By Brian Cronin:

Before starting on the issues this week, let me take a moment to observe that next Tuesday is the 11th anniversary of 9/11. That fateful day, also a Tuesday, saw close to 3,000 souls lost. 88% of them were Americans with the remaining 12% foreign nationals coming from over 90 countries. I was working in New York on that day but, mercifully, in midtown Manhattan, about four miles north of Ground Zero. It was a day of hell on earth and the memory of it is still very strong. If you worked in the financial markets in New York, you likely knew someone or knew of someone who worked in the twin towers and who perished that day. And so it was for me.

When I was young, I used to think that festivals of remembrance for war dead were a colossal waste of time. Now that I am much older, I think they are a powerful reminder of how precious life is and what we stand for. It is much more personal because I am connected. And so it will be next Tuesday. The motto in the days and weeks following 9/11 was “never forget”. But those two words are two negatives and too negative. I prefer that the admonition be positive: “always remember”. Requiescant in pace.

Moving on: over the past few weeks, I have taken a look at most of the countries in eurozone but the round Europe tour is now ended. I did not include Belgium and Luxembourg since they don’t really register and Portugal and Ireland, the first to receive bailouts, are actually doing better so there is less need for an extended look at those two.

On Wednesday of this week, the Bundesverfassungsgericht (BverfG), the German Constitutional Court in Karlsruhe, will deliver its verdict on the lawsuits brought against the legality of the European Stability Mechanism vis-à-vis the budget process. If the court decides against the ESM, it will have profound consequences and could result in considerable turmoil on the world’s financial markets. Klaus Regling, currently the head of the temporary European Financial Stability Facility (EFSF) and future head of the ESM, has said that without Germany, the ESM is basically pointless. The fund will consist of the €700 billion with €80 billion of paid in capital and the remaining €620 billion in guarantees from the member states. Germany’s share of this backstop facility is €21.7 billion and €168.3 billion respectively. On the latter amount, the legal limit of liability is €190 billion.

The point as issue is whether obligations to the fund and adherence to EU law contravene the German constitution and detract from parliamentary oversight of the budget process, indeed whether it is even democratic in the first place. There are plenty of opponents who think that it is not and see no good reason to bail out nations who are not financially responsible while projects for the betterment of Germans go unfunded.

Now I have made no secret of the fact that I am a euroskeptic and in fact I am downright against it. As a former Brit, I saw no good reason for Great Britain to join the EU to the detriment of its Commonwealth partners. I would go further. Richer nations pay into the central budget of the EU and poorer nations receive monies back – redistributing the wealth and spreading it around. Hmm! That sounds familiar! If that particular form of democracy is what member nations want then all well and good.

The vision of the founders was laudable. They set up institutions that were not initially accountable and they figured that democracy would eventually catch up with their over-arching vision. But it hasn’t worked out that way. I would argue that the EU an institution has now become rather undemocratic. It doesn’t particularly care for referendums which some nations’ laws mandate, and prefers to rely on the elected parliamentary representatives to rubber-stamp treaties, presumably because the people are too dim or too emotional to understand the intricacies of the points at issue to vote directly if a plebiscite is required. When national referendums have rejected a treaty in the past, the attitude was: that’s the wrong answer – go back and have another go at it. That was the case with EU member Ireland and the Nice treaty in 2001 and 2002, and again with the Lisbon treaty in 2008 and 2009. Whether one agrees with what is at issue is beside the point. Elected leaders strong-armed their citizens as henchmen of the EU until the “right” result came in.

I would go further still. Democratically elected leaders have been pushed aside during the euro crisis to further the European ideal and preserve the euro. Consider the case of Greek PM George Papandreou. He proposed a referendum for the Greek people on austerity measures and the powers that be in Brussels had ten fits. He caved in to the pressure, cancelled the referendum and in November 2011 was forced to resign in favor of a unity government. Italian PM Silvio Berlusconi was also forced out in November last year after parliament approved austerity measures demanded by the powers that be, in favor of economist Mario Monti. Sr. Monti, a former EU Commissioner, was made a senator for life by the President Napolitano on November 9, 2011 and was asked to form a government by the president a week later, i.e. he was unelected. His government is full of technocrats and not one of them is elected. Neither Papandreou nor Berlusconi were strong politically or popular. Had they been otherwise, then the forces which engineered their downfall may not have succeeded.

Who are “the powers that be”? According to some commentators, it is the “Frankfurt Group” who decides on the fates of governments, who leads them and who doesn’t. It came into being last year when its members met at the Frankfurt opera house at the farewell celebration for outgoing ECB chief Jean-Claude Trichet. When you consider that of the original members, reportedly Angela Merkel, Nicolas Sarkozy, Jean-Claude Juncker, Mario Draghi, José Manuel Barroso, Herman van Rompuy, Olli Rehn, Christine Lagarde, only the first three (Germany, France and Luxembourg respectively) were democratically elected, it should give you pause. M. Sarkozy is gone and presumably replaced by M. Hollande. The other five are all unelected: Mario Draghi (Italy) is the head of the ECB, José Manuel Barosso (Portugal) is the president of the European Commission, Herman van Rompuy (Belgium) is president of the European Council, Olli Rehn (Finland) is European Commissioner for European Economic Affairs and Christine Lagarde (France) is head of the International Monetary Fund.

