cover the growing “shadow” banking system, consisting of institutions like Lehman Brothers that performed banklike functions even though they didn’t offer conventional bank deposits.

According to a report that KIPP issued last spring, only 33 percent of students who graduated from a KIPP middle school 10 or more years ago have graduated from a four-year college.

As Levin watched the progress of those KIPP alumni, he noticed something curious: the students who persisted in college were not necessarily the ones who had excelled academically at KIPP; they were the ones with exceptional character strengths, like optimism and persistence and social intelligence. They were the ones who were able to recover from a bad grade and resolve to do better next time; to bounce back from a fight with their parents; to resist the urge to go out to the movies and stay home and study instead; to persuade professors to give them extra help after class.

“The thing that I think is great about the character-strength approach,” he told me, “is it is fundamentally devoid of value judgment.”

Duckworth’s early research showed that measures of self-control can be a more reliable predictor of students’ grade-point averages than their I.Q.’s.

People who accomplished great things, she noticed, often combined a passion for a single mission with an unswerving dedication to achieve that mission, whatever the obstacles and however long it might take. She decided she needed to name this quality, and she chose the word “grit.”

She and her team of researchers gave middle-school students at Riverdale and KIPP a variety of psychological and I.Q. tests. They found that at both schools, I.Q. was the better predictor of scores on statewide achievement tests, but measures of self-control were more reliable indicators of report-card grades.

Back at Riverdale, though, the idea of a character report card made Randolph nervous. “I have a philosophical issue with quantifying character,” he explained to me one afternoon. “With my school’s specific population, at least, as soon as you set up something like a report card, you’re going to have a bunch of people doing test prep for it. I don’t want to come up with a metric around character that could then be gamed. I would hate it if that’s where we ended up.”

Last winter, Riverdale students in the fifth and sixth grades took the 24-indicator survey, and their teachers rated them as well. The results were discussed by teachers and administrators, but they weren’t shared with students or parents, and they certainly weren’t labeled a “report card.”

The CARE program falls firmly on the “moral character” side of the divide, while the seven strengths that Randolph and Levin have chosen for their schools lean much more heavily toward performance character: while they do have a moral component, strengths like zest, optimism, social intelligence and curiosity aren’t particularly heroic; they make you think of Steve Jobs or Bill Clinton more than the Rev. Martin Luther King Jr. or Gandhi.

The topic for the assembly was heroes, and a half-dozen students stood up in front of their classmates — about 350 kids, in all — and each made a brief presentation about a particular hero he or she had chosen:

I came to Witter’s class to observe something that Levin was calling “dual-purpose instruction,” the practice of deliberately working explicit talk about character strengths into every lesson.

It is a central paradox of contemporary parenting, in fact: we have an acute, almost biological impulse to provide for our children, to give them everything they want and need, to protect them from dangers and discomforts both large and small. And yet we all know — on some level, at least — that what kids need more than anything is a little hardship: some challenge, some deprivation that they can overcome, even if just to prove to themselves that they can.

The idea of building grit and building self-control is that you get that through failure,” Randolph explained. “And in most highly academic environments in the United States, no one fails anything.”

excessive and chaotic deleveraging by lenders to emerging Europe – and the ensuing credit crunch – would destabilize this economically and institutionally fragile region.

"Supertankers" are the largest tankers, including very large crude carriers (VLCC) and ULCCs with capacities over 250,000 DWT. These ships can transport 2,000,000 barrels (320,000 m3) of oil/318 000 metric tons.[46] By way of comparison, the United Kingdom consumed about 1.6 million barrels (250,000 m3) of oil per day in 2009.[47] ULCCs, commissioned in the 1970s, were the largest vessels ever built, but the longest ones have already been scrapped; only a few ULCCs remain in service, none of which are more than 400m long.[48] Because of their great size, supertankers often can not enter port fully loaded.[28] These ships can take on their cargo at off-shore platforms and single-point moorings.[28] On the other end of the journey, they often pump their cargo off to smaller tankers at designated lightering points off-coast.[28] A supertanker's routes are generally long, requiring it to stay at sea for extended periods, up to and beyond seventy days at a time.[28]

