G-20 Archives - The Automatic Earth

The Transatlantic pact intended to unite Europe and North America in a vast free trade zone is close to collapse after France called for a complete suspension of talks, accusing the US of blocking any workable compromise. “Political support in France for these negotiations no longer exists,” said Matthias Fekl, the French commerce secretary. Mr Fekl said his country would request a formal decision by EU ministers at a summit in Bratislava to drop the hotly-contested deal, known as the Transatlantic Trade and Investment Partnership (TTIP). “The Americans are offering nothing, or just crumbs. That is not how allies should negotiate. There must be a clear and definite halt to these talks, to restart them later on a proper basis,” he said.

The project is infinitely more than a trade deal. It is part of a strategic push to bind together the two halves of North Atlantic civilisation at a dangerous moment when the Western liberal order is under threat. The two sides are currently drifting towards divorce. “TTIP was supposed to set the rules for the global trade,” said Rem Korteweg, a trade expert at the Centre for European Reform. “It was to be a central pillar of an alliance of like-minded countries. If it all falls apart in acrimony, what kind of global governance are we going to have?” he said. Mr Fekl’s hard-line comments were echoed in slightly softer language by French president François Hollande, who said on Tuesday that there was no chance of a deal on TTIP before the next administration takes power in Washington.

“The talks have become bogged down, the positions have not been respected, and the imbalance is obvious. It is better that we face up to this candidly rather than prolong a discussion on foundations that cannot succeed,” he said.

There’s a lot more to get rid of.

• The New TTIP? Meet TISA, ‘Secret Privatisation Pact’ (Ind.)

An international trade deal being negotiated in secret is a “turbo-charged privatisation pact” that poses a threat to democratic sovereignty and “the very concept of public services”, campaigners have warned. But this is not TTIP – the international agreement it appears campaigners in the European Union have managed to scupper over similar concerns – this is TISA, a deal backed by some of the world’s biggest corporations, such as Microsoft, Google, IBM, Walt Disney, Walmart, Citigroup and JP Morgan Chase. Few people may have heard of the Trade In Services Agreement, but campaign group Global Justice Now warns in a new report: “Defeating TTIP may amount to a pyrrhic victory if we allow TISA to pass without challenge.” Like the Transatlantic Trade and Investment Partnership, TISA is being negotiated in secret, even though it could have a major impact on countries which sign up.

While TTIP is only between the EU and US, those behind TISA have global ambitions as it involves most of the world’s major economies – with the notable exceptions of China and Russia – in a group they call the “Really Good Friends of Services”. The Department for International Trade dismissed the idea that public services were at risk from TISA, adding that the UK was committed to securing an “ambitious” deal. But according to Global Justice Now’s report, the deal could “lock in privatisation of public services”; allow “casino capitalism” by undermining financial regulations designed to prevent a recurrence of the 2008 recession; threaten online privacy; damage efforts to fight climate change; and prevent developing countries from improving public services.

Nick Dearden, director of group, said: “This deal is a threat to the very concept of public services. It is a turbo-charged privatisation pact, based on the idea that rather than serving the public interest, governments must step out of the way and allow corporations to ‘get on with it’. “Of particular concern, we fear TISA will include clauses that will prevent governments taking public control of strategic services, and inhibit regulation of the very banks that created the financial crash.” He suggested pro-Brexit voters should be concerned at the potential loss of sovereignty. “Many people were persuaded to leave the EU on the grounds they would be ‘taking back control’ of our economic policy,” Mr Dearden said. “But if we sign up to TISA, our ability to control our economy – to regulate, to protect public services, to fight climate change – is massively reduced. In effect, we would be handing large swathes of policy-making to big business. “

Growth based on debt reduces productive investment.

• Debt, Deficits & Economic Warnings (Roberts)

By increasing taxes, to generate additional revenue for the government, you decrease the available capital that could be used for productive investments. Since the government doesn’t want factories, office buildings, or oil wells, but rather cash, this forces the liquidation of productive investments thereby reducing capacity for economic growth. The current Administration is failing once again to recognize the problems that exist with this country, at this moment, does not lie with the “rich.” Instead, the problem is a lack of ability for consumers to maintain a standard of living that is well beyond their earnings capability. While the two most recent Administrations have been heavily criticized for running burgeoning deficits – the reality is that the average American has been doing the same for the past thirty years.

[..] as the “rich” invest in productive investments it leads to higher employment, strong consumer demand and economic growth. In turn, this leads to higher tax revenue. “However, deficits, and deficit spending, are HIGHLY destructive to economic growth as it directly impacts gross receipts and saved capital equally. Like cancer – running deficits, along with continued deficit spending, continues to destroy saved capital and damages capital formation.” Debt is, by its very nature, a cancer on economic growth. As debt levels rise it consumes more capital by diverting it from productive investments into debt service. As debt levels spread through the system it consumes greater amounts of capital until it eventually kills the host. The chart below shows the rise of federal debt and its impact on economic growth.

