{"id":32279,"date":"2012-09-12T11:22:56","date_gmt":"2012-09-12T15:22:56","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/2012\/09\/the-german-constitutional-court-has-spoken-the-world-as-we-know-it-will-not-be-ending\/"},"modified":"2012-09-12T11:22:56","modified_gmt":"2012-09-12T15:22:56","slug":"the-german-constitutional-court-has-spoken-the-world-as-we-know-it-will-not-be-ending","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2012\/09\/12\/the-german-constitutional-court-has-spoken-the-world-as-we-know-it-will-not-be-ending\/","title":{"rendered":"The German Constitutional Court Has Spoken\u2013The World As We Know It Will Not Be Ending"},"content":{"rendered":"

By The Sizemore Letter<\/a><\/p>\n

The German Constitutional Court delivered excellent news Wednesday morning: the world as we know it will not be ending after all.<\/p>\n

More accurately, the judges rejected a petition to block German participation in the Eurozone\u2019s \u20ac500 billion bailout fund, the European Stability Mechanism.\u00a0 I don\u2019t need to tell you that the stakes were high.<\/p>\n

Had the court ruled the bailout fund unconstitutional under Germany\u2019s Basic Law, it is highly likely that the entire Eurozone would have come unraveled.\u00a0 Germany directly accounts for nearly 30% of the bailout monies pledged.\u00a0 But more importantly, Germany\u2019s leadership is what gives the entire scheme credibility.\u00a0 You remove Germany, and the entire structure falls down like a house of cards.<\/p>\n

ECB chief Mario Draghi has long cautioned that central bank operations would not be enough to save the euro.\u00a0 Ultimately, it would depend of Europe\u2019s politicians to build the institutions and take the actions needed to prevent the \u201cirreversible\u201d currency block from disintegrating.<\/p>\n

The Court\u2019s ruling further neutralizes Jens Weidmann, the President of the German Bundesbank, who had emerged as the highest profile critic of German support for the weaker euro members (see \u201cThe 5 Most Important People in the Eurozone<\/a>\u201d).\u00a0 \u00a0With the Court supporting Angela Merkel\u2019s plans, she will have wider latitude to act, at least until the next German election next year.<\/p>\n

Meanwhile, legendary hedge fund manager George Soros has weighed in on the matter, telling Germany to \u201clead or leave\u201d the Eurozone in a recent Financial Times interview<\/a>.<\/p>\n

\u201cEither throw in your fate with the rest of Europe, take the risk of sinking or swimming together, or leave the euro, because if you have left, the problems of the euro zone would get better,\u201d Soros said, adding that \u201cit is entirely dependent on Germany\u2019s attitude.\u201d<\/p>\n

It\u2019s hard to imagine Europe \u201cgetting better\u201d without Germany, but Soros has a point.\u00a0 The current German obsession with austerity for austerity\u2019s sake is making the depression condition in Europe worse.\u00a0 Germany\u2019s worries about the ECB stoking inflation during a period of record unemployment and debt deflation is tantamount to fiddling while Rome burns (or perhaps more accurately Madrid).<\/p>\n

In any event, the Court\u2019s decision removes the last remaining roadblock to what I expect to be a blow-out fourth quarter.\u00a0 As I recently wrote<\/a>, the \u201cRisk On\u201d switch was flipped with Mario Draghi\u2019s bond-buying announcement last week.\u00a0 Investors who have been sitting on the sidelines should take this as an opportunity to jump back into the game.<\/p>\n

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