Commenti disabilitati su Reform and privatization of the European economic governance with the ESM, the SRF and the economic and budgetary policy: a national referendum is needed. Nov. 27, 2019.

(Please, help circulate these exhaustive criticisms and my request for a national referendum.)

At the beginning of next December, the reform-privatization of the European economic governance will be signed, and with it that of the officially “sovereign” member States. The process was carefully hushed but is now gaining some media attention particularly in Italy. After the signature, the Parliaments of the 19 member countries will have to ratify it. Given the philo-Semite Nietzschean and Spinellian context in Italy, and in other EU member States, this definitive sale of national sovereignty will be completed without major difficulties. We therefore ask that the ratification of this reform in Italy and in the other member States be submitted to national referendums in the event it will not be rejected by the Parliaments involved.

The referendum should ask the peoples of the member countries if they want to reject this reactionary reform and if, at the same time, they want to do away with the neoliberal-monetarist so-called « treaties of stability and “growth” »(sic!). These treaties aim is to impose a rigorous annual budget balance without any respect for the economic logic and for the social and socio-economic rights guaranteed by the Constitution. This despite the essential anti-cyclical role played by social programs that implement these fundamental social rights.

Why is the implementation of this reform problematic? There is no point in populist propaganda against Germany and the countries of Northern Europe when the real culprits are our own leaders. Even Mr. Clericetti who writes on understood it !!! (1) I have already proposed a first reflection dealing with the core of the reform pointing to the failure of the « fiscal consolidation path », to the banking vulnerability in particular in Italy, and to the preventive reform of the ESM, with a view to transforming it into a Monetary Fund entitled to place Member States under strict control with the view of forcing upon them a cold-blooded restructuration of their public debt in a fashion even more rigorous than that used against Greece. (See )

It is therefore necessary to briefly expose the danger while demonstrating the crucial need to request a national referendum on the subject.

The official texts relevant to the understanding of this reform are brief. These are the following:

1) The summary presented by the Head of the ESM “Reform of the ESM – speech by Klaus Regling” 09/09/2019,

2) The summary provided by the ESM itself: “Explainer on ESM reform and revisions to the ESM Treaty”. 24/06/2019

3) Finally the 62-page draft Treaty available in its June 2019 version in .

Put simply it is about privatizing the financial and economic governance of the Member States. So much so that Article 32 of the draft treaty confers on the new ESM, the reformed organ that crowns this reform, a complete autonomy and total impunity, to the point that its Head office will be located in Luxembourg, that is to say in one of the worst tax havens in the EU.

Let’s proceed step by step:

1) The European Banking Union, currently limited to the supervision of a hundred systemic banks, has a Single Resolution Board – SRB – and a Single Resolution Fund (SRF) to deal with banking crises. Given the deterioration in the strength of banks – see Deutsche Bank, Italian banks with bad loans, and so on -, the SRF is strengthened, thus recognizing that the danger of a banking crisis today is real and more serious than it was before and during the subprime crisis of 2007-2008.

The bailouts of the banks necessitated by this crisis did cost at least 17% of the EU GDP and almost three times more if all economic costs were taken into account from 2008 to 2018. (See « La crise de 2008 a 10 ans: voila ce qu’elle a coûté à la France » Cumulative cost 1.541 billion for a GDP of 2.288 billion !!!

Since these huge bailouts are now almost impossible for most member countries, the bail-in logic is strengthened at a EU level. A bank in danger – systemic or not, the project is not clear on the issue despite the jealous protection granted by Germany to its regional banks closely tied to its industrial apparatus – will be restructured by the SRB at the expense of shareholders. Of course, the biggest shareholders will have already fled to tax havens. The deposits of ordinary citizens will then be used in a context in which the deposit guarantee up to 100,000 euros is de facto a vacuous promise. This logic will require banks’ restructuring and mergers, such as those operated by Sanpaolo and Santander or more subtly by Deutsche Bank with the help of Paribas. Quite simply, Italy risks losing control of its private credit. For example, Uni-Credito has already studied its preventive merger with Société Générale. (See « Faillite bancaire: le Fonds de résolution unique, à 33 milliards d’euros, doit encore doubler de taille», Par Delphine Cuny du 18/07/2019, sur )

