If anything was accomplished by Thursday’s summit of Euro Zone leaders, it was a photo shot and a one and a half day rally in the stock markets. The euro is now lower against all major currencies. What is everybody anxious about? Despite all the window dressing, the fundamentals aren’t there. Europe may be willing to take care of Greece’s financial needs for this summer. But in the future it clearly won’t work. Nor is it possible to pay for Spain and Italy, if their financial situations continue. After all, they are the Euro Zone’s third and fourth biggest economies next to Germany and France.

What can be done if anything? The European bailout funds needs to be increased. Just giving them extra responsibilities without extra cash is a disaster waiting to happen.

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The headline in of the Saturday, July 23, 2011 article in the Wall Street Journal reads “Europe Debt Plan Relieves Pressure”. But that’s all propaganda and what the politicos want you to believe. The real truth of the matter is that the new 109 billion euro bailout for Greece is nothing compared to what is needed.

The so-called “contagion” could still spread to the other PIIGS, Portugal, Spain, Ireland, and maybe even Italy which is the third largest economy in Europe. Greece still has a monstrous debt load. In fact the leaders have pushed off responsibility onto the directors of the euro bailout fund. They are supposed to act more immediately to aid economies in distress, but they have no more money to do it with!

The ratings agencies are about to declare Greece’s bonds junk and proclaim a selective default. The ECB has been bought off. If they could, they’d buy off the rest of us to keep our mouths shut, too.

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The meeting of European leaders in Brussels on Thursday was built up as if it were the meeting of the Gods on Mount Olympus. Angela Merkel was cast as Zeus and Hera at the same time. People were expecting great things. They at least expected Merkel to throw a few thunderbolts.

But as it turned out when we read what was decided there’s very little that’s new or different. It’s the same warmed over Greek debt crisis with Germany winning instead of France about what to do about it. The proposals are as follows:

1)restructuring the debt

2)extending the maturity of the Greek bonds, reducing the interest rate on current EU loans to Greece from the first bailout

3)commit to a spending program to boost the Greek economy

4)a second bailout loan to Greece which has been in the works all along

5)allow the 440 billion bailout fund to buy up sovereign debt and recapitalize the debt

Then there’s the laughable part. All the other gods on Mount Olympus, i.e. the other nations besides Greece, all took an oath not to go bankrupt themselves. Even more telling, they all earnestly promised to stop listening to those bad bond ratings firms that caused them to be forced to do anything about it.

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Germany tried to downplay the seriousness of the Greek debt crisis by coming to a late night compromise with France on Wednesday. Than today in Brussels they announced a new bailout of Greece by restructuring its massive debt. They are going to provide a loan of 1099 billion euros. They IMF and the private sector will be involved.

The markets seem to be euphoric — at first. But when they digest what has actually transpired, they will see that it is warmed over repetition of the same old stuff. Germany has been proposing a “restructuring” of the Greek debt for months. And they have been fighting off silly French proposals such as the most recent new tax on banks.

I bet you haven’t seen the last of the Greek debt crisis.

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Maybe because I”m an American I pick it up right away. Jeremy Warner’s article in the UK Telegraph, “Angela Merkel: can she rescue the euro?” sounds so . . . well, British! He sounds like Humphreys talking about the European Union in the 1980’s show. In discussing the possible demise of the euro as the common European currency, he discusses the history of Germany in the twentieth century from the point of view of somebody in London.

Warner acts as if the European Union was the invention of the British for the sole purpose of preventing Germany from causing trouble after the war. Then in the 1990’s when Germany became reunified, Warner says they had to come up with the euro to keep Germany out of trouble again. He even calls Germany “the old enemy at the heart of Europe”.
You have to remember that in 1914 England was the top dog. The British Empire was King. Germany was on the rise, but it was a distant second. The First World War dealt the death knell to the British Empire, which managed to hang around until after the Second World War so it could finally dissolve itself — just long enough for Churchill to talk about it in his war speeches.

The British seem to blame their troubles on Germany. They act as if they exhausted all their resources fighting it and defeating it and like a hydra-headed beast they’re at it again. And the euro crisis is the third act in only one hundred years. He even mentions “war guilt” as a factor that might make Germany do the right thing, which means support its poorer southern neighbors by either bolstering the European bailout fund or by creating euro bonds, which Germany would also have to pay for.

What it comes down to is this: Germany is now the second biggest western economy next to the U.S. Great Britain is number 2.

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One hundred years ago Europe was on the eve of World War I, called the Great War. It was the war that was supposed to end all wars forever. As far as we can tell World War II did just that. It’s hard to see how countries could launch a massive conventional war around the globe without blowing themselves up with atomic bombs. Besides, with the internet, cell phone cameras, and wi-fi, it’s hard to see how military secrecy could be obtained to launch such conventional attacks. They would be reported before they could occur. The enemy would know all about them.

Instead we could be on the eve of a massive cyber war in the financial markets. That could be the World War I of the Twenty-First Century. When you read articles such as the one in the Wall Street Journal this morning, Tuesday, July 11, 2011, “Debt Worries Roil Markets”, you get that idea. The first sentence makes you think of the end of the world as we know it: “Worries about government debt rocked capital markets on both sides of the Atlantic on Monday as fears that the Greek crisis will spread combined with concerns over standoff with the US debt ceiling.”

