Germany’s Constitutional Court confirmed as expected the legality of the Eurozone’s bailout fund which approved the legality of the European Stability Mechanism (ESM). The court stated that the 700-billion-euro fund did not violate German law. All politicians and public representatives considered the verdict “a good decision” both for Europe and for Germany. German Ministry of Finance said that “It’s important that we are certain that Karlsruhe views the ESM as legal, because it is central to the stability of financial architecture of the euro zone.” The court in Karlsruhe has a history of delaying EU treaties to test their compatibility with the German legal system, usually by imposing the condition that parliament has to be consulted fully. We will see how history will treat this decision if any real problems arise within the Eurozone, which is likely.

The EU is set to complete the final piece of its ambitious banking union after lawmakers reached an agreement on rules for winding down failed banks. The common rescue fund worth € 55 billion will serve to help banks overcome problems. But is this fund enough? Probably not. Why? Because if crisis happens again – as in 2008 – we will need much more funding. Optimists could reply that in such a case we have the ECB with its ability to directly buy any problematic governmental bonds by the OMT mechanism. That is also a solution, but then I do not understand why we are toying with meaningless funds; probably to stage some political action.

Still, the biggest danger to the financial world comes from China. According to Morgan Stanley, China is approaching the so-called Minsky moment. It means that any Ponzi finance scheme (and Chinese shadow banking system is the Ponzi scheme) will reach a moment when borrowers have insufficient cash flows to pay either principal or interest, and, therefore, must either borrow or sell assets to make interest payments. Morgan Stanley stated that China’s economy has arrived at that unstable moment when speculative and Ponzi finance appears to dominate. It means that this could have a strong impact on economic growth in the country, and consequently on global economy. And Morgan Stanley is not alone in pointing to this dangerous situation. According to Nomura, the number of ghost towns has spread beyond the well-known disaster stories of Ordos and Wenzhou to at least eight other sites. Nomura believes that this real estate bubble, followed by potential property market correction, could lead to a systemic crisis, and is the biggest risk which China faces in 2014. And the problem is real. Actually, there is another potential default in China. This time it is Zhejiang Xingrun: a real-estate developer which has some CNY3.5 billion ($560 million) of debt. Furthermore, the company was revealed to have been taking deposits from individuals offering annual interest rate between 18% and 36%. The situation is not that serious yet according to local officials, because the developer is not big enough to cause a chain reaction. But this kind of risk coupled with excessive debt and credit based expansion of China´s economy could trigger something which eventually will end badly; and not only for China, but for other global players as well.

The US finance sector is in good shape according to the FED. The annual FED´s stress tests showed that US largest financial institutions are strong and able to withstand an economic downturn. The FED said 29 of the 30 largest institutions have enough capital to continue lending, even if faced with a hypothetical jolt to the U.S. economy lasting well into 2015, including a severe drop in housing prices and a spike in the unemployment rate. The weakest player among big banks is Bank of America. The only question remains how much these stress tests are relevant in case of the same kind of failure chain as happened in 2008.