The EU presidency hopes the ESM will be formally signed at the next Eurogroup meeting on February 20, before it has to be ratified by national governments until June 30. Resistance to the ESM appears to grow in Slovakia and Austria, where political chit-chat circles around rumors that Austria's chancellor Werner Faymann has shaken off the short leash Germany's Angela Merkel had been holding so far, holding his posture in front of ueber-mighty Germany and not nodding off every one of Merkel's ideas.
So far the EU succeeds with its mission to establish the ESM, that will lead in combination with the "Treaty on Stability, Coordination and Governance in the Economic and Monetary Union" - shorthand: EU Fiscal Compact - into a EU financial dictatorship. European media carry not one word of criticism and politicians in most countries ignore this diabolic piece of legislation completely.
Only Austria's Piratenpartei (PPÖ), a small party aiming to keep Austria out of the ESM, had warned last week about the pitfalls in the ESM treaty. In a German language release it warned that the latest unofficial ESM version from January 27 now contains voting procedures that contradict any democratic procedure. Overdue debtors will lose their voting rights until full repayment of the debts due and decisions within the ESM can be ratified with more than 85% of the vote.
This contradicts the former fundamental EU principle that major decisions have to be agreed on unanimously.
Rumors Focus on even Lower Majority
There are credible rumors that this qualified majority shall be lowered to 80%, giving countries like Germany even more influence as more debtors will be eliminated from the voting process, increasing the relative voting strength of those not overdue with their payments.
This means that over time in the coming collapse of EU countries more voting rights will move from the small debtors to the bigger creditor countries, giving them ever more leverage to dictate the fate of the Eurozone.
The whole ESM procedure is cloaked in secrecy. The only available document is this poorly done unofficial (computer?) translation in German from January 23. Read my criticism here that only has to be extended by the new enraging fact that the latets ESM treaty version provides for direct influence of the ECB on national budgets of belated countries.
The ESM shall come into effect by July 1, 2012. Its current design is a far cry from the once envisioned strong fund with €700 billion equity. It is now basically another leveraged special purpose vehicle (SPV) that will start out with €80 billion capital and will leverage itself up to €500 billion in the first step.
This may change much sooner as the EU pushes this potential trillion Euro coffin ever faster into legislation.
In a late night press conference on Monday EU President Herman van Rompuy announced,
we will reassess the adequacy of resources under the EFSF and ESM rescue funds in March. -- And since our next summit is on the 1st of March, this is actually less than 5 weeks from now!This can only be interpreted that the Eurozone will need more than €500 billion at the proposed inauguration of the ESM in July.
Latest reports by German Spiegel magazine give already a figure of €1.5 Trillion.
This will be far from enough, considering that Greece alone is almost €300 billion in the red. Greece's staggering debts may also be the reason for more delays in the ESM and the EU Fiscal Compact.
Who knows, but it is possible that some Eurozone countries want to see Greece default first and set up the ESM without the bankrupt Hellenic republic.
It also came as a surprise that not only the UK but the Czech Republic too will not sign the EU Fiscal Compact, Rompuy said,
we agreed and endorsed the fiscal compact, a treaty on stability and convergence in the Economic and Monetary Union. The 17 euro leaders will sign it at our next meeting in March, together with the non-euro area leaders of countries willing to join.
The Treaty is all about more responsibility and better surveillance. Every country that signs it commits to bringing in a "debt brake" or "golden rule" into its own legislation, and will do so at constitutional or equivalent level.
New voting rules and an automatic correction mechanism will enforce compliance more effectively. 25 Member States will sign it, that is all except the UK and the Czech Republic. The treaty will enter into force once 12 euro countries have ratified it.Here lies the next significant pact change. In the earlier version of the EU Fiscal Compact it needed 15 ratifying countries before the fiscal pact comes into effect. It appears the EU Council does not really get applause from a multitude of EU members. Nothing is known about the Czech provisions against the pact so far.
Read here the latest version of the EU pact from January 31.
I know this post is quite lengthy, but as these are all changes that can lead into a technocratic and dictatorial Eurozone, read this comparison from EUinside to evaluate the fiscal pact changes:
The new text makes it clear that the Treaty can be joined by other EU member states but only after they apply for membership and after being approved by the contracting parties. This is a very significant change against the backdrop of the previous texts, because from the outset the initiators' wish, France and Germany, was for as broad as possible support.
The idea was supported by all member states except Britain. However, within the working group many countries started putting up conditions that they would join but only part of the provisions, at a later stage or never.
