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Lusitania

Reuters reported on Monday, May 9, 2011 that the famous Cunard ocean liner was carrying stowaways in an article entitled, “Queen Mary II Luxury Liner Used In Alleged Smuggling Case” — reminding the reader that almost one hundred years ago German spies sneaked aboard the doomed Lusitania.

On May 1, 1915 at the Cunard Pier in New York City German spies stowed away on the last voyage after Germany’s warning to all who sailed her to beware. The men were caught by Captain Turner two days into the seven-day voyage and imprisoned in the brig, to be dealt with as soon as the ship docked in Liverpool. What exactly these men were up to we don’t know to this day. This might have been carrying acid bombs that ignited on contact which was something German spies were known to be doing in those days. But their fate was certain. They went down with the ship about six miles from shore near Queenstown once another German, a U-boatman, torpedoed the ship and made it sink in eighteen seconds.

A Malaysian man was arrested for smuggling 9 Chinese aliens into the U.S. on the ship just this year, 2011. The Chinese carried forged Japanese passports but couldn’t speak Japanese. They were caught by immigration officials after disembarking on April 26 after boarding the ocean liner in Dubai. Speaking on behalf of the cruise line, Jackie Chase, Cunard public relations manager, told the press, “To the company’s knowledge, this is a first time occurrence.”

They ruins of the Great War casualty, the Lusitania, still at rest in a seabed off the coast of Ireland, attest to the cruise line’s mental lacuna.

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Queen Mary II, fellow Cunarder along with the Lusitania

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Adolf Hitler may have been a National Socialist Dictator, but even he did everything he could to get the Germany economy ticking again in the 1930’s. Without respect for the means of production, he wouldn’t have been able to produce all those Tiger tanks and fight World War II. That’s Germany. Greece is a Balkan Land. The Greek mindset is miles away from Germany’s. So it’s no wonder that the Germans get increasingly frustrated when Greece doesn’t see things the “right way”.

George Papandreou, Prime Minister of Greece, reported yesterday that talks between him and the opposition leaders failed, thus making it even more unlikely that Greece is going to get the additional 60 billion euros it seeks. For example, New Democracy Party leader, Antonis Samaris, refused to accept the latest calls for austerity to save Greece from default. He says that the only thing worth discussing is how to re-negotiate the bailout. He says about the current German plan, “We won’t pre-sign a policy that fatten the economy and destroys society.”

What is Greece’s beef? Most of the jobs are in the public sector. If the government sells off parts of what it controls to private companies, many are doomed to lose their jobs. The same thing with other austerity measures. Olli Rehn from the European Monetary Affairs Commission says that he expects Greece to tow the line like any other country (i.e. any other Northern European country). But he gets his answer from the Greek youths who on Friday held a protest outside the Greek Parliament building in imitation of their confederates in Spain. They are also answered by the public sector unions that are staging strikes to oppose the bailouts.

If Germany doesn’t figure out a way to deal with non-Germans in a multi-ethnic currency confederation they will lose out in their dreams of competing with the United States.

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Olli Rehn, European Monetary Affairs Commission

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Jean-Claude Juncker

Luxembourg’s Jean-Claude Juncker said on Thursday that the bailout program for Greece may be doomed. Thus Germany can count the days until June 29, when the next bailout money was to be released to Greece. These days may spell the doom of the Euro Zone.

One of the important provisions of the bailout program was supposed to be that Greece promised to line up enough loan commitments to carry them through the next twelve months.

Representatives of the IMF, The European Commission, and the European Central Bank went to Athens to find out what’s going on. No one thinks Greece is going to have sufficient loan commitments to pass the test.

The only choice? Germany must open its purse string and give aid, or the Euro Zone will be a thing of the past.

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Wolfgang Schauble, German Finance Minister

The euro can’t make the progress against the dollar that it was making one month ago. It’s held down by the Greek debt and the threat of restructuring. And so are Germany’s ambitions for a greater economic union held hostage.

Instead investors are piling money into dollars, pounds, and the Swiss franc. The euro reached new lows against the franc.

The only reason the euro doesn’t slip any more is because Greek Finance Minister, George Papaconstantinou, said that Greece was going to stay in the Euro Zone. And in addition, the new European Central Bank chief, Mario Draghi, said the European Central Bank was going to raise its interest rates.