The reality is that the majority of the aggregate growth in the economy since 1980 has been financed by deficit spending, credit creation and a reduction in savings. This reduced productive investment in the economy and the output of the economy slowed. As the economy slowed, and wages fell, the consumer was forced to take on more leverage to maintain their standard of living which in turn decreased savings. As a result of the increased leverage more of their income was needed to service the debt – and with that the “debt cancer” engulfed the system.

Excellent from Jeffrey Snider.

• The Academic Math of This Economy and The Long Run Consequences (Snider)

[..] the continued and “unexpected” lack of recovery after nine years of failure in monetary policy is forcing the math to recognize what is obvious in non-mathematical terms. No regressions are at all necessary to conclude that the bond market has, in fact, made sense this whole time and that it is economists who have no idea what is going on or why. By the mathematics of 2011, real GDP “should be” $19.3 trillion in Q2 2016; it was instead just $16.6 trillion after the third straight quarter near 1%. To the academics, “gloom” is irrational and thus requires translation into math to become somehow backwards explanatory for why the economy that “should be” isn’t.

In the actual economy, “gloom” is properly called reality. In this world, people know all-too-well that jobs disappeared during and after the Great Recession and never came back. No amount of asset price manipulation can possibly make up that difference. Economists try to convince everyone but really themselves that it didn’t matter when it is this very math that proves yet again it did; in fact, the true state of labor beyond the unemployment rate and Establishment Survey is all that matters.

The math of potential and even gloom is just the frustratingly late catch-up forcing economists to come to terms with the fact they have been all wrong about all of this all along. You need no PhD to so easily understand that you just cannot substitute jobs with debt; doing so is economic suicide. At some point over the long run you must come to terms with that discrepancy. This math is finally welcoming economists to that long run, a place their patron saint, Keynes, said didn’t exist. It really does as the math has been recalculated far more toward the “impossible” [..]

Yikes graphs. A G-20 that might actually count for something.

• China Turmoil Looms As Traders Bet On Post-G-20 Yuan Tumble (ZH)

Something is different this time. For the last few years, China has ‘ensured stability’ in the Yuan ahead of major geopolitical events – no matter what – only to let things slide back into turmoiling after. Ahead of this weekend’s G-20, however, and amid notably deteriorating fundamentals (and an increasingly hawkish-sounding Fed), China has let the Yuan tumble in the last week… and traders are piling into bets on post-G-20 weakness to continue. As Bloomberg notes, history shows that the Chinese currency usually strengthens ahead of major political or economic events, such as President Xi Jinping’s state visits to the U.S. and the Boao Forum.

But this time – ahead of the G-20 gathering – onshore Yuan is being allowed to weaken… back near post-Brexit lows…

Perhaps as another warning to The Fed? But as Bloomberg reports, derivative markets are pointing to renewed bets on yuan depreciation, with a measure of expected price swings poised for the biggest monthly increase since January.

Not even the same ballpark. “The IMF estimates China’s nonperforming-loan ratio at 15%, compared with the official 1.75% figure..”

• Chinese Banks Step Up Bad-Loan Write-Offs (WSJ)

China’s largest banks are writing off huge volumes of soured loans in an effort to clean up their balance sheets, as they look to improve their future profitability despite the country’s economic slowdown. The country’s top four banks collectively wrote off 130.3 billion yuan ($19.5 billion) of bad loans in the first half of 2016, 44% more than in the same period a year earlier. The clear-out has helped banks in one sense: Overall, their nonperforming loans as a proportion of their lending book were unchanged at the close of the second quarter from the end of March, the first quarter since mid-2013 that the key metric hasn’t increased.

But the write-offs have come as a number of other challenges beset Chinese banks. New loans are shriveling—nearly all in July went to mortgages. A series of interest-rate cuts by the central bank since 2012 have squeezed banks’ earnings. And a plan by Beijing to let companies allot their equity to banks in exchange for loan forgiveness is likely to saddle lenders with more dubious assets in coming months, bankers and analysts say. The IMF estimates China’s nonperforming-loan ratio at 15%, compared with the official 1.75% figure reported by the government, because of differences in the way bad loans are recognized.

Buying know-how.

• China’s Biggest-Ever Metals Deal Snaps Up Cleveland’s Aleris (BBG)

China’s influence in global metals markets just stepped up a gear after the owner of its top supplier of aluminum products agreed to buy Aleris of the U.S. for $2.3 billion, marking the nation’s biggest-ever overseas purchase of a metals processor.
The purchase of the Cleveland, Ohio-based company by Zhongwang USA, owned by Liu Zhongtian, founder and chairman of China Zhongwang, will open up new markets for the Chinese company among aerospace and automotive companies. Monday’s deal underscores China’s shift to higher value-added products and will give Zhongwang access to technological know-how and more demanding customers, said Paul Adkins, managing director of Beijing-based aluminum consultancy AZ China.