The text of this new article, as well as the new title of version 3 inclines to thinking that the direction of the pact already is getting clearer. If in Version 2 the title was "International Treaty on a Reinforced Economic Union", in Version 3 the title now is "Treaty on Stability, Coordination and Governance in the Economic and Monetary Union", which is the full name of the Eurozone.
One of the proposals is for strengthening economic and budgetary surveillance of countries, threatened by serious financial instability in the euro area (the countries with bailouts) and the other is for increasing budgetary surveillance in the euro area.
What impresses is that in the third version of the pact several times the Stability and Growth Pact (SGP) is mentioned, which means that the contracting parties take its rules for leading principles as well as the entire EU legislation, which has a priority.
Many new texts are added, some are just made more precise, while others are with insignificant changes in expression, which is why below we will present to you only those changes we consider of great significance.
Another very important text is expanded, related to the countries with financial difficulties. In the third edition of the document an old German demand is explicitly stipulated for the assistance provided under the European Stability Mechanism (ESM) - adhering to the "golden rules" for debt and deficit would be a condition for receiving rescue from the ESM.
Article 3 represents the fiscal pact in essence, in which the fiscal parameters are outlined, which the participating countries agree to apply and in which there are also some worth the attention changes.
But before that it is important to mention that if in Version 2 the contracting parties increased notably the European Commission's role in its implementation, now in Version 3 there is a withdrawal. In the previous version it was provided, except a participant country to bring to the European Court of Justice a partner country for not sticking to its commitments, the European Commission too to do that on behalf of the other participant countries. In the latest version it is pointed out that a member country can bring such a matter to the European Court of Justice or to invite the Commission to come up with a report on the issue. In that case, if the Commission confirms that there is a breach of rules in its report, then the matter can be raised with the European Court of Justice but by the contracting parties.
One of the main provisions in the treaty, introducing automatic sanctions by a reversed majority, is changed in a direction that allows various interpretations.
In the previous version it was said that the contracting parties from the Eurozone agree to support the proposals or recommendations of the European Commission in case of a violation of one of the criteria for debt or budget deficit in the framework of the excessive debt procedure. These recommendations were envisaged to be rejected by a qualified majority. In the new version it is written that the obligation to adhere to the European Commission recommendations shall not apply "where it is apparent among the Contracting Parties whose currency is the euro that a qualified majority of them, calculated by analogy with the relevant provisions of the European Union Treaties without taking into account the position of the Contracting Party concerned, is of another view".
Troublesome "Qualified Majority" Formula
The new formulation is much vaguer than the previous one, but especially confusing is the expression "when it is apparent". This puts into question the definition of qualified majority when it will be defined not according to but "by analogy" with the European treaties. This type of majority was introduced with the Lisbon Treaty and means: there is a qualified majority when 55% (when voting on a European Commission proposal, otherwise the percentage is 72) of the member states that represent 65% of EU population support a proposal.
As mentioned in the beginning, the focus of the Treaty is more and more shifting toward the Eurozone only. This is even more evident from the title of Chapter V of the third draft of the Treaty. In Version 2 the title of this chapter was only "Governance", while in Version 3 it is already "Governance of the Euro Area".
There is also a change in the conditions for the Treaty to enter into force. In the previous version it was written: after the ratification of 15 participating countries, while now it is proposed the countries to be 12 but the number is put in brackets which can only mean that it is conditional too. Most importantly, however, is that there is already a specific date for its entering into force - 1 January 2013. So far there was no specific date for enforcement.
MEPs protest new Fiscal Pact Sharply
As with the previous versions now too the representatives of the European Parliament in the working group reacted sharply. According to Elmar Brok (EPP, Germany), Roberto Gualtieri (S&D, Italy), Guy Verhofstadt (ALDE, Belgium) the latest draft is incompatible with the EU treaties and does not defend the "community method" in the decision making process. This is the main criticism of the European Parliament from the onset against the idea for the creation of the Treaty, which is formulated as an intergovernmental agreement. The main fear of the three MEPs is that "the draft does not ensure that every decision to apply the new treaty will be taken within the normal procedures, envisaged in the EU Treaties, in order to ensure democratic control and transparency".
Scheduled for 7 PM it only began after 10 PM with only a handful of red-eyed journalists left. After the initial statements of Rompuy (PDF) and Barroso (PDF) only 2 questions were allowed. This is not what OI would call transparency.
I repeat my warning that the ESM is a devil in disguise that will strip financially hard hit Eurozone members of their voting rights and will lead to a 'one vote per Euro' plutocratic era in the EU.
Click here to go to the The Prudent Investor homepage for more interesting posts.