Cardinal Krout Court Kabosh……………Evil Plan 81.0 (by BDI)

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Well, my fellow Slope-a-Dopes, here we are precariously perched like racecar red cardinals contently chirping away on towering tree tops. Will we boldly soar to new heights into the red, white & blue yonder, emulating the magnificent majestic bald eagles we once were?  Is American exceptionalism going to unfold its fantastic feathers in all their spectacular splendor, like a proud peacock strutting its stuff down the captivating catwalk?  No way… how, you dubious demented dodo birds!  Look up at the sick sinister sky silly! What you are seeing is a gaggle of grey geese heading south for the Winter.  Brace yourselves for an awful Autumn, as the black swan is about to make her long awaited rabid grim reaper reappearance. The only question that remains is which rotten bastard big bird egg will she be hatched out of?  Let us examine the sulfur smelling stench of one such possibility:

Will the German Constitutional Court decision scheduled to be handed down on Wednesday surprise us all?  The accepted wisdom by a staggering swarm of savvy market soothsayers is that the ESM's ratification is a done deal, simply a formality at this point.  Angela & Wolfgang have both emphatically endorsed the ESM, and have patently publicly expressed their comfortable confidence that the court will follow their lamentable lead.  

A little color / background on the Cardinal Krout Court from The Telegraph:

The courtroom is in a drab breezeblock building in a little-known southern German town. The eight judges are all dry legal professors, unfamiliar even within Germany.

And the legal arguments they are being asked to decide are so complex that the coterie of judges have already had a two months extension to be sure of all the technicalities.

Yet on Wednesday this unprepossessing venue will become the most important place in Europe. Germany's Constitutional Court, which sits in the town of Karlsruhe near the border with France, will essentially pass judgement on whether the eurozone has at least a chance to survive.

"It is not an exaggeration to say that this decision is the most important in the court's history," said Michael Efler, campaigner with German pressure group More Democracy, and one of the people petitioning the court.

Since the German parliament has already approved the bailout mechanism, chances of the German court rendering it illegal are very low, said Marc Chandler, currency strategist at Brown Brothers Harriman, adding "it does pose some risk."  The market in general sure seems to have discounted any such risk, clearly anticipating more sublime smooth sailing ahead, and definitely does not expect the German high court to rock the boat in the slightest.  

The following EUR/USD chart surely indicates that the markets have signaled the all clear:


So why is BDI not satisfied with this securely sanitized story line?  

Well for starters, nearly 60% of the German people want the court to outright reject the ESM. And, only 25% agree that the court should go ahead and sanction a treaty which forces their country to cede even more monetary & fiscal authority to Brussels.  Furthermore, 53% are against any transfer of more powers to the EU, and only 27% are in favor.  Smooth sailing ahead my ass……..

Another little noted fact that has been softly swept aside, is that back on September 6th the high court ruled that a motion requesting that one of the 8 sitting Judges be removed from the ESM case, would be tabled for a later date, thus assuring that the scheduled critical ruling decision would not be further delayed. At the time, this was heralded as proof postive that the Krout court was swiftly moving in the right direction.  However, upon closer examination, a curiously concocted incorrect conclusion may have been drawn here. The plaintiff actually argues Judge Peter Huber should be promptly removed because he used to work for “Mehr Demokratie e.V.,” an organization that has initiated multiple complaints against Germany's ESM participation. In other words, the judge in question, who is most certainly opposed to the ESM, remains firmly in place for the high court's big ruling on Wednesday.  Smooth sailing my ass………

The German constitutional court decision of Sept. 12 on the legality of two euro-zone bailout vehicles poses a major risk for the euro. If the court were to rule that the temporary European Financial Stability Facility and the permanent European Stability Mechanism are unconstitutional, it would call into question the principle infrastructure the 17 eurozone member nations have anxiously agreed to put in place, in order to stem the tide of the debilitating debt crisis. It would also hamper the latest bond-buying plan announced by the European Central Bank on Thursday, which has lifted the euro higher and decreased the cost of borrowing for Italy and Spain.

I am not saying that the kangaroo Krout court will outright reject the ESM, which has already been approved by Parliament, although it is possible it's highly unlikely.  What I am saying however, is that I highly doubt that the Federal Constitutional Court of Germany will simply roll over, graciously handing over the German people's open wallet directly to the ECB with no strings attached. There will most certainly be quid pro quo conditionality forged onto a favorable court ruling, and those contractual caveats could well upset the fair weather sailing that the market is so readily anticipating.  More from The Telegraph:

Most legal experts do not expect the court to reject the treaties as unconstitutional. But they believe it may demand alterations, potentially watering down the strength of the ESM – although exactly how is unclear.

Petitioners to the court are hoping that the red-hatted judges will throw another spoke in the wheel.

"We are not against the eurozone itself, but the ESM and fiscal compact mark the crossing of a red line," said Mr Efler, the More Democracy campaigner.

"It is totally unacceptable to create a European state through the back door, on technicalities, without a proper debate. We need a referendum on this, before we hand over control of our own budgets to Brussels."

"Relations within Europe haven't been this bad for 50 years. Yet the 'euromantics' in Brussels now want a centralised state. It is ridiculous."

And this from UPI:

Eight German judges, however, could provoke an immediate crisis Sept. 12 if they grant even a temporary injunction against the new $625 billion European Stability Mechanism. The key question for the constitutional court in Karlsruhe is whether the ESM undermines the prerogative of the German Parliament to be the sole body that can require German citizens to pay money to the state.

This isn't just about taxes but about fines and also about the power of European treaties to bind German taxpayers.

For example, under the ESM rules would the German Parliament be able to refuse additional multibillion-dollar contributions to the ESM if the $625 billion proves not to be enough and other countries cannot pay in? And if in future a Germany in recession cannot make its payments, would ESM rules punish Germany by suspending its voting rights?

Finally, the very reason Spain & Italy have yet to sign up for Mario Draghi's bond bailout bonanza, is that the precise terms of the ESM willl be conditional & subject to ratification, and thus remain utterly undefined for the moment. One can aptly appreciate why these two sovereign Nations are rather reluctant to step right up here, after all both proud countries have seen what happened to Greece soon after it accepted such "gratuitous" & "generous" bail out packages.  The ECB has already put a clear caveat on this “unlimited” support; any given country would need to submit to the terms of the EFSF or the ESM to receive aid from the central bank.  In the end, the specifics of the crucial provision may prove to be a poison pill, and hard to swallow by Spain or Italy.  Smooth sailing my ass…….
These market players are clearly ready for bear should the worm turn:

So you see Dopes, the clear sailing ahead may soon turn into muddy storm waters all around.
The seagulls are not safe & sound……..Evil Plan 81.0
             BDI SOH's Idiot Savant