“Aleris supplies the Boeings and the big carmakers of this world – very advanced consumers,” Adkins said by phone on Tuesday. “Buying it has to provide some sort of opportunity for Zhongwang to bring that know-how back to China. When you’ve got more than half of the world’s primary aluminum supply in China, there is a natural momentum for China to pull other parts of the supply chain into its orbit.” China Zhongwang is Asia’s biggest producer of extruded aluminum, and already has ambitions to sell aluminum sheet to China’s emerging auto and aerospace industries. It’s due this year to start up a flat-rolled aluminum plant in Tianjin, near Beijing, which will supply products that China still has to import.

Not an entirely new criticism, but good to point out from time to time.

• Case Shiller Lags and Understates the Housing Bubble (Adler)

Here’s how the Case Shiller Index (CSI) press release spun the data on the state of the US single family housing market today: “The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 5.1% annual gain in June, unchanged from last month. The 10-City Composite posted a 4.3% annual increase, down from 4.4% the previous month.The 20-City Composite reported a year-over-year gain of 5.1%, down from 5.3% in May.” The problem is that Case Shiller’s methodology causes price suppression and severe lag. That gives the impression that the US housing market isn’t in a bubble. It’s a misimpression, considering that market prices on average are actually above the 2006 bubble peak.

If 2006 was the top of the most extreme bubble in US history, what does that make today’s higher prices? Case Shiller uses only public record data. The current release, which purports to be June data, is really data culled from government records for recorded sales. The closings were purportedly in June, but the contracts were entered at least a month before, and in most cases 2 months to 3 months prior. So the current CSI release doesn’t represent the current market. In fact, the lag is even greater than that. Case Shiller doesn’t merely use only the most recent month’s data, as you would think. It uses that month and the two prior months, so that effectively it represents average recorded closed sale prices for the 3 months of April May and June. It’s the average price as of the time midpoint of the period, in this case mid May.

Add the typical 45-60 day closing and the current data represents contracts signed in mid to late March. It is now almost September. The Case Shiller data is from 5 months ago. The housing market normally moves in very stable trends over years, if not decades, until there’s a crash. This lag factor isn’t too critical for those buying homes for their families to live in. It’s a little more critical for stock market traders and investors, because at major turning points, misleading data can lead to costly investing mistakes. For traders, using the Case Shiller data would be like making decisions based on where the 3 month moving average of the S&P 500 back in late March. Who would do that when current market prices are available?

It’s the same for the housing market. We have near current data on contract prices from both the NAR, and from the online Realtor firm, Redfin. The NAR compiles the MLS data on contract prices from the entire US and releases it within 30 days of the end of the previous month. Redfin compiles sales from 30 large US metros. So whereas Case Shiller is giving us a smoothed average price as of March, we have current actual prices as of July from both the NAR and Redfin. Apply a little technical analysis to that data, and we can see the state of the housing market as of last month, not 5 months ago. It has actually accelerated a bit this year relative to the prior 12 months. And it’s definitely at a new high versus the last bubble.

No space for the whole list. Useful read though.

• 25 Email Questions Hillary Clinton Must Answer Under Oath By September 29 (SBA)

Judicial Watch today announced it submitted questions to former Secretary of State Hillary Clinton concerning her email practices. Clinton’s answers, under oath, are due on September 29. On August 19, U.S. District Court Judge Emmet G. Sullivan granted Judicial Watch further discovery on the Clinton email matter and ordered Clinton to answer the questions “by no later than thirty days thereafter….” Under federal court rules, Judicial Watch is limited to twenty-five questions. The questions are:

1) Describe the creation of the clintonemail.com system, including who decided to create the system, the date it was decided to create the system, why it was created, who set it up, and when it became operational.

2) Describe the creation of your clintonemail.com email account, including who decided to create it, when it was created, why it was created, and, if you did not set up the account yourself, who set it up for you.

3) When did you decide to use a clintonemail.com email account to conduct official State Department business and whom did you consult in making this decision?

4) Identify all communications in which you participated concerning or relating to your decision to use a clintonemail.com email account to conduct official State Department business and, for each communication, identify the time, date, place, manner (e.g., in person, in writing, by telephone, or by electronic or other means), persons present or participating, and content of the communication.

5) In a 60 Minutes interview aired on July 24, 2016, you stated that it was “recommended” you use a personal email account to conduct official State Department business. What recommendations were you given about using or not using a personal email account to conduct official State Department business, who made any such recommendations, and when were any such recommendations made?

Corporations have too much political power to let that happen.

