You only have to check out the state of quotes coming out of Europe this weekend to have a good feel of the current reality of the bail outs for those already bailed out.  The pressure to fix the Greek situation before they default, is causing economic fear to become obvious.

The EuroGroup & the ECB no longer agree to fake a working relationship anymore.  This has serious implications for the stability of the Euro area, let alone the EU area.  This is a significant change in public politics, even if no one is actually surprised by where things are today.

The following quotes are from the WSJ

“We can’t push through a private lender participation without and against the ECB,” Mr. Juncker said.

“If Greek policies continue as they have in the first six months [of this year], then they won’t reach the budget target,” he said, adding that any additional aid would be linked to very strict conditions.

And this quote about leaked letters, as sides sound each other out from another article in the WSJ

“We also had the letter leaked from Schäuble, the minister for finance in Germany, about the wider issue of the euro zone,” Mr. Rabbitte told Irish broadcaster RTE Radio. “We are in a euro-zone difficulty and Schäuble’s letter seems to indicate to me, to any extent, that the Germans want to see that addressed—that it is in the interest of their own economy.”

Ireland’s Mr Rabbitte on governments working with the European Central Bank

“The stance of the ECB has been very entrenched and very, very difficult from the point of view from the entire threat to the euro,” Mr. Rabbitte said. “The European Central Bank has to be more concerned about more than inflation—but the patient work going on behind the scenes looks like there is some way to go yet.”

When you add to those quotes, these

“there will not be a total restructuring of the debt and goverments agree on this point, even though we will not have the ECB’s support”. He added that “a soft and voluntary restructruring is needed” …

It appears that the EuroGroup and Germany are working in a direction that will cause the European Central Bank to need a bail out of its own, my guess would be a recapitalization of the ECB by December 2012.

The ECB has decided to reply to the political pressure, by increasing the underlying cost of the current bail out packages, by adjusting its own internal interest rates.  Or said differently, Trichet has seen Junkers bluff, and raised him an increase in borrowing costs via the use of a rate increase in July.

Businessweek has these quotes

“When we solidly anchor inflation expectation in the euro area as a whole, we are anchoring stability and also anchoring confidence,” he said. “It’s good by definition for all countries.”

When asked about designing a bond swap that does not include a default, he replied

“We are not designing anything,” he said. “It’s the responsibility of governments.”

Bloomberg reports his comments as following

Latest data confirm “continued upward pressure on inflation” and “strong vigilance is warranted,” Trichet said. “It means that we are in a mode where there might be in the next meeting an increase of rates, but we are never pre- committed. We are not signaling any particular pace for the next decisions on our interest rates.”

“Risks to the medium-term outlook for price developments remain on the upside,” Trichet said. “It is of paramount importance that the rise in inflation does not translate into second-round effects in price and wage-setting behavior and lead to broad-based inflationary pressures.”“We are not in favor of restructuring, haircuts and so forth,” Trichet said. “We call for avoiding all credit events and selective defaults. We exclude all elements which are not voluntary.”

Asked if the ECB would roll over its own holdings of Greek government bonds if private investors agree to such a move, Trichet said: “It is certainly not our intention.”

The ECB has clearly removed itself from the big game.  Who’s drawing a line in the sand next?