The treaty does not recognize the constitutional possibility for public bailout, although the massive intervention of the State took place in favor of Germany and France immediately after the crisis, to be then rejected in the name of an alleged « moral hazard » against Italian interests – and those of other southern European nations – to be finally reintroduced partially – necessity being mother of virtue – for the non-systemic banks with the Atlante Fund. This silence must be clarified given the logic of the backstop and of the bank recapitalization granted to the reformed ESM. It’s about preserving the vital possibility of State intervention. In Italy this possibility is guaranteed by Article 47 of our Constitution and by the articles relating to the role of the State, thus of public credit, when the private sector is no longer able to protect the general interests of the State and of the citizens.

Given that speculation measured, for instance, in terms of the ratios of CDS and OTC over real “assets”, is worse than before the crisis of 2007-2008, the European philo-Semite Nietzschean and Spinellian Establishment is aware of fact that the current SRF will not be up to the task. The SRF is financed by the banks themselves – in fact, by the taxpayers given the privileged tax regime of banks and the fact that the provisioning for losses is 100 % deductible. Banks are weakened by the need to conform to the stricter regulatory framework of Basel III, by the logic of negative interest rates that are difficult to compensate for with ever higher commissions imposed on customers, and by the economic crisis that jeopardizes investments in the real economy. In fact we are now talking about zombie companies, companies that are bankrupt but kept alive by the banks to avoid reporting the losses in their balance sheets.

As a result, the reform plans to activate the reformed ESM in support of the SRF in case of need by instituting if as a “lender of last resort”, albeit one limited by its financial resources. Since the new ESM is designed as a European Monetary Fund, recourse to its assistance will be subject to the well-known strict “conditionalities” similar to those imposed by the IMF. If that were not enough, the project also allows the new ESM to recapitalize private banks, on the basis of the contribution of the Member States, which, like the quotas paid to the IMF, are financing this organization. It’s a shame. Because, in this way, private financing, to which the financial policies – public credit – and economic and socio-economic policies of the Member States are already fully subjected to, will no longer be accountable to any elected institution. They will save each other out of the public purse without any democratic oversight. I emphasize again the total immunity conferred on this privatized ESM – see Article 32.

2) The reformed ESM as an European Monetary Fund.

It is created as a self-governing and autonomous private institution, including vis-à-vis the member countries that finance it and the European Commission.

It will act as a lender of last resort.

First of all, as we saw, by acting as a backstop guarantor of the SRF.

Secondly, as a body authorized to recapitalize private banks for the sole benefit of the private sector. Yet, the use of public recapitalisation implying at least some control over decision-making processes, does cost much less, as the British rescue of Northern Rock has clearly shown. Indeed, a public bank with an average leverage of 30 to 1 – not to mention the weight of the shadow banking system – could easily solve all these banking problems as well as those related to the financing of the public and parapublic debt. But it is precisely this public and sovereign alternative that this reform wants to cancel once and for all. This is a frontal violation of our Constitution and of the other European Constitutions, equally born of the Resistance.

Thirdly, the ESM established as a lender of last resort has the right to intervene on the primary market to purchase State bonds, a possibility that has been denied to the ECB. By mandate, the latter can only act on the secondary market for the purchase of sovereign bonds or corporate bonds. Thus, the ECB, already autonomous from the governments by mandate, was subordinated to private speculative finance, in particular to the dozen of so-called “primary” universal banks which currently control the sale of the sovereign bonds emitted by the States. In fact, the billions of liquidities created by the ECB, Facility I and II, the FSEF, the ESM, the OMT, the Ltro, the Tltros, the QE, etc. did not prevent the growth of the public debt of most of member countries when considered as a percentage of GDP or in absolute numbers. On the contrary, they allowed private banks to ignore the classic capitalist law of competition – “too big to fail”? – using the financing lavishly offered by the ECB, which fueled speculation and led to a considerable tightening of credit.