The European Union was born of a desire to yoke nations together, stem the rise of nationalism and make sure that formerly warring nations never resorted to arms again. In pursuit of that ideal, a bureaucracy ever more unwieldy came into existence and seems now to be an end in itself preserving its own well-being. Most people in the EU believe that since joining the euro, the icon of the European ideal and the instrument of European integration, they have become poorer.

Taxpayers have been obliged to channel funds south when it should be clear to anyone that if, for example, Greece had not joined the EU and retained the drachma, then the calamity now befalling it would have been over a lot sooner because the markets would have taught it a very hard lesson for living beyond its means. When Greece and Germany are effectively on a par with one another, then the normal rules do not, cannot apply.

Why, then, do they persist with the European idea of integration? Because it was in their self interest to join together in the first place, banish the evils of the 1930s and look for influence and economic advancement. Many were in a dark place, politically, financially and economically, though that was certainly not Britain’s situation. The reality for many has turned out to be less than desirable. Nations on the periphery want to be seen as playing in the major leagues while the major players cannot envisage leaving and going it alone. Indeed, there is no mechanism for a nation to do so and at the start everyone imagined it would be permanent. Nobody ever thought it could be temporary although politicians all over Europe have now begun to admit that the horrors of a “Grexit” are not as bad as once supposed and contingency plans are in place. There is life after the EU.

Though there was a great deal of turmoil once the legacy currencies disappeared and the new euro notes and coin were introduced a decade ago, it would arguably be less of a hardship to do it in reverse. Well known banknote printers, such as De La Rue in the UK, are probably already gearing up for the possibility. Maybe all those old banknotes weren’t destroyed and are in a vault somewhere gathering dust waiting for the day when they will be useful again. Given the rise of debit and credit cards and electronic funds transfers, it is possible that fewer banknotes would be needed. If necessary, they could always resort to overstamping existing currency notes, as Brazil used to do, until the new notes come along. Nothing is beyond the bounds of possibility.

If you get the feeling that European people at the grass roots are increasingly getting frustrated about how their democracy is working, their national parliaments more and more edged out of the deliberative process and major decisions about the way forward taken by a small number of people at the top, some elected, most not, you would not be wrong. The European ideal and how to fix what’s gone wrong has become increasingly complicated. The elites take little account of how the populace really feels and so they are rarely consulted.

So maybe the way forward is to actually put these measures to a referendum and let “we, the people” decide. As always, what you ask and how you ask it, is the key. There have been a growing number of calls for referendums to decide on continuing membership in a number of countries. Successive leaders in the UK have promised but then reneged presumably not wishing to rock the boat and bring about “change”. That’s why the decision of the German Constitutional Court this week is so critical. We will see whether it fiercely maintains its independence and permits Germany to  control its own finances or acquiesces and is seen to be a tool of government to bailout other countries.

In 1831, Frenchman Alexis de Tocqueville arrived in America with companion Gustave de Beaumont, ostensibly to study the penal system, but they used their time to study American society in the young republic instead. The resultant work, published in two volumes in 1835 and 1840, became the landmark “Democracy in America”. Maybe it’s time for somebody from America to return the favor and study Democracy in Europe.

Meanwhile, in Holland, this week, the old fashioned way of showing approval or disapproval of the way elected leaders are handling things, will be on offer. National elections are due to take place on Wednesday and the likelihood is that the anti-austerity Socialist Party under Emile Roemer will be the winner.

Over the objections of Jens Weidmann, head of the Deutsche Bundesbank, ECB chief Mario Draghi announced last Thursday Outright Monetary Transactions (OMTs), which essentially allows the ECB to buy unlimited sovereign bonds of distressed nations three years and under but not to put a cap on rates. There are strings attached: it will only be in the secondary markets thereby avoiding any semblance of direct state financing. The OMTs will be sterilized and therefore not inflationary. He has even waived preferred creditor status. Such countries must ask for help from the bailout fund and agree to austerity measures. The market liked the news pushing the euro higher and equity markets to multi year highs in the US. Sr. Draghi promised in July to do whatever it took to save the euro.

The ECB is treading a very fine line. Critics of the plan suggest that the ECB is now a tool of eurozone governments, is jeopardizing its independence and is contravening its mandate. Not so says Sr. Draghi. Let’s see if this works any better than the previous ECB effort at bond buying. But it might all be moot if the BverfG says that the ESM, to which the ECB bond buying program is linked, is not compatible with the German constitution.