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The European Union once again reveals why it should be dissolved

While the Europhile progressives are publishing papers and holding talkfests to discuss their latest EU reform proposals, the on-going reality of the European Union continues to reveal itself – the pretense that there is a rule of law operating – as laid out in the Treaties and the idea that all are equal under that law. When I was researching my 2015 book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale – and over the long period I have studied the concept of European integration it was obvious to me that despite the chimera of a strict, rule-based system that is run by technocrats, the actual practice of the Union is vicariously ad hoc – rules applied in cases where doing otherwise would present ideological problems, abandonment of the rules and outright illegal behaviour when there the interests of the corporate elites are at stake or the existence of the Union is threatened. And while law breaking, relevant officials produce complicated justifications of their behaviour as if what they are doing is within the boundaries specified by the Treaties. The Europhile progressives, meanwhile, continue to hold this embarrassing monstrosity out as the exemplar of freedom, globalism, cosmopolitanism and sophistication. They have reached such a state of denial that what is obvious to those looking in from the outside escapes their attention, or, in the mould of the European technocrats they just ride along with the spurious justifications for the unjustifiable. Europe in 2019.

Corporate bidding

On June 8, 2019, The euObserver article – Porsche told EU not to publish diesel emission result – revealed the results of its investigation into Dieselgate – the scandal involving the practice deployed by German motor car companies to defraud the public and regulators with respect to carbon emissions.

The scandal demonstrates two broad things:

1. Corporations are cheats and put profit before integrity and respect for the law.

2. The EU technocrats overseeing the legal system are corruptible.

There is a mass of evidence now concerning the behaviour of Volkswagon, the shady behaviour of the European Investment Bank, which has steadfastly refused to make documents relating to its EU loans to VW public, and the lobbying by the big corporations of EU officials to cover up illegal behaviour.

Late last year (December 13, 2018), for example, the General Court of the European Union released – Statement – about several cases involving the “cities of Paris, Brussels and Madrid” relating to the “Commission’s regulation setting excessively high oxides of nitrogen emission limits for the tests for new light passenger and commercial vehicles”.

It found that the European Commission had challenged the “the admissibility of the actions” in the Court – in other words, did not want the evidence heard against it – a classic strategy to cover up maladminstration and illegal behaviour.

The Court ruled that:

… the cities of Paris, Brussels and Madrid are entitled to challenge the oxides of nitrogen emission limits determined by the Commission for RDE tests since they could not include vehicle types which have successfully undergone those tests, and which meet the other type-approval requirements, within the parameters of a traffic-restriction measure based on the level of pollutants.

The Court also found that the fudges the European Commission had deployed (so-called “correction coefficients”) were not lawful and made it:

… impossible to know whether the Euro 6 standard is complied with during those tests … the lack of competence on the part of the Commission established necessarily implies an infringement of Regulation No 715/2007.

In other words, many talkfests – well catered for, flying officials here and there, hotel bills, expense claims etc – went into creating a chimera of action against the polluting car companies. A chimera of a legal constraint on corporations.

But then when it came to the crunch the EU technocracy just cheats – applies illegal adjustments to allow polluting vehicles to ‘pass’ the tests – destroying any integrity the tests might have had.

Europe in 2019.

The latest report from euObserver concerns Porsche.

We now learn that the:

European Commission’s in-house research institute has for months refused to disclose the results of emissions tests it did on a Porsche diesel vehicle, at the request of Porsche …

The test results, from mid-2017, showed that the Porsche Cayenne diesel car was emitting suspiciously high nitrogen oxide emissions when the official EU test was slightly amended.

So the Joint Research Centre, which is the EC’s official test body has known since it began conducting tests on Porsche company cars (it is owned by VW) – that is, from September 2015 when the VW Group “admitted to having committed emissions fraud”, about the illegal cars.

An EU official has admitted (under anonymity) that:

The JRC has signed an agreement with the third party which includes a confidentiality clause …

Europe in 2019 – a neoliberal, corporatist state that lacks transparency and cheats its own laws when convenient.

But when it comes to Greece there were no laws to be broken – a brutal application of the laws was followed instead.

ECB exploiting ‘loopholes’

I wrote last week about the apparent public shift in narrative coming from Bundesbank boss Jens Weidmann as he lobbies to take over Mario Draghi’s post as President of the ECB.

