mercoledì 21 dicembre 2011

Monti and Papademos as professors in economics

Premiers Monti and Papademos as professors in economics 

Premier Monti of Italy and premier Papademos of Greece are democratically appointed leaders of their country. They are sworn to care for their peoples and to uphold their constitutions. There are EU agreements on budget targets but these are not the prime concerns of a prime minister. The well-being of the people, health care, justice, education, employment instead of poverty, those are the prime concerns. Some commentators label Monti and Papademos as technocratic since there are no political parties behind them. We may as well admire the flexibility of democracy to put party issues aside in a time of need. When a person adopts a position in government it becomes politics nevertheless and that person may be swept aside by party politics again at any time. Monti and Papademos thus are advised to design a national agenda en to establish a strong footing within the supporting political parties.
Monti and Papademos are professors in economists as well. The last 30 years since the Presidency of Ronald Reagan 1981-1989 caused a swing in economic theory to neoliberal thinking. If Monti and Papademos are locked into this neoliberal thinking then they will follow the hardline programme that the EU is adopting now. This will cause unemployment and poverty for their people for the next years. If Monti and Papademos have some flexibility of mind then their training as economists will help them to better understand the situation, and explain it to the other EU government leaders who have no such training in economics. Thus both economic theory and their national interests will cause them to take a critical look at what the EU has wrought till now.
Economic theory has made a huge advance since the years of Reagan. This advance is little noticed in the literature and in the newspapers, likely because there seemed to be no need for it given the seeming prosperity of the Greenspan years. Now that widespread and ill-advised deregulation eventually caused the Credit Crunch and the current Double Dip Recession (that even might turn into a veritable Bush-Obama Depression), it is time to look into the innovations in economic theory that we urgently need now. Monti and Papademos have been professors of economics. The EU may see the special occasion when they are allowed to teach the class of 25 other EU leaders of government. The class can ask the professors whether they have kept up to date.
The following points are based upon the third and 2011 edition of my book Definition & Reality in the General Theory of Political Economy (DRGTPE) that also refers to my "Economic plan for Europe" of September 2011.
The first point is that the Trias Politica model of democracy with the checks and balances of the Executive, Legislative and Judiciary branches of government has failed, and that we need a fourth branch, an Economic Supreme Court, based in science and with the constitutional task to oversee the quality of information and with the power to veto the budget if it contains incorrect information. The current EU agreements already want that budget rules are put into (constitutional) law and that there be independent bureaus to forecast the budgets. These current two ideas are inoptimal. A law is inflexible and will tend to be procyclical. Independence can cause stagnation since bureaucrats might forecast that budget cuts will enhance economic growth while we need science that is open to society and open to contradictory information. Hence an Economic Supreme Court is much superior to the current plans and creates a high-definition democracy. As Monti and Papademos are called technocratic, we get a better balanced situation when an Economic Supreme Court oversees the more traditional political process of the other branches of government. When each nation has its own Economic Supreme Court then co-ordination at the EU level is achieved by scientific exchange of information between these courts. There is less need for directives from Brussels, which supports the open kind of Europe that most people favour. The UK already made the move to an Office for Budget Responsibility. That OBR however is not open to science and still locked into the neoliberal kind of thinking that causes unemployment and poverty. 
A second point concerns the tax void and the dynamic marginal tax rate. In our economies, taxation and social welfare are as badly managed as our banks and financial system. Our wrong systems caused mass unemployment or inflation since the 1970s. Governments did not see the causes in taxation and social security and tried to respond by "Keynesian" policies to stimulate demand. When this failed, Ronald Reagan came into power, and followed his "supply side" approach. His reduction of taxes of course implied a "Keynesian" demand stimulus as well. His deregulation of (financial) markets also meant a "Keynesian" demand stimulus, since capital was liberalised to find new sources of profit. The injection of capital supported the ICT and dotcom revolutions but also bubbles, and China was so kind to absorb American paper. It becomes time to fix the true problem that resides within our system of taxation and social welfare. Tax exemption better be set at the level of the net minimum wage, so that a person can start working without the burden of taxes that drive up the wage that cause unemployment. VAT better be set at 1% so that this tax burden is eliminated as well. The top marginal tax rate can be put at 75%. There is an economic theory that high marginal tax rates are bad for incentives but there is also another theory that what matters is the dynamic marginal tax rate, that is close to the average rate. The empirical evidence supports the second approach.
A third point concerns the German fears for inflation and debt defaults. Around 1895, Fürst Bernhard von Bülow, then Ambassador in Rome and later Reichskanzler 1900-1907, and his pastor Otto Frommel, visited the painting atelier of my greatgrandfather in the Villa Strohl-Fern in Rome. Pastor Frommel indeed bought a drawing of the interior of the San Paolo. My greatgrandfather had some innovative ideas about painting space and light, a bit like his contemporary Vincent van Gogh. I sometimes wonder what difference it might have made if Von Bülow had had a somewhat wider view on art and had bought a painting as well. Kaiser Wilhelm II had some grudge against his English mother and the aspiration to overcome the British Empire of course was strong – I refer here to the historical discussion by Sebastian Haffner. The German decision in World War I to allow Lenin to go to St. Petersburg and to supply him with ample gold to have his revolution was dismal too. In my analysis we can observe a similar closed and tunneled German mind nowadays as well. Painting of course is a matter of taste. So let us switch to the hard subjects of econometrics and mathematics. Let me first refer to my books A Logic of Exceptions and Elegance with Substance and Conquest of the Plane about logic, mathematics and their education. These ought to establish that we have a new foundation for looking at these subjects. Then there is my book Voting Theory for Democracy. This establishes that we have a new foundation for looking at democracy. Parliaments in Europe can look into these subjects and make sure that their scientists study these issues and that also German scientists understand them well. Not only the young people in training but established scientists as well. All this ought to provide a good scientific foundation to discuss the German fears for inflation and debt defaults, in the light of my book DRGTPE and its "Economic plan for Europe".
The policy followed by Bundeskanzler Merkel can be understood to some extent. Apparently her first objective is to establish a (semi-) automatic regulation of government deficits and debts, something that Theo Waigel tried at the Treaty of Maastricht but did not succeed in securing. Once the EU has shown its good intentions she may be willing to consider subsequent measures. Here she seems to overlook a crucial element. Germany’s hands are tied, namely, with a national debt of 83% of GDP in 2010 next to the off-budget guarantees, and the newer stricter rules combined with dropping exports to a EU in recession. The German electorate will not be impressed by the performance of Italy and Greece. The conditions of a recession may mollify an economist but not an electorate that faces that recession itself. It is curious that the EU is willing to borrow from China which funds have been created by the printing press in the USA, but is not willing to use its own printing press while there is no risk of inflation. Hence Kanzler Merkel seems to have manoeuvred herself in a tight spot while the remainder of Europe becomes annoyed by the directives from Berlin or its spokesmen in Brussels. Also, the true problem isn’t inflation or debts but import and export imbalances within the EU. Germany creates unemployment in its home market and tries to resolve this by exports to other countries. The export earnings are loaned to Southern Europe again to finance those exports. It would have been different if Germany had invested in shares in Southern Europe and prepared to take a loss if invested wrongly. To understand the true source of the problem, see above on taxation and social welfare, the tax void and the dynamic marginal tax rate. 
Germany is part of the problem. Premiers Monti and Papademos need not think that they have a weak position because their countries seem dependent upon external capital. They can revise their internal systems of taxation and social welfare without people suffering, and provide a living example for Germany. There is scope for more taxes for the wealthy even though the IMF does not understand that yet. They can designate investment area’s under international laws that investors will be more familiar with than local laws. Most of all, they have economic theory on their side. Subsequently there will be even German economists who can explain it all to their fellows. Most of all, premiers Monti and Papademos best consider the proposal to adapt the Trias Politica with an Economic Supreme Court. There is an alternative to the current EU agenda. 

