UKip's Nigel Farage: "Greece, Take Back Your Democracy"

UKip leader Nigel Farage had a few things to say worth hearing about Greece and the EU..and he said them yesterday in the European Parliament,speaking directly to Greek Prime Minster Alexis Tsipras across the room:

NIGEL FARAGE: Thank you. What we're seeing in this chamber this morning and indeed across the whole of Europe is an irreconcilable cultural difference between Greece and Germany. A split between the North and the South of Europe. The European project is actually beginning to die. Nobody in this room will recognise that the peoples of Europe are saying, we were never asked whether we want in this. This has been foisted upon on us and we need to understand why the EMU doesn't work. Those monsters Kohl and Mitterrand, backed up by the clever but dangerous Delors believed that if they put in place an economic and monetary union then as night follows day, there would be political union and there would be an acceptance of this project and the North and South of Europe would converge. That we would all start to love each other and we would all start to feel a European identity, that we would all start to show allegiance to the flag and the anthem.

Those, of course, that criticised this were told we were extremists and we lacked vision. Well one vision we didn't lack is we understood the countries of Europe are different and if you try to force together different people and different economies without first seeking the consent of those people it is unlikely to work and the plan has failed. This isn't just Greece we're talking about today, the whole of the Med now finds itself in the wrong currency and yet virtually nobody in the political arena has the courage to stand up and say that. Indeed, I feel that the continent is now divided from North to South, there is a new Berlin wall and it is called the euro. The old enmities have been resumed. Just listen to the way the German leader of the CDU group this morning attacked Mr Tsipras. He was actually disgusting but it shows the way North and South feel about each other.

Mr Tsipras, your country should never have joined the euro, I think you acknowledge that. But the big banks, big business and big politics forced you in. Goldmans Sachs, the German arms manufacturers, they were all very happy when the bailouts began. They weren't for the Greek people, those bailouts were for French, German and Italian banks. They haven't helped you at all. These years of austerity, years of high employment and increasing poverty, none of it's worked. In fact, your debt GDP ratio has gone from 100 percent at the start of the crisis to 180 percent right now. It would be madness sir, to continue on this course.

You have been very brave. You called that referendum. When one of your predecessors tried to do the same the bully boys in Brussels had him removed. They tried their best again, Mr Juncker said you would have to leave the Euro and leave the EU. Even Mr Schulz, the president of the parliament, who one would have thought might have been neutral, said that if the Greeks voted no then power supplies might even go down. There were threats and bullying but the Greeks stood firm. But sir, you cannot have your cake and eat it. They will give you no more these people. They cannot afford to, if they give you more they have to give other Eurozone members more.

So your moment has come, and frankly if you have the courage you should lead the Greek people out of the Eurozone with your head held high. Get back your democracy; get back control of your country. Give your people the leadership and the hope that they crave. Yes it will be tough in the first few months but with a devalued currency and with friends of Greece all over the world, you will recover. "

Greece's New Trojan Horse, And What It Means To America

The Greeks, faced with what amounted to an ultimatum from the EU rejected further austerity measures and decided yesterday not to accept the EU's proposal by a whopping 61%. It's not hard to see why.

Greece's debt now exceeds 177% of their GDP.They owe massive amounts to their bondholders and other creditors, whom already took a huge haircut for the last bailout. In order to pay the next payment due on what they already owe, they needed yet another bailout and what Greek's left wing PM Alexis Tsipras called 'debt relief.' That essentially means they want EU nations like Germany to pay off part of Greece's debt.

In response,the EU, led by German Chancellor Angela Merkel offered a take or leave it proposal that would have given Greece enough money to pay off the IMF, which will then give them the money to pay the European Central Bank, and so on and so on. But the EU also demanded severe austerity measures to do it, including spending cuts, reforms to Greece's expansive pension and social welfare system and 'labor reform', which means more cuts in civil service jobs. That's what the EU wanted in exchange for yet another 240 billion euro ($262.7 billion) bailout.

