A well-informed and reliable source told EIR yesterday, that the European Financial Stabilization Facility (EFSF) in Luxembourg is presently working intensely to raise funds on the financial markets using the state guarantee, which according to him is legally questionable. The head of the EFSF, Klaus Regling, also is using the interest differential among countries, which would be cynical, to say the least.
Otherwise, the German government would work on a new insolvency law, and a new insolvency fund is supposed to replace the EFSF, which would be just a false labelling. This was discussed between German Chancellor Angela Merkel and French President Nicolas Sarkozy. This, however, requires a change in the Lisbon Treaty, which, given the Lisbon ruling of the Karlsruhe constitutional court, requires a Volksabstimmung, a popular referendum in Germany. If this happens, the market reaction would be massive.
The Karlsruhe court is expected to hold a hearing on the case of the five professors still this year, and alone that fact will have a huge effect on the markets. The case challenges the EU bailout scheme as a violation of the Lisbon Treaty. Also the fact, that the Rachman article in yesterday's Financial Times, "How Germany Could Kill the Euro," mentioned several times, that the position taken by the German government is actually driven by the fear that Karlsruhe will rule their policy to be unconstitutional, means that this is a ticking time bomb. The other time bomb actually is the possibility that the Irish budget, which Prime Minister Brian Cowen was to introduce into the parliament today, doesn't go through.
The source also expressed the view that, indeed, the inflation risk in the U.S. today approaches levels comparable to Germany in the early 1920s.