Thomas Colignatus is the name in science of Thomas Cool,who is an econometrician and teacher of mathematics, in Scheveningen, Holland. Http:// and see recent new proposal on a debt management ladder is here.

One Hundred Million Dollar Penny

Occupy China: Gov't Makes Concessions

Is it time for an Asian Winter? The village of Wukan, which has been protesting land grabs for months seems to have won a crucial and extremely rare victory against their government.
Southern Chinese authorities have given in to key demands of protesting villagers after a nearly two-week standoff with police, agreeing in a rare compromise to release detainees and return some confiscated land to farmers.
...The significance of the authorities' unusual concession in Wukan depends on how the details are played out, but it could affect the way other protests are handled, particularly in the corner of coastal southern China that has seen periodic unrest over the last few years. To Wukan's northeast, the coastal town of Haimen saw a second day of protests Wednesday over a planned coal-fired power plant. 
Meanwhile, the protests in the region continue to grow. From ThinkProgress:
Tens of thousands of residents in China’s southern Guandong Province gathered in the streets yesterday, occupying a highway to demonstrate against the development of a new coal plant near Shantou city. The residents say existing coal plants in the area are fouling local air and water, and are making people sick. Each year, protests spring up to counter the construction of dirty coal plants. But this appears to be the biggest yet. Officials now say they will abandon plans to build a new coal plant in the area. Two people were reportedly killed in clashes with police, but the government is denying those reports.
By Sarah Seltzer | Sourced from AlterNet 

Posted at December 21, 2011, 10:14 am

Our Photographer (& His Lens) Busted @OWS

Our Photographer (& His Lens) Busted
@Occupy Wall Street

Wednesday, December 21, 2011
By Greg Palast
Special to

"So this Bishop, three priests and a comedian are locked up together in this paddy wagon and ...."
"Zach! This is NOT funny, and I do NOT want to hear the punch line."

