Expanding the EFSF: the European Financial Stability Facility, has just hit a wall as the Slovakian parliament refused to support it. The Slovakian government coalition has fallen apart as a result, smashed on political rocks that have nothing to do with Slovakia. You can be sure that Berlin will approach whoever is next in charge and start issuing demands.
The argument in Slovakia was simple--that there was no reason why a poor member state of the EU should be forced to pay for policies over which it has no control. And they are right in principle. Forcing Slovakia against its will to pay for Greece was not only questionable on the grounds of economic fairness, but on democratic grounds as well. Slovakia has no democratic control over the bills that are being run up in Greece. If it accepted demands that Berlin should dictate its foreign policy and its budget policy, then the German plans to eclipse democracy in Greece would start spreading north.
What all of this shows is that Germany (and France and the Netherlands) have become terribly attached to saving Greece at any cost. And that is precisely the problem, because the costs are not bearable. Haircuts are needed, i.e. a partial default that will limit the liabilities that taxpayers are expected to bear. This is doubly important because no one in their right minds believes the liabilities will be limited to what we know now, either in Greece or in other countries.
When you become too attached to one single outcome, and here it is the all-or-nothing approach to repayment you distort reality and your ability to deal with the real world. You develop, as any armchair crime investigator knows, pathological personality traits that start hurting yourself and everyone around you. In the attempt to preserve a 100% repayment rate, Germany is demanding that we throw good money after bad. The horror of the one scenario looms so great that the even greater horror of the path they're heading down is not acknowledged.
It's like telling the troops at Stalingrad that there will be no retreat, no change in plan, a denial of the realities on the ground. We all know how that worked out.
The fall of the Slovakian government, but above all, the arguments that were made in refusing to pay further (they had already paid into the pot and said that enough is enough) is a wake-up call to Europe's creditor countries to rethink how they want to deal with the crisis, and whether they really want to start crushing European democracies to ensure that some bonds get repaid.