But at the same time, the European Commissions Greek representative said that Greece might “distance itself from the euro” if forced.

Only time will tell if all this bad news will have a domino effect and bring down Germany’s house of cards.

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Angela Merkel, Chancellor of Germany

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Since Bismarck in the nineteenth century Germany has been engaged in all sorts of empire building, mostly failed experiments. But this time when they thought they had hit upon the winning formula, a loose currency union among the continental European states and even some Eastern European ones, it seems to be unravelling at the seams. Why? In techincal terms it seems to be because it is a “currency union” and not a “fiscal union”, let alone a political one.

Ever since Alexander the Great and Julius Caesar Europe, particularly Western Europe, has been trying to get together. Most of the history of Western Civilization has been one war or another that England, France, Spain, the German states, Scandanavia, and Italy were fighting. There were religious wars, disputes over territory, wars to eject the Turks, and wars just to see who was the top dog. But never until after World War II did Europe, and Germany in particular, get the idea to form a “currency union” so Europe could in effect become the United States of Europe, able to compete on the world stage against the United States of America.

But no one predicted the Great Recession of 2008, the biggest downturn since the Great Depression of the 1930’s, that helped to start the Second World War when Germany really lost big. The last thing Germany wants is another failure at its door as the leading power of Europe.(World War II never really changed that.)

The political powers that be in Germany, Angela Merkel’s coalition, cannot ignore voters and opinion polls that state plainly that Germans would rather have their tax cuts than have to pay to give Greece more aid of the kind that doesn’t get paid back with interest. German voters are angry that one year ago Greece received a 110 billion euro bailout and now needs another one according to the Wednesday, May 25 article in the Wall Street Journal, “Europe Split On Debt Crisis Worsens”. Is there no end in sight? Nor do they have the control to reform Greece’s internal finances, which would mean a political commitment of the kind that they have eschewed since the days of the Third Reich.

There is a paradox. They cannot allow themselves to participate in a currency in common with Greece and have Greece default through “restructuring”. That would lower the value of their own currency! And yet they can’t handle a “fiscal union” whereby they would always be willing and obliged to pay Greece’s debts to prevent such a default and prevent the default’s effects throughout the Euro Zone such as the closing of Greek banks and the contagion that could spread to Ireland, Spain, Portugal, and Spain.

Germany needs to decide quickly before events decide for it what kind of union it really wants — one where it values the EU above all instead of one where unpredictable events are in charge and could very well undermine its own economy against its own will.

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What looked like a Euro Zone debt problem could have devastating effects worldwide just as the cataclysm of World War I did almost one hundred years ago and World War II did one generation after that. The Greek debt crisis began it all several weeks ago as discussed in the Tuesday, May 24, 2011 article in the Wall Street jNow everyone thinks it’s inevitable that there must be some sort of restructuring of debt for that Balkan country. As if that weren’t bad enough, over the weekend Spanish voters turned the Ruling Socialist Party out of office in droves, increasing fears that the new office holders will reveal more hidden local and regional debts. The final straw was a negative report on Italy’s credit rating on Friday.

Investors perceive that Europe’s Debt Crisis is worsening and is not isolated. It may pull the whole currency down with it as well as effect Europe’s politics. This only draws attention to the open dispute between the European Central Bank and the various governments of Europe about what to do with Greece’s growing debts.

All these splashy stories made the Dow fall 138.78 points on Monday. For the month of May the Dow was down 3.4%. The Euro slipped again. It fell below $1.40 on Monday and ended at $140.49 against the dollar. As a result investors fled to the security of U.S. and German bonds.

But ultimately the very security of Germany’s bonds depends upon the wide reach of the euro currency. So it cannot draw in its wings. It must spread them wide. It is only a tribute to the German people that after the immolation of World War II they are, phoenix-like, rising from their ashes and trying again and again until they get it right. Hopefully this time they can prove their mettle in dealing with the the Euro Zone debt crisis.

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Adolf Hitler

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Germany wants to extend its economic reach through the euro and compete directly with the United States, but Germany has run into the roadblock that it cannot control Greece’s internal politics.

In the Monday, May 23 article in the Wall Street Journal, “New Call To Greece To Sell Off Its Assets”, the author quotes Luxembourg Prime Minister Juncker as saying that Greece should set up a state agency to sell off state assets the way the Germans sold off East German assets during the 1990’s. This statement was part of an interview with Der Spiegel which has been published today, Monday, May 23.