To add an additional bit of arm twisting,the European Central Bank (ECB)took the step of cutting of all cash to Greece's banks, which are dependent on it since they were connected to the system. The banks are now closed, with ATM deposits limited to 60 euros (about $66) per day if you can find an ATM that still dispenses cash. Greeks are reverting to barter to purchase food and ordinary household supplies, and Greek banks are forecast to run out of money totally sometime this week.

What's really going on is sheer politics. Greece's debt is never going to be paid off, ever. And the EU knows it. What they're really after is damage control, AKA a modicum of control over Greek fiscal policy to limit the fallout.

The EU is in something of a bind. If they cut Greece some slack, other countries with major debt problems like Portugal, Spain and Italy who received bail outs but are making their payments and coping with austerity are very likely to reconsider making their own payments. After all, if Greece can get away with this, why not them? And there's also the factor of someone like Merkel having to face angry German taxpayers if Greece slides away from its obligation and they have to pick up the slack once more.

By the same token, if Greece is forced out of the Eurozone, it sets a precedent for others to do the same thing and have the whole over-leveraged structure topple over.

So the result of this Sunday's referendum means there's going to be one of two outcomes.

Either the EU will cave in and make a better offer, which is exactly the argument PM Alexis Tsipras used to urge Greeks to vote no. Or the EU will decide it's had enough of Greece, and Greece exits the euro.

From Greece's point of view, either way works, really.Again, here's why, in a nutshell..



Whatever happens, Greece is in for some pain, but I think they'd probably be better off simply dropping the Euro, which is exactly what I wrote in 2012.

Dumping the euro and adopting the Greek drachma, which would of course devalue naturally would have several salutary effects once the initial chaos subsided. Greece would no longer be locked into a fixed exchange rate, which would make its exports more affordable and undoubtedly create a boom in tourism, one of Greece's chief industries. Plus, let's face it, no one is going to lend the Greeks money or buy their debt for some time to come at anything like decent rates, so they might be better off just wiping the slate clean with a bankruptcy and starting fresh.

Not only that, but if the Greeks are smart, they will institute their own form of austerity reforms. The costs of government is nearly half of Greece's GDP right now (49.3%). A great deal of money could be saved simply be revaluing civil service salaries and pensions in drachmas instead of euros at a government set exchange rate that could be far less than the actual market rate.

There's an interesting lesson to be learned here, with an example from the other side of the Mediterranean.

In 2004, Israel was faced with a similar financial debacle, made even worse by the high cost of Israel's defense needs. At that time, Greece actually had a higher per capita GDP than Israel did and was arguably in much better financial shape overall.

Over the last ten years, the story has changed considerably.Greece's per capita GDP has actually shrunk in terms of 2004 dollars, while Israel's has grown by a whopping 50%. Unemployment in Greece more than tripled, from 8.4% in 2002 to 26.5% in 2014, while unemployment in Israel dropped by more than half from 12.8% in 2002 to 5% in 2015.

In 2004, both countries had a similar proportion of their GDP needed to service their debts, around 94%. Since then, however, Greece's has shot up to 177.2%, while Israel's fell to 68.8% and dropping in the same period of time. Israel's current credit rating is A+ with S&P, with no credit rating company rating them below A. Investors are flocking to invest in Israel, and the country's economy is projected to grow this year by over 3%.

Greece's credit is rated by all credit rating companies at CCC- by Standard and Poors, the lowest possible rating, with no credit rating higher than CCC. Foreign investment is negligible, and the economy is actually shrinking.

So what happened? It's simple, really.

Between 2002-2007, Greece borrowed lavishly on its EU credit card and used the money to increase government size and expenditures (at one point, it seemed like almost everybody worked for the government). They 'invested' in building projects fronted by the well connected and bought votes in the form of more social welfare "benefits" for the public they couldn't afford, like those famous pensions from the age of 57. Meanwhile, raising taxes and producing red tape to try and match expenditures with income and add more revenue made Greece a poor place to invest and do business in. Greece was rated 84th in the world in the most recent Economic Freedom of the World Index. Greece, to put it bluntly, is a prime example of why the EU is eventually going to come apart at the seams.