As demand grew moderately in the United States and Western Europe, expanding economies such as China fueled exponential growth in demand.[60]

The average one-year time charter rate for a 5-year-old tanker of 280,000 metric tons of deadweight varied from $56,500 per day in December 2005 to $53,000 per day in September 2007 with a high of $64,500 per day in September 2006.[59]

Moving beyond economics, America’s reduction in net energy imports – which have already fallen by one-half since 2007 – means that its foreign policy will be less constrained by events in the Middle East. In Europe, the new technology could similarly break Russia’s politically troublesome stranglehold on natural-gas supplies.

I regarded the European Union as the embodiment of an open society – a voluntary association of equal states who surrendered part of their sovereignty for the common good.

The process of integration was spearheaded by a small group of far sighted statesmen who recognised that perfection was unattainable and practiced what Karl Popper called piecemeal social engineering. They set themselves limited objectives and firm timelines and then mobilised the political will for a small step forward, knowing full well that when they achieved it, its inadequacy would become apparent and require a further step.

Unfortunately, the Maastricht treaty was fundamentally flawed. The architects of the euro recognised that it was an incomplete construct: a currency union without a political union. The architects had reason to believe, however, that when the need arose, the political will to take the next step forward could be mobilized. After all, that was how the process of integration had worked until then.

When the Soviet empire started to disintegrate, Germany's leaders realized that reunification was possible only in the context of a more united Europe and they were prepared to make considerable sacrifices to achieve it. When it came to bargaining, they were willing to contribute a little more and take a little less than the others, thereby facilitating agreement.

The financial crisis also revealed a near fatal defect in the construction of the euro: by creating an independent central bank, member countries became indebted in a currency they did not control. This exposed them to the risk of default.

Developed countries have no reason to default; they can always print money. Their currency may depreciate in value, but the risk of default is practically nonexistent. By contrast, less developed countries that have to borrow in a foreign currency run the risk of default. To make matters worse, financial markets can actually drive such countries into default through bear raids. The risk of default relegated some member countries to the status of a third world country that became over-indebted in a foreign currency. 

The emphasis placed on sovereign credit revealed the hitherto ignored feature of the euro, namely that by creating an independent central bank the euro member countries signed away part of their sovereign status.

In retrospect, that was the root cause of the euro crisis.

What happened in Cyprus undermined the business model of European banks, which relies heavily on deposits. Until now the authorities went out of their way to protect depositors

Banks will have to pay risk premiums that will fall more heavily on weaker banks and the banks of weaker countries. The insidious link between the cost of sovereign debt and bank debt will be reinforced.

In this context the German word "Schuld" plays a key role. As you know it means both debt and responsibility or guilt.

If countries that abide by the fiscal compact were allowed to convert their entire existing stock of government debt into eurobonds, the positive impact would be little short of the miraculous.

Only the divergences in competitiveness would remain unresolved.

Germany is opposed to eurobonds on the grounds that once they are introduced there can be no assurance that the so-called periphery countries would not break the rules once again. I believe these fears are misplaced.

It is up to Germany to decide whether it is willing to authorise eurobonds or not. But it has no right to prevent the heavily indebted countries from escaping their misery by banding together and issuing eurobonds. In other words, if Germany is opposed to eurobonds it should consider leaving the euro and letting the others introduce them.

Individual countries would still need to undertake structural reforms. Those that fail to do so would turn into permanent pockets of poverty and dependency similar to the ones that persist in many rich countries.

Second, the European Union also needs a banking union and eventually a political union.

If Germany left, the euro would depreciate. The debtor countries would regain their competitiveness. Their debt would diminish in real terms and, if they issued eurobonds, the threat of default would disappear. 

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.

Those global institutions are weak, but the real crisis has been within the euro zone, which has no effective internal balancing mechanism: It lacks a federal structure to transfer money from surplus Germany to deficit Greece, and it lacks flexible internal exchange rates that could allow a Greece or Spain to devalue its currency and find its own equilibrium.