• Could EU’s ‘Apple Tax’ Reboot Corporate Tax Reform In The US? (Forbes)

For years, corporate tax reform in the U.S. has been dead in the water, in part because of deep disagreements within the American business community over what such a restructuring should look like. But the European Union’s increasingly aggressive effort to force its members to collect tax on U.S.-based multinationals has the potential to change that dynamic. The EU’s push has resulted in a series of major initiatives, none bigger than its decision to order Ireland to collect a stunning $14.5 billion in back taxes from Apple. That ruling has generated a swift backlash from the U.S. high-tech industry, U.S. policymakers across the political spectrum, and from Ireland itself. Yet, for all the howling, it might open the door for long-awaited tax reform in the United States.

To understand why, think about two kinds of U.S. corporations—those that pay lots of taxes and those that pay little or none. Some—especially companies whose business is built on intellectual property—have structured themselves in a way that sharply reduces their worldwide taxes. They shift income to related firms located in low-tax or no-tax countries while allocating interest costs and other expenses to the high-rate U.S. The result: Many pay effective tax rates in the single digits. At the same time, firms such as retailers, without the ability to shift income to low-tax countries, pay quite high effective tax rates. That split hamstrings the debate over corporate tax reform, especially the version that would eliminate tax preferences in exchange for a lower corporate rate.

If you are already paying close to the top statutory rate of 35%, you love that swap. After all, you are paying a high effective rate because those tax preferences are not helping you, so why not support legislation to ditch them in exchange for a lower rate? But for low-tax firms, the political calculation is dramatically different. If tax preferences make it possible for you to pay an effective rate of 10%, why would you give them up in return for a new U.S. statutory rate of 28%, or even 25%? How do you explain to your shareholders why more than doubling your rate is a good thing?

Too many doubts.

• Bitcoin Was Brought Down By Its Own Potential – And The Banks (Qz)

The best that can be said about Bitcoin right now is that it still exists. Split by internal divisions while its most useful aspects are harvested by the very financial behemoths it once hoped to destroy, Bitcoin is fast becoming the tech world’s version of Waiting for Godot, wherein a hermetically sealed community squabbles and bickers over arcane points of code and law as their world slowly crumbles around them. In the last 12 months, attempts made to produce a road map for the cryptocurrency’s future have come to naught, all while core developers abandon the project and opaque Chinese mining concerns wield outlandish power. Welcome to today’s Bitcoin—a phenomenon so internally focused that its advocates have barely noticed the battle has already been lost.

Back at its inception, the conversation around the currency was driven by an almost unconscionable optimism. This wasn’t simply a mechanism for the easy transfer of capital: This was a tool by which the entire international financial system could be made anew, with corrupt central banks, inflationary currencies, and immoral stockbrokers consigned to the dustbin of history. In a world still reeling from the chaos of the global financial crisis, Bitcoin seemed less like a currency and more like a way of future-proofing the global economy from ever having to deal with something so awful again.

The Bitcoin boom of late 2013 brought greater mainstream attention to the cryptocurrency. Bitcoin’s value surged from $200 to $1,200 over the space of a few weeks, temporarily rendering it more valuable than gold. This was to be a short-lived state of affairs, however, as a string of scandals, hacks, exchange collapses, and—dare I say it—common sense brought the price of Bitcoin plummeting back to Earth. Cue three years of stagnation and false promise, as Bitcoin has struggled to prove its use for, well … anything, really. Even after all this time, Bitcoin is still an economy driven almost entirely by potential—by the dream that, one day soon, Bitcoin will become the lingua franca of the global economic order.

“One criticism of the Anthropocene as geology is that it is very short,” said Zalasiewicz. “Our response is that many of the changes are irreversible.”

• The Dawn Of The Anthropocene (G.)

Humanity’s impact on the Earth is now so profound that a new geological epoch – the Anthropocene – needs to be declared, according to an official expert group who presented the recommendation to the International Geological Congress in Cape Town on Monday. The new epoch should begin about 1950, the experts said, and was likely to be defined by the radioactive elements dispersed across the planet by nuclear bomb tests, although an array of other signals, including plastic pollution, soot from power stations, concrete, and even the bones left by the global proliferation of the domestic chicken were now under consideration. The current epoch, the Holocene, is the 12,000 years of stable climate since the last ice age during which all human civilisation developed.

But the striking acceleration since the mid-20th century of carbon dioxide emissions and sea level rise, the global mass extinction of species, and the transformation of land by deforestation and development mark the end of that slice of geological time, the experts argue. The Earth is so profoundly changed that the Holocene must give way to the Anthropocene. “The significance of the Anthropocene is that it sets a different trajectory for the Earth system, of which we of course are part,” said Prof Jan Zalasiewicz, a geologist at the University of Leicester and chair of the Working Group on the Anthropocene (WGA), which started work in 2009. “If our recommendation is accepted, the Anthropocene will have started just a little before I was born,” he said. “We have lived most of our lives in something called the Anthropocene and are just realising the scale and permanence of the change.”

