Normally, developed countries never default, because they can always print money. But, by ceding that authority to an independent central bank, the eurozone’s members put themselves in the position of a developing country that has borrowed in foreign currency. Neither the authorities nor the markets recognized this prior to the crisis, attesting to the fallibility of both.When the euro was introduced, the authorities actually declared member states’ government bonds to be riskless. Commercial banks could hold them without setting aside any capital reserves, and the European Central Bank ECB accepted them on equal terms at its discount window. This created a perverse incentive for commercial banks to buy the weaker governments’ debt in order to earn what eventually became just a few basis points, as interest-rate differentials converged to practically zero.But interest-rate convergence caused economic divergence. The weaker countries enjoyed real-estate, consumption, and investment booms, while Germany, weighed down by the fiscal burden of reunification, had to adopt austerity and implement structural reforms. That was the origin of the euro crisis, but it was not recognized at the time – and is not properly understood even today.