Skip to main content

Never Mind Lisbon, Europe Is Dead

by | Monday, 6th October 2008
Germany has joined Ireland and Greece in declaring that private citizens' savings will be protected by the state. In doing so, they seem to have dealt a massive blow to the very foundations of the Tower of Babel that is the Maastricht Treaty. At the very least, they have exposed European monetary union for the joke that it is.

Angela Merkel announced the guarantees after an emergency meeting of the Bundesbank and the financial regulator, called because Hypo Real Estate, Germany's second largest commercial property lender, is in trouble after a €35bn rescue plan collapsed.

The problem for the European elites is that they must have been drunk when they architected Maastricht.

Until 1999, member states' central banks were their "lenders of last resort." However, with the introduction of the euro, and with the exception of the UK, currency sovereignty was transferred to the European Central Bank, and so while national central banks are still generally responsible for providing extraordinary liquidity, they have no role in the creation of currency.

Apparently, the architects of the euro believed this apparent paradox could simply be ignored.

It gets worse.

Article 104 of the Maastricht Treaty states that "(o)verdraft facilities or any other type of credit facility with the ECB or with the central banks of the Member States (hereinafter referred to as ‘national central banks’) in favour of Community institutions or bodies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the ECB or national central banks of debt instruments."

So this is effectively saying that the ECB and national central banks are prohibited from lending to central government, among others. Where, I wonder, are Ireland, Greece and Germany getting the money to finance these guarantees? It would be nonsense for them to borrow it from private banks. They're all bankrupt, after all.

Ah, but hold on ... what's this?

Article 103(2) states, "Where a Member State is in difficulties or is seriously threatened with severe difficulties caused by exceptional occurrences beyond its control, the Council may, acting unanimously on a proposal from the Commission, grant, under certain conditions, Community financial assistance to the Member State concerned. Where the severe difficulties are caused by natural disasters, the Council shall act by qualified majority. The President of the Council shall inform the European Parliament of the decision taken."

Which means that in exceptional circumstances, central governments can apply for a waiver of the rules surrounding funding via the ECB or central banks. So, apply to the EC, act as a unified Europe, then anything is possible. Except none of the three nations to guarantee bank deposits so far has made any such application. By acting unilaterally, they have effectively decided that Maastricht isn't worth the paper its written on. In fact, they have admitted that the only mechanism for dealing with the current financial crisis is via the sovereign nation state.

Can the EU survive under these circumstances?

Help the UK Column by becoming a member: