“There Is No Consent For A United States Of Europe”

In a speech in the European Parliament, Nigel Farage, leader of the UK Independence Party (UKIP) attacks the idea of creating the United States of Europe: “The whole European project is based on a falsehood… and it’s a dangerous one.. because if you try to impose a new flag, a new anthem, a new president, a new army, a new police force; without first seeking the consent of the people you are creating the very nationalisms and resentment that the project was supposed to snuff out.”. We agree.

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A United Europe? Think twice

In a revealing article published today by Die Welt, some of the elements of this year’s wish list of the representatives of the global elite, meeting this week in Davos for their yearly fest, are, if indirectly, mentioned.

As expressed by Axel Weber, president of UBS, in this year’s list there is the desire that in the event of a second banking crisis in Europe (assuming the first one was ever finished) the european banking system would be recapitalized, bailed out, with public money. More importantly, perhaps, another element of the list would be advancing the agenda for the “United States of Europe”.

After a few paragraphs of platitudes of what some of the Davos participants think about the present economic situation in the world, “good but more reforms are needed” etc. etc. we come to the meaty part of the article, where Mr. Weber expresses his opinion about both the process of rehabilitation of the european banking system and of the potential results in the upcoming elections for the European Parliament on May 25th.

On the issue of the european banking system, fears Axel Weber:

“….fürchtet er, dass die Sanierung der Banken die nächste Bankenkrise provozieren könnte: Die Bilanzen von 130 Banken in Europa werden demnächst von der EZB streng geprüft. Im November sollen die Ergebnisse veröffentlicht werden.”

“Das kann zu einer gewissen Unsicherheit führen”, says Weber. “Wir werden nicht erst im November, sondern schon einige Wochen vorher sehen, dass Spieler gegen die möglichen Verlierer der Bilanzprüfungsübung wetten und sie abstoßen….Und es werden wieder die Staaten sein, die den Banken frisches Kapital geben müssten”

That is, the capital needs resulting from the results of the stress test that the ECB will impose on 130 european banks later this year might require european states to recapitalize them, again, with public money.

On the issue of the upcoming European Parliament Elections on May 25th, according to Mr. Weber:

“EU-skeptische Kräfte könnten eine entscheidende Kraft werden. Dabei ist die Entscheidungsfindung in der EU ohnehin schon kompliziert”

That is, Euro-sceptic parties might become a decisive force in the new European Parliament, complicating even more the decision making process in the EU.

On the one side, we are warned, a new banking crisis is possible, given the still very weak capital situation of most european banks. If that came to pass, then it would be expected that governments would bail banks out again (with tax-payers money).

Even more important, in our view, is the unease that the Davos mandarins feel about the upcoming European Paliament Elections on May 25. It is feared that anti-Euro, anti-EU parties, perhaps channeling a deep public feeling of having been betrayed by traditional political parties, might win enough seats in the next European Parliament to block, or at least delay the march towards a sort of “United States of Europe”, towards the TTIP, Transatlantic Trade and Investment Partnership, a sort of “free trade” agreement between the EU and the USA, and toward other globalist dreams, “dreams” presented as the solution to most, if not all, the problems that Europe faces.

This kind of statements reveal, we think, the fear that these elections, even for a parliament with very limited powers, might signal an inflection point in what has become a non democratically sanctioned path towards levels of european integration that many citizens in the European Union, for different reasons, reject.

The Davos elites know what they want: a centralized Europe. The reasons why seem obvious: a distant and highly centralized bureaucracy that controls all of the continents’ economic and political policies is much easier to manipulate than a set of independent states, each with its own agenda. This objective will be presented under the soothing aspect of a democratic continent “finally” united, but what really lies behind such an entity might not be so benign. Citizens feel it, and elites fear citizens acting on their justified fears.

Perhaps it would not be a bad idea to remember Aldous Huxley‘s admonition in Brave New World Revisited when talking about the best way to resist tyranny: decentralize.

“Under the relentless thrust of accelerating over-population and increasing over-organization, and by means of ever more effective methods of mind-manipulation, the democracies will change their nature; the quaint old formselections, parliaments, Supreme Courts and all the restwill remain. The underlying substance will be a new kind of non-violent totalitarianism. All the traditional names, all the hallowed slogans will remain exactly what they were in the good old days. Democracy and freedom will be the theme of every broadcast and editorialbut Democracy and freedom in a strictly Pickwickian sense. Meanwhile the ruling oligarchy and its highly trained elite of soldiers, policemen, thought-manufacturers and mind-manipulators will quietly run the show as they see fit.”

“Or take the right to vote. In principle, it is a great privilege. In practice, as recent history has repeatedly shown, the right to vote, by itself, is no guarantee of liberty. Therefore, if you wish to avoid dictatorship by referendum, break up modern society’s merely functional collectives into self-governing, voluntarily co-operating groups, capable of functioning outside the bureaucratic systems of Big Business and Big Government.”

A  United Europe?  Think twice.