Without access to rich Uncle IMF or the ECB, Israel solved its situation by doing exactly the opposite Greece did, with self-imposed austerity programs, privatization, cutting government red tape to encourage Israeli entrepreneurs and cuts in government spending.Many of these reforms were carried out under the present Prime Minister, Benyamin Netanyahu when he was Israel's finance minister. Essentially, these reforms got Israel out of its financial mess by weaning Israelis away from the quasi-socialist system that created the mess in the first place.

So how is what's going on in Greece relevant to America? As a warning.

The United States isn't in Greece's position, at least not yet. But we're traveling on the same road...just give us time. Right now, our debt to GDP ratio is 101% and increasing. Growth is stagnant, inspite of thefairy tales being spun in Washington. Moreover, we also have a metastasizing government, and billions in unfunded social welfare mandates and pension obligations...and to the aggravate the situation, the Obama Administration no longer enforces our borders and is allowing millions of people to come here and stay illegally to add to those unfunded, budget busting social welfare mandates. As Europe has discovered, the majority of these migrants will be tax dollar recipients rather than tax paying contributors.

Like Greece, we also have a government that likewise strangles entrepreneurship with high taxation, arcane and costly regulations, red tape and diktats.

And the reckoning could be closer than we think. What if foreigners stop buying our debt, or demand a higher interest rates because our debt lowers our credit rating again? Suppose China or the Arabs decide they need a few billion to spend at home or that America simply isn't the investment they thought it was and engage in a massive sell off? What if a major American bank goes under because a Chinese or EU bank whose paper they hold had a major stake in Greece or derivatives based on those securities? Given what's been going on lately with the Chinese stock market, that's hardly an unlikely scenario.

Even if nothing like this happens, one thing is certain. It's only a matter of time until we run out of running room and other people's money. We're not too big to fail, and if we continue on this road, we will eventually get into Greek territory.And there's no one to bail America out, at any price.

The old saying from Homer's Odyssey is 'Beware of Greeks bearing gifts.' In this case,the warning we ought to take from Greece is no Trojan Horse, but a gift we shouldn't refuse.

Greece, Italy, Portugal, Ireland Who? EU Gifts Egypt's Islamist Regime $6.5 Billion In Grants

Believe or not, fiscal crisis or not, the EU is itching to fund the Islamist government in Egypt:

European Council President Herman Van Rompuy, visiting Cairo, said on Sunday the European Union and other financial institutions had offered Egypt over 5 billion euros to support Egypt's democratic transition.

"The European Union and associated financial institutions have offered an amount of more than 5 billion euros, or more than $6.5 bln, in grants, concessional loans and loans for a period of 2012 and 2013 to support Egypt's democratic transition," Rompuy told reporters

Well, I'm sure that makes the Greeks, Italians, Irish, Spaniards and Portuguese feel all warm and cozy inside...as well as the citizens of the other EU countries now suffering under harsh austerity budgets.

Unbelievable.

The Greek Elections: Kicking The Can Down The Road

Well, the Greeks have voted and the result is essentially indecisive.

The New Democracy Party,which favors staying in the euro and adhering to the bailout's austerity measure eked out a narrow win, but by no means enough to form a government.They appear to have won 127 Seats, with the left wing Syriza,party,which favored going back to the drachma and using the bailout agreement for toilet paper getting 72 seats. The PASOK Party, which is somewhat close in ideology with New Democracy got something like 32 seats.

A New Democracy-PASOK coalition would be enough to govern...but it appears to be 'complicated'.

First,PASOK's leadership refused to join the government unless Syriza was part of it as a unity coalition. Later, they seem to signal that they might join, but without any ministerial portfolios.

Here's what's behind it.

Greece's economy is in dire condition and on the verge of collapse. During the past three years, Greece’s GDP contracted by 16% and is expected to shrink another 7% this year. Unemployment has risen to 22%.

As a result of the dire condition of the economy, Greece’s public finances and outstanding public debt are much worse shape than the IMF projections earlier this year, tax receipts are declining and the Greek government faces major payment arrears on money that needs to be spent simply to keep the government going.

The IMF will almost certainly demand further cuts in public spending as a condition of making its next loan disbursement which is politically unsustainable..there's absolutely no way parliament will approve them.