“The number of migrants on Lesvos has reached 5,226 while existing camps are only designed to host 3,500. The situation on Chios is equally disheartening, with 3,309 migrants in accommodation for 1,100.”

• Greek Islands Raise Alarm Over Fast Increasing Refugee Arrivals (Kath.)

Local and port authorities on the islands of the eastern Aegean are demanding immediate government action to decongest overcrowded migrant camps, insisting that they cannot cope with the recent surge in arrivals from neighboring Turkey. In a letter addressed to Shipping and Island Policy Minister Theodoros Dritsas, the Lesvos Port Authority raised the alarm, saying the island simply does not have the available infrastructure to accommodate the increased flows. The number of migrants on Lesvos has reached 5,226 while existing camps are only designed to host 3,500. The situation on Chios is equally disheartening, with 3,309 migrants in accommodation for 1,100.

According to the latest data, there are 12,120 migrants on the islands. A March deal between the European Union and Turkey to stem the flow managed to limit monthly arrivals to just a few thousand. However, the figure rose to its highest in four months in August. While Interior Ministry officials have attributed the overcrowded conditions at the camps to delays in the registration process, some critics have interpreted the increased traffic as a form of pressure from Ankara, which has linked the deal’s implementation to visa-free travel for its citizens within the EU.

“There are still an estimated 277,000 migrants in Libya, as well as 348,000 internally displaced people and 310,000 returnees..”

• Counting The Lost And Nameless Dead Of The Mediterranean (SMH)

The central Mediterranean is by far the most dangerous crossing into Europe for migrants. On Monday alone, 6908 migrants were rescued in the Channel of Sicily in 35 rescue operations, pulling them from 44 rubber dinghies, eight small wooden boats and two bigger fishing boats. The surge came after a week of windy and rough conditions had kept would-be migrants on the shores of Libya. Two people were reported to have died. There has also been a surge this week in the number of migrants arriving on Greek islands, where on average 100 people come ashore each day.

Of the 3165 people who have died or went missing this year crossing the sea (as of August 28), 2725 were attempting the passage to Italy from North Africa, according to the International Organization for Migration’s figures. More people died on this route than last year in the same period. [..] As of August 28, 272,070 migrants had crossed the Mediterranean into Europe in 2016. Just under half of the arrivals, or 106,461 (as of August 24) arrived in Italy. There, most arrivals came from Nigeria, Eritrea and Gambia. There are still an estimated 277,000 migrants in Libya, as well as 348,000 internally displaced people and 310,000 returnees – refugees returned from abroad.

Debt Rattle February 26 2016

Feb 262016

February 26, 2016 Posted by Raúl Ilargi Meijer at 9:15 am Finance Tagged with: anarchy, Brexit, China, debt, EU, G-20, Greece, oil, RBS, refugees, Schengen 10 Responses »

Russell Lee Washington DC, “Cafe on L Street.” 1938

• A System That Is Stable Only When Under The Influence (BBG)

• OECD’s William White: In Terms of Debt, This Is Way Worse than 2007 (FS)

• The Red Swan And Other Reasons To Be Very Afraid (David Stockman)

• RBS Falls -11% After £1.98 Billion Annual Loss (BBG)

• China Unveils Its Deliverables for G-20 (BBG)

• China Tweaks Monetary Stance as Zhou Flags Scope to Act (BBG)

• “This Is Not A Moment Of Crisis”: US Treasury Sec. Jack Lew (NA)

• Germany Opposes Any G-20 Fiscal Stimulus (BBG)

• Market Turmoil Eases, but Investors Remain Wary (WSJ)

• The Big New Threat to Oil Prices: A Glut of Gasoline (WSJ)

• Halliburton Cuts Another 5,000 Workers to Cope with Oil Downturn (BBG)

• Brexit: Fraying Union (FT)

• Greek Health Minister Instructs Hospitals To Treat Uninsured Patients (Kath.)

• Over 130,000 Migrants Missing In Germany (EUO)

• Ministers Demand Drop In Migrant Flows From Turkey Before March 7 (Reuters)

• Europe’s Free Travel Will End Unless Turkey Halts Migrant Flow (Reuters)

• EU: Greece Wouldn’t Be The Worst Place To Have A Humanitarian Crisis (WSJ)

• “We Are Heading Into Anarchy”, “EU Will “Completely Break Down In 10 Days” (ZH)

Great metaphor.

• A System That Is Stable Only When Under The Influence (BBG)

From BBG’s Richard Breslow: “When investors used to say they didn’t like uncertainty, it meant they expected consistency in how policy makers would interpret incoming data. Situations evolve and exogenous shocks happen, but at least let’s all be on a similar wave length. Then you do your analysis, I’ll do mine and that’s what makes markets. That ship has sailed. Current levels of volatility aren’t good or fun and certainly not “normal.” It’s a problem of our own making. From top to bottom we have redesigned a system that is stable only when under the influence. I read this morning that money managers are pining away for a return to the happy and calm days of 2011-2015. The world was in existential crisis, but stocks were being manipulated higher. Happy days, I’m getting my (market) fix.