Actually, I appreciate the fact that our photo-journalist has a sense of humor about getting busted and jailed at Occupy Wall Street on Saturday.
But it's not a joke. On Saturday, our man Zach D. Roberts, along with a bishop of the Episcopalian Church and three ministers of various faiths, plus a stand-up comic were pushed face first into the dirt at Duarte Park, hand-cuffed and hauled off in a police van to the lock-up in Lower Manhattan.
I did NOT appreciate that this follows his previous bust at Occupy, the busting of our $600 Tokina 11-16 f2.8 lens by a cop slamming his nightstick down on Zach (reparable) and hitting the lens (not reparable). [Heck of a photo, though, just as the stick is coming down.]
Zach, who is working with the Palast Investigations Team via a Gil Palast Memorial Fund journalism fellowship, has been covering the Occupation since Day One. His astonishing in-the-action photographs from #OWS have been featured in Portfolio Magazine and on the front page of The Guardian. However, credits and press credentials did not impress New York's Finest.
But hey, they weren't impressed by Bishop George Packard's red robes. His Excellency was handcuffed and charged along with Zach and another newsman for trespassing on the property owned by the bishop's own church, Trinity.
In the holding tank, Zach was put in with an OWS protester who wore a green cap with red blood oozing out from it, the Christmas color-scheme caused by an excess of NYPD holiday zeal.
Zach was there to cover the Occupation's attempt to re-establish their encampment. OWS asked to use a parcel of empty land owned by Trinity, the oldest and arguably the wealthiest church in America, landlord for much of the real estate called Wall Street.
According to the Bishop (in an interview recorded, I kid you not, while cuffed in the wagon), his Church plans to lease the property to a developer for a skyscraper and is afraid that allowing protesters to move in would devalue their holdings––bring down the neighborhood, so to speak.
Despite the pleas of Bishop Packard, several priests and even fellow Anglican Archbishop Desmond Tutu, Trinity's administrators refused Occupy's request, choosing, in Tutu's thinking, Mammon over the church's moral mission.
The ecclesiastical issues of this Schism, while not exactly on the same order as Luther's split from The Vatican, were serious enough to be decided by the cops who moved in after Occupation activists (clerics included) used ladders to breach the construction fences.
What concerns me is that the One Percent are clearly using their blue enforcers not just to stop protesters but to stop coverage of the protest. Not every cop went along. One policeman, told to arrest Zach, resisted the command, "This guy's a journalist!What are we doing!?"
That cut no ice with his bosses. I guess if you can bust a bishop, a journalist is kind of small stuff.
These are Zach's photos from the demo, including the one at the right he shot while face-down on the ground, before they grabbed our equipment.
The shot you see of Zach under arrest was taken by CS Muncy, a top-rank freelancer whose work appears in The Wall Street Journal. Frighteningly, while trying to cover Wall Street, a cop grabbed his press credential necklace but, in the mayhem, Muncy was able to yank it back. While I'm concerned about Muncy's neck, I'm more concerned about this new––and increasingly violent––attack on press freedom.

Note: Funeral services will be held for our Tokina 11-16 f2.8 lens this week at our New York offices. Zach has requested that, instead of sending flowers, donations be made to the Palast Investigative Fund.
Zach, who was released early Sunday morning, has a court date set for February. We will keep readers informed via our Facebook page, which will include more of Zach's photos and his own diary of events.
Greg Palast is the author of Vultures' Picnic: In Pursuit of Petroleum Pigs, Power Pirates and High-Finance Carnivores, released in the US and Canada by Penguin.
You can read Vultures' Picnic, "Chapter 1: Goldfinger," or download it, at no charge: click here.All photos by Zach D. Roberts. Permission granted for use with credit.
Support the Palast Investigative Fund and keep our work alive.
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Strauss-Kahn Rips Europe on Crisis Steps

DECEMBER 20, 2011

Strauss-Kahn Rips Europe on Crisis Steps


BEIJING—Former International Monetary Fund chief Dominique Strauss-Kahn, looking to re-establish his credentials as a global political presence after a sex scandal, sharply criticized Europe's handling of its debt crisis and predicted as many as seven years of subpar European growth unless the Continent's leaders changed policies.

Europe's political shortcomings are "bleeding away, day by day, the remaining confidence investors may have in politicians being able to solve the crisis," Mr. Strauss-Kahn said. A €640 billion rescue fund (about $833 billion) being assembled by the European Union and the IMF is "in limbo" because it requires political approvals that may take months to obtain, he added.
He chose a conference in Beijing organized by a Chinese Internet company, Inc., to make his remarks, the first since he resigned under pressure earlier this year. Neither Mr. Strauss-Kahn nor the conference organizers would say how much he was paid for the address.In his speech, He said Europe's leaders had focused too heavily on the Continent's debt problems and insufficiently on growth—though the IMF under his leadership had insisted that European nations cut social spending in exchange for IMF loans.
In May, Mr. Strauss-Kahn was charged with sexually assaulting a hotel maid in Manhattan and resigned his IMF post shortly afterward. The charges were dropped in August after the prosecutor said the maid had lied. Mr. Strauss-Kahn wouldn't comment on questions about the scandal, either in the conference or afterward in a small lunch, though the scandal was much on the minds of conference-goers.
At the lunch, one individual approached him with a book he said demonstrated that Mr. Strauss-Kahn had been set up in Manhattan.
"What does it say?" Mr. Strauss-Kahn asked.
"It was Sarkozy" who set him up, the man said, referring to French President Nicolas Sarkozy, a longtime rival of Mr. Strauss-Kahn.
The 62-year-old former IMF managing director continued smiling politely and said he couldn't discuss the matter, the same thing he said to a Wall Street Journal reporter who also asked about the events in a short interview.
Mr. Strauss-Kahn returned to France in early September, too late to participate in the primaries of his Socialist Party. Although he had harbored presidential ambitions before his arrest in New York, he said he wouldn't run for president in 2012. But he continued to deal with damaging allegations.
Shortly after his return, Mr. Strauss-Kahn was questioned by French police as part of a separate probe into sexual-assault accusations made by a French novelist against the politician. In October, French prosecutors dismissed the complaint filed by novelist Tristane Banon, saying the three-year statute of limitations on sexual assault had lapsed.
His name has also been cited in a judicial probe into alleged pimping conducted by prosecutors in Lille, Northern France. Mr. Strauss-Kahn's lawyers have repeatedly said their client wished to be heard by Lille prosecutors "as quickly as possible," saying they wanted to put an end to a "press lynching."
Such austerity was bound to make the Continent's economic problems worse, he said, because it would sap demand and make it harder to pay back debt. "It's a growth crisis," Mr. Strauss-Kahn said, "and behind the growth crisis is a leadership crisis."
He expressed deep skepticism of plans to sanction countries that miss fiscal targets.
"What will happen if a punished country refuses to pay," he asked. "The answer is probably nothing."
Mr. Strauss-Kahn didn't push a specific plan, other than weaving the countries of the EU into a tighter fiscal union. He also urged China and other developing nations "having resources to rescue the ones in trouble." He said that was in China's interest because it relies so heavily on trade with Europe.
He didn't specify how much money China should be prepared to lend either directly to European nations or through the IMF, but he did say that Beijing should get a larger vote in the IMF if it helps bail out Europe.
Even that, though, might be difficult to obtain because some European nations aren't willing to reduce their voting share to make room for China and others. European leaders are generally in "denial" about the extent of their problems, Mr. Strauss-Kahn said.