See – A leopard never changes its spots – Jens Weidmann, ECB President aspirant (June 20, 2019).

In the recent past, various high-ranking ECB officials have been making noises about how the bank will once again be prepared to expand its policy interventions – perhaps beyond what is currently held to be acceptable (more later on this).

Executive Board member, Benoît Cœuré, who is trying to get the top ECB job, gave an – Interview in the Financial Times (June 17, 2019) – where he intimated that the central bank “show never ignore market signals”, which at present were painting “a picture of the global economy which is very bleak”.

He was asked about the limits to the ECB’s capacity to buy government or corporate bonds in its attempts to stimulate the Eurozone economy:

FT: Some people have the idea that the issue limit on the proportion of a member state’s bonds you can buy of a third of all the outstanding stock is not as hard as people might have thought in the past. Would you agree with that?

BC: The European Court of Justice has stressed the relevance and usefulness of limits. The limits are there to guard against monetary financing and to protect the price discovery process. On the other hand, the ECJ has also affirmed the principle that we should have broad discretion in designing our instruments. The limits are ours. We already have some degree of freedom across securities. For instance, we already buy up to 50 per cent of supranational bonds, while for individual sovereigns the limit is lower. I’m not saying that’s the way to go, but a more detailed discussion is possible if warranted by our price stability objective.

Then, last week (June 18, 2019), ECB President Mario Draghi gave a speech – Twenty Years of the ECB’s monetary policy – at the ECB Forum on Central Banking held in Sintra, Portugal.

He told the gathering that:

And the APP still has considerable headroom. Moreover, the Treaty requires that our actions are both necessary and proportionate to fulfil our mandate and achieve our objective, which implies that the limits we establish on our tools are specific to the contingencies we face. If the crisis has shown anything, it is that we will use all the flexibility within our mandate to fulfil our mandate – and we will do so again to answer any challenges to price stability in the future.

So the Asset purchase programmes (APP) can be resumed and the ‘limits’ are whatever the ECB thinks warrant the situation.

Now we understand more fully what they were talking about.

It appears that there is a ‘loophole’ – “An obscure clause in government bond contracts” – which will allow the ECB to push those limits out even further while maintaining the charade that all they are doing is providing liquidity to make monetary policy effective.

Previously, the ECB had claimed that it would limit the APP.

When the Public Sector Purchase Programme (PSPP) component was instigated in March 4, 2015, the ECB said that the (Source):

… the limit will initially be set at 25%, for the first six months of purchases and subsequently reviewed by the Governing Council.

Then on September 3, 2015:

… the Governing Council decided to increase it to 33% … The issue limit refers to the maximum share of a single PSPP-eligible security that the Eurosystem is prepared to hold … to mitigate the risk of the ECB becoming a dominant creditor of euro area governments.

However, they also had a 50 per cent limit for “International or supranational institutions located in the euro area”.

So the limit has been pretty slippery to date.

The logic the ECB presented at the time of the rise to 33 per cent was that it did not want to create a situation where the “Eurosystem would have a blocking minority for the purposes of collective action clauses” – which means in English that if there was a situation where a Member State applied for a debt restructuring process which would require the bondholders to approve by vote, the ECB didn’t want to hold the dominant vote.

Since March 2015, the ECB has accumulated 2,169,992 million euros worth of government debt. That is 2.2 trillion.

As a consequence of the PSPP purchases already made, the ECB is near its so-called limit for Finland, Netherlands and Portugal.

It has now been revealed that “a clause, known as “disenfranchisement”, which excludes bondholders directly connected to the issuer of a bond from votes” will allow the ECB to circumvent its concerns about being a dominant creditor in the case of a debt restructuring.

In other words, the ECB would be able to exclude itself from any process even if it becomes the majority owner of a Member State’s outstanding public debt liabilities.

Now here is the rub.

The reason the “disenfranchisement” clause was invented, which would prevent the central banks’ having any voting rights was (Source):

… based on the premise that they would not be free to vote in favour of taking a loss on their holdings because that would tantamount to directly financing the government that issued that debt.

This is prohibited by EU Treaties.

Are you all getting the picture.

