Legal and Political Obstacles to Euro-Area Deal Mount
It didn't take very long for it to become clear that the new 'fiscal compact' fantasy negotiated last week by Europe's political leaders may be unraveling just as fast as it was dreamed up.
It should be clear that the fiscal propriety straight-jacket Germany wants to impose on the euro-zone is the one solution least liked by the political class, as it threatens to seriously disturb the vote-buying and the dispensing of favors to a plethora of vested interest that is regarded as the main job of the modern-day short term caretakers of the government's apparatus of compulsion and coercion.
Naturally, they all prefer to violate their subjects' property rights and liberty via the expedient of inflation rather than by raising taxes. That way, it is reckoned – not unreasonably so, from the point of view of the looting class - the theft will go largely unnoticed, and by the time it becomes noticeable, the victims will no longer be able to link it to the policies enacted in the past. There is after all a considerable time lag between the act of inflating the money supply and the discovery of late receivers of the new money that they have been duped.
The inability to promise an endless stream of free goodies to a sufficiently large majority of the electorate is also a serious impediment to actually winning elections. One's opponent may end up winning simply by being someone else. Even worse, since said opponent has not been a signatory to the 'toil, blood, sweat and tears' treaty, he can now use the promise of altering the negotiated treaty as a campaign weapon.
This is precisely the course the main political opponent of France's ersatz Napoleon Nicolas Sarkozy has now embarked upon. The ink was barely dry on the 'fiscal compact' when the leader of France's socialists (a party that is in principle indistinguishable from the so-called 'conservatives', as both are etatiste to their rotten core), Francois Hollande, let it be known that he would immediately renegotiate the treaty if he were elected. As Marketwatch reports:
“French Socialist Francois Hollande, one of the main candidates expected to challenge President Nicolas Sarkozy in May, reportedly said Monday that if elected, he would seek to renegotiate the fiscal agreement reached in Brussels last week. According to a report in AFP, Hollande said in a radio interview with RTL that if elected, he would try to convince his European counterparts on three fronts: the issuance of joint eurobonds to combine sovereign debt; allowing more intervention on bond markets by the European Central Bank and agreeing to stimulus measures. His Socialist party has been critical of Sarkozy for bending to Germany's will and undermining France's own policy. Hollande is leading in opinion polls in France right now ahead of a presidential election due to take place in two rounds, next April 22 and May 6, said media reports.”
(emphasis added)
Evidently, Sarkozy's signature has just become worthless – since it is fairly certain that he who promises a free lunch will get the majority of the votes. Hollande wants the ECB's printing press to 'solve' the problem, and inflationism - just like protectionism - is ever popular.
However, the deal is beginning to unravel from the opposite side of the political spectrum as well. A member of the board of Germany's Bundesbank appeared to shoot down the idea of bilateral loans to the IMF in mid-flight – this in spite of the fact that the Bundesbank had appeared amenable to the idea only a week earlier.
“Andreas Dombret, a Bundesbank board member, said Germany's central bank cannot take part in any form of covert funding for EMU states in trouble through the bank-door of the IMF, saying further money can be used only to support the normal operations of the Fund.
"The money cannot migrate into some sort of special pot that is used exclusively for Europe. That would be a clear breach of the prohibition of monetary financing of states. The German Bundesbank has explicitly ruled this out," he told the Handelsblatt newspaper.
Mr Dombret said the Bundesbank's share of any such IMF package would be €45bn and is "inherently risky". It would require an indemnity of some kind from the German parliament. This in turn would breach the €211bn ceiling already set by the Bundestag on EU bail-outs.
Mario Draghi, the head of the European Central Bank (ECB), raised similar concerns last week, warning that the ECB is not willing to use the IMF as a conduit for covert sovereign rescues in Europe.”
(emphasis added)
Furthermore, Germany's Bundestag president Nobert Lammert appears unconvinced of the constitutionality of the euro-zone deal. As we mentioned yesterday, the idea that other IMF member nations (i.e., non-European ones) should also step up to contribute to the IMF directed rescue seems to be little more than a forlorn hope. To even include this admonishment in the official statement required quite a bit of chutzpa. As has now become evident, this was not even discussed with other IMF nations beforehand. The Telegraph continues:
“Adding to complications in Germany, Bundestag president Norbert Lammert has demanded that the summit package should undergo scrutiny by Germany's constitutional court, warning that new powers for European commissars to intrude in national budgets might conflict with German fiscal sovereignty.
