Most Important Supreme Court Decision Of 2012: Six Things To Know

To most Americans, the most important Supreme Court decision of 2012 was the one that upheld President Barack Obama's landmark healthcare reform as a permissible exercise in government, handing the Executive a qualified victory and clearing away the thick cloud of uncertainty that had hung over the future of the nation's health care system.

The most important court decision of 2012, however, has not occurred yet, and it has nothing to do with healthcare. In fact, it's not even being taken by a U.S. court.

Wednesday, the red-robed justices of the German Federal Constitutional Court in the idyllic college town of Karlsruhe are set to hand down a decision for which it is no hyperbole to say it could change the course of history. The Court is expected to rule over whether Germany is barred from contributing to the European Stability Mechanism, Europe's all-purpose bailout fund of which the German state is the major planned benefactor.

The expectation from most market-watchers is that the court will say "yes," clearing the way for the establishment of the fund, sovereign bailouts of the most wounded economies of Europe -- those of Italy and Spain, though perhaps also Portugal and France -- and much-awaited, if temporary, stabilization of the crisis in Europe.

But if the court should say "nein"...

Europe's current bailout mechanism, the 2010 European Financial Stability Facility, is running nearly dry after rescuing Greece, Portugal and Ireland from fiscal failure, with about 248 billion euro in lending firepower. The combined financing needs of Italy and Spain are estimated at nearly $1 trillion.

Ahead of the decision, here's six things to know about the German Constitutional Court's predicament.

The main issue at hand is sovereignity.

The reason the Court is looking at the case has to do with the legal mechanism behind the ESM. The fund will rely on the council of European finance ministers to take decisions that will affect Germany's budget -- by providing outlays to other nations -- but which Germany will not have direct control of. The law passed in the German Bundestag to ratify the ESM, which is at the heart of the legal challenge, does oblige German representatives to consult with that legislative body before approving any decisions. However, those representatives will not have veto power and could easily be outvoted by other countries in terms of how German funds are used. Those challenging the law in court claim this is an illegal usurpation of national sovereignity.

The experts nearly unanimously expect the Court to say "yes."

Leading analysts do not think that argument will fly.

"The Court will not rule against the ESM allowing it to become operational," Societe Generale economist Anatoli Annenkov said in an August 24 note, mirroring much of Wall Street's view. The general consensus is the Court will rule in favor of allowing funding for the bailout fund, or as described by Bank of America economist on his own note, the "central scenario is a positive ruling from the German court."

Further, "since a negative Federal Constitutional Court ruling would probably have serious consequences for the sovereign debt crisis, the court would surely have signaled an emerging rejection to the federal government in order to give it time to change its communication and look for alternatives," Eckart Tuchtfeld, an economist at Commerzbank, told Marketwatch.

Some are even dismissing the whole affair as par for the course.

Deutsche Bank economists noted in a recent note the clients the whole hullabaloo regarding the decisions is to be expected, writing that "almost every parliamentary ratification of major European decisions has been accompanied by constitutional complaints in Germany. They have become a well-known element of German Euro politics during the past two decades."

The economists add that "Germany's Constitutional Court is increasingly becoming a forum for Euro-skeptic voices to articulate their arguments from a constitutional point of view. These will likely not be the last constitutional complaints on EMU politics in Germany...It remains to be seen whether the Court will remain as constructive as in its previous judgments, weighing democratic legitimacy carefully against considerations of systemic stability and capacities of other constitutional bodies."

Even with a "yes," however, the devil will be in the details.

The optimism regarding the court's potential actions assumes either a green light all the way or an unmistakeable rejection for the ESM. But a third possibility is that the court will okay the plan pending some specific changes in the legislation, or that it forwards the case to the European Court of Justice. Those actions would create a massive amount of uncertainty but they are "two risks that are not priced in", according to Bank of America's head of European rates research, Ralf Preusser.

It will not likely be the last legal challenge to rescue plans for Europe's ailing economies.

Even with an unconditional victory for the ESM, that mechanism is only one of the many devised by Europe's leaders in recent months to stanch the crisis. A more recent action occurred last Thursday, when European Central Bank president Mario Draghi noted his institution would pursue actions very similar to those of the ESM -- buying sovereign bonds to reduce financing rates -- using the central bank's firepower in the secondary market. The central bank's authority to do such a thing is likely to see legal challenges.

The wheels for that to happen are already in motion. Sunday, a lawmaker from Angela Merkel's party said he would sue so that, assuming the ESM survives its constitutional challenge, it cannot be put into effect alongside the ECB's plan.

"This possibly calls into question the plans for the announcement of the ruling on the ESM this coming Wednesday," lawmaker Peter Gauweiler said in a statement, according to Reuters.

It might set off nasty political infighting in Germany.

German Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble have publicly stated they believe the ESM will survive the Court's constitutional ruling. But what really keeps Merkel and Schaeuble up at night is not the possibility of court opposition to their plans, but the potential for the German people to stand up against their expediency, demanding a referendum on their actions. Such an action would destroy Merkel's coalition unity. Already, some of the people supporting the challenge in the Federal Constitutional Court belong to her own party.

There's also the chance a popular consultation will throw away years of careful political maneuvering by flat out rejecting past actions. A poll by German newsmagazine Der Spiegel out Sunday suggests 54 percent of Germans want the ESM legally restricted by the Constitutional Court. Only 25 percent believed it was necessary to dismiss the Euro-skeptic arguments for the sake of the greater good.