Germany’s constitutional court on Wednesday will had down a judgment that could well throw the world of international finance back into complete chaos. The court will rule on the legality of Germany participating in the European union’s rescue mechanism for countries that cannot pay their debts.
The hope in Europe is that the court will continue to allow German participation in EU bail-outs as long as the Bundestag is given a veto over future payments but here is a risk that it will go further and conclude that the rescue policies subvert EU Treaty law and German fiscal sovereignty and must therefore be curbed. Should that happen confidence in the joint European currency the Euro will collapse.
Confidence that the so-called second rescue of Greece will succeed is already waning with the market again demanding record high interest rates on the country’s government bonds.
For good measure, Christine Lagarde, the IMF’s managing-director, warned at the weekend that Europe and the USA should abandon fiscal austerity and switch to stimulus measures because the global economy faces a “threatening downward spiral”.
When the IMF urges more government spending we know that things are crook!