EU Commission, ECB Push for Centralised Super-State Before the End of Year

At last week's EU Council meeting, a tyrannical vision of the future came to to fore as Von der Leyen and Lagarde proposed fundamental change to existing arrangements

German version here; the below translation is mine, albeit slightly edited for clarity.

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After the next phase of the ‘digital euro’ was recently inaugurated, the European Council met in Brussels last week to discuss, among other things, the future of the EU. These regular summit meetings receive (too) little attention, as the course for the bloc is always set there due to the EU’s institutional arrangements. This time it was again about the future of the EU and the euro financial system, although the proverbial devil isn't just hidden in the details.

First of all, a brief contextualisation: the EU Commission and the European Central Bank have been pursuing an overarching goal for some time, namely the creation of a type of EU central state that is financed through joint bonds (so-called ‘Eurobonds’); that second part usually remains unmentioned, because anyone who says ‘Eurobonds’ means to arrange debt-service via taxes imposed by the EU or ECB.

Here you will find Norbert Häring’s assessment (in German, for English, use machine-translation) of the move towards a ‘digital euro’ that took place around two weeks ago, which speaks of a kind of ‘dispute’ between the EU Commission and the ECB. Incidentally, this is a position that I do not share, as Mr. Häring leaves out the second part of the EU/Euro conundrum (the necessity of levelling taxes).

With the EU summit that took place last week, it is now at least confirmed that this is exactly what is at stake. In other words: the EU Commission and the ECB are pulling in the same direction—that is, they are strengthening the rope around the neck of the remnants of popular sovereignty—and against political responsibility of governments towards the citizens of the EU/Euro states.

EU summit in Brussels, 26-27. Oct. 2023

The documents from the meeting can be found here .

But what important thing happened? The events relating to ‘capital and financial markets’ are briefly outlined below (emphases here and below):

The leaders took note of the Eurogroup’s ongoing work on the future of European capital and financial markets, including:

• enhancing private sector investments

• unlocking funding for common challenges

• demonstrating leadership on the green and digital transitions

They will review progress at the next Euro Summit meeting in March 2024.

Interested citizens can find out what this means in concrete terms on the following subpage on the ‘Future of the European capital and financial markets’: The EU is currently (until the end of the year) in the ‘second phase’ of a three-stage plan for the ‘cross-border harmonisation’ of capital and financial markets. The third phase will begin on 1 January 2024, which will involve rendering into law that which is to be adopted at the next summit next spring. So everything is on track, as they say.

From 1 January, however, the Maastricht Treaty with ceilings on deficit and debt levels will be re-instated, and from then on it will again be necessary to maintain budget deficits at or below of 3% of economic output and keep national debt levels below 60% of GDP.

These Maastricht criteria were suspended in view of the ‘Corona crisis’—and the odds of compliance with them from 1 Jan. 2024 look rather ‘bleak’, as current data from the ECB show:

• The EU's government deficit-to-GDP ratio decreased from -4.7 % in 2021 to -3.3 % in 2022.

• In the EU, the government debt-to-GDP ratio decreased from 87.4 % at the end of 2021 to 83.5 % at the end of 2022.

• At the end of 2022, the government debt-to-GDP ratio ranged from 18.5 % in Estonia to 172.6 % in Greece (both Estonia and Greece are Eurozone countries).

To put it politely, it does not appear that the Maastricht criteria will (can) be adhered to by all Eurozone states; hence the question is rather: which or how many countries will request ‘excemptions’ from the rules? And: At what point should the Maastricht Treaty and its criteria be categorised as ‘dead letters’?

Europe’s ‘Great Leap’ towards ‘Integration’

At least that's what it says on the Maastricht Treaty homepage, but the reality is clearly different.

From the point of view of the EU Commission and ECB, the WHO-declared, so-called ‘Corona Pandemic™’ is almost a kind of ‘gift from God’. The aim in Brussels and Frankfurt am Main (the seat of the ECB) has long been to create a centralised EU super state that has its own tax and debt sovereignty, the point of which is ‘independence’ from member states and their pesky inhabitants who cling to the idea to have a say in their governance.

