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10 reasons to fear Europe's new super quango

by LLB Reporter
2nd Nov 11 7:23 am

Above the law? Infinite powers? The European Stability Mechanism is coming. Be afraid – be very afraid

The Luxembourg-based European Financial Stability Facility yesterday announced plans to raise Euro 3bn at its first bond sale. The money may well be heading for Ireland. It is a landmark moment. The European Union is assuming supreme control of the borrowing and lending at a sovereign level. Moody’s has already rated the Facility AAA.

In 2013 things will go up a gear. That’s when the European Stability Mechanism is activated. The Mechanism will replace the current Facility, which is only a temporary fixture.

But what is this Mechanism?

The articles of incorporation are worth reading. They reveal the Mechanism as an extraordinary beast. Not only will it possess staggering sums of money, it has been granted autocratic powers not seen since the apogee of the House of Bourbon.

An exaggeration? LondonlovesBusiness.com has been through the fine print to expose the true nature of this august new institution:

1. It has a mind-blowing cash-pile to blow

The Mechanism will start with a fund of Euro 500bn. This will be donated by the 17 Eurozone member states, varying by size. For example, Germany will give Euro 190bn; Ireland Euro 11bn and Italy Euro 125bn. The theory is this money will be used to bail-out nations in financial difficulty, either in the place of or in tandem with the IMF. To put the Euro 500bn into perspective, it is a sum double Portugal’s government budget.

2. It can demand more money willy-nilly

That Euro 500bn is just the start. The Mechanism will have a capital stock of Euro 700bn, and the chaps at the Mechanism will also be able to ask for any additional sums of money whenever they like. National governments can not refuse requests for more cash. According to Article 8.4, “ESM Members hereby irrevocably and unconditionally undertake to pay on demand any capital call made on them by the Managing Director”.

3. Governments get seven days to pay

If the Mechanism demands more cash, you might think that member nations might like the chance to debate the issue. Perhaps a parliamentary session to consider the merits of writing a cheque with eleven zeros on it? Sadly, the Mechanism gives only seven days to pay. So a debate will be nearly impossible to hold. As will popular protests.

4. The Mechanism can borrow money if it wants

Asking national governments for money is a bore. So the Mechanism has the right to borrow money on its own terms (Article 17.1).

5. The Mechanism has immunity from prosecution

Our medieval ancestors may have fretted about the rex being sub lege. But not our friends at the Mechanism. They are untouchable by the law and her officers. Article 27.4: “The property, funding and assets of the ESM shall, wherever located and by whomsoever, held, be immune from search, requisition, confiscation, expropriation or any other form of seizure, taking or foreclosure by executive, judicial, administrative or legislative action.”

Oh, and just to make doubly and triply sure, Article 27.5 and 27.6 state: “The archives of the ESM and all documents belonging to the ESM or held by it, shall be inviolable” and “The premises of the ESM shall be inviolable.” So even if a few hundred billion Euros go missing, there can be no search warrant or arrest warrant.

6. Employees don’t pay normal tax

Well duh. If employees aren’t going to be subject to the law, why would they pay ordinary taxes? Article 31.5 promises staff shall be “exempt from national income tax”, and subject only to an internal tax to be set by the Mechanism itself. One can only guess what punitive rate they will set themselves.

7. The Mechanism can buy bonds

There’s not much the Mechanism can’t do, according to the generous principles of the treaty. It can borrow, it can tax, it can lend and naturally, it can buy whatever bonds it feels like.

8. Voting is by majority. No vetoes

Voting rights are allotted according to the share of the capital stock, so Germany gets 27 per cent and Malta 0.07 per cent. Votes will be taken a by simple voting majority. And what if the Mechanism opts by majority for a course of action which horrifies the German public and Bundestag? Tough! No vetoes.

9. No escape

The Mechanism isn’t a club which members can enter and exit at will. The Treaty states, twice: “ESM members hereby irrevocably and unconditionally undertake…”. There is no exit route. Naturally, this has caused some worry in Germany, where the idea of one government forever binding its successors is a controversial, if not downright unconstitutional, arrangement.

10. It may augment, not replace, the current Facility

Earlier in the year it was agreed the Mechanism would replace the current EFSF. The assets of the Facility would be poured into the Mechanism. Yet astonishingly there are moves to run both side by side. So we will have the Euro 440bn Facility, which has already spent Euro 160bn, to be joined, not replaced, by the Euro 500bn Mechanism. That is a combined war-chest of Euro 940bn.

Summary? Above the law, immune from prosecution, unlimited powers to raise cash and spend cash, free from national vetoes and quite possibly the whole vast edifice will be erected in addition to the current bail-out Facility. Roll on 2013!

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