How a German Court Ruling Could Affect the Entire Global Economy and Destroy the Euro

On Thursday, Germany's Constitutional Court announced that it will begin hearing a lawsuit alleging that Germany's participation in the Greek bailout violates European Union treaties, according to Reuters. Reuters believes that the challenge will fail, regardless of the legal argument. If the court were to rule that the Greek bailout violated the law, the economic implications would be so tremendously vast as to overshadow any minor legal implications from the ruling. The court could effectively ensure the dissolution of one of the world's major currencies through legal decision. The German government is one of the largest players in the Greek bailout, and if Germany were to back out of the deal, it seems unlikely that Greece would be able to receive any further aide packages. That might mean that Greece would withdraw from the euro. If that were to occur, it might foreshadow the eventual withdrawal of Portugal, Ireland, and Spain. In that scenario, how long would the euro last? Inversely, even if the court rules in favor of the bailout—as expected—the existence of the legal case highlights the growing oppositional sentiment in the German population. Dennis Gartman has argued in the past that it is this sentiment within the German people that will ultimately lead to the euro's downfall. Action Items Bullish: Traders who believe that the court case is a sham and will accomplish nothing might want to consider the following trades:

• Buy WisdomTreeDreyfus Euro ETF EU. EU may rally if the euro appreciates.
• Buy Vanguard MSCI Europe ETF VGK. VGK attempts to return a value corresponding to the general strength of the European economy.

Bearish: Traders who believe that, despite the outcome of the court case, the euro is ultimately doomed, may consider taking positions in the following:

• PowerShares DB US Dollar Bullish Index UUP is a long play on the U.S. dollar. If the euro collapses, European traders might flee to the safety of the dollar.
• SPDR Gold Trust GLD is a long play on gold. Like the dollar, European traders may buy gold to escape the euro.

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