Europe's new treaty: Towards a multi-speed Union

Europe's new treaty: Towards a multi-speed Union

Published: 15 December 2011 | Updated: 21 December 2011
All EU countries – except Britain – have agreed on a new treaty for tighter fiscal discipline and deeper economic integration to save the euro currency. But as attention now turns to the legal details and ratification process, questions are being raised as to what will happen to countries that fail to ratify, with some fearing exclusion from the club.


  • 8-9 Dec. 2011: European leaders agree new treaty on budget discipline in the euro area. Britain applies veto, the 26 other EU countries move ahead with an intergovernmental agreement outside the EU legal framework.
  • End of Dec. 2011: Forum of around 100 delegates convenes to draft the new intergovernmental agreement text. Three officials from the European Commission, the European Central Bank and the European Parliament are invited. Forum will be supported by the Council's legal service and will meet several times ahead of the March 2012 summit.
  • End of Jan. 2012: First draft of the intergovernmental accord set to be agreed.
  • Late Jan./early Feb. 2012: EU summit to focus on the fiscal compact text, as well as growth policies and competition within the EU at large.
  • 1-2 March 2012: New treaty text submitted for signature at EU summit.
  • 6 May 2012: French Presidential election results.
  • 1 July 2012: Entry into force of the eurozone's permanent bailout fund, the European Stability Mechanism (ESM).
  • By end 2012: Ratification expected to be finalised at national level.

Policy Summary

Pressed by Germany, European leaders agreed on a new treaty to tighten fiscal discipline in the eurozone and deepen economic integration as a way to address the bloc's sovereign debt crisis.
The new treaty, approved at a European summit on 9 December, was vetoed by Britain, which tried to win concessions in return for backing an amendment to the EU's existing treaties.
Prime Minister David Cameron sought to exempt the UK financial services industry from EU regulations, a demand deemed unacceptable by its European partners.
Circumventing the British veto, EU leaders – led by France and Germany – pressed ahead with a new treaty of their own, an intergovernmental agreement outside the EU legal framework.
The new treaty text will be drafted by March 2012 and opened to ratification by countries outside the 17-member eurozone. All 27 EU nations except Britain have expressed their desire to join this new "fiscal compact" (see full text).
However, questions remain as to how EU institutions such as the European Commission or the Court of Justice can be used to enforce what is for now essentially an international agreement among sovereign nations.
Crucially, the agreement remains silent on what will happen to countries – especially eurozone members – that fail to ratify the new treaty. The question becomes particularly acute for Ireland, which will likely have to pass the new treaty via a popular referendum, something that has proven difficult in the recent past with the Lisbon Treaty, initially rejected by Irish voters in 2008 but approved in a second referendum.
Other eurozone members like Finland, which have Eurosceptic parties in their parliaments, might experience difficulties in ratifying a treaty.
As a consequence, the future of these countries as eurozone members could be put into question should they fail to ratify.


