Schengen, on the border of Germany, France and Luxembourg, 07.30am

It is not the numbers in the Berlin vote that matter today. The vote will pass, the European Financial Stability Facility (EFSF) will be ratified. What is telling is that Chancellor Merkel is close to having to rely on the opposition.
I’m on the way there from Luxembourg. We passed the spot symbolising the most tangible dissolution of Europe’s internal borders, Schengen – the tri-border between Luxembourg France and Germany.

It seems fair to fear further splits between France and Germany over an extra haircut to Greece’s bond bankers. They seem close to signing up for a 21 per cent voluntary snip. New numbers emerging from Greece have opened up the possibility of a bigger haircut from Germany and the Netherlands. France, and the Frankfurt-based ECB fear its impact on the markets.

But Greece is just one problem. The bigger picture is that markets seem to have factored in the expectation of a fivefold increase in the size of the bailout fund that is being ratified by Germany’s politicians today.

Well, I had the exclusive pleasure of attending the EFSF in its Luxembourg offices yesterday,  where the secretary general of the EFSF showed me round an institution at the absolute epicentre of this ongoing financial crisis.  It is run by just 15 people (you can see my report here).

For some, the EFSF is the only solution, for others an embryonic finance ministry for Europe.  Its detractors fear the danger of  spreading the crisis north  from the Mediterranean.

The expansion of the EFSF to €780bn worth of guarantees from Europe’s most solvent nations is being voted on in Europe’s parliaments including, crucially, Germany today.

That will allow some €440bn of emergency lending at German-style low rates. Not just to the governments of Portugal Ireland and Greece, but also for the banking systems of non-bailed out countries such as Italy and Spain that might suffer from any Greek default.

But the fear is that is insufficient to cope with wider problems and stop the rot… So the US and others in Brussels are advocating using the €440bn as core funding to lever in five times as much – over €2tr.

It’s this American idea that the German finance minister has now called stupid, ruling it out as he tried to reassure rebelling government MPs in Berlin.

But it’s the very idea that led to this week’s stock market and banking rally. Either the German minister  has “misspoken” or the markets are in for a very rough ride.

Follow Faisal on Twitter: @FaisalIslam