Nevertheless, these banks are now so vulnerable that they no longer lend themselves to each other and have to resort to the central bank for overnight loans or repos. The weakening of investments in the real economy, despite the economic stagnation, reveals the horrible and grotesque side of this drift of private speculation, as these large banking and non-banking firms spend more than 60 to 80 billion dollars per month in repurchases of their own shares – buybacks – for the sole purpose of paying dividends to shareholders!

This role of lender of last resort reveals the failure of the central bank’s policy, in particular that of the ECB, as well as the failure of the fiscal consolidation path. (On this subject see the article already mentioned above in )

However, some States, such as Italy, are on the verge of being excluded from the financial markets to refinance their public debt. Our obligations are therefore about to be considered dubious or junk. At this point, the ECB will no longer be able to “help” the domestic speculative system by buying our bonds on the secondary market. When Greece was excluded from the financial markets, with a government of renegades who cowardly refused to resort to public credit, the intervention of the ECB was no longer possible and it was necessary to resort to State aid and to the intervention of the ESM and and that of the European Commission. This resulted in placing Greece under a sort of financial guardianship ad vitam aeternam without ever questioning the privileges of armateurs or those of the 10% or 30% richer, in exchange for small loans offered in small tranches in order to maintain Greece in line.

Greece weighs 2% of European GDP, Italy 16 or 17%, and one must add the problems already accumulated by other major European countries, including France. The ESM therefore needed to be strengthened as a matter of urgency, both from the financial point of view – Member States’ contributions and the possibility of self-financing – as well as from the point of view of its role as a financial policeman capable of imposing ferocious structural adjustment plans on the countries in need of loans – that is to say, countries that are stupid and servile enough not to resort to public credit. It must be underlined that when the Central Bank of Italy functioned as a public bank, our debt amounted around 30% of GDP, despite the enormous efforts made necessary by the reconstruction of the post-war period and those linked to the tremendous growth experienced in the years 1960,  known as the “Italian economic miracle”. The percentage of public debt in France was even lower before the privatization of the Banque de France in 1973 by the Pompidou-Giscard-Rothschild law.

In case of rescue of the member countries, the new ESM may propose two types of loans. The first type concerns precautionary loans. The other adjustment loans. (“Two types of credit lines are available in the ESM toolkit: a Precautionary Credit Line Condition (PCCL) and an Enhanced Credit Line Conditions (ECCL)”.) The second is even stricter.

Both are linked to the signing of a Memorandum of Understanding with which, like the IMF, the ESM will impose a restructuring program involving the total control of macroeconomic parameters, and then the control of the Treasury and the Ministry of Economy and Finance. As was the case for Greece, the loans will be granted in small tranches, so that once it will have the noose around its neck, a State will no longer be able to refuse loans and their draconian conditionalities, on pain of bankruptcy. These structural adjustment programs are strictly in line with those imposed by the Chicago Boys and Pinochet in Chile: wall-to-wall deregulation and privatization going along with a ferocious neoliberal and  monetarist public policy which aims at imposing the reduction of the size of the State to a minimum, starting with the dismantling of social programs and public education.

This is done despite the fact that these publicly run public programs have an Economic Multiplier of around 3 compared to private programs for which it is only around 1. Moreover, these virtuous public expenditures are counted in the public debt but not in Marginalist GDP growth or in the “purchasing power” index. – generally confused with the standard of living – because, being services, they do not have a “market price” !!! (See: .) These structural adjustment programs also impose a-social production for export in order to increase foreign exchange earnings used to repay foreign loans and debts in priority! In doing so, the inequalities are growing to the point that even in a country which suffered martyrdom for decades like Chile, these neo-liberal monetarist recipes are now massively rejected.

The tragic irony is that this reformed ESM would play its role of policeman at the expense of the Member States and of the European Commission itself, but on the basis of the criteria spelled out by the Fiscal Compact, one which no longer has any legal status, because it was not translated into law by the end of 2018! The Fiscal Compact reinforces the Maastricht criteria so that it is not enough to respect a maximum deficit of 3 % of GDP and a debt of 60 % of GDP, but it is also necessary to reduce the public debt beyond 60% tendentially by 1/20 per year. Sacrificing everything else. This reduction is therefore played out on the structural deficit, thus on the deficit that makes abstraction of economic fluctuations. As we know, Italy no longer respects these criteria nor this reduction path of the structural deficit, including in the last budget, one of the most disastrous and more timid ever. This is a ridiculous budget of nearly 3 billion euros, ignoring the fable of the neutralization of the automatic increase in VAT, but one which nevertheless cuts of 3 billion euros imposed on various ministries!

