The European Monetary Crisis: No Exit in EU
Peter Praet, Chief Economist of the European
Central Bank, defended the ECB’s policies at
Levy Institute’s annual Minsky meeting at the Ford Foundation this past week in
New York. In his remarks, he retreaded the EU’s wheels with the same rhetoric of
inflation fighting and fiscal tightening that drove the EU off the road and into
the ditch to begin with. The effect of his pronouncements of EU intentions was
to only further reveal the growing gap between reality and ECB ideology over
their inability to successfully address the euro crisis.
Europe risks becoming a real lived version of Jean Paul Sartre’s No Exit in which its constituent countries are locked into a dysfunctional currency union for an eternity. Euro entry has been a Faustian bargain. There is presently no exit clause once joining except exiting the European Union itself. Entry promised membership into a rich club of nations in which Europe’s southern periphery and former Soviet bloc areas to the east would converge with Europe’s richest nations. The devil of membership, however, is in the details. Euro rules preclude a wholesale list of policies historically demonstrated to develop nations.
In short, the answer to the question of whether Europe’s periphery is merely in purgatory or eternal damnation rests with whether Europe is willing to undertake a revision of the rules guiding the relationships among its constituent members. The European Central Bank understood the currency union would be complex, but their assumptions regarding rules that create economic development and stability have proven erroneous and mitigate against convergence and growth across Europe.
Among the faulty assumptions is that markets are the best arbiters of risk and worthy investments. This is enshrined in article 123 of Treaty on the Functioning of the European Union. At best, the rule was predicated on the idea that past monetary imprudence (think Zimbabwe or Weimar Germany) of some nations meant governments can’t be trusted with monetary and fiscal independence. Not every country, however, is Zimbabwe with a dictator serving several decades, or a Weimar Germany saddled with inflation generating war reparation payments. By contrast, nations in the past, from Europe’s richest, to East Asia Tigers, to the US have used domestic credit creation to fund infrastructure that enabled wealth creation beyond the costs of expenditure on that infrastructure.
The ideology and group think resident among central bankers, however, says “halt, you can still develop infrastructure, but you must be disciplined by the ‘Father Knows Best’ wisdom of the markets.” This is highly problematic. First, it suggests there is something intrinsic to markets that always makes for better decisions than public sector managers. In effect, we are told that we must pay a fee (de facto tax) to private banks in the form of the higher prices they charge for credit over what states can as the price for the private sector’s ‘superior’ capacities of decision making on investments.
Second, it ignores the evidence from recent decades revealing that private credit has become remarkably inefficient. Private finance is supposed to be a service enabling greater growth in the real economy of production and services. This argument made more sense in the Bretton Woods era following WW II until the 1970s when economic growth was strong and financial institutions comprised some 15% of corporate profits in the US. Yet, since the liberalization of finance from the 1970s, economic growth has continued to diminish in the West, meanwhile in the most liberalized ‘finance gone wild’ economies, like the US, finance now comprises some 40% of corporate profits. The bottom line is that deregulated capital markets in recent decades have taken an ever-increasing share of our economy, while producing less economic growth. Finance no longer enables economic growth by providing a needed service, but instead impose a massive rent seeking tax on the economy.
Lastly, it ignores the different metrics by which markets and states measure investment success. Private markets prefer a quick kill, with profits coming fast and furious. By contrast, states genuinely interested in development need to make infrastructural investments where the benefits accrue to the whole economy. Thus, the benefit, or profit, is harder to capture by a specific interest. Moreover, the time horizon on state investments may be unacceptably long for private investors.
In short, European Central Bank assumptions and European Union rules on monetary have locked Spain, Italy, Greece, Portugal, Ireland, the Baltics and former Soviet bloc countries into a kind of Sartrian “No Exit.” Only a change in the rules that permit historically successful strategies for development will instead make this current crisis merely a painful purgatory stage rather than eternal economic damnation as a cost for being part of a European Union.
Jeffrey Sommers, Associate professor of political economy in Africology at the University of Wisconsin-Milwaukee and visiting faculty at the Stockholm School of Economics in Riga.
Europe risks becoming a real lived version of Jean Paul Sartre’s No Exit in which its constituent countries are locked into a dysfunctional currency union for an eternity. Euro entry has been a Faustian bargain. There is presently no exit clause once joining except exiting the European Union itself. Entry promised membership into a rich club of nations in which Europe’s southern periphery and former Soviet bloc areas to the east would converge with Europe’s richest nations. The devil of membership, however, is in the details. Euro rules preclude a wholesale list of policies historically demonstrated to develop nations.
