The German Federal Constitutional Court in Karlsruhe had a chance today to ensure the survival of the Eurozone. The judges, wearing their traditional red robes, rejected six calls to block Germany’s participation of the €500 billion European Stability Mechanism. The fund will be a permanent €500 billion facility and Germany will cough up €190 billion and the court limited Germany’s participation to that amount which was previously granted from parliament without approval of the Bundestag.
The ECB announced its limited but unconditional bond buying bazooka and now the FCC in Karlsruhe cleared the way for the €500 billion ESM. Euro bulls are very pleased and send the Euro rallying this month. The Euro has rallied over 800 pips from its lows early this summer amidst hope that the ECB decision to finance state governments together with the German participation in the permanent ESM would be what was needed in order to curb the Eurozone debt contagion.
The moves seen in Euro strength as well as the global market rally will be short-lived. It was a nice move in the summer doldrums and the bulls have had a great time. Now that the NFL season kicked-off we all love a great BBQ and nothing screams more BBQ than fresh beef. The bulls ran all summer long straight to the slaughterhouse and are ready to be butchered by the bears.
The core problems have not been addressed. The only thing politicians as well as the ECB have accomplished is to waste more money. Yes, they have bought some time and the bulls stampede all over the time gained. The time gained only delays the inevitable event of collapse unless the core issues will be addressed. In case this represents the long awaited end-game traders awaited then this will lead to the collapse of the Eurozone economy.
Greece has not agreed on the required budget cuts, Spain has not officially asked for a bailout which will drain the €500 ESM and Italy is next on line right after Spain to tap into the free cash before it will be all burned on socialistic inspired stupidity. The EU will pay a very high price for this mistake and the German Constitutional Court will bare huge responsibility for their negligence. They should have blocked Germany’s participation in the ESM which would have crumbled the fund and forced real change.
Since the Germans are on board now as they have missed a golden opportunity to ring in sustainable change for the Eurozone we will see more of the same. Bailouts after bailout until the stable economies in the Eurozone are dry and unable to support the system. Socialism is designed to crush the rich and raise the poor into the lower middle class until the system has been drained to the point that everyone will be poor.
The same principle has been applied here and will usher in total collapse. The same collapse Japan experienced and still does. The same collapse the U.S. will experience for several decades. The socialists have been allowed once again to kill the chance for real change, change that is absolutely necessary. Unfortunately the Germans may have ultimately put the final nail in the coffin. One can only hope that something will change rather fast as the window of opportunity is closing at an alarming rate.
Be prepared for a correction in most major markets in excess of 30% in a short period of time. As soon as the bulls realize that their next stop is the slaughterhouse they will be butchered fast and it will be too late for most traders and investors to get out.