Another leak

The following copy letter has come into my possession. It is from Mrs Penny Maws, legal adviser to Dr Roy Spendlove at the Division for Miscellaneous Projects. She is writing to Dame Lucy Doolittle, the Director of the Unit for co-ordinating cross cutting initiaitives and partnerships.   I am still finding it difficult to locate this body and cannot vouch for its authenticity or accuracy, but find its points very interesting.

Dear Dame Lucy,

            I hope you do not mind me writing directly to you. I do so because there is an urgent matter where we need  your help. Dr Stronglove is on sick leave , and then has to go to an important Brussels conference on the co-ordination and co-funding of miscellaneous projects, so I write in his absence.

             As you may know we were copied in to the recent  government correspondence about the future Irish loan. I am just a little concerned about the legal basis for the whole European Financial Stabilization Mechanism insofar as it relates to the UK, a non Euro member. As you may recall, the total fund was estimated as being up to E500 billion. E440 billion of this is to be raised on behalf of Euro member states only, under an intergovernmental agreement through a  special purpose vehicle. That seems well based legally, and does not include the UK.

                The remaining E60 billion is to come from EU sources including the UK under Article 122.2 of the Treaty of European Union.(TEU). I am aware that the previous Chancellor of the Exchequer was given a full briefing on this and gave poltical consent to it in May just before the change of government but after the General Election. I am also aware that the new government has agreed to live with the results of  his actions on advice that they cannot be changed, whilst at the same time criticising them in public.

              My concern is to ensure that the government’s position is as watertight as possible should any outside person or company venture a legal challenge of the basis for making payments under this Article. As you know, there have been challenges in the past when European matters have been debated in public, even when these have been easily brushed aside in the courts.

The Article in question says:

“Where a member state is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control, the Council, on a proposal from the Commission, may grant, under certain conditions, Union financial assistance to the Member state concerned. The President of the Council shall inform the European Parliament of the decision taken.”

In this case there is no doubt that the Commission proposed, the Council consented, including the previous government of the UK, and the European Parliament was informed. The issue revolves around the power to make a grant or loan  in the case of a country which has borrowed too much.

Clearly we cannot argue that this was a “natural disaster”. Our case rests on the sub clause of an “exceptional occurrence beyond its control”. Some might try to argue that excessive debt in some member states is not “exceptional” but common. Others may argue that debt levels are matters that can be under the control of the Member state if they wish.

Our critics wish to suggest that this whole Clause is about natural disasters, and limit the payment of monies to floods , hurricanes and other similar exceptional events. I think we can dismniss this, as clearly the clause covers both natural disasters expressly, and other “exceptional occurrences” which may not be from natural causes.

However, we do need to strengthen our defence to the notion that the debt levels of member states are not under their control. I suggest we commission more work on the relationship of  banks’ debt  to state debt, to see  if we can find supporting arguments from there. Such work will also, of course, need to cover how we regulated the banks. If we go to a defence based more on bank finances than state finances, it may help but we would be vulnerable to a counter charge that the banks too should have been under Member state regulatory  control.

I am sorry to trouble you with this, but I felt the work we need to buttress our legal position needed your approval, and resources  from your department to make sure the government’s position is as challenge proof  as possible. I understand the UK Parliament may be asked to strengthen the position by voting expressly for the loan which would be helpful. That still leaves open the chance of challenge to the use of  TEU 122.2 in general, which affects other non Euro member states as well as the UK.

Yours sincerely

Penny Maws.

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11 Comments

  1. Found a Voice
    Posted November 28, 2010 at 8:39 am | Permalink

    John,

    Whilst I hope that the letter is authentic, the false argument that will protect them has already been made: that ‘the exceptional occurence beyond its control’ was the global financial crisis, which has resulted in their dire predicaments. (For avoidance of doubt, I don’t believe the argument).

    Having said that, the sight of having the EU proponents have to publicly defend an increasingly indefensible and absurd position through such an argument can only damage it further.

    Keep on keeping on.

    Best,

    FAV

  2. Acorn
    Posted November 28, 2010 at 9:45 am | Permalink

    Dear Penny,
    A week back I would have said that the EU / ECB plan was a slam dunk. The proletariat does not understand it; not that the latter would be taken any notice of, if it did.