A casualty of this current volatility is that at any given time there are no rational explanations for what’s going on. Back and forth swings of meaningful proportion are characterized, by necessity, with a random reason generator. If we don’t do so we’d have to admit to a much deeper systemic defect. Better to just put it down to simple things like China’s economy or the European banking system is collapsing. They’ll be forgotten at the next rally. What would be hard news is G-20 participants giving more than lip service to their host’s pre-summit statement: “We cannot just rely on monetary policy. Fiscal policy must play a role,” and “We understand that, as the second-largest economy, our policies spill over to others. We also understand that U.S. policies spill over, we must stress policy coordination.”

Yes, Mr. Lew, there is a crisis. German 10-year bund yields 15 basis points. Analysts are touting technical hammer patterns formed yesterday in the S&P 500 and Treasury 10-year yields. Everything should rally now. Somehow, I doubt they’ve hit the nail on the head. The only thing that has changed is the price. El Condor Pasa. A condor by any other name is still a vulture.”

A few words of wisdom.

• OECD’s William White: In Terms of Debt, This Is Way Worse than 2007 (FS)

William White, chairman of the Economic and Development Review Committee at the OECD and former chief economist at the Bank for International Settlements (BIS), says the risks posed by global debt levels are greater today than they were in 2007 and that central banking monetary policy has lost its effectiveness. He also explains the crucial differences between modern macroeconomic modeling and complexity theory (or viewing the economy as a complex adaptive system) and the key lessons this has for policymakers, both fiscal and monetary. Here’s a portion of his recent interview with Financial Sense airing Friday on the Newshour page:

“If you think about a crisis period as a period of deleveraging, in fact this has not happened and we’ve gone in the very opposite direction. Now, on the household side, clearly there have been some improvements made but on the corporate side in the US, things have gotten significantly worse—the debt ratios for corporations have gone up very substantially as has government debt… More importantly—again, when I say the situation is worse today than it was in 2007—in 2007 this debt problem was essentially confined to the advanced market economies. Since then, the debt ratios—the private debt ratios in particular—have exploded in the emerging market countries and so we now have in a sense a global problem whereas in 2007 you might say we had a regional problem with the advanced market economies.

But now it’s basically everywhere so, yes, I do think that the situation is worse than it was then… When I first came to the BIS in 1994, we started warning about the credit flows into Southeast Asia well before the Asian crisis happened and…it was in the early 2000s that we really started to focus on what was going on in the advanced market economies… The story that we were telling then was really one of the Greenspan put starting in 1987 and every time there was a problem, the answer was to print the money or ease monetary conditions and the debt ratios ratcheted up and up and up…

So we had this problem in ’87 and the answer was easy money; then we had this problem in 1990-1991 and, again, the answer was easy money. The response to the Southeast Asian crisis was don’t raise rates even though all sorts of other indicators said you should. Then it was easy money again in 2001 and, of course, in 2007…every time the headwinds of debt have been getting higher and higher and the monetary easing required to overcome that has had to get greater and greater and the logic of that takes you to the point where you say, well, in the end monetary easing is not going to work at all and…that’s where I am today… Unfortunately, we are still, as far as I can tell, both the BIS and myself are still talking to a brick wall…

David in fine form: “China is a monumental doomsday machine that bears no more resemblance to anything that could be called stable..”

• The Red Swan And Other Reasons To Be Very Afraid (David Stockman)

The Red Chip casino took another one of its patented 6.5% belly flops last night. In fact, more than 1,300 stocks in Shanghai and Shenzhen fell by 10% – the maximum drop permitted by regulators in one day – implying that the real decline was far deeper. This renewed carnage was the worst since, well, the last 6% drop way back on January 29, and It means that the cumulative meltdown from last June’s high is pushing 45%. And all this red chip mayhem did not come at an especially propitious moment for the regime, as the Wall Street Journal explained: It comes at an awkward moment for the Chinese government, which is hosting the world’s leading central bankers and finance ministers starting Friday. China has been expected to use the G-20 meeting to address global anxiety about its economy and financial markets.

Worries about China’s economic slowdown and the volatility of its markets have weighed on investment decisions around the world. But if we are remarking on “awkward”, here’s awkward. The G-20 central bankers, finance ministers and IMF apparatchiks descending on Shanghai should take an unfiltered, eyes-wide-open view of the Red Ponzi fracturing all about them, and then make a petrified mad dash back to their own respective capitals. There is nothing more for G-20 to talk about with respect to China except how to get out of harms’ way, fast. China is a monumental doomsday machine that bears no more resemblance to anything that could be called stable, sustainable capitalism than did Lenin’s New Economic Policy of the early 1920s. The latter was followed by Stalin’s Gulag and it would be wise to learn the Chinese word for the same, and soon.

The regime is in a horrendous bind because it has played out the greatest credit spree in world history. This cycle of undisciplined, debt-fueled digging, building, spending and speculating took its collective balance sheet from $500 billion of debt in the mid-1990s to the $30 trillion tower of the same that now gyrates heavily over the land. That’s a 60X gain in debt over just two decades in an “economy” that has no honest financial markets; no legal system and tradition of bankruptcy and financial discipline; and a banking system that functions as an arm of the state, cascading credit down from the top in order to “print” an exact amount of GDP each month on the theory that anything that can be built, should be built in order to hit Beijing’s targets.

One by one, the big banks have double digit losses when reporting their numbers. The RBS CEO tries a “I meant to do that”. Yeah.

• RBS Falls -11% After £1.98 Billion Annual Loss (BBG)

Royal Bank of Scotland said it would take longer than originally planned to resume shareholder payouts after reporting its eighth consecutive annual loss, driven by costs for past misconduct. The shares dropped the most since 2012. The net loss narrowed to 1.98 billion pounds ($2.77 billion) in 2015 from 3.47 billion pounds a year earlier, the Edinburgh-based lender said in a statement on Friday. Pretax profit excluding conduct and litigation charges and restructuring costs fell about 28% to 4.41 billion pounds, missing the 4.45 billion-pound average estimate in a company-compiled survey of seven analysts. RBS last posted net income in 2007.

Chief Executive Officer Ross McEwan, 58, is facing a pivotal year in his efforts to resume dividends for the first time since the bank’s 45.5 billion-pound taxpayer-funded bailout in 2008. The bank said Friday outstanding issues, including a potential settlement with U.S. authorities over sales of mortgage-backed securities, mean it’s now “more likely that capital distributions will resume later” than his original target of the first quarter of 2017. “Clearly there are big conduct charges we still face, not least in relation to U.S. mortgage-backed securities,” McEwan said on a conference call with journalists. “I look forward to the day when we can put these issues behind us.”

Curious choice of words. China is a big looming crisis. Straight-faced pretending is not going to change that.

• China Unveils Its Deliverables for G-20 (BBG)

China began signaling what its officials plan to present to counterparts at the two-day Group of 20 meeting in Shanghai, laying out a platform for more government spending and renewed pledges of currency stability. Notably rejected in comments from Finance Minister Lou Jiwei published Thursday was a proposal that emanated from some private-sector analysts for a grand, 1985 Plaza Accord-style deal among G-20 members to guide exchange rates. Vice Finance Minister Zhu Guangyao said fiscal stimulus should be deployed to boost global growth, while Yi Gang, the deputy central bank governor, said China will maintain a relatively stable currency as it embraces market forces. Clouding what should have been China’s chance to showcase its agenda, the nation’s stocks plunged anew on the eve of the Feb. 26-27 meetings of central bank chiefs and finance ministers, as surging money-market rates signaled tighter liquidity.

“The stock slump has been triggered by the disappointment of investors in the government’s ability to deliver economic reforms,” said Hong Kong-based Lu Ting, chief economist at Huatai Securities Co. “Any recovery in the stock market will rely on concrete outcomes of reforms, not empty talk.” How policy makers should respond to weakening global demand is set to dominate the agenda at the Shanghai meeting. Chinese officials including Yi’s boss, Zhou Xiaochuan, have stepped up communication leading into the summit, trying to relieve global concerns over China’s economic and currency outlook. Bank of Japan Governor Haruhiko Kuroda Thursday called for a dialog on China’s economy at the G-20 meeting. “The nation is going through various structural changes,” Kuroda told lawmakers in Tokyo. Given China’s size, it “can have a large impact on Asia and the global economy. So, I would like to have honest exchange of opinions.”

What’s the correct word? Obfuscation sounds about right.

• China Tweaks Monetary Stance as Zhou Flags Scope to Act (BBG)

China’s central bank tweaked the description of its monetary policy stance to reflect a recent ramp-up in liquidity injections and moves to guide money market rates lower, with Governor Zhou Xiaochuan highlighting scope for further actions if needed. “China still has some monetary policy space and multiple policy instruments to address possible downside risks,” Zhou said at a conference in Shanghai, speaking hours before meeting his counterparts from the Group of 20 developed and emerging markets. Asian stocks, industrial metals and higher-yielding currencies rose. The People’s Bank of China separately published a statement defining current policy as “prudent with a slight easing bias.” The PBOC had previously used language pledging to maintain a prudent policy while maintaining “reasonable, ample” liquidity.

