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Germany and the fate of the Euro Zone: Mark September 12th on Your Calendar
Pinnacle Digest writes: Germany is on the edge of deciding many Euro Zone nations' fate by taking its stand for or against sound money. On September 12th, the long awaited ruling of the German Constitutional Court will ring out. In simple terms, the Court will rule as to whether it is constitutionally permissible for Germany to finance the debt of other nations.
This decision has been in the works for some time. Merkel was originally against 'quantitative easing' through the purchasing of euro zone bonds and feared it carried too much risk to the German citizen. As the months turned into years and the euro zone debt crisis only continues to escalate, the Chancellor is clearly beginning to waiver under the pressure. The pressure has been and continues to come at her from all angles. Be it from across the Atlantic, where the Fed continues to struggle with America’s economy, or most frantically from her closest economic neighbours which surround her in Europe.
It’s not an easy task to fight the temptation to print money and debase your currency when the new ECB President, Mario Draghi, is in full support of Bernanke style quantitative easing. And he will print whatever it takes to keep the euro afloat.
This has all led to a change in attitude among german politicians, led by Chancellor Angela Merkel, who have begun signaling greater comfort with monetary debasement. All the while top bankers at the German Bundesbank remain firmly committed to sound money.
Browne believes that Merkel appears ready to ask the German public to finance the rescue of their less successful Eurozone partners. Although she has not come out and directly said it, this is what the court ruling is all about. Our team, along with Browne, believe there are bigger forces at play here. Germany and her politicians may see this expensive course (agreeing to bail out broke EU countries) as a costly, but rewarding path to their eventual political control of the European Union. Alone Germany can only be so influential, but with a controlling stake in every EU nation, Germany will secure its influence for many years, even if it means losing billions.
The powerful Bundesbank, led by Jens Weidmann, does not agree that the benefits of debasement outweigh the risks. Weidmann has publicly objected to Draghi's preference for American style quantitative easing of Eurozone bonds.
If the German Constitutional Court rules against German rescue plans for other nations, sound money is safe, but what about the rest of Europe? If the Bundesbank is victorious on the 12th, it could imply an urgent and possibly terminal threat to the euro. As investors, this is important to us as we may see the USD rally in the short-term, which would hurt commodities and gold. The long-term is a different story as precious metals would ultimately soar as the Euro Zone would undoubtedly collapsed without aid from Germany.
For the reason stated above, it is likely the German Constitutional Court will cave and under some political lingo cooperate with the Chancellor and her desperate political friends. Browne cautions that in the past, the German Constitutional Court has not shown itself to be a political pushover.
In respect to the upcoming ruling, Browne stated that,
"Nevertheless, this time its decision could be literally earth shattering. It represents an awesome responsibility."