The summit item on the role of the IMF appears to have been slipped into the conclusions without full preparation and is meeting blistering criticism from IMF experts, as well as hostility in Washington.
US President Barack Obama said: "Europe is wealthy enough that there is no reason why they can't solve this problem. It's not as if we are talking about some impoverished country that doesn't have any resources." The US said it will not contribute to the EU package. A group of Republicans on Capitol Hill want to go further and slash America's existing funding for the IMF.
Mario Bleijer, former head of Argentina's central bank and an IMF expert, said Europe should not try to shift liabilities onto the rest of the world.”
(emphasis added)
To summarize just the points above: over a single weekend after the 'landmark deal' was signed, we find out that the governments that are the main parties to the agreement are not even in a position to guarantee that the agreement will survive. Their competence as regards signing such agreements is very much in doubt. What's more, they have evidently been unable to find an acceptable compromise, as important powerful interests in their own countries remain implacably opposed to weakening their original position. In France it is held that the agreement is 'too tough'; in Germany it is held to be 'too soft' and in violation of existing legal restrictions.
Adding to the growing sense of doubt, several other governments are suddenly also not so sure if they can just sign off on the massive changes demanded by the 'fiscal integration' deal. As the WSJ notes:
“In Ireland, the government plans to decide whether a referendum will be needed to accept the pact. Europe Minister Lucinda Creighton on Friday put the chances of that at "50-50." An Irish "no" wouldn't necessarily derail the pact, but it would place Ireland in limbo—inside the euro zone but outside its proposed fiscal pact.
The agreement likely will need to get parliamentary approval in Sweden, Hungary, the Czech Republic and possibly Denmark.
"The more you hear from the European leaders, and the less you see implemented, the more skeptical you are," said J.P. Morgan Asset Management chief market strategist Rebecca Patterson.”
Not mentioned by the WSJ is the fact that Finland regards the 'qualified majority rule' for the ESM's decision-making procedure unconstitutional. It will require a separate approval by Finland's parliament to enable it to agree to this particular provision.
In short, the very same problem that has bedeviled the handling of the crisis by the eurocrats from day one continues to rear its head: it is simply impossible to get 17 – never mind 27 - different nation states to agree to wide-ranging reforms in a hurry. This is especially so when these reforms threaten their sovereignty and the very cornerstone of modern-day democratic politics, namely the ability of politicians to bribe the electorate.
From the German point of view, a different motive is in the foreground: Germany wants to enjoy all the advantages that membership in the euro area brings to it, but it doesn't want to pay for them. It fails to realize that at the heart of the competitiveness problem that has brought the fiscal offenders in the periphery down are the capital malinvestments and price distortions resulting from the credit bubble that was enabled by the fractionally reserved banking cartel directed by the ECB. At least though, Germany refuses to join in the ex-post rationalizations forwarded in favor of even more inflationism by France and many others. The German 'fiscal straight-jacket' proposal is at least a tad more honest, as the theft of resources from the producers of wealth will have to be conducted overtly instead of covertly (as we have already noted, there is as of yet no plan to actually cut government spending anywhere, so budget consolidation rests mainly on imposing higher taxes).
Obviously though, it is simply not possible to bring all these widely differing viewpoints together on the same page. Whenever the financial crisis lurches to fresh extremes, there is a sense of urgency and everyone seemingly agrees that 'something must be done fast', but as soon as an agreement is reached under this exogenous pressure, it turns out that no-one really wants it.
After all, who would want to be bossed around by this clown?
Chief unelected eurocrat, EU commission president Herman van Rompuy. Nobody loves him ('Who am I, what and why? 'Cause all I have left is my memories of yesterday – Oh these sour times' – Cause nobody loves me, It's true' ), least of all Nigel Farrage, see below.
(Image via Reuters)
Nigel Farrage's famous harangue of Herman van Rompuy (some choice quotes: “You have the charisma of a damp rag and the appearance of a low grade bank clerk… Who are you? I've never heard of you. Nobody has ever heard of you. Who voted for you?” “ I sense though that you're competent and capable and dangerous … I have no doubt that it's your intention to be the quiet assassin of European democracy and of the European nation state.” – Quite so.)
