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EU Finance Ministers Reach Accord For EFSF Monetary Authority To Float Eurobonds To Aid Nations In Sovereign Debt Distress

|Includes: EUFN, FEZ, FXE, SPDR Gold Trust ETF (GLD)

The Euro Stability Task Force, of European Finance Ministers, led by Herman Van Rompuy, president of the European Council,  has reached agreement on the technical aspects of the special purpose vehicle, SPV, that would borrow up to 440 billion euros with euro zone country guarantees for euro members in trouble, according to sources quoted by Reuters in Friday June 4, 2010, article entitled Details Agreed For Euro Zone Loan Vehicle, with reporting by Jan Strupczewski and Julien Toyer.

The rescue fund was originally agreed upon over a dramatic weekend of summitry on May 8th and 9th to ward off what many feared would be a Black Monday, May 10, with the euro imploding amid a chain reaction of sovereign debt default along the Mediterranean.

The SPV is technically known as the European Financial Stability Facility, which is for all practical purposes, establishes a EU Treasury, for extending loans to nations experiencing sovereign debt distress.

The SPV’s funding by Eurobonds, is going to be sovereign debt deflationary, financial institution deflationary, and price inflationary to the peoples and businesses of Europe for two reasons. First, the funding by EFSF issuance of bonds is tantamount to monetization of existing sovereign debt; and second, the purchasers of the bonds are likely going to be banks in Europe, which stimulates a speculative interest in purchasing lending institution credit default swaps and short selling of banking stocks.

It is significant that the European Financial Stability Facility, will take national governments out of the equation: There would be no need for the SPV to ask national parliaments for approval of its actions each time it has to borrow, the sources said.

Thus, we have a hierarchical authority for monetary seigniorage in Europe. This by definition establishes Economic Governance over the all countries which have agreed to the $440 Euro billion of funding. A “One Euro Government” was created on May 9th, 2010, by joint EU Finance Leader and State Leader announcement;  and it will be funded by the SPV, the EFSF, located in  Luxembourg. 

Thus a region of global governance, one of ten called for by the Club of Rome in 1974, has coalesced out of the European debt crisis. National Sovereignty is a principle of a bygone era; the will, way and the word of the Continent’s leaders is the law of the land which establishes regional economic governance as Sovereign. The leader of the EFSF, will be Europe’s Seignior, meaning as Elaine Meinel Supkis communicates, top dog banker who takes a cut off the top for the creation of money and establishment of credit.  The effect is that one is no longer a citizen of a nation-state, but rather a resident in a region of global governance.  A European wide sovereign debt crisis arose, and on May 9, 2010, constitutional and treaty law was superseded by announcement at a Summit of European Leaders of a broad Framework Agreement for European Economic Governance.     

According to the Reuters article, “the idea of the SPV emerged in May, as a way to help euro zone countries to which markets effectively refused to lend like recently in the case of Greece. But unlike in the case of Greece, it would be the SPV that would borrow on the market against guarantees issued by all 16 members of the single currency area. In Greece’s case, each of the euro zone countries has to go to the market and raise the money individually to extend bilateral loans to Athens”.

If banks purchase the EFSF’s bonds, I have to ask where will the banks get the money? Probably from selling of assets, that is debts, to the ECB, for which they may have to take a loss if the asset is sold at market price and not their original and much higher cost. I have to question why a bank would do this? The answer comes back because of political pressure from the SPV, and the state’s Finance Minister.  Only time will tell to what degree the European Financial Stability Facility is going to be successful selling what amounts to Eurobonds. 

At first, I thought that the ECB, would become the dispenser of funds. But then again, where politics is involved, there has to be a “bickering organization”, a “congress”, where loan decisions are hammered out in political process.  The loaned money, as Elena Moya wrote in article How The EU Bail Out Will Work, is to come through a special purpose vehicle.

Perhaps the EFSF’s powers will eventually go beyond the issuing of loans, and be a major force in the economic governance of Europe, with vetting of state parliament budgets, issuance of austerity measures, and application of sanctions for failure to reach assigned goals.    

But EuroIntelligence in article Oh No, Another Stability Pact Beckons relates: ”Germany’s own balance budget law stands no chance to be implemented at eurozone level. The article also showed how difficult it will be to extend policy co-ordination beyond the stability pact. Silvana Koch Merin, a liberal MEP, said the proposal would effectively mean that other countries have influence on Germany’s economic policies – and was thus unacceptable. Politically, it is going to be extremely difficult for Germany to accept anything other than a souped-up stability pact, as Koch-Mehrin’s outburst indicated. To solve the problem of the eurozone, there is clearly a need for an end to absolute sovereignty over economic policies.  The question must surely be how sovereignty can be effectively shared. Otherwise, international investors will invariable conclude that the EU has no effective agenda to deal with private sector imbalances, which have the biggest explosive potential. So this agenda is still consistent with a break-up of the euro.”

EuroIntelligence continues: “On the ECOFIN agenda is also the agreement over the  financial stability fund, after France and Germany had finally agreed on a proposal. According to Les Echos the last points were the involvement of national parliaments and lending conditions. The current agreement is that it does not require the national parliaments to authorise the funds (as wished by Germany, Austria, Finland and the Netherlands), but that it will be lend at market conditions. It is interesting to note that the agreement was well celebrated as historical achievement in the French Press (Les Echos), but received quasi no coverage in Germany.”

And EuroIntelligence finishes saying: “The procedure for enhanced cooperation, meanwhile, has been evoked for the first time, not by finance ministers but by justice ministers for common rules on divorce.”

Frankly, the idea of leveraging the collective credit worthiness of all Euro countries to provide funding for those who are not so credit worthy is utter nonsense, as most all are credit unworthy.  We are witnessing the creation of debt at the most inopportune time as Debt Deflation Is Underway As Aggregate Debt Peaks Out And Stocks Fall Lower.

As it stands now the proposal for establishment of the EFSF Monetary Authority and its issuance of Eurobonds will go for approval at the June 17th EU Finance Ministers Summit. Under global governance, task groups meet to propose policy, which is submitted to Leaders who announce Framework Agreements at Summits which become policy for governmental mandate; then stakeholders carry out the policy, and the people follow.   

As the Euro, FXE, and the European stocks, FEZ, and the European Financials, EUFN, continues to decline, I believe an authoritarian hierarchical government, a Sovereign and a Seignior will arise to rule Europe, and perhaps the world.

Given the economic destructive nature of more debt, I suggest that one be invested in gold coins. 

Disclosure: I am invested in gold coins.