At the time these clauses were inserted, the Economic and Financial Committee, “the EU body which oversaw the introduction … in 2012 said … national central banks were a prime example of a state institution that should keep its voting rights.”

But then they realised that the only thing that was keeping the Eurozone solvent was the fact that the ECB was buying all this debt and effectively funding Member State government fiscal deficits.

The charade meant that they had to make sure this backdoor funding continued while they kept straight faces when they all had to front the press and explain exactly how the ECB buying 2.1 trillion euros worth of Member State debt wasn’t breaching the no bail-out articles of the Treaty.

Conclusion

Children learn about deception early in life – at pantomimes and the like.

We learn to recognise ruses and tricks as part of our maturation process – all the name of having some fun with adults.

The European Union maintains that sort of game. It is as if the technocrats think the citizens are still children that will play along with all these ruses.

On the one hand, the technocrats threaten Italy with dire consequences if they do not impose worse austerity to meet so-called Stability and Growth Pact targets – with massive human suffering as a result/

Yet, meanwhile, over in Frankfurt, the ECB is merrily funding government deficits – totally in contravention of the European law, if was properly interpreted by the courts – and they all turn a blind eye and create loopholes in the rules that allow them to do anything they want.

And the Europhile progressives blithely carry on as if a few reforms are all that is needed to make this monstrosity a progressive paradise.

That is enough for today!

(c) Copyright 2019 William Mitchell. All Rights Reserved.

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    This Post Has 8 Comments
    1. Hello Bill,
      Many thanks for another stimulating & enlightening article. Two questions:

      1) Will you touch upon crypto currencies in one of your blogs? would love to hear what MMT’s take on them is. I am guessing that since they are not backed by an issuing govt you do not hold them in much regard (they would be considered by MMT as a gold like product?).
      2) I have read your previous textbook “Modern Monetary Theory and Practice: an Introductory Text”. Is you new textbook (“Macroeconomics”) different? should i also read it?

      Many thanks

    2. @Dekin

      There is an interesting read about Corporations as sub-national-level dictatorships by Elizabeth Anderson called “Private Government: How Employers Rule Our Lives (And Why We Don’t Talk About It)”.

      I bring this up because I’m almost certain your mention of crypto-currencies relates to Facebook’s intention of issuing its own currency. I believe the crypto part is less interesting, since it’s merely the technical vehicle for the implementation in this case. The worrying part is that facebook would probably seek to remain the sole issuer of the currency and become a “money sovereign”. Contrast this to Bitcoin, where the issuance wof new currency was decentralized.

      I cite from an article over at CoinDesk.com:

      Facebook has taken blockchain seriously. They understand that “the technology” isn’t cool. What’s cool are the unprecedented products that technology can be used to create: digital cash, new currencies and programmatic money. Every business ever has sought to make money.

      Now, one of the biggest businesses in the world, has decided to dispense with the middle steps and go straight to the making money part.

      “Why, the crypto pundits have been asking, ‘Do they need a blockchain for this?’” Libra, after all, will be permissioned. They could have “just used a database.”

      This is almost the logical step in the self-destruction of neoliberal capitalism. Instead of corporate interests bothering with capturing the “independent” central bank in order to manipulate monetary policy in their interests, they just go and throw their own currency out there and become their own central bank. Expect them to start paying out bonuses and later on even wages in their own currency and enabling payments in fb-coins in the fb-cantina and cafeteria as well as recently bought retailers, coffee shops and restaurants in the area. At one own’s discretion at first and later on making it mandatory.

      I fear this a step in the direction of a future ruled by a handful of Megacorporations like I’d only seen in dystopian cyber-punk games and movies.

    3. @ Hermann:- “I believe the crypto part is less interesting, since it’s merely the technical vehicle for the implementation in this case”.

      I think you may be confusing “crypto” as in “cryptographic” (for which word it often – confusingly and sloppily – gets used nowadays as a shortcut), and “crypto-” (note the hyphen) the first part of a number of compound expressions (“crypto-currency” being one example) meaning (roughly) “purported”, “surrogate” or something akin to that. (If I remenber rightly).

      Cheers!

    4. HermannTheGerman wrote:-
      Friday, June 28, 2019 at 21:10
      “I fear this a step in the direction of a future ruled by a handful of Megacorporations like I’d only seen in dystopian cyber-punk games and movies”.

