'The ESM is not only patently in breach of the German constitution, it also violates every relevant provision of the EU treaties. Article 123 of the Treaty on the Functioning of the European Union (TFEU) – which replaced the EC treaty – forbids the use of the printing press to bankroll governments and public authorities, makes it unlawful for them to borrow from the ECB or the national central banks, and expressly prohibits the sale of government bonds to the ECB.
The ESM would create a parallel "bad bank", which would be allowed to do everything the ECB is ostensibly prevented from doing under the treaties: to buy government bonds directly, to lend to national government, to grant such loans without any prescribed limit, and to rescue insolvent banks. Once the ESM runs out of money, it can borrow directly from the ECB – which will print the funds needed.
Moreover, the ECB president, Mario Draghi, has already indicated that he would take bond buys by the ESM as a green light that the ECB is no longer bound by the restrictions of article 123. At present the ECB has about €220bn in sub-standard Greek and other southern European government bonds on its balance sheet, in addition to much a higher sum of "shaky" government debt instruments deposited by banks as "securities" for ECB loans. Draghi refuses to disclose the breakdown of government debt on the ECB's books or their credit rating. The ESM treaty effectively provides for the mutualisation of national debt within the EU with no upper limit. Save for eurobonds, there could be no more flagrant violation of the "no bail" clause of article 125…
Yet, despite the ESM breaching German law and EU treaties, few observers expect Germany's constitutional court to say so, although many think it may ask for minor changes.
If implemented, the ESM will reverse the greatest 19th-century political achievement in Europe: the transfer of the power to determine taxation and expenditure from unaccountable monarchical governments to formally accountable parliaments. The eurocratic transformation will have taken place through systematic disregard by the EU institutions and its member states of practically all legal and constitutional safeguards put in place to prevent precisely the disaster that has befallen the eurozone now.'
Monday, September 10, 2012