As the EU Commission’s arbitrary actions during the ‘Pandemic™’ show, ‘Brussels’ is behaving more and more like a power factor that acts, so to speak, clearly removed from the sovereign citizens of European states. The best example of the EU Commission’s overarching goal is the Corona Reconstruction Fund , which actually consists of 800 billion euros of mutualised bonds (debt obligations for which all EU member states share liability) that the ECB issued. Obviously, the Eurocrats, citing ‘an emergency’, acted in contradiction to the Maastricht and Lisbon Treaties, which clearly exclude joint liability.

As Reuters reported in spring 2023, the EU Commission is seeking yet another change in parallel to the continuation of such ‘Eurobonds’:

The European Union is preparing to approach index providers for its debt to be included in their government bond indexes, an EU official told Reuters, a move that would attract steady demand from a much bigger pool of global investors.

Index inclusion ‘is something we are discussing with market participants at the moment, while we are also doing our internal analysis’, the official said, looking at how the EU fulfills index providers’ criteria.

EU bonds are included in broad bond indexes but inclusion in dedicated government bond indexes compiled by the likes of Bloomberg, JPMorgan or FTSE Russell would be a game changer, as trillions of dollars of investor funds tracking the indexes would effectively become forced buyers.

Here the EU's modus operandi can be observed yet again: first, something is set up ‘just in case’ (here the financing infrastructure), and after this is done, Brussels simply says that they have spent years on it, it would be a shame not to use this or that instrument.

Of ‘Eurobonds’ and ‘Indulgences’

The bottom line is that the EU is now stepping up its efforts to be treated as a sovereign borrower. The point of contention from the point of view of the index providers is that the EU does not (yet) have direct access to tax revenue. Reuters further quotes one Cosimo Marasciulo, head of fixed income absolute return at Europe's largest asset manager Amundi, who also advocates the inclusion of the EU in the government bond indices:

You have bonds which have shared risk between different countries, even if it’s issued by an entity which does not have a tax power, but I don’t think it’s relevant. It’s part of the integration that we have at the European level.

In other words: the ECB is issuing bonds worth 800 billion euros that are not covered by any revenue, but that is ‘not relevant’ if you follow Mr. Marasciulo’s creed. It may be possible to purchase an indulgence from the ECB in the future, since this, too, would be nothing more than a matter of faith (not to mention the ‘different’ consequences).

Incidentally, the ‘Eurobonds’ issued by the ECB are not holding up particularly ‘well’ in the financial markets, as the current ECB data shows: originally issued with an interest rate of 0.6% per year, the ECB’s interest rates are now at 4.5%.

In the midst of the WHO-declared, so-called ‘Corona Pandemic™’, the EU issued these Eurobonds whose ‘investors’—which include the central banks of the member states themselves—are now reaping massive losses.

What dimensions are we talking about here? A €7 billion SURE* bond with a 0.1% maturity in October 2040 is currently trading at a yield of 3.867%. That doesn’t look so bad, eh, that is, until you look at the price of this bond, which is trading with a bid-ask spread of 0.54/0.55—and is currently causing investors a loss of 45% .

(SURE is the acronym for the ECB's joint ‘Eurobonds’ entitled ‘Support to mitigate Unemployment Risks in an Emergency’; as of 14 Dec. 2022, a total of around 98.4 billion euros were distributed across member states.)

ECB Boss Lagarde Calls for ‘More Integration’

You don't have to be a financial genius to realise that the enthusiasm among investors to adopt these instruments is not endless (and we haven’t even talked about persistently high inflation, but 0.1% annual interest is…surely ‘great’).

That is why the EU Commission is working behind the scenes to include ‘Eurobonds’ in the indices, because this will remove any market dynamics (which we can currently observe), thus rendering these ‘Eurobonds’ a political, and hence coercive, debt obligation. The result would be that these ‘Eurobonds’ would be considered of equivalent value to, say, bonds issued by the Deutsche Bundesbank.

Unsurprisingly, the ECB is currently calling loudly for ‘a fiscal pact for the sake of unity’, as Bloomberg reported at the end of last week :

In Lagarde’s conversation on Monday [23 Oct. 2023] with Commission chief Ursula von der Leyen, Eurogroup President Paschal Donohoe and Council head Charles Michel, she warned that no agreement on the way forward risks putting pressure on monetary policy to do more, according to people familiar with the matter.

Donohoe, who leads the Eurogroup of finance ministers, is said to have responded at the time that the stakes are really high to reach an accord this year, and it’s doable but very hard.

