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European sovereignty : All Hail Mutti the Great

by eurogreen Tue May 19th, 2020 at 03:34:33 PM EST

A French-German Initiative for the European Recovery from the Coronavirus Crisis

A modest proposal with potentially far-reaching consequences. A founding act of European sovereignty?

I am incapable of saying, writing or even thinking anything positive about Emmanuel Macron. So I will lavish effusive praise on Angela Merkel : she is a conservative, but she is not stupid, nor is she doctrinaire. On a number of historic occasions, she has demonstrated an unstatesmanlike, but crucial, ability to change her mind. Who will follow? Who, in Germany, dare stand against her. And if this proposal goes through, in the twilight of her career, she will establish a lasting, positive legacy.

Frontpaged - Frank Schnittger

The European Union has no sovereignty, according to the narrative, because it has no power to raise taxes. Modern monetary theory tells us that this is incorrect : sovereignty is defined by the power to issue debt.

If the EU Commission is given the authority to raise 500 billion euros from the capital markets, and issue grants to governments in need, then all is changed, changed utterly... And I can't currently see a way for the German constitutional court to sabotage it.

"But how will it be paid back?" is the obvious question, that the obvious people will ask. The obvious answer : EU taxes, which would be a major step forward. The proper answer : It won't be. It can be converted to perpetual bonds : EU Consols.

How about giving Soros some credit for the idea?
by gk (gk (gk quattro due due sette @gmail.com)) on Tue May 19th, 2020 at 03:50:10 PM EST
I plead complete innocence. I have done no research for this diary; but great minds...

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Tue May 19th, 2020 at 04:02:06 PM EST
[ Parent ]
Lots of Companies issue debt in the form of corporate bonds, but that doesn't make them sovereign. So I suggest that the ability to raise debt is an inadequate definition of sovereignty, even if it is one aspect of Sovereignty, along with the power to raise taxes.

But the interesting aspect to the Karlsruhe judgement is that it denies that the EU can be considered a sovereign state, and thus its laws are not ultimately justiciable by the CJEU, but rather by national supreme courts.  See my diary on the subject here.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Wed May 20th, 2020 at 03:01:21 AM EST
It is indeed a modest proposal but you are right to credit Mutti, as this is a major shift in German policy which perhaps only she could get away with.

But I have some questions:

  1. Would the BundesBank be breaking any EU law/regulations if it refused to participate in repurchase programmes that had been agreed in accordance with the ECB's statutes? In other words, could the EU bring infringement proceedings against Germany? I appreciate any such actions could have political repercussions in Germany, potentially increasing support for the AfD, but that is hardly the ECB's problem. They had no difficulty over-ruling Greek and Irish proposed actions on debt restructuring and not bailing out junior bondholders in Irish banks, so why not over-rule German non-compliance as well. Or is Germany simply to big to be told what to do?

  2. Is the Merkel/Macron proposal for the EU to borrow and spend €500 Billion a direct response to the Karlsruhe ruling? I.e. they are at last beginning to recognise the limits of monetary policy (in both economic stimulus and legal terms) and choosing to provide a fiscal stimulus instead? It would be a nice riposte to judicial over-reach if it was: If you want to block the ECB from trying to prevent the EZ going into even deeper depression, we will just use more direct means...

  3. I had always thought the EU was legally barred from borrowing to fund its budget: was I wrong to think that, and if not, how has that legal obstacle been overcome?

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Wed May 20th, 2020 at 03:25:04 AM EST
For point 1, I don't imagine that EU sovereign banks would be needed to repurchase EU sovereign debt... Do US states need to guarantee US federal debt? I'm sure there would be plenty of market appetite.

Point 2 : I imagine that the German court ruling inspired them to short-circuit the ECB... which would have to further stretch its mandate if it were charged with raising the money, which would consist of direct monetary financing of the Commission's budget! (which is only OK if your an Anglo sovereign bank)

Point 3 : I dunno. And I'm too lazy to do the research.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Wed May 20th, 2020 at 02:40:24 PM EST
[ Parent ]
1. In other words, could the EU bring infringement proceedings against Germany?

The possibility has at least been publicly put on the table. By a former German minister, no less:
Ursula von der Leyen: Commission considering "infringement proceedings" over German court ruling against ECB

2. Is the Merkel/Macron proposal for the EU to borrow and spend €500 Billion a direct response to the Karlsruhe ruling?

According to Quatremer, this was Merkel's only way out: opposing Karlsruhe would trigger a constitutional crisis in Germany and siding with it would be dealing a  possibly deathly blow to the EZ and the EU. She might have come to a similar position sooner or later, something that Macron has been waiting for years (Sorbonne speech). It seems like the court's overly nationalistic overreach may have forced Merkel's hand.

