The Greek government's macroeconomic assumptions
also seem overstated when compared with EU estimates.

The German shift underscores Merkel’s attempts to
steer clear of any commitment to a Greek bailout and risks scuttling
European Union efforts to establish a contingency plan for the
debt-strapped nation. Merkel used a budget speech in parliament in
Berlin today to caution against “overly hasty” pledges of financial
support.

While EU leaders on Feb. 11 pledged coordinated
action to safeguard financial stability in the euro area, they’ve yet to
spell out aid plans for Greece. Juncker said March 15 that the
euro-area group of finance ministers he heads “clarified the technical
arrangements” to enable action.

“The problem has to be solved from the Greek side
and everything that is being considered has to be oriented in that
direction,” Merkel told lawmakers. “There’s no alternative” to the Greek
government’s measures to cut the deficit, she said.

Therein lies the problem. It can't be solved from the Greek
side in the near term without a default or devaluation. Even then, we
are talking a very deep recession. Greece's remedies appear to lie
outside of the EU, and Greece is not alone, either.

EU Warning

Merkel was speaking as the EU warned that a dozen
member governments, Germany among them, risk missing their deficit
targets. Greek Prime MinisterGeorge
Papandreou, whose government has pledged to narrow the
euro-region’s biggest budget deficit, met with European Commission
President Jose
Barroso in Brussels today.

Fair not, dear reader. I will have similar analyses of
Italy, Spain, Ireland, the UK and German coming up next. Germany is in
more hot water than many realize, as is much of the EU. I may even be
able to release the Italian analysis tomorrow.

“Greece is a member of the IMF and should avail
itself of IMF aid first,” Frank
Schaeffler, deputy finance spokesman in parliament for the Free
Democrats, said in an interview. “I think this is the right instrument
but it’s the Greeks who hold the key to it.”

‘Solve Their Problems’

Any IMF involvement would signal an about-face from
Finance MinisterWolfgang
Schaeuble’s position of March 17, when the Welt am Sonntag
newspaper cited him as saying that accepting IMF help would be an
“admission that the euro countries can’t solve their problems by their
own means.”

It's not an about face! He is actually admitting in public
"that the euro countries can’t solve their problems by their own means.”
He did not recant his original statement. The positive spin to this
story is showing.

Juncker, who is Luxembourg’s finance minister and
prime minister, said March 5 after meeting with Papandreou that there’s a
need for “technical assistance from the IMF” without the fund “taking
the lead.” The previous day, European Central Bank President Trichet
said “I don’t trust that it would be appropriate to have the
introduction of the IMF as a supplier of help.”

For that would relegate Greece to the level of emerging
market and third world nations that needed IMF assistance, at least in
the eyes of many speculators.

Standard & Poor’s affirmed Greece’s
investment-grade BBB+ rating yesterday and dropped the country from
“creditwatch negative,” saying the budget cuts “were appropriate to
achieve” the goal of cutting the EU’s biggest deficit to 8.7 percent of
gross domestic product this year from 12.7 percent.

Standard and Poors also rated many subprime CDOs and MBS
AAA as well!

“The Germans see the same thing that all of us see:
that at the end of the day, they’re going to be part of the solution
and it’s going to cost them something,” said Paul
Hofheinz, president of the Lisbon Council, a Brussels research
group. “When push comes to shove, I don’t think anyone doubts that the
Germans will be part of this settlement. But why should they play easy?”

They are going to pay for Greece's woes, actually for the
ill-prepared construction of the EU, regardless of whether they send
funds to Greece or not. A Greece failure will reverbrate through the EU
one way or the other.