The Bank of England continued to buy British bonds, which is the same as printing money. The ECB extended loans to European banks in the Euro Zone in a crisis that everybody thinks mimicks the 1930’s.

Germans are suspicious of the ECB or the Bank of England buying bonds. It reminds them of the hyper-inflation of the 1920’s. Already the inflation level in Europe is 3% despite the crisis. The ECB has decided not to raise or lower interest rates but to keep them the same for now. They may soon have to act.

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Angela Merkel has proposed that European countries in the Euro Zone should agree on a system of back stops for banks. Countries should announce what they are willing to do now. They should also plan on drawing on the Euro Zone bailout fund.

The United States funds the IMF. An IMF senior official said that they could step in to shore up the bonds of the European countries. They don’t want Greece to pull everybody down and cause another worldwide recession.

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The sovereign debt crisis keeps on threatening to spill out of Europe and spread to America. A French-Belgian bank called Dexia SA, which is one of Europe’s twenty largest banks in terms of assets, is being broken up by the government. The French and Belgian governments are go ing to have to guarantee part of the debt. Borrowing costs for both governments rose on Tuesday.

Naturally this caused a major sell-off in Europe and on Wall Street. The Dexia crisis extended to the U.S. Economies are so interconnected now that they all have to step in line.

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Venezelos, the Greek Finance Minister, said, “Greece is not a scapegoat of the Euro area. Greece is a proud country.” Proud or not, they are about to run out of money.

Ominous signs abound: EU finance ministers just reached a deal to provide collateral to finland in exchange for future aid to Greece. But what if everybody suddenly wants collateral? Due to situations like this, everyone is saying that they will have to renegotiate the July Greek bailout. Greece’s financial position has obviously declined since the middle of the summer. The European ministers delayed their approval for sending the next 8 billion euros to Greece. Juncker says the decision will be made in October, but not quite yet.

Greece will run out of money by the end of next week.

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Germans love austerity. After World War II austerity, hard work, and self-sacrifice rebuilt their country from the ashes of the fire bombings. But then Martin Luther was a German, and he started the Protestant Reformation. To Protestants work is like a religion.

Not so in Greece. Greece is Orthodox and not Protestant at all. No wonder that constant austerity measures are not helping the country but harming it. One size does not fit all for the European Union and the Euro Zone. Yet the Troika keeps on coming and demanding more and more sacrifices of the Athenians. Who knows where it will end? In revolution? The government overthrow? Worse?

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What is the relationship of Germany to the rest of Europe? Sounds like history class. But it’s what the EU is all about. England understands this better than anybody else. They were anxious to start the EU after World War II and make Germany the head of it to keep that powerhouse of Europe busy and out of trouble.

But it’s ultimately up to the Germans themselves whether they want to take on the debts of their neighbors and help pay them either in the form of a bigger bailout fund or in the form of Euro Bonds.

Right now the Germans seem to be saying they want a bigger bailout fund. But the other shoe hasn’t dropped yet. They said yes to the bigger fund, but they want to renegotiate all the conditions.

So in this endless Greek debt crisis, Germany hasn’t finished defining itself yet

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In August a quite dramatic event occurred in Germany, and it escaped all the news cameras. No one reported on it until today. It was so quiet, but so pervasive and decisive, that no one knew about it until now.

Germans suddenly bought 3% less in the way of goods and services. The decline was sudden and dramatic.

Up until now the ECB has been raising the interest rates to prevent inflation from heating up. Now the ECB is left holding the bag. It doesn’t know what to do in its upcoming meeting. Prices have increased in the past year, but everything is recently slowing down.

The conclusion: do nothing and wait to see what the German consumers do next.

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Merkel delivered on her promise to ratify the agreement in July about the ECB. Its budget will be expanded to 440 billion euros. It will have more powers to lend to countries and banks in the EU. But Merkel’s margin on the vote wasn’t that great. 17 members of her own conservative coalition voted against her. She could afford only 19 before she would have to depend on the opposition.

But in order to get that many votes in her favor she had to agree to re-negotiate the bailout terms the next time around. More austerity measures will be imposed along with more Troika visits to Greece. Greece will rebel. Yesterday’s vote might soon become irrelevant.

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Finnish lawmakers yesterday and Germans today ratified expanding the European Bailout fund to 440 billion euros. They have agreed to let the ECB use the fund more flexibly. The ECB will be allowed to buy bonds, lend to countries before their is a full-blown crisis, and put capital into banks that need it.

Not just Germany and Finland but all the seventeen national parliaments must approve of the changes.

But it still remains to be seen if Germany will be willing to expand its leadership role in the EU to put it all together and make it work.

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Tomorrow is the vote in the German Parliament about whether they want to support the July agreement between Merkel and Sarkozi. Are they going to increase the bailout fund to 440 billion euros or not?

The United States wants it to be even larger. They also want the ECB to be ale to leverage banks. But Merkel will be lucky to have enough votes without support from the opposition. Even Wolfgang Schauble, her Finance Minister, says such a deal might jeopardize the credit rating of Germany itself.

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