Failure to address short-term concerns
The December agreement contained few measures that financial markets were expecting to help solve the crisis in the short term.
Among the decisions was a commitment to provide up to €200 billion in bilateral loans to the International Monetary Fund to help tackle the crisis. The entry into force of the European Stability Mechanism (ESM), the EU's permanent bailout fund, was also brought to an earlier date – in July 2012 instead of January 2013.
But Germany did not bow to French pressure to grant a banking licence to the ESM, a move that would have opened the fund to unlimited refinancing by the European Central Bank (ECB). German Chancellor Angela Merkel indeed remained opposed to turning the ECB into a lender of last resort, a measure that observers – including rating agencies and the United States – had been pushing as the single "bazooka" that could solve the crisis.
The ECB will, however, be involved in the ESM bailout fund as it will become its administrator, the agreement said. And decisions to activate it will no longer have to be taken unanimously but by an 85% majority in case the Commission and the ECB declare it as a matter of emergency.
The summit also once again confirmed Germany's opposition to Eurobonds that would pool the eurozone's debt into a single basket.
In Berlin's opinion – a view shared in Paris and Brussels – such an instrument could only be envisaged at the conclusion of a much deeper fiscal integration process in the eurozone.
Hence Berlin's insistence to forge a new "fiscal compact" among the eurozone countries as a precondition for any further financial transfers from German taxpayers to troubled economies.
British veto fallout
The summit's main outcome was an agreement on stricter budget discipline, which was put down in a "fiscal compact" agreed upon by EU leaders.
An agreement among the EU's 27 member states proved impossible after UK Prime Minister David Cameron demanded to exempt the City of London from financial market regulations in return for his backing.
EU leaders therefore resorted to the less enviable option of a treaty among the 17 eurozone countries, open to others.
All EU member states – except for Britain – expressed their interest in joining although some indicated they would first need to consult their Parliaments (Bulgaria, the Czech Republic, Denmark, Hungary, Latvia, Lithuania, Poland, Romania and Sweden).
This leaves Britain as the sole EU member state clearly outside of the agreement, with its future as part of the EU now put in question.
Fiscal union
Along the lines of the new "fiscal compact", sanctions would apply automatically on countries exceeding the 3% deficit ceiling unless blocked by a qualified majority – or three-quarters of eurozone member states. Moreover, the annual structural deficit should "not exceed 0.5% of nominal GDP" (i.e.: before inflation adjustments), according to the summit text. This will be done via an amendment to Article 126 of the EU treaty.
Pressed by Germany, countries committed to enshrine a "golden rule" to run budgets which are balanced or in surplus into their national constitutions. The signatories recognise the European Court of Justice "to verify the transposition of this rule at national level," the text reads.
The new procedure will also oblige euro area countries to submit their draft budgetary plans to the European Commission before they are adopted by their national parliaments, although the Commission will not have the power to annul them.
In the longer term, countries took a commitment to work towards deeper fiscal integration, with more detailed plans to be presented by European Council President Herman Van Rompuy at a March 2012 summit.
Economic union
Pushed by the Franco-German duo, the 26 EU leaders sought to address one of the fundamental shortcomings of the monetary union by launching a process to deepen economic integration among eurozone countries.
This process is seen in Berlin as a precondition for introducing Eurobonds that could one day mutualise the eurozone's debt.
According to the summit statement, this new process "will rest on an enhanced governance to foster fiscal discipline and deeper integration in the internal market as well as stronger growth, enhanced competitiveness and social cohesion."
As long as the crisis continues, summits will be held every month to reduce disparities between the member states on issues such as pension reform, labour and taxation policy.
In a letter sent to EU leaders before the summit, France and Germany said that policies under the eurozone's economic pillar would encompass proposals which have been strongly resisted by Britain, such as the coordination of labour market policies as well as financial regulation.
An existing proposal for a common consolidated corporate tax base (CCCTB) and a financial transactions tax (FTT) – both resisted in London and Dublin – would also be addressed under this closer economic integration process.
Heads of states who signed up to the new "fiscal compact" acknowledged that a majority would be difficult to find on such topics and agreed to "make more active use" of the enhanced cooperation mechanism, which allows smaller groups of countries within the European Union to move ahead on areas of common interest.
A treaty outside the EU's legal framework
Given the British veto, and the Franco-German insistence to forge ahead with a new treaty regardless, an intergovernmental agreement outside the EU legal framework was the only solution at hand.
"The objective remains to incorporate these provisions into the treaties of the Union as soon as possible," reads the declaration by the eurozone's heads of states.
But doubts have been expressed as to whether the European Commission and the European Court of Justice (ECJ) could be used to police the new fiscal compact.
“There are issues that are raised by this [treaty proposal] about institutions serving two masters – the eurozone and the European Union – and we need to look at those issues very carefully,” a Downing Street spokesman said immediately after the summit.
Olli Rehn, the EU's economic and finance commissioner, dismissed such doubts and insisted that the European Commission is on firm legal ground as Britain remained "an exception" with its opt-out.
"If this move [the UK veto] was intended to prevent bankers and financial corporations of the City from being regulated, that's not going to happen," he told reporters in Brussels after the summit.
"I would also like to remind you that the UK government has also supported and approved the six-pack of new rules tightening fiscal and economic surveillance which enters into force on [13 December]. The UK's excessive deficit and debt will be the subject of surveillance like other member states, even if the enforcement mechanism mostly applies to the euro area member states," Rehn said.
EU officials told EurActiv that the issue of how the EU institutions could be used to police such an intergovernmental agreement had been carefully scrutinised by lawyers in the Commission and Council before the fiscal pact was unveiled.
They pointed out that the Commission’s memorandums of understanding relating to Greece and Portugal – negotiated in the context of the eurozone crisis – offered precedents for the institutions working along similar lines.
Cameron himself appeared to row back on the tone of earlier threats as he spoke in the House of Commons after the summit deal. “I understand why they [the eurozone-plus group] would want to use the institutions… So in the months to come we will be vigorously engaged in the debate about how institutions built for 27 should continue to operate fairly for all member states, and in particular for Britain,” Cameron said.
Ratification: A referendum in Ireland?
Eventually, all countries signing up to the pact will have to secure approval at national level either in parliament or via a popular referendum.
The international agreement will be presented for signature at an EU summit on 1-2 March 2012 and submitted for ratification afterwards, with the aim of completing the process by the end of the year.
But ratification cannot be taken for granted, and it remains to be seen how many countries will end up clearing the international agreement.
The fiscal compact was initially meant for the 17 countries that share the euro but all other EU member states apart from Britain expressed their interest in joining.
Bulgaria, the Czech Republic, Denmark, Hungary, Latvia, Lithuania, Poland, Romania and Sweden have already indicated they would first need to consult their Parliaments before signing.
In Poland, a non-eurozone member, any transfer of sovereignty requires a two-thirds majority in both houses of the Parliament, which the government cannot be sure of. And the prime ministers of Hungary and the Czech Republic – also non-eurozone members – have suggested they weren't prepared to give away their tax sovereignty.
Among eurozone countries, Finland might have difficulties ratifying the agreement as the True Finns party – the third largest in parliament – said it will oppose any new transfer of sovereignty.
And Ireland will likely have to organise a popular referendum on the treaty as the fiscal compact arranges significant transfers of sovereignty to the European level. Ireland's two main political parties – Fianna Fáil and Sinn Fein – said that the new rules must be put to a referendum.
What if a Eurozone country rejects the treaty?
When the ratification process is over, the European Union might therefore find itself in an odd situation where non-eurozone countries may have ratified the fiscal compact while full members like Finland or Ireland may have rejected it.
In which case, the question arises as to whether these countries should be allowed to stay in the eurozone or whether they should be told to leave.
"They will have to decide whether they want to stay in the Eurozone or not," one diplomat told EurActiv, adding in the same breath that there was no legal obstacle for a country to stay in the eurozone without ratifying the fiscal compact.
"We're still unclear about many issues," the diplomat conceded.
France and Germany said in their joint letter that they are determined to go ahead "with the member states that have the will and the capacity to go forward," suggesting that countries that ratify the treaty may decide to leave the others behind.
The idea is to avoid a situation where a single country can block the others, a diplomat said, citing the difficulties in ratifying changes to the EU's bailout fund in Finland and Slovakia.
European federalists denounced the Franco-German push as a "coup d'état" and warned that sidelining any eurozone country would send a new wave of panic across financial markets.
"The markets will immediately attack those who do not form part of [this group], with dramatic consequences for them, for the euro area and the EU as a whole," said the Spinelli Group, a federalist formation which lists Italian Prime Minister Mario Monti among its most prominent supporters.
French ratification disrupted by presidential election?
Moreover, ratification in a country like France should not be taken for granted either. François Hollande, the socialist candidate for president, said he would renegotiate the agreement if elected in May 2012.
President Nicolas Sarkozy might have been tempted to force the treaty through parliament before the presidential election. But this will not be possible since the national assembly's current mandate expires on 24 February, before the EU summit on 1-2 March which is expected to finalise the text of the new treaty.
The treaty will therefore have to be approved by whatever majority comes out of the legislative election in June, by which time France might have a new president hostile to it.
Sarkozy acknowledged this, saying in an interview with Le Monde that France wants to complete the ratification process "by summer 2012". "There is a democratic timetable. We are not going to suspend elections because there is a crisis."


