The reform of the ESM is a danger for democracy, a return of the EU stepmother (by P. Becchi and G. Palma on Libero)

Article by Paolo Becchi and Giuseppe Palma in Libero of 3 December 2020:

The MES in force is that of 2012, an intergovernmental treaty – that is, not part of the EU Treaties but which equally binds the signatory European countries – ratified by the Italian Parliament in July 2012, together with the Fiscal Compact.

The European Stability Mechanism, initially created with the name of Fondo-Salva State, is a Luxembourg public company in which each signatory State participates with a pro-quota payment and a subscription of capital. Italy, in full spread crisis (Monti government), participated in it with an initial payment of 14.33 billion and a capital subscription – that is, an assumption of risk – for 125.39 billion. The mechanism now works like this : a country that finds it difficult to place its securities on the primary market, or that involves too high interest rates due to poor financial reliability, can turn to the body that lends money through the 'purchase of securities on the primary market in place of the requesting State, but with strict conditions that “ can range from a program of macroeconomic corrections to constant compliance with predefined eligibility conditions ” (art. 12). These conditions are negotiated with the requesting country and take shape in a so-called “memorandum”, an agreement subject to political negotiation. The work of the body and its staff enjoy immunity from any form of judicial proceedings (Article 32), and this speaks volumes about the democratic nature of the relationship with the requesting State and the conditions covered by the "memorandum". The government bonds purchased by the ESM are no longer regulated by national jurisdiction, as is the case for all States that normally resort to market financing, but by Luxembourg jurisdiction, with heavy repercussions in terms of economic sovereignty.

In 2018, negotiations began in the European Union for the modification of the Treaty, but with the yellow-green government Italy had put the Prime Minister Conte in the position of not accepting any pejorative changes compared to the initial Treaty ( parliamentary resolution Molinari-D ' Grapes ). Conte participated in two European Councils on the subject and, actually going against the opinion of Parliament, essentially gave his green light to the reform. In the meantime, there has been a reversal here that has brought the yellow-red government run by the Conte bis to Palazzo Chigi, therefore also the internal political conditions have changed, so that Conte was also able to formally follow his initial line, supported by the Democratic Party , in favor of changes from the outset. The M5s now seems to accept these changes to the MES, even if in contrast with its political program voted by the members which provided for its abolition, and without passing through a new vote on the Rousseau platform. There are also internal stomach pains and it will show. We are not interested in going into the point now.

What does the draft of the new Treaty envisage? The European Commission's proposal which aimed to integrate the existing ESM among the founding treaties of the EU did not find the necessary consensus on the part of the States, in the end – at the European Council of 13 June 2019 – it fell back on a new intergovernmental treaty that modifies the previous one. There are two relevant innovations . The first is the introduction of the Single Resolution Fund (Srf), or Single Resolution Fund, financed by the banking system and which would act as guarantor "of last resort" to avoid the speculative attacks of the past ( backstop ). This new mechanism, which in itself would not be negative, is subordinated to the second novelty , namely that of the new conditionalities for accessing the credit line for requesting States, whose financial and economic situation must be "robust" in fundamentals, therefore with “sustainable” public debt. At this point one wonders what is the use of the ESM if the public debt is sustainable, that is, if the budget fundamentals are good for a normal recourse to the markets.

Among these new access conditionalities there is a sort of "automatic pilot" represented by rigid and a priori conditions for access: not having exceeded 3% of the deficit / GDP ratio in the two years preceding the request; a structural balance equal to or greater than a specific parameter for each country and a public debt / GDP ratio of less than 60%, or, in the case of a higher ratio, a reduction in the two years prior to the request at the rate of an average of one twentieth year. In practice it is a treatment from horse no longer to posterity but even a priori. After which the infamous "memorandum" is replaced by a simple letter of intent that ensures compliance with the stability pact, in fact a useless political agreement given the initial "cure".

The pandemic seemed to have handed over to us a different EU, or at least so it had presented itself with the temporary suspension of the Stability Pact. We could begin to think of a new monetary policy capable of really helping the Union countries in difficulty by introducing some changes to the European treaties, and instead it was decided to modify an intergovernmental treaty, continuing on the old path. With the modification of the ESM, the stepmother Union returns , the one that throttles the States no longer after having lent the money but even before lending it.

by Paolo Becchi and Giuseppe Palma in Libero of 3 December 2020

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Literary Tips :

by Paolo Becchi and Giuseppe Palma, “ DEMOCRACY IN THE QUARANTINE. How a virus has swept the country ", Historica edizioni, April 2020.

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This is a machine translation of a post published on Scenari Economici at the URL on Fri, 04 Dec 2020 11:22:45 +0000.