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A United States of Europe is coming - via a revamped EFSF - whether we like it or not

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The crunch time is here again. Zarky and Merkel agreed the terms of the Greek Bailout 2.0 last night. During the course of the day we will find out more of the details as the other eurozone countries have to be presented with the results of the negotiation where France had to convince Merkel of what in practice may be political suicide. It's about legacy of Merkel, not re-election.

As usual the plans were circulated by the European Commission yesterday evening, where all owners of Greek bonds that come due in the next eight years will be urged to swap their holdings for new bonds that do not mature for another 30 years. The silly bank tax, a 0.0025 per cent levy on all assets held by eurozone banks, was scrapped as Merkel won the skirmish against Sarkozy.

The peoples of Europe may not want it but we have been lured into it since the early nineties. If not the father of Europe, then at least the son of Europe,  Jacques Delors, had a clear agenda of a United States of Europe. The people would be convinced by a European Flag, Anthem and a Common Currency. Step by step the integration should be deeper and more federal, at least that was the thought of the 90s. The idea of a common currency was so important to the political class that the implementation of it was simplified into making bank notes and the creation of a European Central Bank out of the European Monetary Institute. The fourth component of a country's control of the money was ignored - the debt office. It was deliberately forgotten. The people were not ready for the implications of a federal Europe, so it had to be done step-by-step. Soon after the euro was introduced and declared a success, the federal ideas were put aside as the winds had turned against further integration. The new euro ship had to sail without led under the boat.

The headless chicken leadership may continue this week but eventually hard decisions have to be made. And it could mean that once the yield of the 10 year bonds are declared unsustainable for Spain and Italy the political elite has no other choice than equally and totally share the burden and risk of the bonds issued in the eurozone - the birth of the European Debt Office will then take place. Merkel heavily opposes it. She knows that this means a totally different Europe with common responibility of the debt market and this can only be implemented by a common policy on revenue (tax) and expenditure - the birth of United States of Europe.

What will be presented later today is a half measure, as usual; a revamp of the EFSF. The overhaul will reduce the debt burdens of Greece, Portugal and Ireland and allow the European Financial Stability Facility to charge rates as low as 3.5%. The maturities of the loans it makes will be extended from an average of 7.5 years to at least 15 years. The EFSF will be given the power to recapitalize banks through loans to euro-zone governments—even governments that haven't signed on to a bailout program. It will also have the power to intervene in secondary markets for euro-zone sovereign debt, based on analysis from the European Central Bank and unanimity from the countries that participate in the EFSF.

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