Government by the Banks, for the Banks: The ESM Coup D’Etat in Europe

On Friday, June 29th, German Chancellor Angela Merkel acquiesced to changes to a permanent Eurozone bailout fund—“before the ink was dry,” as critics complained.  Besides easing the conditions under which bailouts would be given, the concessions included an agreement that funds intended for indebted governments could be funneled  directly to stressed banks.

According to Gavin Hewitt, Europe editor for BBC News, the concessions mean that:

[T]he eurozone’s bailout fund (backed by taxpayers’ money) will be taking a stake in failed banks.

Risk has been increased. German taxpayers have increased their liabilities. In future a bank crash will no longer fall on the shoulders of national treasuries but on the European Stability Mechanism (ESM), a fund to which Germany contributes the most.

In the short term, these measures will ease pressure in the markets. However there is currently only 500bn euros assigned to the ESM. That may get swallowed up quickly and the markets may demand more. It is still unclear just how deep the holes in the eurozone’s banks are.

The ESM is now a permanent bailout fund for private banks, a sort of permanent “welfare for the rich.”  There is no ceiling set on the obligations to be underwritten by the taxpayers, no room to negotiate, and no recourse in court. Its daunting provisions were summarized in a December 2011 youtube video originally posted in German, titled “The shocking truth of the pending EU collapse!”:

The treaty establishes a new intergovernmental organization to which we are required to transfer unlimited assets within seven days if it so requests, an organization that can sue us but is immune from all forms of prosecution and whose managers enjoy the same immunity.  There are no independent reviewers and no existing laws apply.  Governments cannot take action against it.  Europe’s national budgets [are] in the hands of one single unelected intergovernmental organization.

Here is the text of some of the ESM’s provisions:

[Article 8]  “The authorised capital stock shall be EUR 700 000 [700 billion Euros].”

[Article 9]:  “ESM Members hereby irrevocably and unconditionally undertake to pay on demand any capital call made on them . . . such demand to be paid within seven days of receipt.”

[Article 10]: “The Board of Governors . . . may decide to change the authorised capital and amend Article 8 . . . accordingly.”

[Article 32, paragraph 3]: “The ESM, its property, funding, and assets . . . shall enjoy immunity from every form of judicial process . . . .”

[Article 32, paragraph 4]: “The property, funding and assets of the ESM shall . . . be immune from search, requisition, confiscation, expropriation, or any other form of seizure, taking or foreclosure by executive, judicial, administrative or legislative action.”

[Article 30]:  “ . . . Governors, alternate Governors, Directors, alternate Directors, as well as the Managing Director and other staff members shall be immune from legal proceedings with respect to acts performed by them in their official capacity and shall enjoy inviolability in respect of their official papers and documents.”

And that was before Merkel’s recent concessions, which allow this open-ended indebtedness to be funneled directly to the banks.

Why Did Merkel Cave?

“Reactions back home were devastating,” reported der Spiegel.  “[T]he impression was that [Merkel] had been out-maneuvered by Italian Prime Minister Mario Monti and Spanish Prime Minster Mariano Rajoy.”

As of June 21, 13 of 17 countries still had not ratified the ESM; and the most important ratification needed was Germany’s, the largest economy in the Eurozone.  Earlier, Angela Merkel had opposed using the bailout fund to pump money directly into struggling European banks.  But at the EU summit that began on Thursday and dragged on well into the night, she finally relented.  Late Friday evening, German lawmakers voted 493-106 in favor of the €700 billion ($890 billion) permanent bailout fund.

What caused Merkel to back down?  According to an article in The Economist, the late night was “filled with bluff and bluster,” in which

Mariano Rajoy, the Spanish prime minister . . . , along with Italy’s Mario Monti, had threatened to block any agreement at the summit unless their demands were met. Mr Rajoy obtained satisfaction, but the same is not quite true of Mr Monti, who had been the most adamant of the two.

Mr Monti declared himself satisfied, but caused considerable irritation to partners. Among the deals he had blocked was the “growth pact”, a mixture of stimulus measures.

