Jean Claude Trichet signaled what was really going on in the EU when he announced that the interest rates were being raised to 1.5% from 1.25%, the second rate increase this year. This is not political and it’s not showmanship like the continuing show called the Greek bond crisis. It’s the meat and potatoes of the European economy — Germany.

Germany needs an interest rate rise because it’s growing and the Germans fear inflation more than anything else after the hyper-inflation of the 1920’s. Trichet even signaled that there will be another increase this fall, again because of Germany.

The German mark is in essence the euro. Germany decided to expand and share it with the rest of Europe. Greece and the pigs want to participated because it raises their level of prosperity, especially in good times. But in bad times it stresses the Greeks, the Portuguese, and the Spanish along with the Irish. But they have to stick with it and hope that they will prosper like the Germans.

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France’s plans for involving the private sector in financing Greek bonds and Greek debt has met with the disapproval of ratings agencies which proclaim that they would create a “selective default”. That resurrects Germany’s original plan for involving the private sector. Senior German government officials brought it back to the discussion table on Wednesday.

Under this proposal investors would swap Greek government bonds for new bonds, the very proposal that Merkel gave up on several weeks ago to the praises of the press. The German attitude seems to be that there will be a selective default no matter what, so what?

What the finance ministers should explore is whether one of the 17 countries in the Euro Zone should be allowed to default. That would make trading in the currency and buying European bonds less attractive to investors. The German rating is the highest. They should keep everybody in their union solvent, too.

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Germany’s next Olympics and its Olympic vision of itself and the image it wants to project to the world will not be on display during the Winter Olympics of 2018. Today they came in second and lost the bid to Pyeongchang, South Korea.

Perhaps one of the reasons it was rejected is that Germany is going through an identity crisis. It doesn’t know what image it wants to project of itself. If it had gotten the nod, it was going to use the 1972 Olympic facility in Munich as the center for the next Olympics in 2018. That alone doesn’t speak of any vision at all. It just speaks of the past. And apparently green protestors were objecting to hosting the Olympics on the basis that it wasn’t eco-friendly. That speaks of a bunch of neo-hippies who’ve decided not to worry about their image but just to coast for the foreseeable future.

Germany hosted the Olympic Games twice during the twentieth century, once in Berlin in 1936 and again in 1972 in Munich. The first occasion was obviously a way for Adolf Hitler to show off the Third Reich to the rest of the world, especially England. The French team gave the Nazi salute as a tribute to how well Hitler and his economic ministers had dealt with Germany’s economic woes and brought it back as an industrial giant to be reckoned with.

Munich in 1972 was a time to showcase the “new Germany” and focus on its miraculously quick comeback after its defeat in World War II.

What is Germany now? It might focus on its lead position in the EU and its new currency, the euro. But instead all too many Germans have succumbed to living in the land of the Lotus-Eaters. They let the United States have the vision for them. They worry about was is green, philosophize, and cop out of any political vision or responsibility.

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Germany wants to involve private investors in the Greek bailout plan. They say they support the French plan to rollover 30 billion euros into the new Greek bonds so the countries involved and the IMF would have to pay less. At least that’s what they say now. They know very well that it won’t work in the long run. But for now they have to keep up the show to satisfy German taxpayers.

This is already being perceived as a “selective default”. It affects some of the investors’ bonds. It would leave the bond holders worse off than before.This means that everybody will have to go back to the drawing board and come up with a new bailout plan. Sovereign debt within the EU cannot be allowed to default. That would adversely affect the currency. Investors wouldn’t take it seriously.

Germany knows all these things. But now they’re on vacation Hopefully so are the taxpayers. They have until September.

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In an article in the Wall Street Journal for Saturday, July 2, 2011, “Euorpe’s Central Bank Faces Credibility Test”, the ECB said it would never buy back bonds involving sovereign debt. Then it reversed itself and affected its credibility. Now it says it won’t accept defaulted Greek bonds as collateral. But the Germans said it should accept longer maturity dates. Merkel backed off. Now they fear that no matter what happens the ratings agencies will say it defaulted if it accepts Greek debt in any form.

The European Central Bank expects a tough decision facing it in the future. Is it going to approve of whatever bailout the European powers, meaning France and Germany, come up with. Should it put the security of Europe first? Or should it think of its own reputation first?

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In an article on Saturday, July 2, 2011, “Russia To Deploy Troops To Defend Interest In Arctic”, the Wall Street Journal discusses how two army brigades are being sent to the north to defend Russia’s interest in its arctic resources. Putin Thursday said that Russia will spend 33 billion to build a year round port in the Russian Arctic on the Yamal Peninsula. An underwater ridge from the Northern Siberian shores is thought to lead directly to the North Poke, and it is expected to have plenty of oil.