German Chancellor Angela Merkel said after the December summit that the Union, by agreeing on a new fiscal compact, had started addressing the root causes of the crisis. “We have shown today that we have learned from mistakes made in the past,” she argued, saying the EU has put in motion "a step-by-step process that will re-establish confidence in our common currency." But she stressed the UK is aware that it relies as much on a stable euro than other EU countries. “We are all in the same boat,” she said, arguing EU leaders had achieved a breakthrough deal which will guarantee stability for the euro and the Union.
In an interview to newspaper Le Monde after the summit, French President Nicola Sarkozy said he had "done everything" to keep the British onboard with the new treaty. "But there are clearly now two Europes" that have emerged from the summit, Sarkozy said: "One which wants more solidarity between its members, and regulation – and the other which is attached to the sole logic of the single market." About British demands, he added: "Let me add that the [British] demands on financial services were not acceptable. The crisis came from the deregulation of finance. Never can we accept coming back on this. Europe needs more regulation."
Irish Europe Minister Lucinda Creighton said Dublin and many other member states expected the European Central Bank to take a more pro-active approach to the debt crisis in the weeks following the summit, stepping up its bond-buying programme.
Irish Minister for European Affairs Lucinda Creighton said there was "very deep concern" within her government that the new treaty would be taken up by only 26 states. "We have an absolute preference for a treaty at 27," she said. Creighton added that she regretted the British decision to remain apart but hoped to maintain close cooperation with London on EU matters. The minister said that the Irish authorities will attempt make sure Britain finds a place at the negotiating table. "We have an obligation to find a way to bring back the UK into the discussion. We will try to pursue that and hope it will be a shared goal," Creighton said.
Irish Finance Minister Michael Noonan said he wasn’t certain yet if Ireland would need to hold a referendum on the package, but warned: “It really comes down on this occasion to a very simple issue: do you want to continue in the euro or not?... Faced with that question, I think the Irish people will pass a referendum.”
British Prime Minister David Cameron defended his decision to stay out of the treaty at the conclusion of the December summit. "We want the eurozone countries to come together and to solve their problems. But we should only allow that to happen inside the European Union treaties if there are proper protections for the single market and for other key British interests. Without those safeguards it is better not to have a treaty within a treaty but to have those countries make their arrangements separately."
Helle Thorning-SchmidtDanish prime minister and leader of the Social Democrats, said she would try to seek approval for the new fiscal compact. “We’ll now analyse the agreement and discuss with the foreign policy committee and the European Scrutiny Committee [in parliament],” she said. Meanwhile, it remains unclear whether the agreement would have to be subject to a referendum in Denmark. An opinion poll for Jyllands Posten shows that 53.9% of Danes want the pact to go to a public vote, while 22% think it will solve the euro crisis.
The prime ministers of Hungary and the Czech Republic, both non-eurozone members, have said they will refuse to sign up to a treaty that impinges on their tax sovereignty. “We support the solutions which result in the stabilisation of the eurozone,” Czech Prime Minister Petr Nečas said, citing his country’s dependence on exports to Western Europe. “But we are convinced that tax harmonisation would not mean anything good for us,” he added, according to a report by Bloomberg.
Hungarian Prime Minister Viktor Orbán added that Central Europe had the potential to become the most competitive region in Europe once the current debt crisis is overcome. “So the only kind of cooperation we can have with the eurozone is one which does not damage Hungary’s competitiveness,” Orban said.
Mario Draghi, president of the European Central Bank (ECB), was optimistic as he came out of the late session of the summit deliberations. The agreement on a new treaty was "a very good outcome for euro members", he said. "It is quite close to a good fiscal compact, and it is going to be a basis for much more discipline, economic policy for euro area members, and certainly it is going to be helpful in the present situation."
Herman Van Rompuy, president of the European Council, said after the summit that the goal of the fiscal compact was to strengthen fiscal discipline, introduce more automatic sanctions and stricter surveillance in the eurozone. However, he did not say how the pact would stimulate growth or improve solidarity among eurozone members. He added he was optimistic that many countries would join. "I am optimistic because I know that it is going to be very close to 27", said Van Rompuy. "In fact, 26 leaders are in favour of joining this effort. They recognise that the euro is a common good."
Speaking before the European Parliament after the summit, José Manuel BarrosoEuropean Commission President, stressed that it was "indispensable" to strengthen budget discipline but that "structural reforms" to stimulate growth and employment were also needed.
Ahead of the December summit, EurActiv asked the views of the main political parties in the European Parliament on treaty change, Eurobonds and the role of the European Central Bank (ECB). Please click here to read the full statements that were submitted to us.
Below are post-summit reactions.
The European People's Party (EPP), the largest political group in the European Parliament, said stricter budget discipline rules will strengthen the eurozone's credibility.
However, Elmar Brok MEP (Germany), the EPP's foreign affairs spokesman, also warned about ratification risks and recommended "a two-fold approach" whereby the new fiscal discipline provisions should also be implemented in the EU treaty's existing protocol on the excessive deficit procedure.
Brok also warned of potential new divisions in Europe that could emerge from the new treaty. "It is vital that as many countries as possible participate. And it is indispensable to remain within the existing Community institutions and not to build new structures. Only then can we believe that the champions of the said new Euro Treaty do not have an intergovernmental Europe in mind which would mean less capability to act."
Speaking in the European Parliament after the summit, Joseph Daul MEP (France)leader of the EPP group in the assembly, said the summit had raised the question of the UK's place in the European Union. "Clearly, the isolation of the British shows that their coalition government sees the European Union as a mere free-trade area, without any consideration for solidarity and responsibility towards its partners. In this context, I believe that the British rebate should be put into question. Our taxpayers' money should be used for things other than rewarding selfish and nationalistic attitudes."
In an interview with EurActiv, Sergei Stanishev, leader of the Party of European Socialists (PES), rejected the view that the eurozone crisis could be tackled mainly through fiscal measures, insisting that without policies to restore growth and create jobs, there could be no fiscal stability either.
Important elements missing from the summit decisions include granting the European bailout fund a banking licence, introducing eurobonds, imposing of a financial transactions tax, and a "real plan" for investment and growth, he said.
