The EU had made progress. The German Chancellor had grudgingly relented, and had come to terms with transferring funds, along with the IMF, to Greece in order to help it work through its debt restructuring. For a while even the debt markets briefly acknowledged the movement toward a real solution… but no longer. Four German professors have requested a court injunction against the transfer, stating that it “violates the ‘no-bail-out’ clause of the EU Treaties.”
For more details we turn to The Daily Telegraph:
“Dr Karl Albrecht Schachtschneider, law professor at Nuremberg and author of the complaint, told The Daily Telegraph that he will be ready to file within days and will ask the court for an expedited procedure. A ruling could occur within a week, but may take as long as six months. The complaint will argue that the rescue contains an illegal rate subsidy, threatens monetary stability as encoded in the Maastricht Treaty, and breaches the ‘no bail-out’ clause. Greece is clearly responsible for its own mess.
“‘It is a question of law. The duty of the court to defend the German constitution. They have no choice other than reaching a lawful decision. This may cause a great crisis in Europe but we already have a crisis,’ he said. He will ask the court to freeze rescue aid while the case is pending. There is a precedent for this. It ordered Berlin to halt implementation of the Lisbon Treaty while it reviewed the treaty last year. Such a move would cause havoc on Europe’s bond markets.
“‘This court hearing is going to be very dangerous,’ said Hans Redeker, currency chief at BNP Paribas. ‘It could lead to Germany itself being catapulted out of the currency union. Once investors begin to fear this, there will not be single euro in further financing for the EMU periphery.’”
The timeline for a ruling, from a week to six months, and the possible fallout, ranging to “Germany itself being catapulted out of the currency union,” create a great deal of new uncertainty for the Greek crisis that so recently seemed on its way to resolution. The professors have the right idea, bailouts don’t help anyone. It creates moral hazard and, as they indicate, is just another example of governments throwing good money after bad.
Still it’s interesting that at this point, depending on how the ruling unfolds, there could be a complete unraveling of the euro. Other troubled euro countries like Portugal and Spain would also see their debt problems worsen severely. It certainly goes to show how the legal framework supporting the US dollar stands much stronger in contrast.
Visit The Daily Telegraph to read more about how Greek aid is in doubt.
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