The problem is that Finland, Norway, and Sweden have also sent troops to defend competing claims. Canada and Denmark have done the same. Even worse, because of receding ice it is now possible to find more fishing grounds farther north. That hasn’t escaped the attention of these powers either.

Is this to be the scenario for a new World War III? It is easy to imagine that it could be so.

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The next step in the Greek debt crisis is naturally — you said it! — delay and procrastination. Now that Europe has sneaked past the Greek austerity vote, they think they’ll go on vacation and put their feet up until September. After all, it’s summer. Why rock the boat? Already we hear that tomorrow’s meeting of finance ministers originally scheduled for July 3 has been put off indefinitely at least until the fall and maybe beyond. What they’re really hoping is that those folks in the ratings agencies that score the Greek bonds’ credit worthiness will also go on vacation and maybe take a Gilligan’s Island boat to a deserted desert island from which they will never return.

There’s more bad news. Friday’s figures showed activity in Euro Zone manufacturing slowed in June while 1 in 10 citizens remain unemployed. In fact, manufacturing has reached an eighteen-month low. Exports have already gone on vacation early. Budget cuts have left more citizens without a way to even pay for a summer trip to the French Riviera. Even manufacturing in Germany has slowed to the slowest rate of expansion in 17 months. Manufacturing in Pigdom — Italy, Ireland, Spain, Portugal, and Greece — has contracted. They figure that if they try to come up with a new bailout plan for Greece, the markets will go crazy — they never go on vacation — and we will have another mess like 2008.

So let the ECB raise the interest rates 1/4 point. Probably no one will notice as all the lights dim and all the finance ministers and their minions disappear to a mountain cabin or a condo by the sea to while away the time until the next crisis, which surely is just around the corner.

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Deutsche Bank Chairman Josef Auckerman spoke for all the private banks in Germany concerned with Greek debt when he said, “Banks need to cooperate with European governments to achieve a quantifiable, sustainable solution to Greece’s persistent debt crisis.”

One wonders if the powers that be invited him to a party. Why would he speak what he knows is false otherwise? The banks might have agreed to rollover their holdings of Greek bonds, they may have accepted new bonds with later dates of maturity for those that fall due in 2014, and this might affect 3.2 billion euros worth of currency, but there is no guarantee that these “voluntary losses” will not trigger a default declaration by the ratings companies.

Germany must step up to the bat and guarantee those Greek bonds.

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Everybody knows that the Greek Parliament approved the 5-year austerity plan despite protests outside the Parliament building. But observers think that the Greek crisis will erupt again by the latest in September when Greece must meet certain targets to get the next slice of loans approved last year. Without this loan Greece will again be plunged into the crisis that it just narrowly averted.

Some worry that the Greek government will fall. Protestors loudly booed the vote. Youths battled the police in the streets of Athens. A member of Parliament was attacked for his vote in favor of the austerity measures.

This is why the Wall Street Journal, in its editorial of June 30, 2011 “The French Deception”, decried the EU’s latest move in handling the Greek debt crisis. The newspaper pronounced doom on it: “Europe’s latest Greek debt scheme is one more political evasion.”

Clearly there is no choice, and time is running out. Germany must guarantee those bonds.

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It doesn’t matter that the Greeks have passed the austerity measures amidst protests outside Parliament. German banks are objecting to a French proposal about the next EU loan to Greece because it is not 100% default-free. They remind the French that 64 billion euros worth o government bonds are coming due in the next 3 years. The government creditors of the EU, like Germany, don’t want to have to pay investors off.

They hope that France will come to its senses by Sunday, July 3 when the European finance ministers are to meet in Brussels. They are seeking private sector partiicipation in the bailout.

What is this obnoxious French proposal? It would be to get private bank holders of maturing bonds to agree to reinvest half of the proceeds in 30-year Greek bonds at the base inerest rate o 5.5%. This figure could rise to 8% if the Greek economy grows. An additional 20% top quality O coupon bonds which pay no annual interest but increase in value yearly will be added to the proposal to help pay back the loan.

Still the Germans shake their heads no. Wolfgang Schauble is probably leading the protests and demonstrating all over the place with a vigor that would challenge the massive Greek protests. But the Germans ought to look into themselves. Why are they resisting what they will surely have to do in the end to preserve their currency union? They must guarantee the Greek debt.

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