The markets may initially react favorably as they did with Spain, but reality is going to set in shortly.

Greece will likely default on its debts and be out of the euro before 2012 ends. The economy is simply too bad, the debts too high . And there are simply no further cuts the Greek public will accept and no further concessions the IMF and the eurozone are going to be able to offer, especially since Spain and Italy are going to need to be dealt with.

The EU is likely headed for a deeper recession, and it remains to be seen what the effect on America and other world markets will be.

Eurozone Ministers Agree To Second Greek Bailout

The final deal has been hammered out, and the euro zone ministers have finally agreed to the conditions for a second Greek bailout. In exchange for a new loan of over 130 billion euros, the Greeks are going to have over 107 billion euros worth of debt written off.

Greece will also have to agree to the following tough conditions, with the goal of getting Greece to reduce its debt to a mere 120.5% of GDP by 2020:

Private holders of Greek debt are going to take a 70% 'haircut' on the value of their bonds, equivalent to 70 cents on the dollar.

Greece's economy will be subjected to permanent monitoring by euro zone monitors from the EU, the IMF and the ECB on the ground in Athens. In other words, Greece is essentially not in control of its own economy any longer.

The Greek constitution will be amended to give priority to debt repayments over the funding of government services

Greece will set up a special account, managed separately from its main budget, that must always contain enough money to service its debts for the coming three months

Essentially, the euro zone has 'purchased' Greece in exchange for lending them the money they need to pay their debts.

The deal reflects the schizoid nature of the euro zone on the matter. On one hand,they'd like to be rid of Greece, so they came up with conditions almost impossible to meet. On the other hand,they're afraid that if Greece defaults and skips put of the euro zone, it will give other countries like Spain, Portugal, Italy and Ireland similar ideas.

The Greek parliament is expected to vote on the bailout tomorrow.Personally, I think they'd be far better off simply defaulting,going back to the drachma and starting over fresh. No one is going to lend Greece any money or buy its bonds for some time anyway, so it's not like the country's credit ratings matter.And a number of Greeks see it that way.

"The funds that are coming in are not staying in Greece, are not being invested in Greece, are not here to help the Greeks get out of this crisis," Constantine Michalos, president of the Athens Chamber of Commerce and Industry, told the BBC.

"It's simply to repay the banks, so that they can retain their balance sheets on the profit side."

Yes...and also to provide the EU time for the euro zone to build greater firewall protection around its banks and reduce their exposure when Greece eventually defaults, as well as around other potentially vulnerable countries like Spain and Italy.

In a reversal of that old saying, it's the Greeks that need to beware of foreigners bearing gifts.

Germany Drawing Up Plans For Greece To Default And Leave The Euro

It seems Germany is finally ready to pull the trigger now that it's obvious Greece is likely to default on its debt with or without a second eurozone bailout:

But the severe austerity measures being demanded have caused such fury in Greece, and the cuts required are so deep, that Wolfgang Schäuble, the German finance minister, does not believe that any government would be able to implement them.

His pessimism has been tipped into despair with a secret European Commission, Central and IMF report that even if Greece made good on its promises, it would not be enough to reach the target of bringing total debt to 120 per cent of GDP by 2020.

"He just thinks the Greeks cannot do what needs to be done. And even if by some miracle they did what has been promised, he - and a growing group - are convinced it will not pull Greece out the hole," said a euro zone official.

Of course it won't...and it was never really intended to. That became obvious after the first bailout failed. Greece agreeing to reforms in exchange for billions of euros was one thing but implementation was always the problem, just as it's likely to be after another bailout. Demonstrations and riots in the streets, high unemployment, strikes, an unwilling bureaucracy and a power struggle as different politicians play football with the unrest all make Greece an unlikely candidate for instituting the reforms called for by what Greeks refer to as 'the German diktat'. At least one Greek politico is using stories of the Greek resistance against the Nazis as a rallying point.

Even if the Greeks did manage to implement all the reforms properly, the euro zone's own figures now show it would still fall short, with debt likely to total 129 per cent of GDP in 2020.