In the European ParliamentGuy Verhofstadt, leader of the liberal ALDE group, said EU leaders had taken some positive steps such as including fiscal discipline into a new treaty and insisting that a balanced budget rule be incorporated into the constitutions of member states. "However, we doubt this alone will be sufficient to tackle the crisis we face today. There is no mention of a banking licence for enhanced ECB intervention, nor of a Eurobond market or a collective redemption fund to bring down excessive debt."
"This is still not the economic and fiscal union we need." Besides, he said any new treaty would only be acceptable "if the community method and democratic control are fully respected" and insisted on fully involving  the Parliament in the drafting process. Verhofstadt was since appointed to a group of around 100 delegates from EU institutions and member states representatives tasked with drafting the new treaty.
In Parliament, the Greens/EFA group was critical of the summit outcome, saying it failed to respond the immediate crisis needs and created new uncertainty with an intergovernmental agreement outside the EU legal framework.
"In terms of responding to the immediate sovereign debt and credit crisis, the summit is a fiasco, with EU leaders totally failing to deliver the necessary emergency financial backstop to extinguish the fire facing eurozone sovereigns," said Greens co-presidents Rebecca Harms and Dany Cohn-Bendit MEP.
"The proposed intergovernmental treaty raises as many new questions as it answers. While it is clear that the UK's unrealistic demands could not be acceded to, the new proposed treaty represents the ultimate failure of the flawed intergovernmental approach to the crisis over the past two years."
The leftist GUE/NGL group denounced the summit's outcome as "a dangerous attempt to enforce extreme austerity by all means". "Enshrining austerity as default economic policy is simply inviting further disaster as it is now so blatantly clear that the neoliberal approach does not work," said group leader Lothar Bisky MEP (Germany). "Only comprehensive financial market regulation will lead to real solutions. We urgently need the decoupling of public finances from markets and the decoupling of politics from rating agency assessments."
The GUE/NGL also warned about the lack of democracy in the treaty revision process. "People must have a voice on the drastic changes that are currently under discussion, a transparent and democratic process with the full involvement of Parliament and the peoples of Europe must be followed."
European Conservatives and Reformists (ECR) group President Jan Zahradil MEP defended British Prime Minister David Cameron for protecting the UK's national interest, saying French and German leaders were doing the same. "It's very clear we are in a multi-speed Europe. It is a reality. When things get tough, we go intergovernmental. The commission and parliament were completely sidelined. Let us stop fooling ourselves. And when and if we go intergovernmental, there is an open question about the legal validity of such a treaty and its compatibility with EU primary law."
Marta Andreasen MEP, from the UK Independence Party (UKIP), said that the UK should now better leave the European Union: "The Conservative Party is deluded if it thinks that it can still wield any influence at European level. From sitting at the top table we have been relegated to getting whatever scraps the rest of Europe chooses to throw our way.
"We pay tens of millions of pounds daily to be in a club that has effectively blackballed us. I believe that the people of Britain must now be given a say if this is the type of Europe that they want to be a part of. The only sensible solution is wholesale withdrawal."
Guntram Wolff, deputy director of Bruegel, a Brussels-based economic policy think-tank, said the new budget discipline rules, which will have to be incorporated into national constitutions, would go a long way towards addressing the eurozone's shortcomings on budget discipline.
But he said the summit failed to produce a credible strategy on how to generate growth, especially in southern Europe. "Europe’s south is to different degrees in a growth emergency of weak education performance, poor governance, high debt and low competitiveness. Failure to address this at regional, national and European level will prove harmful."
Wolff also says the summit has remained silent on the fragility of the banking system. "The integrated euro area banking system needs an integrated and powerful banking supervision and resolution authority backed by enough means to prevent bank runs. The current system centred on national supervisors and national fiscal resources is clearly fragile and bank runs have started in a number of countries. While the ECB is stepping up its involvement as a liquidity provider to banks, ultimately more capital may be needed. The heads of state and government have yet failed to convince markets that they are willing to identify those banks in serious trouble and provide them with the capital needed."
In a post-summit analysis, the European Policy Centre (EPC), said the new fiscal compact was a step in the right direction towards strengthening fiscal discipline. But it said it failed to tackle economic divergences within the eurozone that have fuelled the crisis.
"The loss of competitiveness in many countries on the EU's periphery and the increase of competitiveness of core eurozone countries, has significantly contributed to the current crisis. Rising current account deficits in countries such as Estonia, Portugal, Greece, Spain, Ireland and Italy have pushed these countries into the epicentre of the euro crisis. This is why these countries, unable to devalue their national currency, have to implement major structural reforms to increase their competitiveness, which is indispensable if they want to (eventually) grow out of their problems."
The challenge facing the eurozone can therefore be put into simple terms, the EPC says: how can austerity and growth be pursued simultaneously? There is an undisputed need to cut public deficits and the overall level of public debt, writes the EPC but "continuous austerity has negative effects on growth, which in turn worsens the problems in countries most affected by the crisis, with public spending cuts contributing to prolonged and deep recessions."
"Concentrating solely on fiscal discipline will not get EU countries and the euro out of the crisis."
Simon Tilford, from the Centre for European Reform, a UK-based think-tank, said the December summit "will go down as yet another missed opportunity," and has fallen short of a fiscal union as there will be "no joint debt issuance, no shared budget, and no mechanism to transfer monies between the participating countries."
"There was no agreement to close any of the institutional gaps in the eurozone, such as the lack of either a real fiscal union or a pan-eurozone backstop to the banking sector. There was no agreement to boost the firepower of the European Financial Stability Fund (EFSF), while the move to beef up the IMF’s finances fall far short of what is needed. As a result, there is little to prevent a further deepening of the crisis."
The new fiscal compact, Tilford said, is little more than a revamped version of the EU’s existing Stability and Growth Pact. "Fiscal austerity alone will not solve the crisis. Indeed it has become part of the crisis. Such a strategy has already failed in Greece and Portugal and it threatens to make a bad situation in Spain and Italy even worse. What the eurozone needs is economic growth, and this agreement further worsens the outlook for that."
Turning to Britain's relation to the EU, Tilford was equally pessimistic, saying the December summit "could prove a big step towards UK withdrawal from the EU".
Mats Persson, director of Open Europe, a eurosceptic British think-tank, said that “from a strictly legal point of view” the new sub-group of EU member states can only use European institutions to enforce the proposed new treaty “if all member states agree, which is not the case.” However, he notes that politics is likely to trump law on this issue.

