An invisible financial wall, potentially as dangerous as the Iron Curtain that once divided Eastern and Western Europe, is slowly being erected inside the euro area.

The interest rate gap between North European creditor countries like Germany and the Netherlands, whose borrowing costs are at an all-time low, and southern debtor countries like Spain and Italy, where bond yields have risen nearly to pre-euro levels, threatens to entrench a lasting divergence.

Because government credit ratings and bond yields effectively set a floor for the borrowing costs of banks and businesses in their jurisdiction, the best-managed Spanish or Italian banks or companies have to pay far more for loans, if they can get them, than their worst-managed German or Dutch peers.

The longer that situation goes on, the smaller the chance of a recovery in Southern Europe, and the bigger the wealth gap between north and south will grow. With ever-higher unemployment and poverty levels in southern countries, a political backlash - already fierce in Greece and seething in Spain and Italy - seems inexorable.

The European Central Bank president, Mario Draghi, acknowledged as he cut interest rates last week that the north-south disconnect was making it more difficult to run a single monetary policy. Two huge injections of cheap three-year loans into the euro zone banking system this year, amounting to €1 trillion, bought only a few months' respite. "It is not clear that there are measures that can be effective in a highly fragmented area," Mr. Draghi said.

Conservative German economists led by Hans-Werner Sinn, head of the Ifo Institute, are warning of dire consequences for Germany from ballooning claims via the E.C.B.'s system for settling payments among national central banks, known as Target2. If a southern country were to default or leave the euro, they contend, Germany would be left with an astronomical bill, far beyond its theoretical limit of a €211 billion liability for euro zone bailout funds.

As long as the European monetary union is permanent and irreversible, such cross-border claims and capital flows within the currency area should not matter any more than money moving between Texas and California does. But even the faintest prospect of a day of reckoning changes that calculus radically.

In such a case, money would flood into German assets considered "safe" and out of securities and deposits in countries seen as at risk of leaving the monetary union. Some pessimists say we are already witnessing the early signs of such a process.

David Fuller's view Throughout the Eurozone crisis to date new financial stress faults have continued to open up more quickly than stopgap measures by officials and politicians to contain them. While 'the euro is forever' may be a favoured mantra for Europe's leaders, their citizens are increasingly restive. Europe's diverse cultures and their long histories make the prospect of full political and fiscal union challenging, to put it mildly. Nevertheless, this is presumably the path Eurozone countries need to follow if the currency union is to survive in anything close to its present form.

Meanwhile, I assume that Capital Economics' prize-winning report on 'Leaving the Euro' is being widely dispersed (see Friday's posting).