The Future of the European Union May Be Decided in Less than a Week

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The clock may be ticking on the future of the European Union (EU).

After being shaken to its core by the sovereign debt crisis, the entire Eurozone now runs the risk of blowing up within a week.

Germany's highest court, the German Federal Constitutional Court, on Sept. 7 rules on the legality of German participation in the euro rescue fund that was established to bail out Greece.

If the court rules that Berlin's commitment to the European Financial Stability Facility (EFSF) goes against EU law, or worse, against the German constitution, the entire Eurozone could collapse.

Think of the Eurozone as a minefield full of bombs that have long lay dormant, but are all still very active. Now, Germany's court ruling – itself a single bomb timed to go off next Wednesday – could ignite a massive chain reaction.

Germany: The Eurozone's Bomb Squad

Peripheral Eurozone countries like Portugal, Ireland, Greece, Spain, and Italy (the PIIGS) are in serious trouble and European banks face monumental liquidity and balance sheet issues.

So far, only Germany's singular fiscal conservativism and economic strength have kept the EU from self-destructing. But now the Eurozone's only legitimate bomb squad may be hanging up its lead-suits, pliers, and contagion containers.

What's at issue for the Constitutional Court is whether Berlin broke the EU's Maastricht Treaty, which unequivocally stipulates that member states cannot assume each other's debts. And, more germane to German citizens and the center-right coalition government, will be the Court's ruling on whether German Chancellor Angela Merkel's decision to fund the bailout facility circumvented constitutional requirements to put such fiscal matters before the German parliament.

And while the court isn't ruling directly on the EU's currency – or Merkel's support of it – the decisions rendered will have consequences for the euro's future and by extension, the EU as a whole.

All of Europe's time bombs have been temporarily defused by Germany's aggressive support of the euro, and the Chancellor's vociferous demands that all of the EU's sovereigns come to the rescue of its ailing members, for the good of the continent.

All the PIIGS have had to come hat- in- hand to the European Central Bank (ECB) and sister members to float their increasingly suspect debt obligations. But, it's Germany alone that has the muscle to influence other states to join rescue efforts. And it's Germany's generous financial support that greases the meshed gears on which the entire European system turns.

Without Germany's intervention, European sovereign debts will sink the EU, as well as the global markets.

Other cracks in the EU's foundation are already widening.

The Future of the European Union

Finland, Austria, the Netherlands and Slovakia are demanding Greece supply acceptable collateral against any and all future installments it is to receive under bailout terms.

Just what constitutes acceptable collateral to Finland and its followers? How about the Athens airport, the National Bank, two ports and the country's main telephone company?

Apparently, Greece's creditors don't want to have to maintain too much real estate in a hostile environment, so they are asking for state assets to be put into a trust in Luxembourg so they can eventually securitize those assets and then sell them if they don't get their money back.

It's certainly not a stretch to imagine militant unions in Greece fighting the government and threatening the International Monetary Fund (IMF), the ECB, and other Eurozone sovereigns when creditors take control of the state enterprises they all work for and cut their jobs.

Nor is it a stretch to imagine other European debtor nations being asked for similar collateral when they line up for bailouts.

We are fast approaching a difficult question: Are we coming to a point where integrated global economies, capital markets and cross-border debt obligations will necessitate sovereign nations losing control of their sovereign assets?

If the German court rules that European law has been broken, then it has been broken by all other nations subject to the Maastricht Treaty who have participated in bailouts and directly or indirectly assumed each other's debts. If the German constitution has been broken, it's unlikely that German citizens will tolerate any government that refuses to protect the constitution and their rights to participate in determining whether or not they want to backstop all the profligate neighbors that surround them.

The court may sidestep any hard and fast decisions to avoid destroying the entire EU. But it may not have a choice. The law is the law.

Investors need to keep their ears pinned to news reports about the German court's rulings next week. And they need to be ready to short the euro, European and American banks, and European, American and Chinese stocks if broken laws lead to a breakdown in Europe's monetary support mechanisms.