None of this was any secret even before the current crisis. However, the kabuki was needed because there are certain legal problems with kicking Greece out of the euro zone.Unless the country fails to honor its agreements to implement reforms and pay back its creditors as agreed. So the solution is to hold out the carrot of another bailout while asking for reforms that are impossible to implement and debt service levels that are unsustainable,nicht wahr?

Under the current austerity demands, 20% of Greek civil servants are going to lose their jobs, a substantial rise in unemployment where a major percentage of the country's labor force works in the public sector and unemployment is already at over 18%. The minimum wage would be cut sharply, public sector salaries would be slashed even further,pensions reduced, taxes raised and the defense budget slashed to the bone.

No Greek politician wants to have him or herself associated with this.

In Greece itself there have been widespread increases in crime. Greeks are heading into the national forests to cut firewood to get them through the winter, and a barter economy is becoming common in some parts of the country.Greece's National Gallery has already been burgled, and a gang of armed thieves looted a museum in Olympia on Friday, stealing bronze and pottery artifacts for sale. Meanwhile, many Greeks, especially those 25 and under with educational qualifications or practical skills like plumbing or electrical work are leaving the country, because there simply aren't any jobs to be had.

In a very real sense, the country is already bankrupt. And even many Greeks are saying what's been obvious to me for quite some time. They'd be far better off defaulting on their debts,going back to the drachma and starting fresh. No one is going to lend Greece money or buy their public debt anyway for quite some time.Provided they make necessary reforms, reign in corruption,cut the public sector sharply and take steps to make Greece a preferred place to do business, getting out from under the euro might be the best thing that ever happened to them.

The country still has its gorgeous climate and its picturesque beaches, islands and scenery, and if they can manage to get their current law and order problem under control Greece has the potential to become a major tourist mecca for all budgets. In fact, tourism accounts for about 20% of the country's GDP right now as it is.

Greece also has its fishing industry, its shipping industry with the largest merchant navy in the world and the possibility of increasing its market share in commodities like olives and olive oil, tobacco, cotton and other agricultural products due to the reduced labor costs. And a fresh start might even encourage high tech companies to start making things like computers, cell phones and silicone chips in Athens.

The real downside of Greece defaulting is more of a problem for Germany, France and the other members of the euro zone. Once countries like Portugal, Italy, Spain and Ireland see the Greeks getting away with walking away from their debts, they're likely to make a move to do so too.

Athens On Fire

Under severe pressure by Germany and the other EU nations, the Greek parliament finally agreed to the harsh austerity program the EU demanded in exchange for yet another €130bn bail out:

( Greek PM)Mr Papademos warned earlier the €3.3bn package of cuts was “the only alternative to a catastrophic default ... that would force Greece, sooner or later, to leave the euro.”

“The social cost of this package is limited in comparison with the social and economic disaster that would follow if it is not adopted,” he said.

Lawmakers voted 199-74 in for the cutbacks, but with heavy dissent among the two main coalition members.

In response, the Socialists expelled 22 members and the conservatives expelled 21 lawmakers, reducing their majority in the 300-seat parliament from 236 to 193.

Intense rioting broke out in Athens as the new of the vote circulated, and has reportedly spread to the islands of Corfu and Crete, the northern city of Thessaloniki and towns in central Greece, the worst hit town in that part of the country being Volos, where the town hall and other buildings were burned to the ground.

Among other things, the new cuts call for cutting one in five civil service jobs and slashing Greece's minimum wage by more than 20 per cent.In exchange, as part of the new bail out package Greek bond holders agree to take a 'haircut' of 70 per cent of the value of their holdings.It will be years before anyone buys Greek bonds again.

In Athens,crowds of rioters set bonfires in front of parliament and only squads of dozens of riot police formed lines kept them from making a run on the building. The police fired fired dozens of tear gas volleys at rioters, who attacked the police with firebombs and chunks of marble broken off the fronts of luxury hotels, banks and department stores.

Masked rioters also attacked a police station with firebombs and stones.

Streets all over Athens were strewn with stones, smashed glass and burnt wreckage, while terrified passers-by sought refuge in hotel lounges and cafeterias.Looting was wide spread as shop windows were smashed, with the police occupied in guarding Parliament,City Hall and other public buildings.

