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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The Germans will do anything before they will let the Greeks default — except back their loans, which is probably the only thing that will work. The leaders of Germany and the EU know this and thus they are trying to conduct a three-ring circus to distract the bond ratings agencies and the public NOT to notice that Greece is about to commit the D word.

It looks good to have Greece meet with its creditors in Rome.Thus it was arranged for them to do so. But of course it was all for show. If you don’t have the money, no amount of hocus-pocus will give it to you.

On Sunday, July 3 the EU leaders have scheduled a meeting to discuss the new Greek bailout before the previous one has even been ironed out. And here they get very tricky. They talk about how holders of rollver bonds will get higher inerest rates if Greece’s economy does well. But then they say that such bonds won’t be managed by the banks — heavens no! it would besmirch their honor! — instead they will be managed by a special purpose vehicle, not the banks. In fact, the bonds wouldn’t even appear on the balance sheets of said banks. They would be rolled over but not called in.

Before they accomplish all this, the Germans might as well be performing the miracle of the fishes and the loaves or even walking on water. It might be easier, a lot more honest, and a lot more believable.

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There are three options for Germany to deal with Greece’s debts:

1)let them default

2)make the bond holders take a haircut, meaning they will get less

3)guarantee the loans to persuade banks to rollover the old Greek bonds and buy new ones

The outgoing Bundesbank Chief, Axel Weber, recommends that Germany take the third option. It is the only one that makes sense from the economic point-of-view. He understands that it will be difficult for Merkel. The “push-back” effect, the popular resistance, in places like Germany and the Northern Tier of Europe is extreme. To make sure that the same situation doesn’t reoccur in the future, Weber suggests that bonds of the future should have clauses that if a country needs a bailout, the bond holder will be willing to take losses.

What I say is that if Germany is serious about the euro, it must step up to the plate and take responsibility for its currency union.

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In the Wall Street Journal article of Saturday, June 25, ‘2011, “Swiss Renew Push For Bomb Shelters”, the American reporter criticizes the Swiss government for being paranoid and building way too many bomb shelters.They claim that Switzerland, which is of course mostly German, is home to more nuclear bunkers per capita than any other nation. After all there are 300,000 bunkers for only 7.6 million Swiss with 1 million places to spare. It is the home of the 1978 law that requires every new building to have a bomb shelter.

The reporter goes on to expostulate with the Swiss government that the Cold War is now 2 decades in the past. Why are they afraid? This is naive. Germans were shaken to the core by the events of the last century, not just the Cold War when Germany was divided into two parts, but World War I and World War II with the hyper-inflation of the 1920’s between those cataclysms. They can be excused for thinking that the bombs are still falling. Of course the nuclear incident in Japan in March didn’t help either and caused both Merkel and the Swiss government to close down nuclear reactors for good. But the real bugaboo is the defeat of all things German in the last century’s wars, an event that Germany is trying to cope with by burying itself in economics.

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