    Unfortunately we have an MP who does understand it and is kicking up some dust via his web-site. The Prol’s are starting to realise that the finances of a State are not de-facto umbilically connected to the private banks domiciled in that state. Let’s face it, guaranteeing those private banks’ debts was dumb. I blame Iceland; it let its banks go broke and took the hit on its currency. A hell of a lot cheaper than what Ireland is doing. If I were Ireland, I would tell the EU / ECB to stick it and hold a fire sale of its private banks bits and pieces. As long as you keep the clearing system bits of the banks going; the casino bits can go to the highest bidder. You will be amazed how quickly those banks will be replaced with new ones.

    Yes, some European Banks will have to take a haircut on their feckless lending; but, they will think twice before they get involved in property speculation again.
    http://www.bloomberg.com/news/2010-11-26/iceland-faring-much-better-after-permitting-banks-to-fail-grimsson-says.html

  3. Duyfken
    Posted November 28, 2010 at 10:53 am | Permalink

    “… caused by… exceptional occurrences beyond its control” would be a contentious lawyer’s dream come true in a commercial contract such as an insurance policy. With such a vague term appearing in the Treaty, where were the government’s lawyers to ensure the contingency was clear, and why did Darling (a lawyer) sign up to such an ill-defined commitment?

  4. alan jutson
    Posted November 28, 2010 at 10:53 am | Permalink

    Dear Mr Mrs Pennyless

    Many thanks for your letter outlining your concerns.

    Unfortunately your concerns are not valid for the following reasons.

    Our last Chancellor (a real darling if ever there was one) decided that he would sign all of the paperwork which underwrites all of the EU proposed actions. The fact that he was representing a Party which at the time had failed to form a Government, is not really relevent, as no Governments (in any of EU Member Countries) have any real input when reporting to the EU Central Committee. Yes of course they listen (in fact in many languages), but you must know by now that listening is very, very different to action decisions which are taken (again in many languages), which must always be in the best interests of Head Office

    You talk of Special Purpose Vehicles, and that is absolutely correct. But because this vehicle is electrically powered (from Windmillary) at a subsidised rate, it can go anywhere (within its 40 mile range) at any time, only stopping for 8 hours to refuel at its programmed stations (yet to be built) which will of course in the interests of Health and Safety, include a facility of bed and breakfast for the driver.

    I think you may have missed the whole point of this proposed planned bailout, and proposed it still only is !
    The simple fact is, the Irish seem to have spent more than they have generated in income, because they have given too many people a Tax holiday, quite unlike the EU which is very keen on taxation, as it gives them enough finance for many other sorts of expenditure such as holidays, subsidies, and in certain cases even additional personal allowances and expenses.

    You should by now be familiar with the workings and rules of EU Central Office, which will continue to grow under the direction of all National leaders, DC included. Indeed, should you require further detail as to how the EU actually works then I can only suggest you “ask Nick”.

    Nick, from memory (and my memory is failing, and not what it used to be) has I think had 10 years of personal experience of the intimate workings of EU Head Office. He should be able to remember that the EU simply raise Taxes to pay for their expenditure, and as long as they continue to do that, they can promise anything they like. So as soon as the Irish Government recognise that fact the sooner they will get out of trouble.

    You mention that other Countries also seem to have similar problems to Ireland and Greece. That is easily answered because they are “all in it together” the Euro that is. The fact that we are not in the Euro, is no reason why we can just sit on the fence and look on while friends, who we have fallen out with from time-time, are in trouble.

    Thank you for your concern, I trust the enclosed eases your mind (and perhaps your wallet)

    Regards

    Dam Lucky

    PS .Oops.
    Just realised I have addressed this to “Pennyless” instead of Penny Maws.
    On second thoughts, perhaps if things run there true course, that may be nearer the truth.

  5. NickW
    Posted November 28, 2010 at 11:56 am | Permalink

    The problem boils down to Bankers pay.

    In the interests of “fairness”, “We are all in it together” and Governments actually having the support of their electorate, it is clearly wrong that Bankers should help themselves to as much money as they want, whilst jobs are destroyed and families impoverished in order to pay the debts run up by the Bankers.

    If the Bankers had behaved differently we would not be where we are now.

    Bankers pay has been one insult too much for the electorates of any country to stand.

    Now the Bankers will have to pay the price.

    • NickW
      Posted November 28, 2010 at 12:51 pm | Permalink

      I have often thought that economics requires the consideration of “Forensic accounting”. I will provide examples;

      I buy shares and make a huge profit; not from dividends, but from an increase in value as more and more people buy them.
      Where has my profit come from; who has lost for me to gain?