Money quote from one rioter via Twitter: "I hate the deal. Maybe if I wreck this city I can get a job in construction building it up again."

U Turn: Papandreou Cancels Greek Referendum On EU Bailout

After being summoned to an emergency meeting with Nicolas Sarkozy, French president, and Angela Merkel, German chancellor, Greek PM George Papandreou announced that a planned referendum in Greece over whether to accept the additional austerity measures demanded by the EU as part of a second €130 billion bailout had been canceled.

Papandreou had announced the referendum after wide spread opposition to the new measures, but it provoked outrage among EU leaders who threatened to cut off all EU funds to Greece.

Without the funds from the EU, Greece wouldn't have been able to pay more than 700,000 public sector workers and more than 2 million pensioners at the end of November.Reportedly, the Greek government has already started postponing payments to suppliers.

In a meeting with his cabinet after his talks with Sarkozy and Merkel, Papandreou had offered his resignation, but it was withdrawn after the opposition New Democracy conservative party came aboard and said they would back the new measures in order to keep Greece in the eurozone.

Papandreou said: “We had a dilemma: consensus or a referendum ... Failure to back the package would mean the beginning of our departure from the euro. But if we have consensus, then we don’t need a referendum.”

How this is going to fly with the Greek electorate is another story.

Civil servants are going to mount another anti-austerity protest outside parliament on today, with officials from their union, Adedy, complaining that the latest round of pay cuts had reduced average public sector salaries by more than 20 per cent.

“We will send the message to the government that we have reached the limit of what we can take, “ a union official said.

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EU Gives Greece An Ultimatum - Accept Our Terms Now Or Leave The EU

The EU is not at all pleased with Greek PM George Papandreou's decision to hold a popular referendum on whether to accept the austerity terms the EU wants in exchange for a second bail out.

They gave Greece what amounts to an ultimatum...either accept the terms now or leave the eurozone.

"Does Greece want to remain part of the euro zone or not," German Chancellor Angela Merkel said. "That is the question the Greek people must now answer."

French President Nicolas Sarkozy said the Greeks would get no more euro-zone rescue aid—"no French taxpayer money, no German taxpayer money"—until they answer. Greece would go bankrupt without the aid in a matter of weeks.

The Eurocrats are angry because they were under the impression they had a deal. Instead, Papandreou went back home, saw how deeply unpopular the new terms were with his own party and the Greek people and decided he needed the cover of a popular referendum, which he says can't be put together until December 5th at the earliest, which would take Greece over the brink. So the EU is essentially demanding that there be no referendum,which isn't going to happen.

If the EU insists on this course of action, Greece will simply default on its debt and start from scratch, leaving the other eurozone members holding the bag

The problem for the eurozone is that if the other troubled members like Ireland, Portugal, Italy, and Spain see Greece defaulting and going back into the drachma, they're going to do exactly the same thing and flee back to their own currencies after defaulting on their debt.

And the entire rotten edifice could come tumbling down, with major repercussions for world financial markets.

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Greeks Rebel: Eurozone Bailout Hangs By A thread

The Eurozone bail out cobbled together last week is hanging by a thread and has sent stock markets world wide tumbling as a result.

In view of the vast civil unrest that accompanied the last austerity measures, Greek PM George Papandreou wisely decided to hold a referendum in parliament to get support for the new measures the EU is demanding as part of the current proposal.

And it unfortunately hasn't gone well. Papandreou's socialist Pasok party is shedding support from its own members over the new austerity measures, and it's doubtful whether Papandreou even has a simple majority anymore in the 300-seat parliament. A vote of confidence is planned for Friday, which might even end up with Papandreou being ousted and the country going to early elections.

In view of this, Papandreou announced that Greece would hold a popular referendum in January on whether to adopt the new spending cuts and austerity measures. So far, the polls show that the vast majority of Greeks are against them.

If Greece does not approve the new austerity measures, the EU won't release bail out funds from the EFSF, which means that Greece would default on its sovereign debt. Essentially, a vote against the austerity measures would be a vote against the euro and in favor of bringing back the Greek drachma.