3. No idea either :)

by Bernard (bernard) on Wed May 20th, 2020 at 06:09:22 PM EST
[ Parent ]
Going through the multi-annual financial framework (the regular EU budget) that is to be expanded for the reconstruction fund, there would be no pooled liability unlike with corona bonds. Each country would only be liable for their share of the EU budget / contribution. That's the difference that opened the door. For months of intense EU haggling. Total volume? Grants or loans? Oversight? Size of the regular structural funds for the Eastern Europeans vs their democracy problems? It's the summer of love.

Schengen is toast!
by epochepoque on Wed May 20th, 2020 at 10:52:12 AM EST
It's the summer of love.

... Now watch some b**d come along and f*k it up. (to quote an old T-shirt)

At this point, it's a long shot... It would need a majority in EU parliament (easy), and no veto in the EU Council (we can dream).

Though perhaps Germany's minions (Netherlands, Finland, Austria etc) will be paralysed, now that Despicable Me has turned nice?

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Wed May 20th, 2020 at 02:31:03 PM EST
[ Parent ]
'Frugal' EU nations push back vs French-German recovery plan

The Netherlands has always taken a tough stance on economic aid for struggling southern European nations and the coronavirus pandemic does not appear to have changed that.

Without going into detail, Rutte said the proposal by the nations dubbed by some the Frugal Four would likely include tough conditions for loans.

"If you want help, you have to make far-reaching reforms so that you can look after yourself next time," Rutte told reporters. "Otherwise I can't explain it to the Netherlands that we want to help."

Mark Rutte: The Netherlands and Italy have an excellent relationship

'Sapere aude'

by Oui (Oui) on Wed May 20th, 2020 at 04:32:27 PM EST
Rutte and his Finance minister could afford to be vocal while Germany was covering for all the smaller "frugals". Now that this particular tide is receding in Berlin, one can see who's been swimming naked.
by Bernard (bernard) on Wed May 20th, 2020 at 06:11:50 PM EST
[ Parent ]
The cover of a Dutch weekly magazine:

by Bernard (bernard) on Sat May 30th, 2020 at 02:07:25 PM EST
[ Parent ]
French-German initiative for the European recovery from the coronavirus crisis

Manuel Bompard, MEP for La France Insoumise has found this:

"a clear commitment of Member States to follow sound economic policies and an ambitious reform agenda"

Sounds a lot like neolib austerity and "reform". Par for the course.

by Bernard (bernard) on Wed May 20th, 2020 at 06:28:39 PM EST
French policy for the expansion of EU competencies into health care, procurement, pandemic management, R&D etc. reads very similar to what I have been proposing for some years.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Wed May 20th, 2020 at 06:35:49 PM EST
[ Parent ]
The Irish Times is reading the small print too:

EU mutual debt plan will come with a price tag for Ireland - P.Leahy

But like everyone else, Ireland will have to accept things we don't like if the plan is to work. The small print of the proposals stipulates that the grants to states will only be made in return for commitment to follow "sound economic policies and reform agendas".

In addition the Franco-German plan requires tax reforms that will improve the "framework for fair taxation", in particular of the digital economy. This is code for pressure on Ireland's tax revenues from digital multinationals. Some complex and difficult trade-offs await the next government.

by Bernard (bernard) on Sun May 24th, 2020 at 04:18:55 PM EST
[ Parent ]
Well obviously the Commission will want its grants to further "sound economic policies and reform agendas", who could possibly object to that? The issue is who gets to decide what is "sound", and the Commission has tended to be more progressive than ordoliberal ideologues would like.

Ireland has long accepted that its tax competitive advantage will be eroded with time, and the case for taxing the Amazon's of this world on their sales in each country - like every bricks and mortar retailer - is simply unanswerable, as even UK Tories accept.

The biggest obstacle to that is Trump, as all the big global on-line operators are US, and so taxing them on their sales in each market inevitably reduces their profitability and tax yield to the US.

I have been surprised that EU members haven't been more assertive in imposing them in retaliation for Trumps tariff impositions, but perhaps the only thing holding Trump back is the fear that they will.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sun May 24th, 2020 at 10:20:44 PM EST
[ Parent ]
"Tax yield to the US"

This is a joke, right?  

