Greek Fire, Part 18

The latest casualty to be burned to ashes in Greek Fire?  Germany's coalition government, headed by Angela Merkel.

Chancellor Angela Merkel, beleaguered by her handling of the Greek financial crisis, her squabbling government and disgruntlement over hardship in Germany’s rust belt, had historic losses Sunday in crucial regional elections in North Rhine-Westphalia, where exit polls suggested her coalition was trounced.

If the results are confirmed, Mrs. Merkel will lose her majority in the Bundesrat, the upper house of Parliament, which signs off on legislation and contains representatives from each of the 16 states in Germany.

That would mean that Mrs. Merkel would no longer be able to push through decisive changes. She had initiated few since taking office for a second term eight months ago because of infighting in the coalition of her conservative Christian Democrats and pro-business Free Democrats.

Just three days after British voters left their national leadership in limbo, the biggest state in Germany followed suit, punishing Mrs. Merkel’s coalition but handing little satisfaction to the opposition Social Democrats. The future shape of the state’s government was unclear. 

Results aren't in yet, but exit polling shows that clearly Merkel's government is in real trouble.  Germany's proposed 600 billion euro bailout of Greece just might have peeved the locals.  Like throwing water on the legendary unquenchable flames, the Greek Fire cannot be put out.  What happens after that too fails?  Tyler Durden's on the right track:

And once this money is exhausted which it will be, Europe will default as the playbook is TARP then immediate monetization, however without a reserve currency backstop. The EURUSD is spiking by 3 handles right now, however once traders realize that the ECB will commence printing money in earnest it will go straight down to parity. 

Marvel as the euro collapses!  The alternative?  A European central treasury to go along with the bank and the currency, and austerity measures for everyone!  Ambrose Evans-Pritchard:

But if the early reports are near true, the accord profoundly alters the character of the European Union. The walls of fiscal and economic sovereignty are being breached. The creation of an EU rescue mechanism with powers to issue bonds with Europe's AAA rating to help eurozone states in trouble -- apparently €60bn, with a separate facility that may be able to lever up to €600bn -- is to go far beyond the Lisbon Treaty. This new agency is an EU Treasury in all but name, managing an EU fiscal union where liabilities become shared. A European state is being created before our eyes.

No EMU country will be allowed to default, whatever the moral hazard. Mrs Merkel seems to have bowed to extreme pressure as contagion spread to Portugal, Ireland, and -- the two clinchers -- Spain and Italy. "We have a serious situation, not just in one country but in several," she said. 

And the Greek Fire is now going to force Europe down the same path we're on.  Over here in America, pay attention to the markets this week.  It's going to be ugly...it may turn out to be downright brutal.