      Allied Greed (A Megabank), arranges a huge takeover, earning millions of pounds in fees.

      Where did the profit come from; who lost, that the Bank might gain?

      Which businesses actually create wealth, rather than facilitate its redistribution?

      Is it possible for everyone to make a profit from the stock market, with no losers?
      If it isn’t, how should pensions be paid for?

      In the case of Bankers, it is only too clear who is paying for their lifestyle and who is suffering as a result.

  6. Denis Cooper
    Posted November 28, 2010 at 12:54 pm | Permalink

    Dear Penny

    Thank you for your letter in which you raise important concerns about the scope of Article 122.2 TFEU, and its use to justify financial bail-outs of EU member states.

    Our position on this has never been as strong as we would wish, not only because critics may question whether this emergency provision is truly applicable in these cases, but also because Declaration 6 attached to the 2001 Nice Treaty made it clear that in any case this article was never intended to over-ride the treaty provisions forbidding such bail-outs:

    http://eur-lex.europa.eu/en/treaties/dat/12001C/htm/C_2001080EN.007001.html

    “The Conference recalls that decisions regarding financial assistance, such as are provided for in Article 100 and are compatible with the “no bail-out” rule laid down in Article 103 …”

    Regrettably, that Declaration was itself recalled by the Council in its answer to an Irish MEP in May 2009:

    http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+CRE+20090507+ANN-01+DOC+XML+V0//EN&query=QUESTION&detail=H-2009-0237&language=EN

    In which reply it was also stated that this provision:

    “… has never been the legal basis for any proposal examined by the Council. Similarly, the Council never examined any proposal based on the second paragraph of Article 103a of the EC Treaty as inserted by the Maastricht Treaty, which was the corresponding provision prior to the paragraph in question.”

    and

    “No definition of “exceptional occurrences beyond the control of a Member State” exists and the Council has never discussed it. Similarly, the Council has never discussed the possibility of invoking “exceptional occurrences” in the context of the current economic situation.”

    As this provision had lain dormant within the treaties for seventeen years, without there ever being any suggestion that it might be invoked despite the numerous natural disasters experienced by various member states over that period, there was always a small risk that better informed members of the public might suggest that it had now been dug out to serve as a fig leaf to cover the illegality of the financial bail-outs.

    Unfortunately our position on this has been further weakened by public statements made by a number of prominent politicians.

    Notably by Chancellor Merkel in March:

    http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aEpkZj56mUpA

    “The emergency caveat covers natural disasters and doesn’t provide a basis for a bailout, Merkel told reporters in Brussels today, citing an analysis by government lawyers.”

    And by the French Minister for Europe, M Lellouche, who rashly claimed in a newspaper interview that EU leaders had made “de facto” changes to the treaties to permit the Greek bail-out even though “It is expressly forbidden in the treaties by the famous no bail-out clause”:

    http://www.ft.com/cms/s/0/d6299cae-69b5-11df-8432-00144feab49a.html#axzz16659WA6N

    Of course, as we are both well aware, it is not legally possible for the heads of state and government to make any such changes to the treaties, which can only be amended by the procedures laid down in Article 48 TEU starting on page 41 here:

    http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2010:083:0013:0046:EN:PDF

    Nevertheless, I would like to reassure you that despite these difficulties I feel confident that our reliance on Article 122.2 to justify the financial bail-outs will be upheld by the European Court of Justice, which of course always has the final say on the interpretation of the treaties and which will always weight its decisions in favour of “ever closer union”, and that as always the courts in the UK will feel bound to follow that decision as required by Parliament through its European Communities Act 1972.

    The crucial thing now is that whatever doubts we may entertain in private we must all hold the line on this in public, by consistently denying any illegality and dismissing any critics as ignorant xenophobes, and I am sure that I can rely on both Dr Spendlove and yourself to co-operate in that respect.

    Yours

    Lucy

  7. Kenneth
    Posted November 28, 2010 at 9:20 pm | Permalink

    Dear Miss Maws,

    I understand you see it as your duty to bolster our legal position with regards to the Irish loan. However your good intent may be mis-interpreted. Please understand that Articles are not to be taken too literally; you should know that by now.

    Please remember that Marta Andreasen was asked to leave the gravy train at the next stop. Need I say more?

    Finally, we will leave no stone unturned to find the source of your leaked correspondence. Only authorised leaks can be carried out, such as those used to undermine a government’s ability to manage its own finances in its own time.