From Greece's personal standpoint, they might actually be better off. Even the current 130-billion-euro bailout and 50-percent write-down on its debt only gets Greece to a debt level of 120% of its gross domestic product(GDP), which is like restructuring your debts down to $2,400 per month when you only have an income of $2,000. And that's the best case scenario.

The country's credit would be shot, but it already is anyway, and at least they could devote what there is of Greece's resources to the country's actual expenses instead of debt service.

The big losers would be the other members of the eurozone ( especially France and Germany) , who would get stuck with the worthless debts from the earlier Greek bailout and would then almost certainly face a whole slew of countries defaulting as the entire rotten structure collapsed.

Since chaos tends to spread,the effect on US and foreign financial markets can hardly be expected to be good.

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The Chinese Agree To Bail Out Eurozone..In Exchange For..

China has cleverly agreed to help the EU out of the pit it dug for itself...but with certain conditions.

They obviously want financial guarantees on their investment. What they also want is in essence a silent veto on criticism or opposition to China's policies, like its opposition to sanctions on Iran, any disagreements with the US or China's currency policy, which artificially undervalues the renminbi to support Chinese exports at the expense of western producers.

If they get that, China could be willing to throw substantial amounts into the EFSF, the EU's bailout fund. Another possibility that's being looked at is a new fund set up under China's auspices in collaboration with the IMF.

French President Sarkozy is already prepared to take China's terms. “Our independence would not be put into question by this,” he said in a television interview. “Why would we not accept that the Chinese had confidence in the eurozone and place a part of their surpluses in our funds or our banks? Would you rather they placed it with the US?”

If President Sarkozy seriously thinks the EU's independence won't be compromised by a deal with the Chinese, he's in for a rude awakening.

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The EU's Big Fat Greek Bailout

The EU leaders, led by Germany's Chancellor Angela Merkel and France's President Nicholas Sarkozy have reached a deal for a second Greek bailout.

The deal involves a new €130 billion bailout of Greece by the European Union and the International Monetary Fund (which means American taxpayers are going to take a bite of this particular sandwich), and acceptance by current Greek bond holders of fifty percent of face value and a increase in the EU's bailout fund to over €1 trillion.

As Chancellor Merkel announced with a straight face, the goal of all this manipulation is to get Greece's debt down to - wait for it - a mere 120% of the country's gross domestic product by 2020.

President Sarkozy announced that he would hit up the Chinese to see if they're willing to pony up any cash to help in supporting the fund.

A number of details remain deliberately vague, which was probably the intent to get some kind of consensus and just try to muddle through somehow.

For example, under the terms of the deal, Greece agreed to pay €15 billion back into the EU's bailout fund, the European Financial Stability Facility(EFSF). The money is supposed to come from additional revenues raised by a vast Greek privatization plan, which would see a lot of functions currently run by the government go into private management.Unfortunately, the international monitors have already reported that Greece isn't going to be able to come up with the €50 billion for the EFSF from privatization it already pledged earlier this year, and this new €15 billion is supposed to come on top of the money the Greeks have already been unable to pay back.

The most inadvertently hilarious quote on this particular item came from Yves Leterme, the Prime Minister of Belgium, a country not exactly noted for its sense of humor. When he was asked by reporters whether adding another €15 billion to Greece’s expected pay back to the bailout fund out of expected revenues from privatization was realistic when the Greeks couldn't come up with the €50 billion from privatization they'd already committed to, he replied: “This element was not a necessity for Belgium.”

Another interesting bit that promises future fireworks came from George Osbourne, Britain's Chancellor of the Exchequer, the equivalent of America's Secretary of the treasury.He's claiming that Britain (which is already in financial straits) won't pay into the bailout fund out of its its IMF contributions. Moreover, he doubled down and is insisting that the IMF's mandate doesn't allow any cash to go into the bailout fund. Since there's no other place the money can conceivably come from except perhaps the Chinese, this is another of those little details that looks like it's being left to work out later.

