Originally appeared at DWN, translated by Karin exclusively for SouthFront
There are solid reasons why the Americans are rushing to complete the TTIP: US banks are afraid of being sued by European courts due to the debt crisis. They have palmed-off many dubious speculation to European municipalities and companies’. Now many Europeans are filing complains – and the Americans put up a frontal assault on the European legal system. In Italy, the American ambassador – probably unintentionally – let the cat out of the bag.
Many observers in Europe are wondering why the US negotiators have developed such a time pressure for the TTIP. If it is a good and fair agreement, which also wants to set standards for international trade, it should not matter if it takes a few month more or less.
But apparently the Americans know that in the coming years some serious problems with the EU countries can take place. The reason is the debt crisis. In recent years, US banks have been selling financial products on a large scale and granted loans to European local municipalities and companies – with the remark that there was no need to carefully read the fine print. The clammy European municipalities and some naive companies have gladly taken the money to give gifts to their voters, or to secure their market shares. But now the rude awakening is coming to many places.
Therefore, in the wake of the hangover after the crash, it has come to a real wave of lawsuits. One example: Just few years ago the city of Pforzheim sued JP Morgan. The Bank had sold to the financial head of the municipality an obscure product. In 2011 the verdict of the Federal Court of Justice in Germany ruled that the counseling requirement is particularly high for complex products. A medium-sized company had filed a suit against a bank that had sold him a highly speculative business investment. The Supreme Court had agreed with the company and came to the conclusion: “. In such a highly complex structured and risky product, like the CMS Spread Ladder swap contract is, the demands on the advisory bank with regard to the risk profile of the investment product has to be very high”
The city Pforzheim referred to the verdict – and demanded 57 million Euros from JP Morgan. The mayor back then told the Stuttgarter Zeitung: “This approach – violation of the duty to advise or not – is fully applicable to us. In addition, we are a community and for municipalities a ban for speculation applies. In this proceedings now, it was all about a company that, if you look at the Federal Court ruling, should be treated differently. Therefore, we are now in very good spirits that we will prevail ” He adds:” I agree with Margaret Thatcher, the former British Prime Minister, who coined the phrase, ‘I want my money back’. These 57 million Euros we are asking back from JP Morgan.”
Many European politicians are thinking just like the Lord Mayer of Pforzheim. This causes an increasing discomfort to the American banks. They fear thousands of lawsuits in European courts. Taking the Federal Court as a benchmark, should the European courts be inclined to set high standards for the consultation obligations, this could bring considerable trouble the US banks.
With the TTIP it would be possible to circumvent the ordinary nation-state legal laws. In international law the principle of a judgment is, it will be accepted only if it is carried out according to “due process of law”. This means that there must be a constitutional guarantee that a law should not be “unreasonable, arbitrary or arbitrarily”. This is what the Anglo-Saxon “common law” means. For interpretation there are no limits – which is why there is also the arbitration in international law: they are to prevent the debate on basic principles for the litigants and concentrate right on the essential – to reach an agreement on a sum that must be paid.
The Americans are feeling now in the course of the lawsuits about financial products in European Courts very uncertain. They fear that now countless European institutions could get the same idea to say like the Lord Mayer from Pforzheim: “I want my money back.”
The American Ambassador in Italy has this unease – probably somewhat thoughtlessly – expressed and thus let the cat out of the bag. His fundamental remarks explain why Americans have such hurry with the TTIP.
The case has a simple history: An Italian prosecutor had accused the US rating agencies Standard & Poor’s, Moody’s and Fitch of bringing the creditworthiness of Italy into disrepute. The case against Moody’s had never been opened. The trial against Fitch was sent to Milan and discontinued there, the credit rating agency announced. Now, the same prosecutor is investigating in Trani, in Apulia, against the Deutsche Bank and five former directors for alleged market manipulation. Among them are the former CEOs Josef Ackermann and Anshu Jain. The German bank had sold during the first half of 2011 seven billion euros of Italian government bonds, almost 90 percent of its total portfolio. Prosecutor Michele Ruggiero believes this is disreputable after the analysts of the bank in the beginning of 2011 reassured their customers, that the national debt of Italy would give no cause for concern, as they are saying in the circles of investigators.
In addition in Trani is still a trial being hold against the former Italian analyst of Fitch, David Riley, and five S&P manager. The debt crisis had ultimately helped to overthrow the government of Silvio Berlusconi.
The testimony of John Phillips, the US ambassador to Italy makes it clear that Americans face considerable difficulties. Phillips chose exactly the reasoning that is the basis of free trade agreements in the style of TTIP. Phillips criticized the action of the judiciary against the rating agencies sharply and said, quoted by Reuters, in April to students in Milan: The judicial system of the country would discourage investors. In the US, it would be hard to imagine that such a process would be conducted outside the financial centers, where the prosecutors have experience with the securities laws. He criticized that managers in Italy were being held on the basis of an arrest warrant from a small town without reference to S&P. Ruggiero had become active after complaints by consumer protection groups, which had been rejected before by the authorities in Rome and Milan.
With the TTIP a court in Trani would never have been involved in the first place. The dispute would have probably not even been dealt with between Italy and the US banks or rating agencies, but ended up before a court of arbitration to which aggrieved consumers have no influence, and it would be hardly possible for them, to fight for their rights before it. For US banks and financial institutions, as demonstrated by the statement of Phillips, small courts have absolutely no idea of international securities law – and therefore the principle of “due process of law” is not guaranteed. Actually, this approach applies primarily to countries with underdeveloped or corrupt legal systems. But the complexity of financial products is so great, that one can describe an ordinary court in Europe as quite overwhelmed by it.
Phillips’ threat that investors would be deterred by the inadequate legal system in Italy, hits into the heart of TTIP: The Americans want to make sure that the game is played by their rules. In court and anywhere in the world, in particular for intrigues that are lying in the past. That the Roman law, on which many European legal systems are based on, is from Italy is irrelevant.
Unlike most assume, Americans do not exert pressure because of future crimes but because of those who have already been committed a thousand times during the financial crisis. Therefore, suing the EU countries is not their primarily goal. They want to prevent that US banks can be sued from EU citizens, municipalities or companies in front of regular courts for questionable credit and speculating business investment. In the still smoldering debt crisis Trani and Pforzheim are a real threat for the Americans – even if the TTIP negotiators initially probably have to search a long time on a map, to find where these damn places are at all.