Mike Shedlock

German Chancellor Merkel and French President Sarkozy did their best to portray the results of the treaty as 26-1, Isolating the UK. Actual results are vastly different.

Everywhere you look there are splinters and crack, even in France and Germany. Here is one I just came across: France says not planning budget rule vote for now

France will not schedule a bicameral parliamentary vote for a constitutional budget-balancing rule while the opposition Socialist Party remains opposed to the idea, government spokeswoman Valerie Pecresse said on Wednesday.

"There can be no question of holding a vote unless the opposition changes its position," Pecresse a news briefing after a weekly cabinet meeting.

Sarkozy's efforts to get a fiscal rule enshrined in the constitution have been thwarted by left-wing opposition, but he and German Chancellor Angela Merkel said on Monday they would seek EU backing by March to have such clauses put into law across the euro zone.

Sarkozy Cannot Deliver French Votes, Plows Ahead Anyway

Sarkozy is willing to write clauses in the treaty even though he does not have the necessary votes to deliver them.

Moreover, and as I pointed out earlier, Sarkozy is going to lose the next French election and Socialist challenger François Hollande Would Renegotiate EU Deal.

As I also pointed out with thanks to reader Janne from Finland, Hell Will Freeze Over Before Finland Signs Treaty.

It's also important to note that the German Supreme court has not yet ruled on some of the proposed treaty modification, notably the 85% rule that has Finland upset.

Nonetheless, Sarkozy and Merkel will plod along with their attempt to ram a treaty down the throats of the 17 at complete taxpayer expense (thanks to Merkel caving in to a Sarkozy demand) when it is highly likely their own countries cannot deliver the votes.

But wait, there are still more cracks and splinters, including some major ones.

Treaty "Legally Doubtful"

EuroIntelligence reports on the Crumbling of Comprehensive Solution No. 4

It is surprising how long it took the markets to see through last week’s agreement to set up a separate treaty to reinforce the current one. As Frankfurter Allgemeine reports, the European Commission believes the whole thing is legally doubtful, and mostly irrelevant. The rating agencies, too, are underwhelmed.

EFSF About to Lose AAA Rating

Moody’s announced yesterday that it will review the credit rating of the eurozone member states, citing a lack of new measures agreed at the summit. Fitch was even more explicit, saying the summit once again failed to provide a comprehensive solution. A eurozone downgrade seems increasingly probable, at which point the EFSF would also lose its rating, and with it its whole raison d’etre.

EC Understands Subordinate Treaty Adds Very Limited Value

In the Commission’s view there is hardly anything really new in the euro agreement and what is new is legally very doubtful, Frankfurter Allgemeine Zeitung reports. The main problem according to the Commission is that the agreement for quasi-automatic sanctions would be part of an intergovernmental treaty and in international law that is of lesser legal value than a European treaty. As a consequence any country’s request to proceed according to the weaker deficit rules of the European treaty would mean that the stricter rules according to the intergovernmental treaty cannot be applied. Also the Commission points out that is doubtful that it and the European Court of Justice can legally be asked to perform surveillance duties on behalf of a subgroup of the EU.

Japan says No to IMF bailout

The world is getting impatient with the eurozone and its pathetic attempts to solve its crisis through the IMF. Reuters has the story that Japan’s finance minister Jun Asumi said Japan would only be able to cooperate with an IMF programme if the Europeans first came up with a convincing firewall. He expressed sympathy for the negative position the US taken on this issue.

I added the first two bold headlines in the above quotes for ease in understanding. The the rest of the text was not altered.

Nonsensical Headlines

Nonetheless, the most common headlines in mainstream media after this complete debacle look something like this: EU, without Britain, moves towards fiscal deal.

Deal? What deal?

There is no legally enforceable deal, and with all the cracks, splinters, splits, and discord, there is likely no deal at all.

Repeated Bald-Faced Lies by EC President

The arrogance and outright lies by EC president Herman Van Rompuy stand alone. Please consider New fiscal treaty ready by march says Van Rompuy

"Early March at the latest, this fiscal compact treaty will be signed," Van Rompuy said in a speech to the European Parliament in Strasbourg.

Several non-euro zone countries, including Sweden, Hungary and the Czech Republic, still need parliamentary approval before they can give their full backing to the move, but diplomats say this is largely a formality.

Van Rompuy said a review of the adequacy of the €500-billion ceiling on the euro zone's combined bailout funds will also be completed by March.

The so-called fiscal compact is designed to allow closer surveillance of countries' spending, in an effort to prevent a repeat of the eurozone's debt crisis and which may allow the European Central Bank to step up its purchases of distressed euro zone debt to calm markets.

For starters, the objections of Finland are no "mere formality". And it still remains to be seen if Sweden, Hungary and the Czech Republic parliaments are willing to go along. They would be foolish to do so.

Moreover, I am tired of this arrogant buffoon's repeated lies that the ECB is willing to step up purchases of European bonds. The ECB will not do so and the Bundesbank is adamantly opposed as well. Yes, the ECB presumably hinted that might happen, but ECB president Mario Draghi took that idea back in no uncertain terms, even repeating the message.

Market Rout as ECB Dashes Bond Hopes

Please consider Market rout as ECB dashes bond hopes

Mario Draghi, the ECB’s president, said the bank had not agreed to any sort of “Grand Bargain” with EU leaders to act as lender of last resort for sovereign states, insisting that it does not have a legal mandate to rescue sovereign states in trouble.

“We have a treaty and Article 123 prohibits financing of governments. It embodies the best tradition of the Bundesbank. We shouldn’t try to circumvent the spirit of the treaty,” he added, warning against the use of “legal tricks” to bend the bank’s mandate.

Pet Lies

Van Rompuy likes to alternate between his two pet lies.

  1. ECB will step up bond purchases
  2. Eurobonds are coming

Someone needs to stand up to Herman Van Rompuy and call him a disgusting liar straight to his face in an interview.

Three Things

  1. There is certainly is no legally enforceable deal and most likely no deal of any kind
  2. Eurobonds are dead (Germany would never go along, nor would Finland and some other countries)
  3. The ECB is unlikely to step up bond purchases in a significant way for fear of the Bundesbank and German Supreme Court ruling

One would never glean any of that from listening to Van Rompuy.


Mike Shedlock

Mike Shedlock is a registered investment advisor representative for Sitka Pacific Capital Management.
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