    NB I would suggest to you a period of quiet reflection. I am recommending that you take 6 months sick leave on full pay.

  8. edgeplate
    Posted November 28, 2010 at 9:42 pm | Permalink

    Dear Penny,

    Thank you for your letter which raised many interesting points of purely academic interest. I assume you have a degree in jurisprudence, mathematics or something else tediously nitpicking, (or rigorous as these nerds would have it).

    For an act to be illegal requires a body of law which it transgresses and a judicial body to enforce it. In this case the EU has collectively created the body of laws (agreements, treaties) and has taken a course of action fully cognisant of it. It’s hardly likely to judge itself as acting illegally. Which other body would judge it as acting illegally and take action? The ECJ, national constitutional courts? Not much hope. A national government going rogue? Unlikely.

    To take an illustrative example from history, when the immortal Judge Roy Bean presided over the case of one of his pals accused of killing a Chinaman, he flipped through his ‘law book’ and said, “The ain’t nothing in this here law book about killin’ no Chinamen. Cased dismissed”.

    As you will appreciate, the whole question of funds made available to stabilise the Euro is a very sensitive one much in the public eye and there are speculative and other forces at work which are far from constructive.

    I have discussed your letter with my own legal adviser, Horace Pettyfog, and he has confirmed my view. Horace is a very experienced legal adviser and I venture to say, destined for high things.

    Might I suggest that if you know which side your bread is buttered on, you refrain from intereresting yourself in purely academic questions which explore very untoward themes and spend more time doing the crossword? You certainly shouldn’t discuss any of your abstruse theories on this matter.

    I shall have a chat with Roy next time we meet and mention your development objectives particularly in so far as they are concerned with developing judgement. I shall suggest a closely supervised regime of strongly developmental activities such as playing patience on the computer. I note his absence on sick leave is coincident with the writing of your letter.

    Yours faithfully,

    Dame Lucy Doolittle.

    Reply: I had been expecting Dame Lucy to write such a reply, but you seem to have captured the likely spirit of it.

  9. norman
    Posted November 29, 2010 at 11:21 am | Permalink

    “Some might try to argue that excessive debt in some member states is not “exceptional” but common.”

    Brilliant, that line had me chuckling.

    I imagine the argument could be made that this crisis is ‘exceptional’ to Europe and the USA. Nowhere else in the world seems to be suffering nearly as bad as we are.

    Dreadfully bad luck on our part. Lesson learnt, now let’s press on with the master plan of borrowing our way out of this debt fuelled crisis.

    I heard today that 20p in every pound raised in Eire is going to be spent on interest in (I can’t exactly remember how many) years time. Simply to pay the interest, tread water (assuming no more borrowing). With that burden there is zero prospects of strong growth.

    Surely even our politicians in Westminster can see that that’s not going to work?

  10. Javelin
    Posted November 30, 2010 at 6:30 pm | Permalink

    There is another way of viewing this – the purpose of the “bailout” is to shift one problem (i.e. immediate debt repayments) to another problem (i.e. longer term debt repayment).

    So perhaps the way to attack the action is not to question the justification for the action but the justification of the outcome. When I see a legal argement like this I think the best way to attack it is to say – “OK let’s do that AND SOME MORE (and see how you like it).”

    So the outcome of Union financial assistance – needs to “assist” the State. At the moment the assistance means giving “dosh” or “credit worthyness”.

    Which begs the question whether the EU is assisting the state by burdening it with debt for a longer period of time. For me the use of the word assist means “free money” – for example in the event of a natural disaster would anybody expect this interpretation to mean the state that has just had a natural disaster now has to repay the union for the assistance? So while I’m sure the EU can give financial aid (i.e. dosh) – I’m not sure they can give it with strings attached. So Ireland might have a case to refuse to pay the interest (or even the body of the loan). Ireland could argue that the Union made Ireland take the loan under duress.

    Second in terms of “credit worthyness”, what does this mean. This means a promisory to provide case at a later point in time. Again Im not sure this is legally allowed as “assistance” once the credit worthyness is materialised into a loan – because a loan is not assistance.

    Again I think the word “assistance” is the weak point here – and I think that the EU is the aggressor, and Ireland is a victim of the Union, whilst under duress. So I say bring it on – and some more … let Ireland take the loan (as a victim of a situation) – but the Irish need to take the concept of being a victim alot more seriously (and some more) and demand that the EU offered the money under duress, so they shouldn’t have to pay it back.

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    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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