There won’t be any bombs. There won’t be nuclear fallout. Instead we will have a series of panics in the markets, followed by deep recessions and maybe even a Depression or two. People will be shaken, though still very much alive.

The first volley this week seems to be a planned meeting on Thursday of Europe’s heads of state. They must head off the Greek crisis which is already showing signs of contagion, spreading to Italy. There has already been a sell off of Italian bonds. The phrase on everyone’s lips is “Sell the PIIGS!” or PIGS for short.

Where will the next attack occur? Stay tuned. The financial news is now the war news.

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The Wall Street Journal wrote an article today, Monday, July 18, 2011, “Seeking A New Haven”, discussing how many investors wanted to know how to invest in German bunds, or bonds, which they were considering along with gold and FDIC insured deposits as a safe haven for money. Mike Schumacher of UBS, a Swiss bank says, “Most people regard Germany over the long run as probably the most financially conservative big issuer.”

What’s wrong with this scenario as the August 2 deadline approaches ever nearer when the United States is supposed to raise its debt limit or default on its bonds for the first time in history? Ward McCarthy, a British financial advisor hints at it, “It would be the end of financial markets as we know them now.”

That doesn’t say enough. Really it would be the beginning of America’s decline. That would signal the build up to another world war, World War III. Hitler didn’t win the last war. Nor did the Kaiser win the war before that. Germany is tied up in our political system and our world hegemony. If we went down, they would go down with us despite their conservative bunds.

So the move by investors to buy bunds up is really a “feel good thing”. It doesn’t mean much except that maybe the United States should hire German advisers to run their treasury department.

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When I was a little girl my mother had a book on a shelf in the basement called Germany Will Try It Again. It was written between the wars and published I think in the 1930’s. And Germany indeed did try it again. Adolf Hitler and his National Socialist cohorts created the Third Reich and brought Germany into the Second World War, which they lost big time.

If anyone thought that Germany would succumb to occupation and invasion, firebombing, and the Nuremberg Trials, they were clearly wrong. By the 1960’s and 70’s Germany’s economy was in full flower once more, even more so than it had been in the 1930’s under Adolf Hitler. And the German mark became one of the most stable, sought after currencies in the world.

This was so true that after the reunification of Germany in the 1990’s and the signing of the treaty that formally ended World War II forever, Germany promoted its sterling currency as the currency of continental Europe — the euro.

There were many takers. For when it comes to money there is no political correctness. What is — is. And no one could deny that the Germany economy and the German stock market was one of the Big Four and had been so for two hundred years: Germany, Japan, Great Britain, and the United States. Now there are seventeen member nations that call the euro theirs.

But in 2010 and 2011 the euro is meeting its first big crisis — the Greek Debt Crisis and possibly a crisis that will involve all the pigs — Ireland, Spain, Portugal, and Greece. It is possible that if not dealt with correctly the currency union will dissolve and Germany’s latest attempt at expansion will be squelched, especially if it expands to involve Italy.

So when Germany says let Greece default and then we’ll get over it, listen. It may be the right thing to do. Don’t carry on the debt crisis forever and let it capture headline after headline. Don’t let journalists make all the investors jittery. Get past it. Then write new history in the expansion of the euro and of German economic influence in Europe.

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Germany only pretended to go along with France’s idea several weeks ago that there would be a gentlemen’s agreement about the Greek bonds. All along it wanted to involve private bond holders in a solution. Now it is insisting upon it, and as Germany goes so goes the euro, which is really the old German mark. Even the Wall Street Journal in its article, “Europe Sets Summit On Greek Debt”, on Saturday, July 16 says “Berlin will impose its will on the Euro Zone”.

Sounds like Adolf Hitler? No quite! This is the kind of union that other countries WANT to be part of because it gives them a more prestigious currency. And if Germany sets the rules, they must go along with it. The question now is not whether they will do it but how and when.

Germany thinks that a Greek default is inevitable no matter what. They would rather have a manageable default so things don’t get out of hand and cause another recession.

The Germans are betting that this selective default won’t affect the long-term confidence that investors have in Germany’s currency. They think they can safely ignore ratings agencies.

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Euro Zone finance ministers agree that Greece must reduce its debt burden in order for its debt to be sustainable. In fact they calculate that it must be reduced by half. But the Euro Zone ministers haven’t agreed on what exactly to do. They have proposed three solutions. All risk default except the first one:

1)The Euro Zone countries could reduce the interest on their bailout loans to Greece.

2)Germany’s option: Bond holders get less. In other words, they get a haircut. This is a short term solution and won’t solve Greece’s problem in the long run.

3)The most radical solution: A bond buyback or a bond exchange has been proposed. They might even use the Euro Zone Bailout Fund to buy back the bonds.

The core problem is that Greece’s public sector is too large, and its private sector is too small. The Germans can take credit for inventing socialism. It works well in that country. The Germans seem to confine the government to certain, well-defined activities, and at the same time they promote private industry. They have their own unique mix which other countries find it difficult to imitate. Greece hasn’t mastered it yet. But this would be the real final solution, no pun intended — the good final solution. Confine Greece’s public sector to health care, the military, social security, etc. But make sure that most Greeks are employed by private industry. Then we might avoid the next Euro Zone crisis.

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