What the ESM and Fiscal Pact Actually Stipulate
June 28, 2012 • 8:05AM

The following is reprinted courtesy of EIR Strategic Alert.

With crucial votes coming up in various EU countries on the European Stability Mechanism and the Treaty on Stability, Coordination and Governance (TSCG) coming up, the lack of opposition from established parties is truly stunning.

The measures involved guarantee the worst sort of Bruening-style austerity policy, with deadly spending cuts for the real economy, combined with monstrous powers for a hyperinflationary bailout mechanism outside of any government control.

The original timetable on the vote in Germany has now been upset by the recent Constitutional Court decision. In Austria, the Social Democrats, Conservatives and Greens agreed to wind up the process by early July. In France, where the ESM was already adopted, Francois Hollande wants to organize a vote on the TSCG, which the governments signed on March 2, 2012, as soon as possible. It will have to be ratified by two-thirds of the deputies and senators, because it involves a change in the Constitution. In Italy, Prime minister Mario Monti wants to rush the Treaty through Parliament within the first week of July, with the additional motivation that once the ESM is in place, Italian outlays for the Bankia bailout won't be counted in the budget. However, he is meeting oppositon from a faction in Parliament, which wants to delay it to September.

The treaty, which is also called the fiscal pact, imposes on all signatory countries a strict "balanced budget rule", a purely monetarist deficit ceiling of 0.5% of GDP, and in the event of "deviations" from the objectives, "a correction mechanism shall be triggered automatically." With that, the EU Commission will de facto be able to dictate what and how many cuts in spending must be made. And on top of that, individual states are not allowed to opt out of the Treaty!

In fact, the only reason the Treaty was adopted was to make the European Stability Mechanism (ESM), also known as the "permanent bank bailout mechanism," appear more credible to the markets. And here, the powers awarded to the EMS are truly dictatorial.

Article 9.3 states that member countries "hereby irrevocably and unconditionally undertake to pay on demand any capital call made on them by the Managing Director," and "such demand to be paid within seven days of receipt."

Article 10 empowers the Board of Governors to "decide to change the authorised capital stock," i.e., demand more money from national governments, without consulting them.

Article 21 makes the creation of eurobonds, i.e., the pooling of debt, possible.

Article 32.2 gives the ESM "full legal capacity to... be a party to legal proceedings" presumably against debtors, and Article 32.3 grants the ESM full legal immunity: "The EMS, its property, funding and assets, wherever located and by whomsoever held, shall enjoy immunity from every form of judicial process..."

Equally outrageous is Article 35: "the Managing Director and other staff members shall be immune from legal proceedings with respect to acts performed by them in their official capacity and shall enjoy inviolability in respect to their official papers and documents."

Given the accelerating collapse of the Eurozone, as well as the entire financial system, such measures are unworkable. But they will go a long way toward setting up dictatorship.