The German constitutional court is due to vote on the legality of the ESM (the successor to the EFSF) and the fiscal compact on September 12.
What in heck does that mean?
Well…the EFSF is the European Financial Stability Facility, of course. It’s one of those spivs…we mean SPVs…Special Purpose Vehicles…that financial engineers like to build for bureaucrats to hide all sorts of complex shenanigans (read…money printing). They figure that if it’s sophisticated enough, people will believe that it makes sense…or at least give up trying to figure it out. You can read more…if you dare…here:
http://en.wikipedia.org/wiki/European_Financial_Stability_Facility
So what is the ESM then? ESM stands for European Stability Mechanism.
Don’t you love how they come up with these solid sounding names, designed to invoke confidence and awe. We like to take the opposite definition and believe that anything deemed “stable” by bureaucrats is probably inherently “unstable” and anything that they describe as mechanical will probably break down.
But here’s a more erudite description:
http://en.wikipedia.org/wiki/European_Stability_Mechanism
Basically, from what our simple minds can gather, it’s a big bucket into which nations which are already technically bankrupt all agree to contribute funds that they don’t have, to support a cause that they don’t believe in.
The obvious stand out from the pauper crowd in Euroland is Germany, which must have its constitutional court opine on the constitutionality of contributing before it can ratify the agreement.
Germany’s ratification is critical to keep the ESM from sputtering off into the annals of bureaucratic ignomy.
What will the court rule? We don’t know much of anything about the German constitutional court but we do know that courts are not as impartial as they used to be. Obamacare anyone?
So we suspect that they will deem the ESM to be valid and legal because there is such prevailing political pressure to do so. But if they don’t, the EZ policy makers, who are already emotionally committed to spending the money (by purchasing sovereign debt in the primary markets), will have to do some mighty quick tap dancing.
So expect things to get interesting as the September 12 court decision draws near.
Victor VIX may even wake up for this one.
As an aside, things truly mechanical in Germany are slowing down as well and the German economy is borderline recessionary. If they slip across that dangerous border, the average Germans, being more astute and austere than many of their southern neighbors, will trim their spending immediately, if not sooner.
That means they will buy less olives from Greece and Spain, less wine from Italy and less cheese from France. This will not bode well for those economies that are already teetering on disaster.
Speaking of which….tomorrow…we’ll take a look at what’s coming up in September for that poster child of economic disasters…Greece.