Lagarde is attending the summit in Brussels a day after the ECB left interest rates unchanged for the first time in more than a year. Speaking after that decision, the ECB president already told reporters that the ‘reform of the EU’s economic governance framework should be concluded before the end of this year.’

It looks as if some people in ‘Brussels’ and ‘Frankfurt’ are worried about a ‘reform of the economic governance framework’ before (!) the end of 2023, shortly before the EU member states would have to comply with the Maastricht Criteria again..

Of Scylla (Maastricht) and Charybdis (Eurobonds)

In the light of the above-mentioned facts, however, this is—to put it politely—’wishful thinking’, but in practice the impending return to the Maastricht Criteria looks more like a socio-political and ultimately legitimising catastrophe for ‘Brussels’: the return to the Maastricht Criteria ultimately signifies a massive U-turn away from almost unlimited spending binges during the WHO-declared, so-called ‘Corona Pandemic™’—to the conditions that existed before the Great Recession of 2007/08. In other words: the reversal to bloc-wide austerity policies is just around the corner.

Austerity policies imposed from 1992 to 2007 contributed significantly to the first calls for the mutualisation of Eurozone bonds, as clearly described by Dirk Meyer in his essay ‘Eurobonds: A Turning Point for Europe’:

Eurobonds are the key to a politically-normative question…the unlimited and unconditional access to credit by the crisis countries is completely insecure…

Economically, eurobonds violate the market economy principle of liability. Market control is replaced by political control. The associated suspension of the interest mechanism is associated with high implicit transfers, leads to capital reallocation into the crisis countries with questionable uses and reduces their incentives to undertake necessary structural reforms. The principle of limiting the consequences of errors is violated by the fact that an exit from a eurobonds programme would hardly be possible due to the Samaritan dilemma. They would be the entry into an irreversible transfer union.

Here, Mr. Meyer clearly expresses a truth that is incredibly unpleasant for ‘Brussels’: Anyone who says ‘Eurobonds’ is not merely talking about changes to the EU; rather, it means nothing less than a fundamental change to all existing EU treaties.

Beware of Eurocrats Bearing ‘Gifts’

The EU Commission calls for ‘Eurobonds’.

ECB boss Lagarde assisted and spoke of a ‘reform necessary by the end of the year’.

It should be remembered that the Maastricht Treaty took quite a long time (1983-1992/93); it also took several years (2001-2007/09) to ‘update’ it via the Treaty of Lisbon.

But now it is allegedly absolutely necessary to bring about a fundamental change in the next two months (!), which is not only contrary to existing EU Law (sic), but it also violates all constitutions of the EU member-states—as this also applies not ‘just’ to the Eurozone—, as Dirk Meyer concisely formulates:

Eurobonds are therefore not suitable to contribute to the solution of the public debt crisis in the eurozone. Rather, they lead the eurozone into a new institutional relationship between states in the form of a transfer union without the sovereignty of the member states, which is currently neither compatible with the Lisbon Treaty nor with the Basic Law.

But it is precisely this ‘new institutional relationship…in the form of a transfer union without sovereignty of the member states’ that Ursula Von der Leyen and Christine Lagarde are calling for. Before the end of 2023.

Brussels’ Great Power Ambitions in the Background

The only way ‘Brussels’ can achieve this is by creating a massive crisis.

The path chosen for this appears to be the return to the Maastricht Criteria whose consequences—austerity, 1990s style—alone are probably enough to cause a drastic economic crash (or, what I personally think is more likely, to massively increase it).

It wouldn’t surprise me at all if the next few weeks will be marked by a concerted scaremongering effort that painted the return to the 1992/93 contractual terms as a spectre and a horror scenario.

At the same time, we will probably experience the old (made up) stories about the ‘irresponsible southern Europeans’ and their profligacy with other people’s money (that would be the money of the ‘more responsible’ northerners). Meanwhile, interest rates on the ‘Eurobonds’ that have already been issued will skyrocket, thus leading to a feedback loop that threatens to trigger yet another round of sovereign debt crises and insolvencies; this, in turn, promises to bring about the very ‘drastic crisis’ that will be used to justify the permanent suspension of the Maastricht and Lisbon Treaties, to be ‘sold’ to the public as yet another ‘we’ll move fast to counter this emergency’ measure.