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About the Author

Shah Gilani is the Event Trading Specialist for Money Map Press. He provides specific trading recommendations in Capital Wave Forecast, where he predicts gigantic "waves" of money forming and shows you how to play them for the biggest gains. In Short-Side Fortunes, Shah shows the "little guy" how to make massive size gains – sometimes in a single day – by flipping large asset classes like stocks, bonds, commodities, ETFs and more. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.

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  1. Müller | September 1, 2011

    Happy day,
    It is amazing how far wild imaginations can carry!
    What is reported here are facts, they are known to all of us.
    But the result – due to this facs – will never ever end up the way it is mentioned here, it reminds rather of a wild west story, sorry. You redicule yourself, so try to come back on this planet.
    Smile and cool down.
    Best regards
    Theo

  2. Erik Louon | September 1, 2011

    Interesting article. It appears to " experts" that the Constitutional Court will say no laws are broken but that Parliament should be consulted more.???

  3. Bert Schwitters | September 1, 2011

    Yes, but who cares about the European Union ? It's an artificial legal construct that doesn't live in the hearts and minds of the citizens of the Member States. We'd be much better off when the German Constitutional Court just tells us what the law says, so that we can then reorganize things. Long ago, what's now called the European Union had its origin in the idea of free trade and free movement of goods between industry and commerce entities in the different Member States. It was called the European ECONOMIC Community. This idea was perverted by the Brussels' bureacracy. We, in Europe, now live in a "harmonised cage" in which we can move around "freely but without freedom."

    • Paul Cadier | September 4, 2011

      You hit the nail on the head. It is nice to hear somebody with a non-British sounding name finally talking sense on Europe . Keep up the good work .

  4. Martin | September 1, 2011

    THANK YOU! Why aren't all the news channels telling us about this? Are we living the Orwellian nightmare??

  5. George Havlovic | September 1, 2011

    Not an iota chance of a break-up, at least not in the foreseeable future. Germany tried to increase its "Lebensraum" in the last century. That ill conceived adventure did cost it millions of lives of their citizens.
    Comparing that to even an x number of trillions of Euros of deutsch expenditure to rescue PIIGS points to a bargain. Mrs. Merkel seems to be quite a virtuoso!

  6. topeka | September 1, 2011

    "The court may sidestep any hard and fast decisions to avoid destroying the entire EU. But it may not have a choice. The law is the law."

    My SWAG: It is a non-event. The pressure on the court to toss Germany under the EU "Dream" bus will be intense to put it mildly. The long term interests of Germany and Germans? Heck, when did that ever matter to those with the power to milk them?

  7. Jeff Pluim | September 1, 2011

    I am surprised that the mainstream media outlets are not all over this issue. I am not surprised to see that Shah is on the leading edge of such an important issue. Thank you Shah.

  8. Anna Li | September 1, 2011

    I like your report which is very helpful.

  9. fallingman | September 1, 2011

    The law is the law indeed, but the law has been the law and it hasn't stopped the lawbreakers.

    This court has a reputation for being independent. We'll see, won't we? The pressure to buckle and legitimize the illegal transfers must be immense.

    Good stuff. Mr. G. Care to make an actual prediction of how the ruling will go? If they rule that German participation in the bailout scheme is illegal/unconstituional, it's Lehman on steroids. Why then, does this receive so little attention? Why are markets so calm and, in fact, rising? Seems crazy.

    Is this the event the Feds are waiting for as justification to go all in on their dollar debasement schemes?

  10. laura | September 1, 2011

    I don't know, european sovereign debts are negligible compared to the US one, and here we are…

  11. Jimmy | September 1, 2011

    The tell tale signal will be if the EU banks start quickly buying gold and silver. Anyone agree?

    • RICHARD SHANKS | September 1, 2011

      Jimmy, they are buying gold and have been for many years, particularly in recent years.

