The revelations about EMU skulduggery are coming thick and fast. Tim Geithner recounts in his book Stress Test: Reflections on Financial Crises just how far the EU elites are willing to go to save the euro, even if it means toppling elected leaders and eviscerating Europe’s sovereign parliaments.
The former US Treasury Secretary says that EU officials approached him in the white heat of the EMU crisis in November 2011 with a plan to overthrow Silvio Berlusconi, Italy’s elected leader.
"They wanted us to refuse to back IMF loans to Italy as long as he refused to go," he writes.
Geithner told them this was unthinkable. The US could not misuse the machinery of the IMF to settle political disputes in this way. "We can't have his blood on our hands".
This concurs with we knew at the time about the backroom manoeuvres, and the action in the bond markets.
It is a constitutional scandal of the first order. These officials decided for themselves that the sanctity of monetary union entitled them to overrule the parliamentary process, that means justify the end. It is the definition of a monetary dictatorship.
Mr Berlusconi has demanded a parliamentary inquiry. “It’s a clear violation of democratic rules and an assault on the sovereignty of our country. The plot is an extremely serious news which confirms what I've been saying for a long time," he said.
There has been a drip-drip of revelations. Italy’s former member on the ECB’s executive board, Lorenzo Bini-Smaghi, suggested in his book last summer that the decision to topple Berlusconi (and replace him with ex-EU commissioner Mario Monti) was taken after he started threatening a return to the Lira in meetings with EU leaders.
I have always found the incident bizarre. Italy had previously been held up an example of virtue, one of the very few EMU states then near primary budget surplus. It was not in serious breach of deficit rules. It was in crisis in the Autumn of 2011 because the ECB had raised rates twice and triggered what was to become a deep double-dip recession. Yet the blame for this disastrous policy error was displaced on to Italy’s government.
Fresh details emerged this week in a terrific account of the crisis by Peter Spiegel in the Financial Times.
The report recounts the hour-by-hour drama at the G20 Summit in Cannes as the euro came close to blowing up. It culminates in the incredible scene when President Barack Obama takes over meeting and tells the Europeans what to do, causing Chancellor Angela Merkel to break down in tears: “Ich bringe mich nicht selbst um.” I won’t commit suicide.
That particular spasm of the crisis – and there have been three episodes (May 2010, Nov 2011, and July 2012) when the would have splintered without drastic action – was set off by the shock decision of Greek premier Georges Papandreou to call a referendum on the austerity terms of his country’s bail-out. He thought a vote was needed to stop Greece spinning out of control, and to pre-empt a possible military coup (as he saw it).
Papandreou was hauled before the star chamber and literally crushed into silence by French leader Nicolas Sarkozy, who was waving his “Position commune sur la Grèce” like an indictment sheet.
The FT report then reveals that the Commission’s Jose Manuel Barroso took charge of the executive details, orchestrating the Putsch that ousted Papandreou in Greece. In this case the EU picked ECB veteran Lucas Papademos to take over.
Parliamentary formalities were upheld in both Italy and Greece. The presidents appointed the new leaders in each of the two countries. Both Monti and Papademos are honourable and dedicated public servants. Yet these were clearly coups d’etat in spirit, if not in constitutional law.
David Marsh from the financial body OMFIF has called for a “Truth and Reconciliation Committee” to expose the abuses that have occurred in EMU affairs from the beginning. Something must be done to hold accountable those responsible for the fateful error of launching monetary union, and for the chronic mismanagement of the project thereafter.
We are told that the euro crisis is now over. I do not see how one can safely reach that conclusion when Italy and Portugal are contracting again, and France is back to zero growth; or when lowflation/deflation is causing the debt trajectories of Southern Europe to spiral ever higher; all against a background of G2 monetary tightening in the US and China.
There will be another spasm to this crisis. So who will Europe’s elites topple next, and what other conspiracies will they hatch to perpetuate a monetary venture that serves no worthwhile moral purpose? They must be stopped.
The FT’s Peter Speigel has a follow-up in today’s edition, with lots more details. These include confirmation that EU leaders not only broached the subject of Greek exit/expulsion from the euro at Cannes, but that this was followed up by a secret Plan Z.
A GREXIT task-force under Germany’s ECB’s board member Jorg Asmussen worked on emergency plans with four clandestine teams and EU lawyers in Brussels. They were careful enough not to reveal anything in emails, which could be leaked.
Merkel’s advisers in Germany were split into the “domino” camp that feared contagion from GREXIT, and the “infected-leg” camp headed by finance minister Wolfgang Schauble that pushed for amputation.
It seems as if Angela Merkel was finally persuaded by Jorg Asmussen that kicking Greece out of the system might snowball and lead all too quickly to a “eurozone of 10”. Greece got its €34bn bail-out in the nick of time.
Though I should not say this about a competing newspaper, it is worth spending £2.50 today on the pink sheet for the story.