What Monti achieved by this maneuver was not clear:

“Who needs the growth pact? Not Germany,” said one bemused participant. The euro zone’s fiscal hawks say the bond-buying mechanism will be little different from the existing system. “Mario Monti raised a gun to his head and threatened to shoot himself. In the end he wounded himself in the shoulder,” said one scornful diplomat.

Maybe.  Or maybe the bond-buying mechanism was not what he was really after.

The Italian Coup D’Etat

There is reason to suspect that “Super Mario” Monti may be representing interests other than those of his country.  He rose to power in Italy last November in what critics called a “‘coup d’etat’ engineered by bankers and the European Union.”  He was not elected but stepped in after Prime Minister Silvio Berlusconi resigned under duress.

Monti is not only an “international advisor” to Goldman Sachs, one of the most powerful financial firms in the world, but a leader in the Bilderberg Group and the Trilateral Commission.  In an article in The New American, Alex Newman calls these clandestine groups “two of the most influential cabals in existence today.”  Monti is listed as a member of the steering committee on the official Bilderberg website and as the European Group chairman on the Trilateral Commission website.

The Trilateral Commission was co-founded in 1973 by David Rockefeller and Zbigniew Brzezinski, also Bilderberger attendees.  The Trilateral Commission grew from the thesis in Brzezinski’s 1970 piece Between Two Ages: America’s Role in the Technetronic Era that a coordinated policy among developed nations was necessary in order to counter global instability erupting from increasing economic inequality. He wrote in his 1997 book The Grand Chessboard that it would be difficult to get a consensus on these issues “except in the circumstance of a truly massive and widely perceived direct external threat.”

Naomi Klein calls it “the shock doctrine”—an induced disaster forcing austerity measures on sovereign nations.  In desperation, they would come to heel, relinquishing the sovereign right of governments to an unelected body of technocrats.  And that is what the ESM seems to achieve.

Rockefeller notoriously wrote in his 2002 autobiography, “Some even believe we are part of a secret cabal working against the best interests of the United States, characterizing my family and me as ‘internationalists’ and of conspiring with others around the world to build a more integrated global political and economic structure—one world, if you will.  If that’s the charge, I stand guilty, and I am proud of it.”

Implementing the Shock Doctrine

In another bankers’ coup last November, former Goldman Sachs executive Mario Draghi replaced Jean-Claude Trichet as head of the European Central Bank.  The European Stability Mechanism quickly followed.  It was a permanent rescue facility intended to replace certain temporary facilities as soon as the member states had ratified it, slated to occur by July 1, 2012.  The ESM came to an initial vote in January 2012, when it was passed in the dead of night with barely a mention in the press.

The recent modifications were also agreed to in the dead of night, ostensibly because Italy and Spain were afflicted with onerously high interest rates.  But there are other ways to bring down interest rates on sovereign debt besides forcing whole countries into open-ended pacts to bail out private banks for unlimited sums in perpetuity, in the hope that the banks might bail the governments out in return.

The U.S. 2012 budget deficit is significantly worse than either Italy’s or Spain’s, yet somehow the U.S. has managed to keep interest rates on its debt at record lows.  How has it pulled this off?

One theory is that JPMorgan’s $57 trillion in interest rate swaps have something to do with it.  Another explanation, however, is that the Fed has simply stepped in as lender of last resort and bought up any debt not sold at the low rate set by the Treasury, using “quantitative easing” (money created on a computer screen).  Between December 2008 and June 2011, the Fed bought a whopping $2.3 trillion of U.S. bonds in two rounds of quantitative easing.  Why can’t the European Central Bank do the same thing?  The answer is that there are rules against it, but rules are just arbitrary agreements.  They can be changed by agreement—and often have been, to save the banks.

As the cynic quoted in The Economist article above observed, the bond-buying mechanism for countries under the ESM will be little different from the existing system.  Mario Monti said the plan will support government bond prices only in countries that comply with fiscal targets, and that it will act as an incentive for governments to follow virtuous policies.  That means avoiding deficits, even if it requires further austerity measures and selling of assets.  On the public level, that could mean national treasures like the Acropolis.  On the private level, The New York Times reported Friday that some desperate out-of-work Europeans were going so far as to sell their kidneys to pay household bills. The shock doctrine, it seems, has come to the doorsteps of privileged Westerners.

The German diplomats negotiating the ESM did leave open some escape hatches, including a request by Germany’s highest court to the country’s president not to sign the treaties into law until a legal review can be completed.  At least 12,000 complaints are expected to be filed with the Federal Constitutional Court regarding the ESM and the fiscal pact. The legal review could well conclude that the ESM illegally hijacks taxpayer funds for private bank profit.

It is one thing to pool national resources to bail out other sovereign governments, quite another to write a blank check to bail out the profligate private banks that precipitated the global downturn.  Europe has a strong tradition of publicly-owned banks.  If the people must bear the costs, the people should own the banks and reap the benefits.

39 Responses

  1. Ellen, clearly the banking crime syndicates must be severely punished for RICO/treason/enslavement/crimes against humanity, etc. The longer we stupidly allow them to continue their deadly “monetary policy” charade and doublespeak, the more we will be destroyed. We all must focus on their immediate arrest and jailing worldwide. We know all we need to know to do what we have to do.

    • Excerpts from justaluckyfool…
      Quote Michael Hudson…”. the banks now browbeat governments – not by having ready cash but by threatening to go bust and drag the economy down with them if they are not given control of public tax policy, spending and planning. The process has gone furthest in the United States. Joseph Stiglitz characterizes the … vast transfer of money and pubic debt to the banks as a “privatizing of gains and the socializing of losses. It is a ‘partnership’ in which one partner robs the other.” Prof. Bill Black describes banks as becoming criminogenic and innovating “control fraud.” High finance has corrupted regulatory agencies, falsified account-keeping by “mark to model” trickery, and financed the campaigns of its supporters to disable public oversight. The effect is to leave banks in control of how the economy’s allocates its credit and resources.
      If there is any silver lining to today’s debt crisis, it is that the present situation and trends cannot continue. So this is not only an opportunity to restructure banking; we have little choice. The urgent issue is who will control the economy: governments, or the financial sector and monopolies with which it has made an alliance. “

    • forget about jail time they need to be shot

  2. One world with 1% owning all of its assets and still having payment owed which shall be serviced with servitude.
    *****Perhaps,just perhaps you would consider as a solution:
    A Monetary Sovereignty must create a Sovereign owned bank,
    which would be the only agency that could create and issue that nations currency. All private banks must deal solely on a 100% liquid basis. They may borrow from the sovereign’s bank but must pay interest because the only means available to the sovereign’s bank to place money in circulation is by way of interest bearing loans. These loans allow the bank to control its worst enemy, inflation. It allows for quality and quantity control of its currency. It also allows for distribution and this is most important because if it does not redistribute its income it would be impossible to pay the loans in full without servitude. .
    It could also allow for zero income taxes…read more:

  3. Ellen,

    Excellent, as usual. However, for a moment there I thought I was reading about the creation of the Federal Reserve!

    The flaw in the Euro is that Europe is not one country with one government, and I think the Europeans like it like that. I think we will be surprised and, possibly, amused at the way this all ends up.

    The Bilderbergers, the Trilateral Commission and the continuing involvement of Goldman Sachs leave me little hope for the future of the world economies.

  4. In my view the only solution that will ever last is if money becomes decentralized. If there is a central control of money which either gives it out or decides what it is then that will become the central target of individuals who want to devise ways to parasitically gain from it at the expense of others while not really producing anything of real value. Removing legal tender laws and then explicitly allowing anyone to attempt to create a currency while allowing people to accept or deny any currency available would create the proper environment for competition and innovation to enter into the monetary system. Government should compete against the private sector by creating money, interest free, and spending it directly with the constraint that it is collateralized by tax revenue through taxation. If they print too much, due to an emergency etc, then taxes will have to be raised or services cut which has the exact same effects as it does today except it would be explicit in higher taxes and/or less services in short order instead of being overtly hidden in inflation for years, up until a collapse becomes immanent.

    • And “they” want it further CENTRALIZED!!

      Criminals. No jail time but straight to hell.

  5. […] Detroit, miPosts: 1,081Liked 14 Times on 13 PostsLikes Given: 3 just saw this today……    vbmenu_register('postmenu_likes855922', […]

  6. […] the people must bear the costs, the people should own the banks and reap the benefits.Ellen Brown Web of DebtP:osted: Sunday, 1 July […]

  7. […] […]

  8. I will introduce federal legislation to enable publicly owned state banks to make interest-free loans for all purposes, requiring repayments to be zeroed/destroyed to prevent (in)deflation. The money to be created out of thin air like it is now. I will also introduce legislation prohibiting the federal government from borrowing, requiring it to pay its operating costs (and create our money supply) through the issuance of debt-free US Notes and cyber currency, Innocent third party debt to be purchased by Treasury; Federal Reserve debt to be disavowed. This will result in massive productivity, prosperity, employment, and tax reductions. No interest or taxes. Believe it. Work for it.

  9. Superb piece … The essence of the EU crisis, international banksterism, laid bare for all to see.

    Kudos … mmckinl

  10. What we are seeing is the evolution of governments, which were based on triumphant militarism, having the power to deem money to be whatever people were forced to pay their taxes and other bills with, as the state mandated legal tender, gradually integrate into larger and larger units. However, along the way, the best organized gangs of criminals were able to take effective control over those governments, so that they then would direct those governments to give away the power to make “money” out of nothing to private banks. That has been a deliberately designed positive feedback situation. It the triumph of organized crime on the highest levels, which gets to bluster and walk around saying how wonderful a system it is. Any who point out the insanity and lies get punished, in way one or another, to some degree. Those who agree to go along with that insanity, and embrace those lies, are rewarded by that system. Thus, the history of War as King, then made Fraud be King.

  11. The cherrypicked quotes from the treaty aroused my lawyer’s suspicions. Article 9(3), for example, actually reads: “The Managing Director shall call authorised unpaid capital in a timely manner … ESM Members hereby irrevocably and unconditionally undertake to pay on demand any capital call made on them by the Managing Director pursuant to this paragraph, such demand to be paid within seven days of receipt”. In other words, what it requires is for Member States to pay amounts that they have already undertaken to pay but have not actually paid up (see Article 8(4) and (5)). A very far remove from the “bottomless pit” argument Ms Brown is making. We lawyers call that credibility. Since Ms Brown has misrepresented this part of the treaty, we are entitled to ask what else has she misrepresented.

    • Given the many clauses that establish legal immunity from any and all prosecution, the ESM gives the eu banks de facto authority to demand any amount of money in any time frame, regardless of how it is stipulated in the document.

      Nice try Herr Pettifogger.

    • I think you are doing the cherry picking. This is just your “in other words.” It is not at all clear that the reference of 9(3) is to 8(4) and 8(5), but people can look for themselves: Who does the authorizing for the “authorised unpaid capital?” The board of governors. I think ” ESM Members hereby irrevocably and unconditionally undertake to pay on demand any capital call made on them by the Managing Director pursuant to this paragraph, such demand to be paid within seven days of receipt” is unambiguous and speaks for itself.

  12. […] Government by the Banks, for the Banks: The ESM Coup D’Etat in Europe « WEB OF DEBT BLOG. Share this:TwitterFacebookMoreEmailLike this:LikeBe the first to like this. This entry was posted in Uncategorized. Bookmark the permalink. ← Mixed Economy vs Neoliberalism […]

  13. Ellen, Congratulations on many great articles all the time. Guess this is as good a time and place as any to ask, with regard to the fact that the Fed has not reported M3 for quite a few years now–
    It has occurred to me that our low money supply may be the real cause of our lingering recession. Is there, with the Fed not reporting M3, a way to estimate how large or small our money supply really is?
    It seems to me, why all the talk about keeping a low interest rate when there is suspiciously little money to loan anyway.
    Yours truly, Bill Quick

  14. Another mind-blowing article. In a few years our forced pledge of allegiance will be “…One world, under Goldman Sachs, with Austerity for all.” whether we like it or not.
    Ellen’s comments about Naomi Klein’s theory really caught my eye. After reading this article, I begin to see that the global banking crisis and the shock doctrine go hand in hand, side by side, or are perhaps one and the same thing.
    It absolutely looks like a great part of the world is now in the jaws of the “shock doctrine.” I believe it has secretly been at work for the past four decades, spawn of Milton Friedman, the Machiavelli of the 20th century, grand guru of unfettered capitalism and his band of good old Chicago boys. They and their many zealot followers have been working very hard at their diabolical “government by crisis” (minus the government, but include appointed puppets) for more than forty years.
    We have austerity everywhere, emergency manager experiments in Michigan, bank-appointed puppet technocrats at the head of countries which all of us commoners have to pay for, voting rights suppressed in many of our states, unions crashed, civil rights smashed, corporate fascism, massive homelessness, people begging in our streets for food for their families, privatized education, constant threats to social safety nets, and college graduates with gargantuan student debt for years to come and no job prospects. Can we regress any further into utter barbarism? Yes we can. We can sell our organs.
    People are especially gripped with fear, corporations are using prisoners to replace workers at jobs that innocent people can’t get. We are being spied upon by some very surprising vehicles, especially on the internet. We have an inept bureaucracy, a banking crime cartel that controls many countries, and would like to take whatever is out there to be taken. The days of slavery seem to be upon us once more.
    And the Bilderbergs, members of the Trilateral Commission- do they have to sell any of their organs? No, their job is to create as much distraction from what they are really doing so they can pass their corrupt bills in the dead of night. And of course, buy everything and everyone. With all their money, the minions of the greedy have stealthily crept into our state, local, and municipal governments, and like a cancer virus, replaced elected officials with their dead clones.
    This Friedman dogma seems to be the philosophy of the greedy, the engine that drives them, their raison d’etre. The philosophy of the 1%. I wonder if Ayn Rand worshippers are in there somewhere. Ayn Rand, you know, the one who was in love with a serial killer.
    The best news about the 1% is that some of them are apparently giving up their citizenship so they don’t have to pay taxes. Bon voyage. Better yet, build a golden spaceship and find another planet to trash.
    I feel very sad and outraged as I try to get my mind around all this, but I still hope to see public banks created in this world, in this country in my lifetime.

  15. Ernest Huber at first blush sounds like he is all for ridding us of the tyranny of despots now in power who are grinding us into deeper and deeper debt. Since I don’t trust anything or anyone that sounds too good to be true, I did a little research on Ernest Huber and it seems that he is not what he appears to be. Oh no he’s not! I think after reading his opinions that he himself stated, that he is in fact the type that got us into this mess in the first place and is in stealth mode here. I suspect that he is probably seeding blogs for votes at the very least. Don’t take my word for it. Google or Yahoo him yourself. It appears that Ernest may not be so earnest.

  16. “The U.S. 2012 budget deficit is significantly worse than either Italy’s or Spain’s, yet somehow the U.S. has managed to keep interest rates on its debt at record lows. How has it pulled this off?”

    Ellen still does not seem to understand the difference between a monetary sovereign Govt (US UK Aust etc) and one that isn’t. The Euro countries are not and lost this extremely valuable asset (monetary sovereignty) when they joined the Euro.

    If she did she would know the answer to the above question.

    I suggest Ellen Google’s monetary sovereignty. Its critically important to understand the difference between monetary sovereign countries and Euro countries. And why Euro countries running a trade deficit are struggling so much and will continue to do so. Whereas monetary sovereign Govts running deficits (the larger the better within reason) will do much better than those that do not.


