Tomorrow is supposed to be the date for the summit of European leaders. Everyone expects an announcement about what they are going to do to solve the debt crisis. But the nearer the date approaches, the more disagreement there seems to be. Today the finance ministers were supposed to meet. The meeting was cancelled.

There seems to be no agreement about any issue — the scope of leveraging the bailout fund, the size of the fund, the size of the haircut for Greek bond holders, and the size of the bank recapitalization. Merkel is back tracking because of the ruling of the German Supreme Court that said she had to consult Parliament. She now says that the ECB should not go on buying the bonds of Italy and Spain.

Perhaps Merkel and Sarkozy will have to agree to disagree.

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All along the Germans have been saying that the investors in Greek bonds should have to accept a haircut. Now they’re getting their way. The only question that remains is how much of a haircut? The French say 40%. The Germans say 60%.

The details of the plan are supposed to be released no later than Wednesday. It will also include a plan to recapitalize European banks and a plan to include a bigger bailout fund created by leveraging.

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The Germans won’t just print money. They won’t let the ECB get away with doing it either. That is what the Fed would do. That’s what the Fed wants Germany to do. But Germans have their own ideas about such things. They wouldn’t do it because of inflation risks and hyper-inflatIon risks. Nor are they interested in putting themselves in debt to bail out the Greeks, Portuguese, Spanish, or Italians. They wouldn’t even do it to bail out the French.

Instead they expect countries to cut their budgets and adopt more austerity measures. Otherwise the currency won’t survive.

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Dealing with the credit crunch in Europe is a perfect illustration of the conflict between Anglo-Americans approaches to a solution and the ones the Germans insist upon. The United States criticizes Angela Merkel for not going far enough. They want her to boost the bailout fund to trillions of euros so that it can deal with anything.

What do the Germans say? They insist on a haircut.

Anglo-Americans believe in the broad sweep of democracy. They extend it to the lowest common denominator approach and try not t o leave anybody out. The Germans believe in setting a standard and expecting everybody else to live up to it. If others don’t live up to it, too bad. They may have invented socialism, but it’s only for those who live in Germany, the “folk”.

So the English and the Americans can keep on telling Angela Merkel and Wolfgang Schauble to do more for Greece. The Germans will continue to insist that the Greeks must cut back and practice more austerity until their budget is in order. It doesn’t matter how long it takes or how many Greeks riot in the streets. Nor do they care what Jean Claude Trichet says about the “United States of Europe”.

The Germans remember the 1923 hyper-inflation as if it were yesterday. They fear to print more money to keep everybody happy. They think such practices are at best a short-term solution inviting long-term disaster.

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After weeks of negotiations, Germany and France made an announcement today that they will not be meeting on Sunday. They will not be coming up with the planned solution to the Greek debt crisis. The reason? They cannot agree of much of anything.

Ollie Rehn, European Commissioner for Economic and Monetary Affairs, said it will be weeks before Europe will be able to solve the Greek debt crisis and decide how to use the EU bailout fund

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The Americans say go for it. So do the English. They want Germany to take on Europe and be responsible for all its bond issues. They want the Germans to forget about ever being German and to think like an Englishman or an American. That way, by showering everybody with money and aid, they will awaken that spirit of being equal and the same — God is an Englisman, Everybody loves an American — in every country in Europe.

The Germans say wait a minute. Look how messy your economic situation is, America. Ditto England. We think we Germans have a better idea. We want to be stricter. We want to enshrine low inflation as a god. We want to put a balanced budget above all things. This is thinking like a German. We don’t necessarily have to spread this kind of thinking around the globe. It may not be for everyone. But if anybody wants to play our game with us, they have to become like us, Germans. We are not willing to accommodate them in any way. They have to reform themselves.

This conflict is making headlines this week. Everybody in the EU, including France, wants Germany to become an American. But Angela Merkel says no. Wolfgang Schauble, Germany’s Finance Minister, says he’s willing to consider a “partial collateral” solution called “first loss insurance”. But he won’t go any farther. He says treaties would have to be changed to get the ECB to guarantee all bond issues by member states.

Instead he proposes guaranteeing only part of the bond issue, say 20%, which could be borrowed from the ECB.

The fact that the Greeks are marching in the steets in protest ahead of the Parliamentary vote for deeper spending cuts doesn’t concern Wolfgang at all. Nor does he care if the French lose their AAA credit rating. He thinks that the EU is Germany. The ECB is German, and the euro is the German mark. Everybody has to respect that, and in good time they will all become good Germans.

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Journalists pretend that Merkel and Sarkozy must decide what to do about the EU debt crisis. But really, though Sarkozy is flying to Berlin today, it’s up to Angela Merkel and the Germans.

Germany is the largest economy in Europe, and no one is threatening to downgrade their credit. Today Moody’s warned France that it’s getting overextended especially if it tries to pay for other countries’ debts. It might lose its AAA credit rating.

No one will dare to downgrade Germany with the memories of World War I and World War II fresh in the minds of many people. Besides, the Germans think always of keeping their debts low, saving money, and making sure inflation doesn’t rise. So it will be their call what happens to Greece, Portugal, Spain, and maybe even Italy.

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A Merkel representative said that a package of measures would be presented on Sunday but cautioned that “The Chancellor reminds everyone that the dreams that are emerging again, the on Monday everything will be resolved and everything will be over, will again not be fulfilled.”

The Chancellor emphasizes that they have a long road to hoe first. They must pass more laws that permit the necessary reforms to the bailout fund.

But Wolfgang Schauble, Germany’s Finance Minister, had the last word. He said that the EU needed to pass a “debt break” law designed like the one in Germany. The debt break law there forces everyone to eliminate all debts in five years.

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Top European official claimed that they would unveil a rescue plan by October 23, the date of the scheduled summit meeting of European leaders. They claimed they would prevent what was happening to Greece from happening to Italy. It would be different from July when a plan was announced but it was short on details.

But investors are too smart to believe what they hear. They’ve heard too much already. Instead all they do is look at German Finance Minister Wolfgang Schauble. He expressed the slightest hesitation about the plan’s prospects. He said he didn’t’ know when it would come about for sure, but certainly not this weekend. The market tanked just like magic.

Alan Greenspan used to do the same thing. Apparently investors respect someone they think knows what he’s talking about.

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The Germans and French say they are close to announcing a deal. There are three main components to it as described during the meeting of finance ministers for the group of 20. They all met in Paris on Friday. The three components are:

1)New bailout for Greece

2)effort to shore up banks affected by Greek losses and fearful of Italian and Spanish debts

3)increasing bailout fund for EU

But the devil’s in the details, especially about how to revamp the second Greek bailout.

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