In short, the answer to the question of whether Europe’s periphery is merely in purgatory or eternal damnation rests with whether Europe is willing to undertake a revision of the rules guiding the relationships among its constituent members. The European Central Bank understood the currency union would be complex, but their assumptions regarding rules that create economic development and stability have proven erroneous and mitigate against convergence and growth across Europe.
Among the faulty assumptions is that markets are the best arbiters of risk and worthy investments. This is enshrined in article 123 of Treaty on the Functioning of the European Union. At best, the rule was predicated on the idea that past monetary imprudence (think Zimbabwe or Weimar Germany) of some nations meant governments can’t be trusted with monetary and fiscal independence. Not every country, however, is Zimbabwe with a dictator serving several decades, or a Weimar Germany saddled with inflation generating war reparation payments. By contrast, nations in the past, from Europe’s richest, to East Asia Tigers, to the US have used domestic credit creation to fund infrastructure that enabled wealth creation beyond the costs of expenditure on that infrastructure.
The ideology and group think resident among central bankers, however, says “halt, you can still develop infrastructure, but you must be disciplined by the ‘Father Knows Best’ wisdom of the markets.” This is highly problematic. First, it suggests there is something intrinsic to markets that always makes for better decisions than public sector managers. In effect, we are told that we must pay a fee (de facto tax) to private banks in the form of the higher prices they charge for credit over what states can as the price for the private sector’s ‘superior’ capacities of decision making on investments.
Second, it ignores the evidence from recent decades revealing that private credit has become remarkably inefficient. Private finance is supposed to be a service enabling greater growth in the real economy of production and services. This argument made more sense in the Bretton Woods era following WW II until the 1970s when economic growth was strong and financial institutions comprised some 15% of corporate profits in the US. Yet, since the liberalization of finance from the 1970s, economic growth has continued to diminish in the West, meanwhile in the most liberalized ‘finance gone wild’ economies, like the US, finance now comprises some 40% of corporate profits. The bottom line is that deregulated capital markets in recent decades have taken an ever-increasing share of our economy, while producing less economic growth. Finance no longer enables economic growth by providing a needed service, but instead impose a massive rent seeking tax on the economy.
Lastly, it ignores the different metrics by which markets and states measure investment success. Private markets prefer a quick kill, with profits coming fast and furious. By contrast, states genuinely interested in development need to make infrastructural investments where the benefits accrue to the whole economy. Thus, the benefit, or profit, is harder to capture by a specific interest. Moreover, the time horizon on state investments may be unacceptably long for private investors.
In short, European Central Bank assumptions and European Union rules on monetary have locked Spain, Italy, Greece, Portugal, Ireland, the Baltics and former Soviet bloc countries into a kind of Sartrian “No Exit.” Only a change in the rules that permit historically successful strategies for development will instead make this current crisis merely a painful purgatory stage rather than eternal economic damnation as a cost for being part of a European Union.
Jeffrey Sommers, Associate professor of political economy in Africology at the University of Wisconsin-Milwaukee and visiting faculty at the Stockholm School of Economics in Riga.
The European Stabilization Mechanism, Or How Goldman Sachs Captured Europe
The Goldman Sachs coup that failed in
America has nearly succeeded in Europe—a permanent, irrevocable, unchallengeable
bailout for the banks underwritten by the taxpayers.
In September 2008, Henry Paulson, former CEO of
Goldman Sachs, managed to extort a $700 billion bank bailout from Congress. But
to pull it off, he had to fall on his knees and threaten the collapse of the
entire global financial system and the imposition of martial law; and the
bailout was a one-time affair. Paulson’s plea for a permanent
bailout fund—the Troubled Asset Relief Program or TARP—was opposed by
Congress and ultimately rejected.
By December 2011, European Central Bank president
Mario Draghi, former vice president of Goldman Sachs Europe, was able to approve
a 500
billion Euro bailout for European banks without asking anyone’s permission.
And in January 2012, a permanent rescue funding program called the European
Stability Mechanism (ESM) was passed
in the dead of night with barely even a mention in the press. The ESM
imposes an open-ended debt on EU member governments, putting taxpayers on the
hook for whatever the ESM’s Eurocrat overseers demand.
The bankers’ coup has triumphed in Europe seemingly
without a fight. The ESM is cheered by Eurozone governments, their creditors,
and “the market” alike, because it means investors will keep buying sovereign
debt. All is sacrificed to the demands of the creditors, because where else can
the money be had to float the crippling debts of the Eurozone governments?
There is another alternative to debt slavery to the
banks. But first, a closer look at the nefarious underbelly of the ESM and
Goldman’s silent takeover of the ECB . . . .