The reform confirms the formal autonomy of the European Commission in relation to the reformed ESM. But, this is not good news, as it actually means that the Commission acts as the ordinary policeman responsible for implementing the Fiscal Compact. Which is now null and unfounded in law as had just been pointed out Mr. Mélenchon. In fact, the draft Treaty refers to the TFEU and not to the late Fiscal Compact, but only to replace it with a worse one. Once the criteria for the Fiscal Compact have been breached and the negative consequences for “sovereign risk” materialize, the reinforced ESM acting as a Swap Team will enter into action. This amounts to a total devolution of the national and European democratic power to the ESM, which will determine with complete freedom and impunity the structural adjustment programs imposed on sovereign States  in favor of private capital.

Technically, a State cannot even refuse to negotiate a Memorandum of Understanding after ratifying the Treaty. In case of refusal, there will remain only the exclusion from the international financial markets needed to finance the necessary loans or the recourse to public credit. This last and more virtuous alternative being today excluded transversely by our comprador elite. It has equally been noted elsewhere that decisions will be taken with qualified majorities hence there will be no possible opting out.

As a result, if this reform of the SRF is adopted, our banks risk being restructured for the benefit of stronger foreign banks, while our Italian Republic will be the first to experiment the new financial and economic powers conferred to the reformed ESM. Yes, it amounts to high treason of the interests of the State, because despite the Constitution, the savings of ordinary Italians will be potentially sacrificed in the bail-ins, as well as the possibility for the State to use the unequalled possibilities offered by recourse to public credit and to the powerful levers of the mixed economy .

3) The question of the so-called Single Limb CACs remains to be clarified.

What does the acronym CAC stands for? It means Collective Action Clause. This provision will only favor the restructuring of the public debt of the countries that will use the ESM loans. Debt restructuring will be proposed to creditors by asking them to vote in bulk on the proposal. Nobody can refuse. Some vulture funds raised the issue dramatically in the case of the exemplary public restructuring of the Argentine debt by the Kirchner governments. As a result, Argentina’s public debt has been reduced very rapidly to about 8 percent of GDP without the “protection” of the IMF or of any “Washington Consensus”, thus allowing the country’s socio-economic recovery. Some vulture funds that had wanted to speculate on the Argentine debt buying it at reduced prices refused the restructuring proposed by the Argentine government and launched a legal war at the international level.

European and US courts have come to recognize the supremacy of sovereign States in these cases. The EU had adopted a Dual Limbs CACs system, a mechanism that it now considers useful to modify to better protect itself against the rapid decay of the speculative financial and economic sphere. And it is precisely this victory of the sovereign States that is called into question by this section of the reform that shift the sovereign power against the recalcitrant creditors into the hands of the ESM. It’s intolerable. Also because the impunity conferred on the ESM will prevent the least recourse to an external audit of the public debt!

4) With regard to the reform of the European budget, there is still little talk of it, but a Green New Deal type of intervention is taking shape, and we know that it is nothing more than a speculative Green QE, doubled by a disastrous and futile war against fossil fuels, which will permanently ruin comparative European production costs. (See the article on Planet B in .)

As an insurance against any possible parliamentary ratification – regrettably expected in our weakened and bartered countries now sold-out for private gains and often out of sheer incompetence – we therefore ask the holding of a national referendum. It will have to include both this reactionary reform of the European governance and the shelving away of the domestic so-called Stability and « Growth » Pacts which, contrary to our Constitutions, do impose a disastrous and Reaganian annual budget equilibrium to the Central State as well as to local communities.

Paul De Marco, former professor of International Relations – International Political Economy.

Note 1 ) Esm, una pseudo Bce-2 ancora più tedesca, 25 nov. 2019 Carlo Clericetti

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