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EU banking mafia warns Hungary

EU warns Hungary over Central Bank independence

EURACTIV 21 December 2011

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European Commission President José Manuel Barroso asked Hungarian Prime Minister Viktor Orbán yesterday (20 December) to withdraw legislation that could threaten the central bank's independence.
"The president [Barroso] has sent a letter to Prime Minister Orbán, expressing his strong concerns on this issue," Commission spokesperson Pia Ahrenkilde Hansen told the Brussels press.
According to the Wall Street Journal, Barroso was referring to the Hungarian government's plans to reshape the structure of the central bank by designating a third deputy governor and also raising the number of members in the Monetary Policy Council.
The newspaper quoted National Bank of Hungary Governor András Simor as saying that these elements of the legislation could serve no other purpose than to increase government influence on monetary policy.
The Commission has serious doubts about the compatibility of the Magyar Nemzety Bank (Hungarian National Bank) bills with Article 130 of the Lisbon Treaty on the independence of the European Central Bank, Hansen said. She added that Barroso also expressed his regrets that the last drafts of these laws were not subject to prior consultation with the ECB, which had repeatedly expressed its concerns.
Article 130 says that neither the ECB nor a national central bank, nor any member of their decision-making bodies, shall seek or take instructions from Union institutions, bodies, offices or agencies, from any government of a member state or from any other body.
Barroso wrote to Orbán that if national laws are incompatible with EU legislation, they would need to be changed, Hansen said. She added that Barroso advised the Hungarian prime minister to withdraw the two bills in question from Parliament and to work with the EU institutions so that they are compatible with EU law.
'Stability law'
According to the Hungarian website Origo, Barroso asked Orbán to withdraw the legislation on the central bank as well as a 'stability law' proposed earlier this month to tie the pace of debt reduction to economic growth.
"I would forcefully advise you to withdraw two pieces of cardinal law now in front of parliament,", which said it saw the letter, reported Barroso as writing. also cited Barroso as saying Hungary's economic problems were largely of its own making.
"Hungary's financial and economic problems can primarily be traced back to domestic political decisions and measures, therefore a potential programme must contain solutions accordingly," Barroso wrote to Orbán.
Recently Orbán requested 'precautionary aid' from the EU and the International Monetary Fund, saying Hungary was seeking "a kind of insurance policy" against possible future financing difficulties.
He stressed, however, that he was not going to give anyone "a free hand" in limiting his country's economic sovereignty.