The big news of the day is the decision by the German high court that will allow the bailouts to continue. As Reuters highlights, this decision was not only expected, but doesn’t change much, if anything. Carsten Brzeski of ING was cited with good commentary:
“Today’s ruling should bring some relief to financial markets as a total chaos scenario has been avoided but it should not lead to euphoria. A bigger say for German parliament in future bailouts could easily find copycats in other euro zone countries, undermining the clout of the beefed-up EFSF and later the ESM.
“Still, the ruling confirms our view that the German piecemeal approach on the debt crisis is not likely to change but eventually the German parliament will vote in favor of a second Greek bailout package and the beefed-up EFSF.”
That’s dead on. The markets can eliminate the disaster scenario in the near-term as it’s clear that Germany isn’t pulling the rug out from under the periphery countries. Of course, they can’t really do so without shooting themselves in the foot first. After all, it’s their banking system that is loaded with periphery debt and Germany is enjoying the benefits of being the current account surplus nation and primary beneficiary of the single currency system.
The bottom line is, from a markets perspective, this ruling reduces some of the near-term uncertainty, but it doesn’t resolve anything. The problem in Europe is still very much structural. If anything, this only shows that the political disunity is ever present. The crisis in the EMU is still in the early stages. We are far from a real sustainable resolution.