In other words: an engineered sovereign debt crisis in EU member states will be deemed ‘necessary’ to ensure (restore) investors’ ‘confidence’ in the ‘credibility’ of the ECB bonds. Please don’t just take my word for it, for this is also the opinion of Rolf Strauch, chief economist of the European Stability Mechanism (ESM), who said the following to Bloomberg at the beginning of October 2023:

‘We have a lot of market contact and we clearly see that investors are interested in having a clear picture of fiscal policies’, Strauch said in an interview with Bloomberg. ‘It would be very helpful in terms of forward guidance to have the new framework in place.’

With interest rates set to be higher for some time as the European Central Bank maintains tight monetary policy, Strauch said governments need to stick to commitments to a more restrictive fiscal stance.

In other words: the impending return to the Maastricht criteria is the lever that the EU Commission and ECB are now using.

But what lies ahead for Europe?

Still, he said vast public spending in recent years has built up cushions for households and companies that will mitigate risks as the ECB’s interest rate hikes feed through to the economy…overall corporate debt burdens are manageable, and stress tests show banks could weather a severe downturn.

We learn that the suspension of the Maastricht criteria has given us all a ‘cushion’ (aren’t you resting comfortably yet?), thus the ECB will soon raise key interest rates further, but at least ‘the banks’ are so well positioned that they ‘could weather a severe downturn’. How reassuring (/irony).

Rolf Strauch is ‘positive’ about the future:

‘The question that always matters for the ESM is whether we have the resilience to also avoid a more systemic financial stability crisis’” Strauch said. ‘The clear point is that we have that resilience because we still see some buffers in the system that will allow it to handle that situation.’

In a nutshell, it looks like the ‘Eurobonds’ that have already been issued are trading at clearly different values ​​than, for example, German bunds. The available reports from the EU Commission indicate a considerable degree of consternation (see, for example, here about the first half of 2023):

The yields on EU-Bonds have been consistently higher than those paid by large sovereign issuers, despite the enhanced liquidity, high creditworthiness, and steady supply of EU-Bonds.

Investors and Eurocrats want a fiscal and transfer union, which could possibly bring competitive advantages over the USA, but the big problem is that European citizens consistently, well, let’s say, hold ‘different opinions’ on this than the protagonists in ‘Brussels’ and ‘Frankfurt am Main’.

From ‘Democratic Deficit’ to ‘Legitimacy Deficit’

The unspoken ‘problem’ of this malaise is that it is no longer about the EU’s much-discussed ‘democratic deficit’. Rather, the incidents described here point squarely at rising issues with the EU’s overall legitimacy.

Not only do the Eurocrats in ‘Brussels’ and ‘Frankfurt am Main’ have merely limited support from the European peoples, but the more than just politically dubious actions of the EU Commission and ECB are ultimately dragging the entirety of EU integration with them—into the abyss.

As the results from referenda held in the context of the failed EU constitution and later Lisbon treaties in France, Ireland, and the Netherlands clearly indicate, people across Europe were quite clearly against such plans 15-20 years ago. If one considers the given time frame of mere two (!) months that is supposedly available for regulating the financial and capital markets, it can be ruled out that European citizens will be asked about these fundamental changes.

We are therefore faced with the transformation of the EU’s ‘democratic deficit’ into a ‘legitimacy deficit’, if only because of the ambitions of the EU Commission and the ECB are more a case for the public prosecutor’s office than for high politics.

It is clear that the ‘Eurobonds’ issued so far (technically: the SURE and NGEU, or Next Generation EU, bonds) were intended to be merely the beginning of an EU central state with tax (fiscal-monetary) and debt-issuing (financial) capacities.

However, the fundamental problem with the existing EU treaties since 1992/93 is that the EU or ECB have no direct tax powers and their bonds are not creditworthy by themselves. In fact, the ‘Eurobonds’ issued so far are little more than a kind of fraud from start to finish, esp. if these ‘Eurobonds’ are given AA+ ratings (precisely because they are not backed by anything). For indulgences 500 years ago you at least had the prospect of eternal salvation, yet the existing ‘Eurobonds’ don’t even rise to that level.

Wars like those in Ukraine, the current fighting in the Middle East, and EU-level ‘high politics’ require a massive, engineered crisis to continue, which might even include the bankruptcy of most or all EU member-states. All of this is logical to the degree that it would allow for the emergency measure of stricter capital controls and a fundamental change-through-default of the EU to render the creation of a EU super state a possibility, which will have to be imposed not only without any say from the publics but it must be done in that way to become a possibility.

Lord, deliver us from these maniacs.