England started to decline in late nineteenth century, but Germany started to rise after unification. This power vacuum at top allowed World War I to begin. England pulled it out by getting American aid. But Hitler tried it again. He was defeated again by America. World War II continued into the 1990’s. Germany switched sides in 1945. Germany became an ally and was rewarded with hegemony over Europe, its new kind of empire.

This is what Hitler wanted more or less minus Russia. Hitler was short-sighted about the political system, preferring dictatorship over democracy. But that was understandable coming out of World War I. Hitler and Hess wanted to make a deal with the Britain about powersharing. Hitler would control the Continent. Britain would control Africa, Asia, and the English-speaking world. That is sort of like what happened anyway if you consider America part of the English sphere of influence.

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Papandreou cancelled the planned January referendum on the Greek bailout package agreed upon last week. He said that it was irrelevant now that the opposition party backed the bailout plan.

He gave in to Merkel’s demands that he either accept the bailout terms or leave the Euro Zone. Sarkozy backed up Merkel. Maybe it required such a scare to get the Greek opposition on board.

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Merkel finally lost her patience with the Greeks today. She issued an ultimatum. She said either they shape up or ship out. She thinks that last weeks summit on Greece was something to be thankful for. She expended a lot of political capital to get fellow Germans to agree to even that much, meaning the 50% haircut for the Greeks and promises of more aid. She doesn’t think they are taking their membership in the EU currency union very seriously.

This underlies a feeling of many Germans that the euro should be abandoned for the mark. Either that or they should have a currency union only with other like-minded countries such as the Netherlands, Austria, and Finland with perhaps the Czech Republic and Slovakia thrown in. But what’s interesting is that sounds like the old German Reich.

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We’ve known it all along, but somehow now that it’s ready to happen, we’re surprised. The Troika has been pouncing on Greece for months. They’ve demanded more and more austerity measures. Greeks are losing their jobs.

Now the Prime Minister is calling for a vote in January on the Greek bailout approved last week by the EU. It’s a high stakes gamble. If the Greeks vote yes, it make help to drown out the street protests. But if the Greeks vote no, it will bring down the government. And Greece may stop using the euro and drop out of the EU.

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Italy has bond problems. The yield rose to levels not seen since August when the EU had to step in with his bond buying program. 10-year-bonds , BTU’s, jumped to 6.1%. Italy might be at the center of the crisis, but it’s a wild exaggeration to say that Italy’s membership in the European Union is at risk.

Europe cannot get rid of Italy. Unlike Greece it’s not at the periphery. It’s the core of all European civilization. That’s why it’s the only country that was on both sides in World War II. Even with a growing risk of recession, Italy is there for the long haul.

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All data now points to a decline in GDP for the EU. That will make coming to a deal to fix the EU economics all the more difficult. This will be the first decline since the 2009 recession.

The Euopean commission says that consumer confidence fell to a 2-year low in October. EU statistics Agency, Euro Stat sholwed that the household savings rate is going up. No one is spending money.

The result? The ECB is going to meet this coming week to cut the interest rates.

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I saw immediately that it was deja vu. Now everybody agrees with me. All the relief about the new EU deal is quickly evaporating — even more quickly than in July. All the leaders did was announce that they intended to have a deal. But almost all the details still needed to be worked out.

As soon as everybody figured this out, investors started demanding higher yields for Spanish and Italian bonds. The stock markets in Europe closed down. They began to see that the EU bailout fund won’t do enough. A 10% first loss fund isn’t sufficient when the Greek bonds had a 50% haircut. And how will the bond buying activities of the ECB continue when Germany says no?

Everybody now sees it’s business as usual in the European Union.

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The Germans keep on telling Greece to cut, cut, cut. They urge the Greeks to implement more and more austerity measures. But what is the result? Greece suffers from daily strikes and rising unemployment. They’ve been through five years of recession.

The Germans wanted Greek bond holders to get a haircut. They’ve agreed upon a 50% cut. But what effect does it have on ordinary Greeks in the streets? Bookstore sales are down 70%. Youth unemployment is 40%. 1 in 4 stores in Athens is boarded up.

Germans should ask themselves if the same thing that works for them works for the Greeks. Germans like austerity. They respond to it well. Greeks don’t. They might even ask themselves if Greece belongs in the EU. Greeks talk about a post-World War II atmosphere. That should certainly resonate with the Germans.

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Is it late October or July? It seems like a flashback to several months ago when an EU deal is announced but few details are released about how it will be implemented. They talk about a 50% haircut for Greek bond holders and 30 billion euro sweeteners to the private sectors, but no one knows how it will be implemented. They have promised 130 billion euros for Greece, but the details will only by released by the end of the year so Greece has a plan in place for 2012. The finance ministers canceled their meeting early this week because they couldn’t agree, but now they promised that they will come to some sort of accord in November. Everyone agrees that the banks need recapitalized, but no details have been released.

We all know where this is headed. By early next year there will be a new plan. This one will be outdated by then. You know the rest of the story. We’ve seen it too many times before.

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The only way Merkel could get the German Parliament to agree to the bailout fund was to remind them of the cost of failure. She raised the specter of World War I and World War II. She said she couldn’t guarantee peace without the fund. She said, “If the euro fails, Europe fails.” Still the vote was 503 for and 89 against with 4 abstaining. It was not unanimous. Maybe she needed to bring a photo of Hitler, too.

Late in the day Sarkozy surfaced boasting about the agreed upon 50% write-down for the Greek debt. He also talked about raising the fire power of the European Stability Fund four or five times. He didn’t say anything about recapitalizing banks or how to leverage the bailout fund.

One can’t help but see undercurrents. Hopefully the undercurrents won’t be strong enough to tear everything apart.

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