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Sat May 30th, 2020 at 04:49:56 PM EST
[ Parent ]
After reading the above discussion of the 500 Euro bond proposal above I don't feel so bad about the confusion I experienced when I first read of this in the NYT.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu May 21st, 2020 at 02:08:02 AM EST
Merkel's conservative allies are on board.

German conservatives' eurobond awakening

So why did Germany's conservative bloc go from being the scourge of southern Europe to its enthusiastic savior? In a word, business.

Unlike the euro crisis, which triggered dramatic turbulence in financial markets but left German industry unscathed, the corona pandemic threatens Germany's own economic stability. The nations in the eye of the euro crisis storm, such as Portugal and Greece, were not key German trading partners. The countries in focus now -- especially Italy -- are a different story.

Italy is Germany's fifth-largest trading partner with a total trade volume of more than €125 billion last year. Major German car companies and machinery makers rely heavily on suppliers in Italy's northern industrial corridor. Permanent damage to those supply chains could also do irreparable harm to German industry.

That's why German industry, traditionally close to the CDU, has been one of the loudest voices urging Berlin to push ahead with the recovery fund.

by Bernard (bernard) on Thu May 21st, 2020 at 12:56:14 PM EST
It still seems remarkable, to an outside observer, how something is objectively wrong, unthinkable even, until Mutti says its ok.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu May 21st, 2020 at 01:38:02 PM EST
[ Parent ]
Even Conservatives have finally figured out that people won't buy stuff if (a) they don't have any money and/or (b) they are dead.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Sat May 30th, 2020 at 04:50:59 PM EST
[ Parent ]
So why haven't the Dutch figured this out?
by gk (gk (gk quattro due due sette @gmail.com)) on Sat May 30th, 2020 at 04:53:28 PM EST
[ Parent ]
I get from what people around here have said Rutte, et. al., are more in the Populist Fascist side of things.  

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Sat May 30th, 2020 at 05:01:38 PM EST
[ Parent ]
Rutte et al. are not alone. See this Dutch magazine cover about the perennial "lazy southerner".
by Bernard (bernard) on Sat May 30th, 2020 at 05:56:00 PM EST
[ Parent ]
That's an Elsevier magazine, who probably represent the "lazy Dutch", making money from the work of scientists everywhere, while themselves contributing little.

University of California: Not a penny to Elsevier

The University of California System has canceled its multimillion-dollar subscription contract with Elsevier, an academic publisher.

Other institutions have canceled their "big deal" journal subscription contracts with major publishers before. But none in the U.S. have the financial and scholarly clout of the UC system -- which accounts for nearly 10 percent of the nation's publishing output.

The cancellation, announced Thursday, is a blow to Elsevier, which is facing increasing pressure to change its largely subscription-based business model. Last year, hundreds of institutions in Germany and Sweden refused to sign a deal with Elsevier unless it agreed to fundamentally change the way it charges institutions to access and publish research.

by gk (gk (gk quattro due due sette @gmail.com)) on Sat May 30th, 2020 at 06:09:27 PM EST
[ Parent ]
I think it's a Calvinist thing.
by rifek on Sun May 31st, 2020 at 09:12:23 PM EST
[ Parent ]
So that's why the Dutch are always working hard, and never sitting around in bars drinking beer?
by gk (gk (gk quattro due due sette @gmail.com)) on Sun May 31st, 2020 at 09:25:47 PM EST
[ Parent ]
I think it's more a matter of people believing on some level that predestination will take care of it all.
by rifek on Mon Jun 1st, 2020 at 03:58:52 AM EST
[ Parent ]

Rutte forever?

by das monde on Mon Jun 1st, 2020 at 08:26:19 AM EST
[ Parent ]
YEP!  🌵 😎

🐒 pulling wool over the eyes of the Dutch ... extreme poor performance by Dutch tv news and media ... result of decades by rightwing parties sketching Dutch government and judiciary as run by leftists and progressives brought up in the 1970s.

What you present to a nation will ultimately be consumed. Capitalism and one's pocket book is the new religion. The COVID-19 pandemic illuminated the generational divide: youth struggling due to high costs of living, housing, debt, and job insecurity. The older generation are by definition seen as "rich" and living in homes that are too big in size. Many of the young adults are living at home years longer due to a privatized economy leading to these shortcomings in Dutch society. Rutte is a master in "nudging" leading to personal stature and considered to be every man's friend.

Rutte rubbing shoulders with UK political leadership AND president Trump. Bowing to White House pressure and canceling delivery of ASML chip machine to China.