      I suggest that that may be a trend that was already incipient quite independently of the FB gambit under discussion. If so, it’s going to call before long for remedies in and of itself. Meanwhile there’s a risk that we all frighten ourselves to death having nightmares if we get this FB thing out of proportion.

      As I (dimly) understand it a blockchain (aka a “distributed ledger”) is just a database with an added twist, namely that it requires no one central account-keeper because the account-keeping is decentralised into the hands of the account-holders collectively, thus obviating any need for a record-keeping intermediary (for which service account-holders of banks, for instance, currently have to pay of course – and it makes them unwilling captives into the bargain).

      Seems a pretty attractive proposition to me. I don’t see anything sinister about it but I’m probably missing something.

      Bitcoin and its like are a special case I believe because they have to go to extraordinary lengths to defend themselves against exploits by hackers – which they haven’t in fact been able to do completely. I imagine FB will find itself in the same position with its crypto-currency if it goes ahead with it.

      (Personally I think that FB and its ilk have done nothing but degrade people and debase civilised discourse. But that’s a different topic).

    5. I’m no expert but this is my (negative) take on bitcoin.
      .
      To make more bitcoins someone “mines” to make them. This requires access to a powerful computer and a lot of time on it. This burns a lot of electricity that is made by burning coal (in China) or Methane otherwise.
      .
      This is adding to ACC or AGW. It is a total waste IMHO. It ought to be against the law.

      Corps. should not be creating crytpo-money, IMHO. When banks do it, it is a main cause of the boom and bust business cycle. The rich may see the busts as a feature they can exploit. For the rest of us busts are a bug too be stepped on. This is one reason I like MMT. As I see it there can be a lot fewer busts, especially if banks are more limited in their money creation.

      Note: it seems to me that credit cards issued by banks are just like any other loan. Well. almost. A loan creates a deposit in that bank as soon as the loan is made, then that deposit moves around as each holder of the money spends it on. For the credit card, a deposit is made in some bank every time the card is used then that deposit moves around as each holder of the money spends it on. In both cases the money is slowly destroyed whenever payments are made on the loan or the credit card.

    6. Mark Zuckerberg is IMO one of today’s Monsters (up there with Bezos, the Kochs, Trump and the rest of them), with a diseased imagination and a warped self-image. Everything he touches turns in his hands to dross, and always will. He’s an illusionist who exploits people’s fantasies for his own devious ends. Clever? Naturally. Estimable? you must be joking.

      Having gratuitously aired (some of) my prejudices, what about The Big Z’s latest project – still at a formative stage?

      Wasn’t it Lerner who said (something like):- “Anyone can issue his own money; the problem is to get other people to accept it”? So, what if TBZ issues his own currency (which for want of any other name we’ll call “the FiB”)? Since he isn’t (yet) a sovereign he can’t make it legal tender – anywhere. He knows that so he proposes to give it a value by pegging it (at some fixed exchange-rate?) to the value (averaged?) of a basket of actual sovereign currencies. What’s new or different about that? Lots of countries have tried it, usually out of desperation and always ending in disaster. It’s the Bretton Woods model without its gold/dollar-exchange anchor, or the ERM, in a different guise. But those had the combined aggregate of nations’ treasuries, productive capacity – in a word wealth, both physical and intangible (not to mention armed forces) – standing behind them. What would “the FiB” have? Sheer gall perhaps? That aplenty, but not a lot of weight there.

      What’s to get twittery (pun intended) or fearful about? Isn’t it just more castles in air? OK, so a lot of credulous fools buy into it. What’s the benefit to them? If they want to buy things with it they’d have done just as well to have used their own countries’ currencies (which is what most of them would in effect be doing, at one remove). Wouldn’t they just be be dealing in forex without even realising it, with any rake-off adding further to the already mind-bogglingly thick lining of The Big Z’s pockets in the process?

      I must be missing something (probably that same something that would have made ME an egregious billionaire too if only I hadn’t missed it). Can someone please put me wise?

    7. robertH wrote:-
      “…But those had the combined aggregate of nations’ treasuries, productive capacity – in a word wealth, both physical and intangible (not to mention armed forces) – standing behind them…”

      I should have added:- “… and still failed”.

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