    • fire and rain | September 2, 2011

      fire and rane

      dont tell about gold till I buy some more

    • herb | September 2, 2011

      if they have had any fear that this might happen, then the buying has already taken place … I predict this will be a non-event

  12. Linda | September 1, 2011

    I like your report. This is interesting to know a head of time. Keep the good work!

    May the Lord bless you.

  13. Gordan Finch | September 1, 2011

    Very few knew just how corrupt Zurich Financial Services were untill they ruined the Worlds financial system, and were fined over a billion dollars for bid rigging fraud etc.

    The law has allways been broken by Corporate companies and banks like ZFS above but until the public stop the fraud using the ballet box it will continue. I will not be supprised if the German machine is allowed to break the law, but can the lawmakers appease the public again, ( they are paying for it). A euro that will not fit all boxes will certainly fail, but not on Wednesday.

  14. Neil Morrison | September 1, 2011

    I have been buying gold and shorting banks so Shah looks like i have to double up hope your right!Then we will see all the action thats been on the cards for weeks!I think the French know whats coming would not let me short the French Society General Bank?
    Neil Morrison

  15. Bill Anderson | September 1, 2011

    Very thought provoking. But you must remember that the law is a matter of perception. The people in charge (the bankers) will simply change tack and come at it from another direction. It's like trying to beat a room full of rats to death. Some will escape and eat your food tomorrow, they will simply wait until you have gone to work. After all, they just push promises around. They can out-wait you whilst buying polititions with your money.

  16. Mario Wanski | September 2, 2011

    Greetings from Germany.
    It would be a miracle if the German "Constitutional" Court would decide in favour of the people.
    More likely, the result is going to be a dirty agreement. Like: "We are really concerned about the
    development, BUT in this situation we can't afford to gamble with our holy Union.
    Long time ago we left the path of freedom and now we are heading straight towards our socialist nightmare.
    May this dictatorial EU peg out, may the Euro crash and may the EU split.

  17. rolf | September 2, 2011

    MoneyMorning, as well as all the other sound financial advisory newsletter services, i.e. Agora Financial or Taipan or Oxford Club etc., all have been warning for at least 2 years the the E.U. is in dire straits, going bankrupt or going to default, as a failed concept etc.

    so, why is the €urn still at $1.43? how can all the ECBs and governments keep it up for so long, if it were true?

    now you advise again to short the Euro, yet i lost on every other occasion when it was ripe too.

    this is not serious advice.
    it's gambling.

    there is no way to know when the € will collapse.
    and by next Wednesday, when the Germans decide the fate of the currency or union,
    it's too late to buy currency puts anyway.

  18. mwn560@aol.com | September 2, 2011

    Why don't the German taxpayers just Bail out Greece 100% using the whole country as collateral. Then kick them all out. I know it sounds worse than crazy, however A euro poster child needs to be displayed as what not to do. Yes they will Riot in the streets like they always do. Until they are all deported. I would suggest Libya as their destination.

  19. Timothy Davis | September 3, 2011

    sign me up

  20. Zygmunt J. | September 3, 2011

    This article, and the other one by Mr. Hutchinson, are clearly the products of American propaganda which always sees euro currency as danger to U.S. dollar. The strong euro was dangerous, and so is the weak one.
    The US doesn't want any strong economic bloc accross the Atlantic Ocean. This has been clear for some time.

    European Union has a strong disbalance between powerfull European Commission and powerless European
    parliament. This is the main reason Europe is in this crisis; voice of the people is not being heard. Instead,
    national interests are being sacrificed to the merciless corporate machine. Naturally, for the men representing this machine to abondon original project and get a seperate deal with the US will be tempting. And the big temptor says exactly the same – oh, Germany, Sweden, Finland come to us, we will embrace you.