Die wirkliche Wirklichkeit

We argued in a recent post that the ESM violates Germany’s constitution and the EU treaties. Today the German Constitutional Court (GCC) ruled that the ESM and its ‘fiscal treaty’ on budget discipline do not violate the country’s Basic Law and do not undermine the Bundestag`s sovereignty over budget issues, according to Openeurope. Although the full ruling is expected in early 2013, Openeurope remarks a few aspects of today’s resolution:

  1. Cap of €190bn on German ESM contribution, which can only be overturned by the Bundestag.
  2. Both houses of German Parliament need to be adequately informed about all ESM decisions – something which needs to be enshrined in “international law”.
  3. Reinforced that Bundestag approval needed for all activations of the ESM.
  4. Explicit ban on ESM borrowing directly from European Central Bank (ECB).
  5. The German Government can terminate ESM at any time, as recognised under “customary international law”.
  6. In its full ruling, expected in early 2013, the Court will also consider whether the ECB’s bond-buying programme, the OMT, has transferred illegal degrees of sovereignty to the EU-level.

If respected, #1 ruling would limit some of the potential risks that the creation of the ESM pose to the countries (and ultimately their taxpayers) funding the ESM, most specially Germany. Effective maximum potential financial costs to Germany would be capped at 190 billion Euros, invalidating the articles of the ESM allowing for potentially unlimited liabilities.

#2 and #3 reinforces Bundestag veto over ESM activation: the decision also states that any future ESM bailouts will require parliamentary approval, stating that the Bundestag “must individually approve every large-scale federal aid measure on the international or European Union level”.

#4 bans on the ESM borrowing from the ECB: the Court says that “borrowing by the ESM from the European Central Bank” would be incompatible with EU law (Article 123 TFEU). This is a surprisingly categorical rebuke, especially over an issue of EU rather than German law.

#6 addresses not the ESM but the latest ECB asset purchase program, named Outright Monetary Transactions (OMT). The GCC suggested in its press release that the ECB’s OMT will be considered in its final ruling on these complaints. The exact criteria upon which the programme will be assessed is unclear but broadly the Court will determine whether it transfers additional German sovereignty to the European level above and beyond that which the country has committed itself to in the EU Treaties.

What does it all mean? With a firm cap on the ESM, the ECB is now most certainly the only actor with deep enough pockets to put Spain and Italy on life-support – together with the OMT announcement the ruling has shifted the burden back to the ECB. However, the ruling and the role of the Bundestag highlights that activating the OMT will be challenging, since in order to qualify for ECB bond-buying, a country must first get funding from the ESM – and be subject to conditions. If the Bundestag agrees to activate more bailouts, it will most certainly push for harsher conditions than what debtor countries – most importantly Spain – are willing to accept. In the long-term, under current arrangements of linking ESM and OMT, the latter is also effectively capped and subject to a Bundestag veto.

If this is so, the caveats in the GCC’s resolution are not minor, why did markets continue to rally today? An answer to this question is hinted in today’s Die Welt’s article, Karlsruhe weiß, wo Europas Hammer der Macht hängt, whose last sentence goes like this: “the GCC, that for us is almost as holy as the Bundesbank, is only one of the Players in the european Game, and not the most powerful one” (“Das Bundesverfassungsgericht, das uns fast so heilig ist wie die Deutsche Bundesbank, ist auch nur ein Spieler im europäischen Spiel, und nicht der mächtigste”).

If, from a german perspective, its constitutional court is not the biggest, ultimate player, who is? If, as Die Welt’s article also implies, the GCC takes its decisions not only considering Germany’s Basic Law, but also in the context of the “wirkliche WirklichkeitI”, the “real reality”, what is that reality’s content?. Mr. Thomas Schmid, the author of Die Welt’s article, hints at the European Union’s centralist drive that gradually hollows national sovereignty and places it in supranational bodies, most specially the ECB, Mario Draghi’s ECB, that does no longer fear to antagonize its most important member, the Bundesbank. The ECB, that is also supposed to be the supervisor of ALL european banks, according to the latest proposal of the European Commission (EC), emerges as an almost all-powerful institution, mostly unaccountable to national governments and not even to the European Union. What and who does the ECB stand for?. Certainly not monetary orthodoxy and price stability as is written in its charter. In whose hands does Germany’s sovereignty lay? Perhaps a review of Mr. Mario Draghi’s biography would be helpful in answering this question.

“The tears I have cried over Germany have dried. I have washed my face.” – Marlene Dietrich

As 54% of Germans Want Constitutional Court to Kill the ESM doubts about next wednesday’s resolution of the German Constitutional Court (GCC) increase in the financial community

Germans could be consigned to serfdom to save the Euro @ The Guardian In this article Mr. Gunnar Beck argues that the ISM might ruin Germany and leave the country in a sutuation of practical serfdom

“Don’t Count Your Hahnchen”: 40% Chance German Court Does Not Ratify ESM @ Zerohedge Even among the anglosaxon financial communtiy, doubts arise as to the resolution of the GCC on wednesday. A “yes” to the ESM no longer seems a done deal, according to Morgan Stanley

Are The Krimson Karlsruhe Knights About To Say Ni-en? @ Zerohedge Bank of America, Berenberg and Daiwa Capital also have some doubts about the GCC`s resolution

The ESM violates Germany’s constitution and the EU treaties, a true trojan horse

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:

  1. 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.
  2. “Eurobonds”. Article 21 of the ESM treaty allows the issuance of unlimited amounts of debt in financial markets, introducing “eurobonds” through the back door.
  3. 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.
  4. 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.
  5. 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.
  6. 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?