    Perhaps no words more accurately and succinctly illustrate the confusion about economics than “Monetary Sovereignty.” It is not a theory or a hypothesis or a philosophy. In its essence it merely is a description of the way federal financing actually works.

    A Monetarily Sovereign government has the exclusively unlimited power to create its sovereign currency. Monetary Sovereignty is the foundation of economics. The United States is Monetarily Sovereign. It has the exclusively unlimited power to create the dollar. China, Canada, Australia, the UK and Japan are Monetarily Sovereign. They have the exclusively unlimited power to create their sovereign currencies. etc

    • I think a closer reading of Ellen’s articles will show you that she understands the monetary sovereignty issue quite well and acknowledges it as at the heart of the problems with the Eurozone. With MMTers like Randall Wray, you may be overestimating the absoluteness of our monetary sovereignty, the Fed being privately owned and thereby a compromising factor. We would be more fully monetarily sovereign if the Fed were in fact government-owned rather than banker-owned.

      • Then Ellen should understand why US rates are much lower. QE has a bit but not that much to do with it

        The banks will always buy bonds (if the non banks do not) as they earn higher interest than reserves.

        And banks must accept Fed reserves (at a interest rate determined by the treasury) as an asset whenever the US Govt pays their expenses.

        So Govt payments release reserves
        Tax and bonds drain these reserves

        This si completely and utterly different to Euro countries who, like a company or you and me, must get money from banks or the markets first. They bid for money to pay expenses at a interest rate detemined by the market. The US Govt does not.

        The US Govt has all the real power not the banks.

    • Ernie is right. It makes no sense to say that any country in the EU is monetarily sovereign if the private banks are issuing the currency,and profit from bond sales or whatever else they fraudulently speculate in. The only thing sovereign about the monetary situation in the EU or the US for that matter, is the debt arising from what these private banks do with the money. Debt Sovereignty has a truer ring to it.

      • The countries in the Euro are not monetary sovereign. And monetary sovereignty makes a huge difference that very few fully understand.

        It makes no difference if a private bank issues bank credit (money) to pay Govt expenses if the bank is forced to accept interest free (or low interest) central bank reserves (as the asset to support the bank credit liability).

    • Sorry to bust your bubble but with regards to Australia and money sovereignty- not true. Australia’s Reserve Bank has to run thier supply decisions via the US Federal Reserve.

      Now for the Euro, great to bypass money changers when conducting business or travel in the EU but yes, need to piss off the Private Banks control of it. No more money created as debt ponsy scheme.

  18. The State Debt Lie & Why Constitutional Law Is Covered By Commercial Law

  19. Perhaps we need to examine the real issues and not be misdirected.
    What are the FLAWS to American Capitalism?
    1. Banks are allowed to create currency, this by definition is supposed to be the EXCLUSIVE right of the Monetary Sovereignty.
    2. And the banks are allowed to charge interest on that “newly created currency” a scheme that could only lead to collapse of the currency or collapse of the monetary system.
    This must be corrected. The special privileges the private for profit banks have had legislated must be taken away from them and given back to the people. And as a bonus “Don’t End The Fed, Amend The Fed” (Google …”justaluckyfool” we would be able to create millions of jobs and have a federal personal income tax of Zero. (The only fair tax-0%)
    For an absolutely great read (Please Ellen Brown for answers to many of your questions) read :”The Theory of Money, Virtual Wealth” by Frederick Soddy

  20. Doesn’t any politician have any common sense anymore they believe
    in selling out their own kids future
    you know if your not a Blood member
    of this Illuminati then your toast.
    Even their own Georgia stones suggest
    from 8billion will be down to 500mill
    One world corp state now will have a centralized bank to control all of Europe. Good idea huh?!

  21. […] welfare now includes the European Stability Mechanism, a permanent bailout fund for private banks with no ceiling set on the obligations to be […]

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