THERE IS NO EUROPE:

The Fundamental Flaw of Europe's Common Currency: The euro is under attack like never before, as the promises on which it was based turn out to be lies. Hedge funds are speculating against Greek debt, while euro-zone politicians work behind the scenes to cobble together rescue packages. But fundamental flaws in the monetary union need to be fixed if Europe's common currency is to survive. (SPIEGEL, 3/10/10)

Since joining the euro zone, the 16 euro countries have violated the deficit rule, under which net new debt cannot exceed 3 percent of GDP, 43 times. Most of the infractions have occurred in the last two years. Greece is at the top of the list of violators. Only once did the country manage to push its deficit rate below the magic limit, and only with an extremely creative trick: The Greeks sugarcoated their statistics by including prostitution, black-market trade and gambling in the calculation of economic output. As a result, GDP rose by a stunning 25 percent in 2006, and the deficit dropped to 2.9 percent.

Major investment banks also played a key role in fudging the numbers. With the help of complex financial instruments, the Greeks obtained additional loans that did not appear in the Eurostat deficit statistics. The concealed borrowing centered around so-called swaps "with which the Maastricht rules can be circumvented, completely legally," says a trader with one bank.

In early 2002, the US bank Goldman Sachs provided the Greeks with an additional loan for roughly $1 billion, triggering a wave of indignation throughout Europe. Even German Chancellor Merkel was outraged, saying that it would be "a disgrace if it turns out that banks, which have already taken us to the brink of disaster, were also involved in the falsification of statistics in Greece."

Cosmetically Enhancing Debt

Merkel could soon have even more reason to be outraged. A year after the Goldman deal, Deutsche Bank's London office set up a questionable deal for the Greeks. Together with the government financing division of Eurohypo, now a subsidiary of Commerzbank, it provided Athens with a loan for the purchase of military equipment.

"In 2003, Eurohypo took over a loan to the Greek government worth around €1 billion, which was repaid last year," confirms a Eurohypo spokesman. "The transaction was based on two swaps, which a bank in London had made available to the Greek government."

Deutsche Bank is unwilling to comment on the details of the transaction. Behind the scenes, it is said that Eurostat investigated the deal, and its goal was never to engage in cosmetically enhancing debt -- even though it can hardly be denied that this was precisely what the deal was intended to achieve. It meant that the Greeks did not need to enter the loan in its books right away, but only several years later, when the weapons were delivered.

It isn't just the culture of trickery that undermines the basis of the euro. It is also harmful that each country continues to pursue its own financial policy, lowering taxes or government spending as it pleases. As a result, a level economic playing field has not developed among the member states as hoped. In fact, they have drifted further apart.

On the one side are the EU's heavyweights, headed up by Germany. The new currency has made them more competitive, and they now produce far more than they consume. On the other side are countries like Spain and Ireland, which attracted large amounts of foreign capital, and where wages and asset prices rose rapidly. In the past, these countries' central banks would have promptly devalued the peseta or the Irish pound, thereby strengthening exports. But this safety valve has been sealed off by the common currency.

Another design flaw in the Maastricht Treaty is the no-bailout clause. Under this principle, each country must take responsibility for its own national debts. Of course, this rule has never been credible.

Otmar Issing, the former chief economist at the European Central Bank, insists that the clause allows no room for compromises. Current German President Horst Köhler was one of the architects of the Maastricht Treaty back when he was a senior official in the Finance Ministry. When asked in a 1992 SPIEGEL interview whether the monetary union could allow a country to go bankrupt, he replied: "Why not?" But such assurances seem to lose their value as soon as push comes to shove.