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A POISONED CHALICE OF EU POWER - the impending European Stability Mechanism (ESM) Treaty

by Dr Oliver Marc Hartwich, Research Fellow, Centre for Independent Studies, 25 Aug 2011

The much hyped meeting last week between Angela Merkel and Nicolas Sarkozy would have made the famed Montgolfier brothers proud. The hot air produced in Paris could have filled several of their balloons. At least this was what markets concluded, by going into another dive once the mini-summit was over.

Indeed, talk of a European economic government is not new, Eurobonds had not even been on the agenda (officially, that is), and an EU-wide tax on financial transactions almost certainly will die aborning. In another way, however, the Merkel and Sarkozy show was most revealing. Like never before, it demonstrated to the public what Europe’s two most important politicians think of democratic processes.

In his essay ‘On Perpetual Peace’ (1795), the great philosopher Immanuel Kant had warned that “no state shall by force interfere with the constitution or government of another state”. But that was long before the advent of the European Union.

Nowadays force is no longer necessary. It is entirely sufficient for the French president and the German chancellor to announce that all seventeen eurozone countries must introduce constitutional ‘balanced budget’ rules by summer 2012.

Once upon a time constitutional changes took years of debate in national legislatures. Today such amendments can be dictated by the leaders of Europe’s two key governments. The effect, however, is the same as that of a military interference in Kant’s time. National sovereignty, parliamentary democracy and the separation of powers in Europe are suspended by mutual agreement between France and Germany.

The ongoing assault on the basic rules of liberal democracy has been the defining feature of the euro crisis. The measures taken to salvage the wreck of monetary union are so unpopular, inexplicable and unaffordable that the political class introduces them by stealth. Parliaments are only given days to consider the most complex pieces of legislation; the public is misled by sideshows such as obscure plans of ‘economic government’; and all is clouded by wordy evocations of ‘solidarity’, ‘responsibility’ and ‘stability’. It is as if George Orwell himself had written the script.

The treaty to establish the new European Stability Mechanism is the best example of this fundamentally undemocratic approach. Even its name is misleading: First, it may be European but legally it stands outside the EU. This means that the EU can formally keep its commitment to the Lisbon Treaty’s ‘no bail-out clause’ although the ESM will provide just that. Second, it has nothing to do with creating real stability but with artificially keeping an inherently unstable monetary union alive. Third, it is no ingenious new mechanism but a very ordinary slush fund.

To call this flawed construction a European Stability Mechanism is already an insult to the intelligence of the average European. Purely for the sake of convenience though, let’s stick to the name.

The ESM will replace the old European Financial Stability Facility (another misnomer) and have an initial lending firepower of €500 billion. If it is meant to provide stability beyond Greece, Ireland and Portugal this sum will not be sufficient, so Article 10 of the Treaty comes in handy. It allows the extension of the ESM’s capital stock by a decision of its board of governors, which consists of national finance ministers.

Previously they would have had to ask their parliaments for approval but practically this inconvenience has been put aside. Only theoretically and only where national constitutions allow could parliaments still insist on their old budget rights. In all likelihood, they have abandoned and transferred them to the ESM’s board of governors.

If the ESM has thus turned parliaments into mere cash machines, will it at least be transparent and accountable?

Provisions about legal privileges granted to the ESM suggest otherwise.

Article 27 of the ESM Treaty grants the institution “immunity from every form of judicial process”. It also notes that the “property, funding and assets of the ESM shall, wherever located and by whomsoever held, be immune from search, requisition, confiscation, expropriation or any other form of seizure, taking or foreclosure by executive, judicial, administrative or legislative action.” Even the supposedly independent European Central Bank enjoys less legal protection under European law.

ESM archives, documents and premises are deemed “inviolable”. The institution will be exempt from any rules that normally govern financial institutions, including taxes. On top of that, all ESM governors and staff will enjoy full legal immunity (Article 30). ESM employees will be freed from national income taxes and only have to pay “an internal tax for the benefit of the ESM on salaries and emoluments paid by the ESM.” It sounds like a Xanadu for bureaucrats.

Finally, Article 42 gives member states a deadline until December 31, 2011 to ratify it. For a new legal framework with enormous financial and fiscal consequences this leaves little time for detailed national debates. No wonder the president of the Bundestag, the German parliament, publicly complained that MPs could not be expected to consider and pass such treaties within just a few days.

But that is precisely the point. European governments do not have the slightest interest in a thorough debate about the introduction of the ESM. They cannot risk the public understanding what this ESM treaty really is: an enabling act that undermines budget rights of parliaments; a coup d’état of the continent’s political leadership against their peoples; and the most costly piece of legislation ever put before European lawmakers. It would be crazy to explain to ordinary Europeans what their political leaders have conspired to introduce. And so they don’t.

If the ESM at least solved any of Europe’s problems, these democratic deficits would still be severe but easier to accept. But it does not solve any problems. All it achieves is the transformation of the eurozone into a transfer and liability union without addressing the more fundamental problems of reducing debt levels and restoring periphery competitiveness. Instead of solving problems, the ESM creates new ones: it damages the creditworthiness of those few remaining countries effectively guaranteeing for the ESM. In a worst case scenario, Germany alone would need to shoulder the entire capital of the ESM – which it cannot manage without defaulting itself.

None of the measures proposed is without alternative. To consider other options would require an open and democratic debate – the very debate that Europe’s elites deny their peoples.

Having lost its fiscal sanity, Europe is about to give up its parliamentary democracy as well. When will the citizens of Europe stand up to those who

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This document was last modified by Mick Carty on 2011-08-26 13:03:33.
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