The German Constitutional Court's decision to uphold the new European Stability Mechanism last week was greeted with a sigh of relief throughout the world. If the court had enjoined Germany's entry into the treaty establishing the $900 billion bailout fund for the eurozone, the resulting panic could have led to a truly Great Depression. With stock markets soaring on the news, Chancellor Angela Merkel assured her parliament that "[t]his is a good day for Germany, a good day for Europe." But first impressions are misleading. The court's decision creates big problems in both the middle- and long-run.
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