Another problem with all this has to do with the internal problems of Greece itself.The EU has apparently realized belatedly that the country is one of the most corrupt in Europe, has a poisonous investment climate, a government fully prepared to cook the books and and little besides tourism as a source of revenue. So Chancellor Merkel is demanded the EU put what she describe as 'monitoring' in place to try and make some kind of order out of this.

"There will be a reinforced monitoring regime in connection with the fulfillment of the Greek obligations," she said.

"That will be anchored in a memorandum of understanding. There will be a permanent presence there. It will be possible to monitor the measures taken by Greece. I think that this is better than when every three months a 'troika' travels there and back, a permanent system of supervision."

Viel glück damit, Madame ReichsKanzler.

If this all seems like simply kicking the can down the road, I couldn't agree more. And that's going to become even more obvious when further bailouts are needed for countries like Spain, Ireland and Portugal, among others.

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Germany's Merkel Says Nein On Eurobonds

This is one of those stories of huge importance that usually slips under the radar of the news cycle.

As you remember, I reported about two weeks ago on the stiff opposition in the Bundestag over deals that were made in Brussels back in July to bail out some of the failing members of the Eurozone...much of it coming from Chancellor Angela Merkel's own Christian Democratic Union party.

The heart of the deal was the use of eurobonds to bail out financially troubled countries countries like Greece and Portugal, because the eurobonds would have interest rates lower than the government bonds of those countries, thus allowing them to to reduce their debt-to-GDP ratios.

The only catch ( and what the Germans strongly objected to) was that the eurobonds would be based on Germany's credit rating, thus subsidizing the government spending of these other countries at Germany's expense.

With the export dependent German economy stagnant at 0.1 percent growth in the June quarter and both parties in her ruling coalition revolting, Chancellor Merkel was faced with an unpleasant choice. Either she scrapped the Eurozone deal, in which case either negotiations would resume or the Eurozone would crumble with every man for himself. Or she would have faced cutting deals with the Left wing opposition parties, the Social Democrats and the Greens to get the deal through, which meant Merkel and the CDU would have had to absorb considerable electoral and political damage, perhaps even enough to cause her government to fall.

Well, Chancellor Merkel has made her decision, and it's a grim one for the Eurozone. Instead of issuing the Eurobonds, she announced that the emphasis is going to be on what she referred to as the “extremely difficult task” of cutting debt and raising competitiveness in member countries, rather than issuing joint bonds:

“Politics cannot and will not simply follow the markets,” she told German public television on Sunday in her first interview after returning from holiday a week ago. “The markets want to force us into doing certain things – and that we won’t do.”

[...] Ms Merkel told ZDF television that “solving the current crisis won’t be possible with eurobonds” as the crisis had been brought about by investors losing confidence in the ability of member states to achieve enough growth to pay off their debts.“That’s why eurobonds are not the answer,” she said, exhorting eurozone members to go on tackling the financial markets’ crisis of confidence “at the roots” – by improving competitiveness and economic growth, and aiming to cut excessive debt.

“The ’debt union’ has to be replaced by a ‘stability union,” she said. “This is a hard and arduous path, which we will not be able to avoid by means of some magic bullet, like issuing eurobonds.” The latter could even lead further into a “debt union”.

Well, she's right, especially from the German prospective. The answer to out of control debt is not more debt, something the current occupant of the White House seems not to understand. And in another lesson in basic econ for our fiscally challenged president, 'new revenues' (the rest of us call them by their right name, taxes) aren't the answer either. At this point,most of the eurozone countries have everything the Democrats drool over - high energy taxes, high VATs, high personal and corporate income taxes, huge taxes on property, costly regulations and a welfare state gone amuck. All those 'new revenues' haven't kept pace with government's desire to spend other people's money.

But while Merkel has the right ideas, the timing is a bit late. The problem is that her solution is not going to be able to be implemented overnight, especially given the massive resistance to be expected in certain quarters to the kind of cuts that are going to be necessary. Had measures to cut welfare state spending and increase productivity been put in place a few years ago, it might have had a chance. As it is now, the eurozone is already on life-support from the European Central Bank...and time is one thing it doesn't have.

The situation in the eurozone is exactly where America is heading if we don't change course quickly.

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