The Dark Side of the ESM
The ESM is a
permanent rescue facility slated to replace the temporary European Financial
Stability Facility and European Financial Stabilization Mechanism as soon as
Member States representing 90% of the capital commitments have ratified it,
something that is expected to happen in July 2012. A December 2011 youtube
video titled “The shocking
truth of the pending EU collapse!”, originally posted in German, gives such
a revealing look at the ESM that it is worth quoting here at length. It
states:
The EU is planning a new treaty called the European Stability Mechanism, or ESM: a treaty of debt. . . . The authorized capital stock shall be 700 billion euros. Question: why 700 billion? [Probable answer: it simply mimicked the $700 billion the U.S. Congress bought into in 2008.] . . . .[Article 9]: “. . . ESM Members hereby irrevocably and unconditionally undertake to pay on demand any capital call made on them . . . within seven days of receipt of such demand.” . . . If the ESM needs money, we have seven days to pay. . . . But what does “irrevocably and unconditionally” mean? What if we have a new parliament, one that does not want to transfer money to the ESM? . . . .[Article 10]: “The Board of Governors may decide to change the authorized capital and amend Article 8 ... accordingly.” Question: . . . 700 billion is just the beginning? The ESM can stock up the fund as much as it wants to, any time it wants to? And we would then be required under Article 9 to irrevocably and unconditionally pay up?[Article 27, lines 2-3]: “The ESM, its property, funding, and assets . . . shall enjoy immunity from every form of judicial process . . . .” Question: So the ESM program can sue us, but we can’t challenge it in court?[Article 27, line 4]: “The property, funding and assets of the ESM shall . . . be immune from search, requisition, confiscation, expropriation, or any other form of seizure, taking or foreclosure by executive, judicial, administrative or legislative action.” Question: . . . [T]his means that neither our governments, nor our legislatures, nor any of our democratic laws have any effect on the ESM organization? That’s a pretty powerful treaty![Article 30]: “Governors, alternate Governors, Directors, alternate Directors, the Managing Director and staff members shall be immune from legal process with respect to acts performed by them . . . and shall enjoy inviolability in respect of their official papers and documents.” Question: So anyone involved in the ESM is off the hook? They can’t be held accountable for anything? . . . The treaty establishes a new intergovernmental organization to which we are required to transfer unlimited assets within seven days if it so requests, an organization that can sue us but is immune from all forms of prosecution and whose managers enjoy the same immunity. There are no independent reviewers and no existing laws apply? Governments cannot take action against it? Europe’s national budgets in the hands of one single unelected intergovernmental organization? Is that the future of Europe? Is that the new EU – a Europe devoid of sovereign democracies?
The Goldman Squid Captures the
ECB
Last November, without fanfare and barely noticed
in the press, former Goldman exec Mario Draghi replaced Jean-Claude Trichet as
head of the ECB. Draghi wasted no time doing for the banks what the ECB has
refused to do for its member governments—lavish money on them at very cheap
rates. French blogger Simon Thorpe reports:
On the 21st of December, the ECB “lent” 489 billion euros to European Banks at the extremely generous rate of just 1% over 3 years. I say “lent”, but in reality, they just ran the printing presses. The ECB doesn’t have the money to lend. It’s Quantitative Easing again.The money was gobbled up virtually instantaneously by a total of 523 banks. It’s complete madness. The ECB hopes that the banks will do something useful with it – like lending the money to the Greeks, who are currently paying 18% to the bond markets to get money. But there are absolutely no strings attached. If the banks decide to pay bonuses with the money, that’s fine. Or they might just shift all the money to tax havens.
At 18% interest, debt doubles in just four
years. It is this onerous interest burden, not the debt itself, that is
crippling Greece and other debtor nations. Thorpe proposes the obvious
solution:
Why not lend the money to the Greek government directly? Or to the Portuguese government, currently having to borrow money at 11.9%? Or the Hungarian government, currently paying 8.53%. Or the Irish government, currently paying 8.51%? Or the Italian government, who are having to pay 7.06%?
The stock objection to that alternative is that
Article 123 of the Lisbon Treaty prevents the ECB from lending to governments.
But Thorpe reasons:
My understanding is that Article 123 is there to prevent elected governments from abusing Central Banks by ordering them to print money to finance excessive spending. That, we are told, is why the ECB has to be independent from governments. OK. But what we have now is a million times worse. The ECB is now completely in the hands of the banking sector. “We want half a billion of really cheap money!!” they say. OK, no problem. Mario is here to fix that. And no need to consult anyone. By the time the ECB makes the announcement, the money has already disappeared.
At least if the ECB was working under the
supervision of elected governments, we would have some influence when we elect
those governments. But the bunch that now has their grubby hands on the
instruments of power are now totally out of control.
Goldman Sachs and the financial technocrats have
taken over the European ship. Democracy has gone out the window, all in the
name of keeping the central bank independent from the “abuses” of government.