'Sapere aude'

by Oui (Oui) on Mon Jun 1st, 2020 at 08:52:46 AM EST
[ Parent ]
Opinion: This isn't Europe's `Hamilton' moment -     Sony Kapoor
Put in the context of the time, the recovery fund looks even worse. The initiative can be seen as the German establishment's attempt to make up for the sins of its Constitutional Court, which threw a Molotov cocktail into the EU's legal and economic order in early May by challenging the actions of the European Central Bank and the Court of Justice of the European Union.

However the German court's decision finally plays out, its immediate impact is to put a de facto political constraint on the size and asymmetry of the ECB's quantitative easing programs, thereby limiting the ability of the most effective institution in the eurozone to respond to a crisis with appropriate size and timeliness. Italy and Spain would have been better off with an unconstrained ECB and no recovery fund.

by Bernard (bernard) on Sat May 23rd, 2020 at 10:35:59 AM EST
the Broadway Miranda report
"breaks taboos" or change the game the way the U.S. Revolutionary War hero Alexander Hamilton did when he federalized the debts of the various U.S. states [?] in 1790.
Debts owed to and by the US fed "treasury" (of Spanish milled dollars and British sterling) to individual merchants d/b/a private bankers: Those were the "founding fathers", who also defaulted on payments to "continental soldiers". Several decades and financial panics (and "bailouts") after Hamilton died, the US Congress established surety binding states' legislatures' ahh public works to the "full faith and credit" of federal tax collections.

And not for the last time, I'm sure:
An Economic Interpretation of the United States Consitution, tl;dr 366 pp

pp xiv-xv, Introduction. The account of pyramid scheming reveals only more grim, systematic intrigues culminating in a timely fire, extinguishing records.

by Cat on Sat May 23rd, 2020 at 12:19:24 PM EST
[ Parent ]
I am not convinced the ECB will be in the slightest bit constrained. A simple statement by the Bundesbank that any action i takes in support of the ECB is proportionate should do the trick. Failure, on the part of the Bundesbank to take on its responsibility in this regard will trigger infringement proceedings by the Commission.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sat May 23rd, 2020 at 12:20:42 PM EST
[ Parent ]
From David Graeber, author of 'Debt: The First 5000 Years' and 'Bullshit Jobs', in Politico.eu, of all places:

Lessons from coronavirus: Not all jobs are `bullshit'

Crises tend to reveal unacknowledged truths. In 2008, we learned that the majority of the financial wizards we had been taught to treat with awe for the previous two decades were, in fact, little more than scam artists -- and rather clumsy ones, at that.

The coronavirus, and resulting lockdowns, is teaching us an even more startling lesson: that a very large portion of what we call "the economy" is little more than just another scam.

It's hard to know what else to conclude when literally millions of highly paid office workers have been forced to stay away from the office, to reduce their work to 10 or 15 minutes a day, or often nothing at all, without having the slightest impact on those essential functions that keep the public fed, clothed, distracted and alive.

by Bernard (bernard) on Wed May 27th, 2020 at 05:32:40 PM EST
I am among those who do not view the EU as a sovereign.  While it is true that the ability to issue debt is an important element of sovereignty in MMT, it is not the only element.  The flip side is the power to tax, and these two sides together mean the government controls the flow of currency within its boundaries, making the government and the currency sovereign.  The EU does not control the flow courtesy German neoliberal dogma that completely misinterprets what happened after the World Wars (Yes the currency collapsed and so did the economy, but not only is correlation not causation, effect is not cause either.  Germany insists on calling a symptom the disease, and everyone else suffers for it.) and ignores Bismarck's financial moves while Chancellor (Does anyone actually believe his economic and social welfare programs were hard-money funded?).

Nor is currency all there is to sovereignty.  I'm reminded of an exchange between Henry and Philip in The Lion in Winter in which Henry claims a certain province is his, Philip fires back how, given the treaty between England and France, Henry can make such a claim, and Henry responds, "It's got my troops all over it; that makes it mine."  We may not want to admit it, but projection of force is a significant element of sovereignty, and the EU has gar nichts.  If you doubt this, just watch what the world becomes over the next decade.

by rifek on Sun May 31st, 2020 at 09:58:04 PM EST
I certainly believe that the EU is capable of defending its frontiers, and willing to do so. That is indeed the sine qua non of sovereignty.
Just watch when Boris starts bothering EU fishing boats...

But sovereignty is not an absolute thing, it can be distributed, cumulative and transitive... Even with a dysfunctional central bank, a taxation system would be a huge step in the right direction.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Tue Jun 2nd, 2020 at 03:57:32 PM EST
[ Parent ]

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