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Both of these sentences translate as, “I would be happy”:

Ich würde glücklich sein.

Ich wäre glücklich.

Could someone please explain, or direct me to an explanation, how these tenses differ and how, or in which contexts, they should be used? Vielen dank!

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"Würde" is the conditional form of "werden" and can also be used as an auxiliary verb to form a conditional without having to use the actual conditional form.

"Wäre" is the conditional form of "sein".

These sentences mean the same thing. This isn't just about "sein", the same is true for "ich ginge" vs. "ich würde gehen", "er hätte" vs. "er würde haben" or really any other verb. The "würde" form tends to be used more in colloquial language, the actual conditional form sounds more formal (especially with less common verbs), but the meaning is the same.

Some prescriptivists will tell you you shouldn't use the "würde" form in a subclause starting with "wenn" or a similar conjunction; this is purely linguistic prescriptivism not actually followed in real usage.

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Ich wäre glücklich.

That's Konjunktiv II.

Ich würde glücklich sein.

That's Konjunktiv II Futur I.

The meaning is exactly the same. You mark non-facts in the non-past that way. The reason why German has two tenses for the same thing is that the distinction between non-facts and storytelling (Präteritum/Plusquamperfekt) is crucial, but the Konjunktiv II forms are not necessarily distinguishable from the Präteritum forms. For sein and a large portion of the strong verbs they are but for the weak verbs in general they are not. That's why there is that extra Konjunktiv II Futur I.

You may use either one but native speakers use the Konjunktiv II forms for the auxiliaries and the modals at least. They are shortcuts and distiguishable apart from sollen/wollen but those imply non-factual ongoings semantically.

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