Today Die Welt publishes an article signed by Gunnar Beck, professor of EU law at the University of London. In it, Mr. Beck dissects the ESM treaty and proves that it clearly violates both Germany’s constitution and EU law. The ways in which the ESM violates german and/or EU law are the following:
- Unlimited capital. Germany’s constitutional court made clear in past resolutions that any increase in the financial responsibility of Germany arising from EU rescues of weak european countries should be explicitly voted in the german parliament, who would have the right to oppose any additional financial burden. According to the authorized capital of the ESM, 700 billion Euros, Germany’s part would be capped at 190 billion Euros (in proportion to its share of the Eurozone’s GDP) . This would be the case if the ESM treaty did not allow for its shares to be issued at values other than par. While this is true for the first 80 billion of capital, according to article 8.2, subsequent capital issuance can be done at values other than par. This means that, in practice, capital can be as high as the governors of the ESM decide it to be. The only thing they need in order to increase capital above the 700 billion limit is to issue shares of the ESM at a higher than par value. For instance, the ESM could issue 1 million shares at a premium of 100% to its 100000€ par value, that is, 200 billion Euros of capital would be obtained, but only 100 billion of those would count towards the capital limit rule. This way, effective capital could be as high as approved by the governors of the ESM, without breaking the 700 billion authorized capital rule.
- “Eurobonds”. Article 21 of the ESM treaty allows the issuance of unlimited amounts of debt in financial markets, introducing “eurobonds” through the back door.
- Joint and Several Liability. In the event that one of the signing countries was unable to pay for its share of capital to the ESM, the remaining countries would be responsible for the amount not being paid by the country unable to fund the ESM. In practice this means that rich countries might be responsible not only for their part, but for that of the countries unable to pay.
- Bank license. According to article 32.9 the ESM needs no banking license to lend money in markets. Also, as “bad bank” the ESM can finance itself at the ECB. Finally, according to article 19, the ESM has the authority to rescue insolvent banks. A true bank in everything but name.
- Immunity. According to article 35, ESM governors have legal immunity against any decisions taken by them in the ESM. Also, resolutions by the ESM can not be revoked by any judicial means.
- Secrecy. According to article 34, members of the ESM have a lifelong obligation of confidentiality on matters related with the ESM.
A complete assessment of the laws broken or superseded by the ESM go well beyond the scope of this post, but it seems clear that the ESM, if approved, will permanently change the Eurozone’s financial architecture, diluting national sovereignty, making irreversible the subservience of Eurozone countries to an entity, the ESM, that nobody voted into power. What a feat! Cui Bono?