  21. Chrysotheras | September 3, 2011

    ….to have a rough estimate of where the court's verdict will point to next Wednesday, keep an eye on gold and the CHF. Especially gold. It's the canary in the mines….

  22. G G | September 4, 2011

    There is no way the court will go against the government on this…on the other hand, the Germans have finished printing the new currency, the DM2 – so they are prepared and ready for a collapse, if it happens – so I'm told – hard to believe though…but crazier things have happened…

  23. Julen - Spain | September 5, 2011

    Excellent report, but in my opinion, there is an issue remaining, and very important in my opinion: speculation. Markets, looking for easy money, are full of "people" which use economical ammo increasing the hostiles attacks to the eurozone and its currency. And if we consider the worldwide recession as a fact (just look the price of gold) it is a fatal combo for EU countries.

  24. WHITECRANE | September 5, 2011

    What a moronic article. This guy should mind his own dirty laundry here in the US instead of "sounding the alarm" about Europe. Talking about the "Constitution", does he know that the Fed has violated all the important clauses in the US constitition, namely the one saying that you can buy Treasury Bonds but NOT mortgages, not $ 1.3 Trillion of junk mortgages that the Fed loaded up on its balance sheet.

    Do you really think that the Germans being the most pragmatic people ( as opposed to the clowns in the US congress ) would commit economic suicide by endangering the Euro, reverting to the D.Mark and killing its export machine, repeating the same mistake that Japan made by allowing the Yen's moonshot. Did you notice that Germany has been the single biggest beneficiary of the Euro ? Did you notice that the Euro kept moving higher ( not lower ) ever since the Greek crisis in May 2010, in the face of "sucessive" crisis of Ireland, Portugal, Spain, Italy..( the last 2 are more victims of market hysteria than bad fundamentals )

  25. Owen K. , Nebraska | September 6, 2011

    Who cares about the European Union? We had all better care. Because what happens there could have an immediate effect on our own struggling economy and throw international currency and commodities markets into a period of volatility the likes of which many of us have never seen. If the court rules against bailout of the EU, hang on. Its going to be some ride. Be careful, especially if you trade Forex or options.

  26. michael c | September 7, 2011

    I don't see what the problem is here. The trouble was caused in the first place of course by two – and only two – evils:

    1) Federal governments being allowed to borrow money

    2) Taxpayers forced to underwrite (including ALL 'bailouts') private commercial ventures.

    Eliminate these two things and there are no more 'crises'. Of course the Anglo/American NWO international banking criminals will never allow this.

    Oh, well……..

  27. brian | September 12, 2011

    It is completely irrelevant {in my opinion} whether or not it is against the German constitution for that country to bear the brunt of the bail-outs for Greece etc. It is a reality that the the eurozone can not exist in it's present form.
    As it was so rightly put previously, the original plan to form a european economic region has so completely veered off course { at the instigation of global and multinational conglomerates } that is is now impossible to continue.. the sovereing debts of such member states as Greece Ireland and portugal { and I seriously suspect several others} will enevitably pull the stronger economies of the zone under the water and drown them.
    I feel it is enevitable the the zone will have to break with the stroger economies forming a new economic zone and the weak ones either continuing with the euro "as is" or reverting back to their former currencies… this would be good for all long term.. the strong economies would continue to grow unhindered by the weak and the weak will have to suffer some years of high inflation and recession but would come out stronger…. to do nothing will sink the ship… maybe Germany is initiating a plan to acheive this proposition.. if their courts rule that it is unconstitutional… nobody can point the finger and accuse them "machine-gunning" those overboard in the water

  28. ANGIE | September 27, 2011

    The germans are the Japanesse of Europe,and the euro was created by them as their currency was to strong for trading.They wanted to control europe in the first and second world war, now they have europe.Spian, Italy, Portugal and Greece have an industry that is tourism, let them have their own currency and manage their own countries, they can not compet with Germany, they have nothing to trade.Europe is just another bad idea of idea Germany looking at their own interests

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