Clearly they are trying to establish Germany as the model for all of Europe to follow. They even suggest that Greece put “foreign experts” on the staff of such a state agency. Of course Greece will object that this is a threat to its national sovereignty — to put Germans in power in Greece.

Jean-Claude Juncker says that Greece should only consider “soft restructuring” of its bond debt after it has set up such an agency. That would increased confidence in the markets and prevent a potential world-wide reaction to Greece’s debt problems.

These fiats were issued after the Euro Zone’s “Big Four” held secret talks in Luxembourg over the weekend.

Germany must find a way other than breathing down Greece’s political neck and causing riots and protests in the streets of Athens to enforce its will.

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Prime Minister Jean-Claude Juncker, Prime Minister of Luxembourg where secret talks were held over weekend

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Could this be the beginning of the meltdown of Germany’s great postwar experiment, the euro, as the universal European currency to give Germany economic muscle more heft? On Friday the euro sank to $1.4157 against the dollar, down from $1.4311 on Thursday, because of the threat of rescheduling the Greek bonds and the uncertainty about what will be learned about the Spanish debt after the election.

Spain, unlike Greece, is Europe’s fourth largest economy after Germany, France, and Italy. It’s too big to bail out. That’s why Germans have been using the word “reprofiling” instead of “rescheduling” the Greek bonds.

This is all happening rather suddenly. In early May higher Euro Zone interest rates led to a value of almost $1.50 euros to the dollar. The euro is down almost 5% since the beginning of May. To make matters worse Fitch Ratings on Friday downgraded Greece’s credit by 3 points. Standard and Poors has already done so.

Everybody sees the widening of yield differentials between Spanish and German benchmark debt with Germany used as the standard for the Euro Zone. Will Europe be able to survive this company of unequals? Or will it again break up into its old individual currencies? And if it does so, will the ill will and conflicts bring skeletons out of the closet? Will they spark more violent clashes over unresolved issues such as the border between Poland and Germany — the former East Prussia — which is now a sort of No Man’s Land? What about northern Italy, once part of Austria, and given to the Italians in one of World War I’s most notorious dirty deals?

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It looks more and more likely that The Spanish government will fall, causing a radically unstable situation for Germany and the EU. In an article in the Saturday, May 21 edition of the Wall Street Journal, “Spanish Prime Minister Calls Protests Understandable”, Prime Minister Zapatero says that he finds the youth protests “understandable” but still will crack down on them over the weekend so as not to interfere with voting. Citing 50% unemployment for his backers and a 20% unemployment rate over all, a protester called for stepped up rallies in the next few days. Such protests have gained strength since the demonstrations in Madrid, Barcelona, and Valencia.

Remembering the Spanish Civil War of the 1930’s and the takeover by Franco, the Fascist dictator, Germany must tread carefully in making up fiscal policy to fit the largest of the “pig countries” with an economy too large to bail out. It is up to this country more than any other to keep the Euro Zone together.

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Valley of the Fallen, Monument to the Spanish Civil War

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Franco

Germany thought that Spain alone of all the “pigs” would be able to escape a bailout, but recent reports from the Catalonia region make it sound as if Spain might be more of a problem than Greece to Germany’s dreams of a financial empire.

The Catalonia budget deficit was twice as big as anybody feared as reported by the Wall Street Journal article, “Spain Vote Threatens To Uncover Debt”. The socialists were covering up the debt. Rumors say that other local governments all over Spain were trying for years to persuade suppliers to do business off the books and not immediately bill for services. That fact alone could add tens of billions of euros to the official debt figures.

The central government in Madrid has cut its spending so that its debt is now only 9.3% of GDP instead of 11%. But this has had no effect on the practices of Spain’s local and regional governments. And up until now Germany has considered only the national figures.

Since 2003 the local governments of Spain have doubled unpaid invoices. This low payback rate is making economic growth stall out. Suppliers don’t get paid. They can’t afford to hire. They lay off employees. Lately even the trash doesn’t get picked up. In many places it sits in the streets.

This is not a situation that Germany will be able to deal with as readily as it can deal with the Greek Debt Crisis. The Spanish economy is much bigger. It would tax Germany’s resources to bail out its southern neighbor. But still it must do something, or the Euro Zone will unravel.

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