Is Greece going to set off the long feared next wave of the Great Recession?

The amount of debt Germany is capable of carrying, the court stated, is a decision to be made by legislators, "and the Federal Constitutional Court must respect that." The court cannot "place its own professional competence in the place of that of the lawmakers," the ruling stated.

Diese Entscheidung ist, soweit sie die Verfassungsbeschwerden als zulässig behandelt, mit 7:1 Stimmen ergangen.

Voßkuhle Di Fabio Mellinghoff
Lübbe-Wolff Gerhardt Landau
Huber Hermanns

..Excellent news, obviously. I wonder if they could, in conscience of the real fallout, have determined otherwise.

“The Bundestag did not deplete its right to adopt the budget and control its implementation by the government and did not disregard the essential content of the principle of democracy,” the judges wrote. The court demanded just one revision: rather than merely “striving” to obtain the approval of the Bundestag’s budget committee before issuing guarantees to other euro countries it must always obtain prior approval from the committee.

Thanks for links - on the actual decision the last paragraph states it was taken 7 to 1 but doesn't say who the lone dissenter was. Is this confidential? Thanks!

Official translations to English last some time - which could be the reason for a couple of misleading headlines/reports in the English-speaking media.

...Eine Zweckgesellschaft („special purpose vehicle“) ist eine juristische Person...

I'll take that as a, "Yes, no, maybe."

“The hurricane is not more or less likely to hit because more hurricane insurance has been written.

In the financial markets this is not true. The more people write financial insurance, the more likely it is that a disaster will happen, because the people who know you have sold the insurance can make it happen.”

Greece’s chance of default in the next five years has soared to 98 percent as Prime Minister George Papandreou fails to reassure international investors that his country can survive the euro-region crisis.

“Everyone’s pricing in a pretty near-term default and I think it’ll be a hard event,” said Peter Tchir, founder of hedge fund TF Market Advisors in New York. “Clearly this austerity plan is not working.”

It now costs a record $5.8 million upfront and $100,000 annually to insure $10 million of Greek debt for five years using credit-default swaps, up from $5.5 million in advance Sept. 9, according to CMA.

Papandreou’s promises to adhere to deficit targets that are conditions of the European Union and International Monetary Fund’s bailout were undermined by data showing Greece’s budget gap widened 22 percent in the first eight months of the year. The nation’s two-year note yield climbed toward 70 percent, while its stock market has plummeted by a third in the past seven weeks.

The default probability for Greece is based on a standard pricing model that assumes investors would recover 40 percent of the bonds’ face value were Greece to fail to meet its obligations

Here's brief explanation of what has the markets so spooked: Greece is the "potential epicenter of an earthquake that could really upset the global economy." That's the summary of the current state of affairs from Brian Dolan, the Chief Currency Strategist at Forex.com.
Please note that Dolan is not panicked, screaming or particularly negative on how the debt crisis in Europe plays out from here. He thinks the situation ends well, it just doesn't end immediately. The markets aren't weak right now because traders are irrational. Quite the opposite is the case. Market professionals are thinking a few steps ahead in terms of a rational outcome from the Greek debt debacle. "Greece is running out of rope," says Dolan. And the end of said rope is "being priced in."
The selling is based on the idea that a "potential for Greek default leading to European financial instability" is very real. Economic instability, in turn, would exacerbate slowing in the global economy. "As growth slows, it makes servicing debt burdens much more difficult to service and increases potential of a default," Dolan explains.
Yes, that is a logical loop. Instability leads to uncertainty leading to more instability... etc ad nauseum. Paul Krugman observes in today's NYTimes; that's how a run on the bank works.
There are two ways for this to end. Either the European Central Bank ultimately backs the debt of weak nations, extending if not solving the default problem, or the solvent economies of the European Union opt out of the ECB's plan raising the possibility that the Euro doesn't exist in one year.
For what it's worth, I believe Germany will eventually stop bailing out the profligate notions of the EU. It's not in the best interest of the Germans to do so, but as happens in the U.S., what's in our best interest and what we vote for are not always in alignment. Dolan opines that the EU is going to hang together or be hung as individual nations; meaning that Germany will back the ECB regardless of all the "kicking and screaming".

On Thursday Jean-Claude Trichet, the president of the European Central Bank or E.C.B. — Europe’s equivalent to Ben Bernanke — lost his sang-froid. In response to a question about whether the E.C.B. is becoming a “bad bank” thanks to its purchases of troubled nations’ debt, Mr. Trichet, his voice rising, insisted that his institution has performed “impeccably, impeccably!” as a guardian of price stability.


Financial turmoil in Europe is no longer a problem of small, peripheral economies like Greece. What’s under way right now is a full-scale market run on the much larger economies of Spain and Italy. At this point countries in crisis account for about a third of the euro area’s G.D.P., so the common European currency itself is under existential threat.

And all indications are that European leaders are unwilling even to acknowledge the nature of that threat, let alone deal with it effectively.

And now it’s all coming to a head. We’re not talking about a crisis that will unfold over a year or two; this thing could come apart in a matter of days. And if it does, the whole world will suffer.

I do have you on Ignore, but I will not let you lie about me without challenge.

I enjoy making you look stupid.

And all indications are that European leaders are unwilling even to acknowledge the nature of that threat, let alone deal with it effectively.

That reading is wrong; Krugman knows it only too well. Note he doesn't even try to support Obama's $447 billion idiotic plan (who pays? nah, nevermind!)

I do have you on Ignore, but I will not let you lie about me without challenge.