It is a spectacular tale of incompetence, greed and charges of corruption. It has pushed one of Germany's biggest banks to the brink of collapse. It allegedly involves ingenious pyramid schemes, runaway debts and uncovered losses concealed in a maze of shadowy companies and Cayman Islands trusts. It features officials at the most senior levels of government and business ignoring--and, by some accounts, suppressing--auditing reports that could have stopped the shenanigans years ago. Worse, it represents a more general problem for Germany that shows no sign of going away.

Call it Europe's Enron. For the financial scandal that has swept up Bankgesellschaft Berlin is every bit as breathtaking as its American counterpart, both in the scale of its losses and the connivance with which they purportedly were covered up. But here the parallels stop. In the United States, Enron touched off a public outcry leading to a criminal investigation, jailed executives, the collapse of a major auditing company and a host of new laws cracking down on intransparent corporate reporting. In Germany the response has been almost the opposite--public indifference and an official response that, at best, has been tepid and, at worst, amounts to a deliberate effort to enshroud the case in "extreme secrecy," according to corruption watchdog group Transparency International.

The troubles enveloping BGB aren't new. The scandal first broke in late 2000, and investigators have since been gathering evidence against the bank's management and directors, as well as dozens of other public and private officials. Last month the first trial of bank officers began, featuring the chairman of a major subsidiary and one of his fellow board members. Prosecutors say they cooked the bank's books, illegally hiding billions in liabilities--which both executives deny. Yet the case has generated little media attention. Key suspects in the schemes that brought the bank low and cost taxpayers as much as 40 billion Euro are free and collecting lavish private and civil servants' pensions. A special investigative commission in Berlin's state Parliament tells NEWSWEEK that it's making little headway, blocked by the bank and the courts from access to key documents. Federal banking regulations prevent BGB from disclosing records, according to a spokeswoman, who declined to comment on specific allegations for fear of "interfering with an ongoing investigation."

If Enron was a case of U.S. capitalism run amok, BGB is a very Continental tale of cronyism and private enrichment at taxpayers' expense. Created in 1994 through the merger of a poor, state-controlled commercial bank with a rich but tightly regulated public savings bank, BGB coupled a public bank's unlimited government protection from bankruptcy with the private bank's freedom from oversight by Parliament and budget-office auditors. For the executives and politicians running the show, investigators say, it was a carte blanche to do deals that helped well-placed friends with little fear of adverse consequences.

Consider the bank's real-estate operations during the postunification building boom in the former East Germany. According to parliamentary investigators, the bank began doling out risky real-estate credits to well-connected developers, often for projects that the bank's own advisers warned might never generate enough cash to pay back the loans. Coincidentally or not, these sources say, some of the former borrowers were high-ranking politicians turned real-estate developers and others with personal ties to the bank's management and directors. When Germany's real-estate bubble popped in the mid-1990s, and friendly borrowers got whacked, BGB bailed them out, buying back troubled real estate at nearly precrash prices and reselling it to other investors in the form of shakily guaranteed trusts, auditing documents obtained by NEWSWEEK show.

It was almost inevitable that BGB got into trouble. Barbara Oesterheld, a leading member of the parliamentary investigation commission, likens BGB's business practices to a "gigantic pyramid scheme." In late 2000, amid mounting losses, she says, the bank tried to "sell" a chunk of troubled real-estate investments to a front company it created in the Cayman Islands, financed by a 1.5 billion Euro loan from the bank itself. When word leaked to the German media, the bank's stock started its slow slide into collapse. "In the end, the bank was mainly doing business with itself," says Hans-Peter Schwintowski, a professor of banking law advising lawmakers on the case. Because Berlin and its taxpayers owned 80 percent of the state-controlled bank, they were left holding the bag.

The question today is not how it all happened, but why wasn't it stopped--and why so few senior bank or public officials have been called to account. The answer highlights not only a massive failure of oversight, but the continuing immunity of large state-protected sections of the German economy to market mechanisms and public control. The BGB affair points to the very heart of the so-called "German disease."

Contrast BGB to America's Enron. There, the scandal jump-started an intense debate over white-collar crime, followed by the most profound changes in business legislation since the 1930s. Yet even though the BGB scandal appears to involve many of the same issues--such as the conflict of interest when auditing companies also provide lucrative consulting services--BGB's much-criticized auditors aren't even being investigated, let alone split up. "Germany is a country without sanctions," says Markus Kerber, a corporate finance specialist at Berlin's Technical University.

A related problem is what Transparency International's Hansjorg Elshorst calls the "unholy Prussian tradition" of corporate and bureaucratic secrecy. German confidentiality laws make it extremely difficult for even official investigators to penetrate white-collar crime, and sometimes seem deliberately crafted to discourage insiders from coming forward. At a time when the post-Enron Sarbanes-Oxley Act has improved whistleblower protection in the United States, a German labor court last month strengthened employers' rights to fire whistleblowers for "breach of loyalty." As long as Germans don't value public responsibility more highly than corporate loyalty and secrecy, Elshorst says, the practices that created BGB's troubles will go on.

Perhaps that's what most disquieting about the lack of attention to the BGB affair. The obstacles to prosecuting white-collar crime, the almost complete lack of sanctions against politicians and managers, the Berlin government's willingness to keep shoveling billions of taxpayer euros into BGB and other failed public companies--all this highlights a broader social problem in Germany. "Our ethic of protecting society from future harm is not very developed," says Stefanie Wahl, senior scholar at the Institute for the Economy and Society in Bonn. Germany, in other words, needs to learn how to heal itself.