Yet the government is the people—or it should be. A democratically
elected government represents the people. Europeans are being hoodwinked into
relinquishing their cherished democracy to a rogue band of financial pirates,
and the rest of the world is not far behind.
Rather than ratifying the draconian ESM treaty,
Europeans would be better advised to reverse article 123 of the Lisbon treaty.
Then the ECB could issue credit directly to its member governments.
Alternatively, Eurozone governments could re-establish their economic
sovereignty by reviving their publicly-owned central banks and using them to
issue the credit of the nation for the benefit of the nation, effectively
interest-free. This is not a new idea but has been used historically to very
good effect, e.g. in Australia
through the Commonwealth Bank of Australia and in
Canada through the Bank of Canada.
Today the issuance of money and credit has become
the private right of vampire rentiers, who are using it to squeeze the lifeblood
out of economies. This right needs to be returned to sovereign governments.
Credit should be a public utility, dispensed and managed for the benefit of the
people.
To add your signature to a letter to
parliamentarians blocking ratification of the ESM, click here.
Ellen Brown is an attorney and
president of the Public Banking Institute, http://PublicBankingInstitute.org.
In Web of Debt, her latest of eleven books, she shows how a private cartel has
usurped the power to create money from the people themselves, and how we the
people can get it back. Her websites are http://WebofDebt.com and http://EllenBrown.com.
SOURCE http://www.globalresearch.ca
Financial terrorists have exploited chaos they created to seize complete control
Speculation that Canadian Central Bank head Mark Carney has been tapped to become the next Governor of the Bank of England brings with it the possibility of virtually complete domination of Europe by Goldman Sachs – the very same financial terrorists who helped cause the economic collapse in the first place.
“Mark Carney, the governor of Canada’s central bank, has been informally approached as a potential candidate to replace Sir Mervyn King as head of the Bank of England in June next year,” reports the Financial Times.
“One of the world’s most respected central bankers, Mr Carney, 47, now heads the Financial Stability Board, which oversees global financial regulation. He was approached recently by a member of the BoE’s court, the largely non-executive body that oversees its activities, according to three people involved in the process.”
Carney is also a 13-year Goldman Sachs veteran and was involved in the 1998 Russian financial crisis which was exacerbated by Goldman advising Russia while simultaneously betting against the country’s ability to pay its debt.
Although the appointment would see the highly unusual precedent of a foreigner heading up the 318-year-old central bank, according to one observer, “As a Canadian national he is a subject of the Queen…That is important.”
Carney’s possible ascension to become the next BoE head, although denied by the Bank of Canada, would be the cherry on the cake for Goldman Sachs’ financial overthrow of Europe in their bid to exploit the financial crisis to centralize power into an EU superstate.
Last year, former EU Commissioner Mario Monti was picked to replace Silvio Berlusconi, the democratically elected Prime Minister of Italy. Monti is an international advisor for Goldman Sachs, the European Chairman of David Rockefeller’s Trilateral Commission and also a leading member of the Bilderberg Group.
“This is the band of criminals who brought us this financial disaster. It is like asking arsonists to put out the fire,” commented Alessandro Sallusti, editor of Il Giornale.
Similarly, when Greek Prime Minister George Papandreou dared to suggest the people of Greece be allowed to have their say in a referendum, within days he was dispatched and replaced with Lucas Papademos, former vice-President of the ECB, visiting Harvard Professor and ex-senior economist at the Boston Federal Reserve.
Papademos ran Greece’s central bank while it oversaw derivatives deals with Goldman Sachs that enabled Greece to hide the true size of its massive debt, leading to Europe’s debt crisis.
Papademos and Monti were installed as unelected leaders for the precise reason that they “aren’t directly accountable to the public,” noted Time Magazine’s Stephen Faris, once again illustrating the fundamentally dictatorial and undemocratic foundation of the entire European Union.
Shortly afterwards,Mario Draghi – former Vice Chairman of Goldman Sachs International – was installed as President of the European Central Bank.
The U.S. Treasury Secretary at the beginning of the 2008 financial collapse was Hank Paulson, former CEO of Goldman Sachs. When Paulson was replaced with Tim Geither, Goldman Sachs lobbyist Mark Patterson was hired as his chief advisor. Current Goldman Sachs CEO Lloyd Blankfein has visited the White House 10 times. Goldman Sachs spent the most money helping Barack Obama get elected in 2008.
As the graphic below illustrates, the economies of France, Ireland, Germany and Belgium are also all now controlled by individuals with a direct relationship with Goldman Sachs.
Dominion over virtually all of Europe’s major economies, as well as the United States, by one international banking giant, notorious for its role in corruption and insider trading, is now almost complete.
Goldman Sachs rules the world.
SOURCE http://www.prisonplanet.com
Labels: GOVERNANCE
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