12.08.2011 0

Europe’s question mark

By Robert Romano — Europe has absolutely no idea how it is going to get itself out of its current predicament, as evidenced by a wide range of proposals now under consideration to bail out banks that bet poorly on the debts of Greece, Italy, and other troubled sovereigns.

Chief among the proposals would be ratification of the European Stability Mechanism (ESM), a new treaty that would host a €500 billion permanent bailout fund intended to perpetually refinance European debt should the need arise.

This new fund would exist alongside the current €440 billion European Financial Stability Facility (EFSF), even though ESM was originally intended to replace the “temporary” EFSF.  The trouble with the original is that there’s only about €250 billion left, not enough to even help Italy refinance €400 billion of debt coming due next year.

All together, Portugal, Italy, Ireland, Greece, and Spain (PIIGS) have over €3 trillion of consolidated debts, and it is thought that the only way to contain the crisis — restoring investor confidence in the debts — is for somebody to guarantee every bit of that.

So far, the European Central Bank (ECB) has bought about €200 billion of PIIGS debt on secondary markets, although it is said it has a natural limit of about €300 billion that it is fast approaching.  The bank is prohibited from making direct purchases by the Lisbon Treaty, making it an unsuitable candidate to carry forth the bailout on its own.

For its part, the International Monetary Fund has thus far provided €78.5 billion to prop up Portugal, Greece, and Ireland, and has about €290 billion left to lend.

So, even if the €500 billion ESM were enacted, that would bring the bailout funds’ collective firepower to only €1.6 trillion, not enough to cover all of the PIIGS’ debts, although enough to last through about 2015 — and that’s assuming the PIIGS take on no new debt.

It also assumes that the IMF expends all of its available resources to dealing singularly with Europe, hardly its intended purpose.  Should the fund max out its capacity just to buy Europe perhaps a few years before more bonds come due?

It similarly assumes that the ESM is even ratified, with referenda passing in Ireland, the UK, and perhaps Germany — something that could prove to be a very hard sell to peoples already weary of these perpetual bailouts.  Recent polling has shown that 59 percent of Germans and 65 percent of British are opposed to any further action to prop up members of the Eurozone.

All along, members of the global financial elite have sought to avoid allowing the people of any nation from having a say in this process after the people Iceland defeated a bailout referendum earlier this year.  Claiming the new treaty changes — which would establish a permanent bailout fund to prop up the debts of sovereign nations forever — are “limited,” the European Council has declared no referenda will be necessary for ratification of the treaty.

Pretty convenient.  Other proposals to deal with the crisis have similarly sought to avoid any democratic involvement.

For example, some have thought that the IMF could get around its quotas for lending by simply borrowing more money from the European Central Bank or the Federal Reserve, even though doing so would put the taxpayers on the hook should the loans fail.

And despite the fact that the IMF is only allowed to borrow monies from central banks “to replenish its holdings on any member’s currency” according to Article VII of its Articles of Agreement. It cannot borrow money in order to boost its own lending capacity just to avoid unpopular votes to boost its quotas.  Yet doing so is considered to be a legitimate proposal.

The anti-democratic forces have not stopped there.  When then-Greek Prime Minister George Papandreou sought to have a referendum on the EFSF, the powers that be promptly had him removed from power.  Within three days, Italian Prime Minister Silvio Berlusconi was also forced to resign.

We are witnessing the destruction of representative government, in Europe, the U.S., and elsewhere.  No price, not even sovereignty and liberty, is too much for these financial institutions to make certain they get paid their money back from Greece, Italy, and others.  But for the peoples being coerced into paying for them, it is a price too high.

Robert Romano is the Senior Editor of Americans for Limited Government.

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