“Over my dead body” – The real implications of the European Stability Mechanism

by Alexander Beunder and Joska Ottjes

The focus of the discussion about the European Stability Mechanism limits itself to a solely national view with arguments as ‘own economy first’. The real implications of the ESM such as the democratic deficit it creates and its neoliberal policies are neglected despite the fact that these are the implications we should really be talking about.

On the 24th of May, the Dutch government voted with a vast majority in favor of the ESM, a permanent fund set up to rescue the Euro. The loan capacity comprises an amount of 700 billion of which the Netherlands contributes around 5.7 percent. Germany is by far the head contributor followed by France, Italy and Spain of a total of seventeen EU-member states.  With the victory of the liberal-conservative People’s Party of Freedom and Democracy (VVD) in the Netherlands on the 12th of September combined with a victory for the German Merkel-government at the same day as the German Constitutional Court approved Germany contributing to the ESM, the pro-European and neoliberal mindset has prevailed. The establishment of the ESM has been ratified by the last member state and it has been decided by the minsters of Finances that the ESM should be in scaffolding at the end of October 2012.

But what does this actually mean and what kind of critique is relevant to discuss at a time when the eurocrisis escalates, government cuts are presented as to be inevitable, ministers talk about a banking union and the future of the Greek and Spanish people is insecure?

It might sound as a good idea: the ESM is simply the “permanent” institution that will take over from the temporary fund, the European Financial Stability Facility which has been providing emergency bail-outs to eurozone governments in distress. Praised as a victory for those on the side of ‘European solidarity’, the rules of the game are far from generous. Not even speaking of the complete lack of democratic control over the ESM itself, access to the ESM comes with many strings attached.

First of all, every future emergency loan from the ESM will be provided under strict conditions called a ‘Memorandum of Understanding’. We have seen in Greece what the conditions of bail-outs will probably be: lowering of wages, reducing social services and a forced sell-out of the national economy. Greece has been forced to sell public property on a massive scale. Phone companies, international airports, harbors, post offices, waterworks, weapon manufacturers and railway companies are sold as bargains to mainly German and Chinese companies. The Greek nightmare goes on as the economy keeps collapsing, racial tensions are rising and hospitals are running out of medical supplies.

Secondly, the ESM has a clause, sometimes called the ‘blackmail clause’, which affects not only the bail-out receivers, but all potential receivers. The ESM treaty states “that the granting of financial assistance […] will be conditional, as of 1 March 2013, on the ratification of the TSCG by the ESM Member concerned”. In other words: to even make a chance of getting ESM funds, member states must have signed the European Treaty on Stability, Coordination and Governance (TSCG). And this is where the neo-liberal nightmare gets even worse…for all of us.

The TSCG, luckily not yet ratified by enough member states, will make all European member states with ‘excessive deficits’ (which are currently 24, including the Netherlands, which you would expect in crisis-years) subject to an ‘excessive deficit procedure’. This basically means the undemocratically elected European Commission will partly take over your national fiscal policy.

An ‘excessive deficit procedure’ means that a detailed programme of economic reforms, recommended by the European Commission (EC), would be legally binding under ‘EU law’. Not complying with the recommendations would lead to financial penalties of which the Dutch Socialist Party leader said “over my dead body”.

How disastrous these recommendations can be we have seen in Greece. What they would be in the Netherlands we can read in one of the (currently non-binding) EC recommendation documents: an increase in the retirement age and “in particular, the Netherlands should […] improve the participation of women, older workers and disadvantaged groups with a view to raising overall hours worked”.

So, no, even if a country thinks it could get out of it’s ‘excessive deficits’ – mostly caused by socializing the losses of private gamblers of the financial sector – through increasing taxes on the rich, they would have to do it the neo-liberal way of the European Commission.

What’s ironic is that those favouring all of these self-destructive policies are calling themselves ‘pro-Europe’.


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