The European Central Bank has given its clearest warning to date that there will be no EU bail-out for Greece if it fails to control its spiralling deficit, raising the stakes in a game of brinkmanship over the future of the euro. Jurgen Stark, the ECB's chief economist and the powerful German member on the bank's inner council, said Greece's problems are entirely "home-made" and do not meet the terms required to trigger the rescue mechanism under EU treaty law, which is limited to countries that face severe difficulties "beyond their own control". "The Treaties set out a 'no bail-out' clause, and the rules will be respected. This is crucial for guaranteeing the future of a monetary union among sovereign states with national budgets. Markets are deluding themselves if they think that the other member states will at a certain point dip their hands into their wallets to save Greece." – UK Telegrqph

Dominant Social Theme: Fiscal responsibility beckons …

Free-Market Analysis: Now the EU has thrown down the gauntlet. This could be a turning point. This is a big deal. After a gestation of 60 years, the EU powers-that-be are forcing a kind of confrontation. Perhaps they have no other choice, but that's a big deal too. It seems to us this is a kind of end game. Either the EU will end up as a kind of nation, or at least take more steps in that direction, or it will be busted.

Did you read about it in your local paper this morning?

We don't see the European fiscal crisis easing anytime soon. Countries are supposed to keep their debt down and their revenue up. If governments are spendthrift past a point, they fall out of compliance with the EU and can be kicked out of the union. This is the implicit threat under which Greece and its embattled prime minister, George Papandreou (pictured above left), is now operating. But there are other countries lining up right behind.

Greece, like Portugal, like Spain and like many Eastern European countries, perhaps, may not be capable of reining in its government spending. In such a situation, the EU will face alternatives, but these are not sterile accounting formulas. They will entail real risks and give rise to genuine anger. The money to fuel Greece's ongoing profligacy will have to come from somewhere – and somewhere means Germany and to a lesser extent other "wealthy" EU nations. These nations will actually pay to keep Greece's financial situation stable. They will make up the shortfalls so everyone can pretend that Greece et al. are in compliance.

Alternatively, the EU country-constraints – the "band" – could be made more flexible for all countries. But this would then have an effect on the euro itself which would suffer from the perception of increased financial laxity. This in itself would be a kind of tax on the wealthier, as the euro's value would erode, so we are back to square one. The choices are either support Greece and its spendthrift brethren or let it vanish gibbering into a night of debt and delusion. And the point of this article seems to be that sooner or later Greece will not have to go darkly into that good night but will be illuminated.

David Owen, Europe economist at Jefferies, said Greece was "too big to fail" whatever they may say in Germany. "They cannot let Greece go because it would set off a euro crisis and cause markets to focus the debt dynamics of the next countries in line, Portugal and Spain."

There is a view in certain circles of Germany's Free Democrats and Bavaria's Social Christians, as well as pockets of the ECB itself, that a refusal to rescue Greece would be a salutary lesson to others that breach the rules. Greece's ejection from EMU might (in their view) strengthen the eurozone. The question is whether such people will determine the outcome.

"At the end of the day, this is going to be a political decision by Chancellor Angela Merkel and President Nicolas Sarkozy," said Hans Redeker, currency chief at BNP Paribas. "The ECB is talking as if it were the old Bundesbank: in fact it is in a weaker position. Europe's leaders are not going to abandon Greece."

"What this crisis has shown is that EMU cannot function without a central fiscal authority. They will have to sort this out," he added.

See, this is a big deal. There must be a quid-pro-quo, which is the establishment of some "central fiscal authority." And so great nations are built. Only we don't think it's going to be that simple. The German on the street and the Greek on the street will have something to say about it as well. The Germans will not want to pay for the Greeks, and the Greeks won't want the EU telling them to get off the dole.

This is an inflexion point for one of the power elite's most successful and longest-running promotions. So many times the wheels have looked to be falling off, but the EU leaders have rammed through dictates that have kept the project limping along. Everybody has been bribed that needed to be bribed, and those who have not been bribed have been bullied. But as we have pointed out before, promotions such as these still rely in large part on the acceptance of the mass of humanity affected.

NOTED: At last a UK minister says it: we need to grow more food … For the first time in more than a decade, a government minister has been talking about the importance of growing food, not just to keep the landscape in good order or to provide a habitat for wildlife, but to give our countrymen and women something to eat. … Certainly, Environment Secretary, Hilary Benn's strategy, "Food 2030", is a 20-year plan of the kind beloved by Chairman Mao, complete with pictures of smiling children welcoming the new dawn. And it's a bit rich, as one beef-faced farmer at Oxford says, to court his kind after 13 years of what has sometimes seemed like active malevolence: the animal holocaust of foot and mouth, the ruination of the British pig industry when uniquely tough welfare standards were imposed, allowing foreign producers to undercut ours; the refusal to cull the infected badgers who are spreading bovine TB through the dairy herd. But there does seem to be a genuine sea-change at work here. – UK Telegraph

If the average German and average Greek won't put up with the solutions, if there is violence and it spreads to Spain and Portugal, if the violence becomes too much to handle, there is a danger that the entire program could unravel. These are the risks that the EU faces now. The next months may tell the tale.