Econintersect: (Updated and corrected 4:52 pm New York time 25 May 2012) Today (24 May 2012), the Dutch Parliament voted in favor of the ESM (European Stability Mechanism), 100 yes and 47 no. The Dutch Senate still has to vote but the more than 2/3 majority in Parliament makes it unlikely that the measure will fail. If the agreement is approved by 90% of the capital providers it will become effective. The treaty was misrepresented to the Netherlands’ Parliament. On 23 May 2012, the Dutch Minister of Finance, Jan-Kees de Jager, told the parliamentarians that the expenses for the ESM are limited to the price of the shares. (For the Netherlands this is 400,190 shares of 100,000 euro each.)
Apparently de Jager completely overlooked the compensations of the losses the ESM will run. All losses are deducted from the paid-in capital, which must be readjusted each time to the required level.
With a capital of 700 billion euros the ESM can, ultimately, borrow and lend over 4,000 billion (in particular to banks and countries that are in such a bad shape they cannot obtain loans on the free market anymore).
So, even without any raising of the present capital of 700 billion, the countries that ratify the ESM-treaty guarantee the payment of the capital PLUS the payments for the compensation of losses of the ESM to readjust the paid-in capital to the required level each time. Of course, these losses are unknown in advance. The cost for each member country can easily become a multiple of the price of their shares and is, in fact, without end as long as the ESM will exist.
Author’s note: Ratifying the treaty means giving the ESM free disposal of our tax-money and the end of the supreme right of Parliament to decide about the budget. If they ratify, they may decide about the left-overs after the ESM takes whatever it deems necessary.
Econintersect has reasearched the record and it appears that the vote by the Netherlands makes it the second of the top seven Eurozone parliaments to approve, following France’s vote on 28 February 2012. Germany has rescheduled its vote to the middle of June and must approve for the ESM to be implemented.
Any one of the top four contributors to the ESM can kill the treaty because 90% of the capital must approve for the pact to be implemented. See the following table from Wikipedia (annotated by Econintersect).
Table from Wikipedia, annotated by Econintersect 24 May 2012.
While the Bundestag vote remains to be taken the posture of France may be shaky. Newly elected French president François Hollande has said that he wants to renegotiate the terms of the ESM to put greater emphasis on growth and employment. One of his proposals is to link the ESM directly to the ECB (European Central Bank) so that it could receive direct funding from the creator of the euro currency, according to an article by Dow Jones today (24 May 2012). If this were implemented the dependency on direct taxation of member states for support could be lessened.
Corrections: The previous post of this article incorrectly stated several things. Among these items (which have been corrected):
- The number of countries in the ESM treaty is 17.
- No record has been found by Econintersect of votes taken by the following top seven countries: Italy, Spain, Belgium and Greece.
- Besides Germany, the failure to ratify by either Italy or Spain would defeat the proposed treaty.
These errors were introduced by Econintersect (John Lounsbury) and were not caused by Rudo de Ruitjer.
- German ESM/compact vote delayed – coalition source (Reuters, 9 May 2012)
- Germany Could Delay ESM, Fiscal Pact Vote (Dow Jones, 4-Traders, 9 May 2012)
- European Stability Mechanism (Wikipedia)
- France’s Hollande, ESM Would have More Firepower If Linked to ECB (Dow Jones, Nasdaq.com, 24 May 2012)
Note: Econintersect’s John Lounsbury contributed to this article.