The latest comments confirm “the underlying reality that the central bank is doing its bit to cushion growth and keep the wheels churning,” said Frederic Neumann at HSBC. “Today’s statement is thus a deliberate signal to FX traders the world over not to fret too much over the PBOC’s firepower.” Economists surveyed by Bloomberg News this month forecast additional reserve requirement ratio and benchmark interest-rate reductions in 2016. The shift “brings the language on the central bank’s policy stance into line with the reality,” Bloomberg Intelligence chief Asia economist Tom Orlik wrote in a note. Still, “the need to avoid selling pressure on the yuan will make it more difficult to cut benchmark rates in the short term.”

No time to panic.

• “This Is Not A Moment Of Crisis”: US Treasury Sec. Jack Lew (NA)

“This is not a moment of crisis,” U.S. Treasury Secretary Jacob “Jack” Lew said, in an interview with Bloomberg TV. “This is a moment where you’ve got real economies doing better than markets think, in some cases.” The interview, which ran on Wednesday, just before Lew headed to Shanghai, China, for the latest G20 summit of finance ministers and central bankers, will probably do little to allay investor fears that the global economy is indeed “in the middle of a full blown crisis.” “I don’t think this is a moment in time when you’re going to see individual countries make the kinds of specific commitments that have been made in some other contexts that have been marked by real crisis,” Lew said of the G20 meeting (of the world’s 20 largest national economies), which will take place in Shanghai Friday and Saturday, February 26-27.

“The idea is how do you avoid having things go to a place that you don’t want them to go,” Lew said. “That’s a different conversation than what do you do when you’re in the middle of a full blown crisis.” “Weakness in demand globally is a problem that can’t be solved just by everyone looking at the United States,” said Lew, leading into his central interventionist message that governments must work together to “stimulate” the global economy with more government spending and more government debt. Other countries and regions, including China, have to look at what they can do “to stimulate consumer demand,” he stressed. “There are structural issues that need to be addressed,” said Lew, with some countries needing regulatory and/or financial reform. “But fiscal and monetary policies are important tools. When used together they’re powerful. That’s the message we bring.”

Lew’s “non-crisis” message echoed that of International Monetary Fund Managing Director Christine Lagarde a few days earlier. On February 19, Lagarde, who had just been confirmed for a second five-year term as IMF chief, urged the G20 nations to coordinate economic policy. “Are we in a 2009 moment, I don’t think so. Are we in a moment where coordination is needed? Yes,” Lagarde said, a reference to the 2008-2009 financial crisis.

And then there’s Schäuble.

• Germany Opposes Any G-20 Fiscal Stimulus (BBG)

Germany’s finance minister opposed any fiscal stimulus plan from the Group of 20, whose top economic officials gather Friday, and instead sought to focus on structural reforms to strengthen national growth rates. Wolfgang Schaeuble, speaking hours before meeting with his counterparts from the G-20 developed and emerging markets, also said that the space for monetary policy has been exhausted. He warned that using debt to fund growth just leads to “zombifying” economies. “Talking about further stimulus just distracts from the real tasks at hand,” Schaeuble said at a conference in Shanghai. German policy makers “do not agree on a G-20 fiscal stimulus package, as some argue in case outlook risks materialize.”

Schaeuble’s stance potentially puts him in conflict with other G-20 members. Treasury Secretary Jacob J. Lew said in an interview before heading to Shanghai that the U.S. wants a more serious commitment from other G-20 nations to use monetary policy, fiscal measures and structural reforms to stoke demand. China’s finance chief said that his nation for its part will be expanding its fiscal deficit. The German finance minister said that the slide in oil prices has already offered a “huge” stimulus for demand. He also said that expansive fiscal policies could lay the groundwork for a future crisis.

Lamest headline of the year award. Trying to lull you to sleep.

• Market Turmoil Eases, but Investors Remain Wary (WSJ)

The crushing start to the year for markets has taken a respite. But poor earnings, heightened volatility and turbulence in the market for low-rated corporate bonds remain, stoking concerns that the breather for stocks may be just a blip. Thursday marked the sixth trading day out of nine that U.S. stocks ended on an up note, putting February in the green for major indexes. The Dow industrials are up 1.4% this month after slumping more than 9% in the first three weeks of the year. In a sign of newfound resilience, stock markets in both Europe and the U.S. on Thursday shrugged off a 6.4% selloff in Chinese stocks. Two months ago, declines like that dragged down global indexes. And U.S.-traded oil, which lately has moved in the same direction with stocks, has posted a strong week, up 4.2% in what bulls call a positive sign for global growth.

The buoyancy suggests investors are weathering negative news or aren’t as worried the global economy is in decline or that the aging bull market has peaked. Yet, the recent rally faces obstacles. Even as stocks rose Thursday, investors bought U.S. Treasurys, sending prices up and yields down. And new cracks emerged in the corporate bond market. Bankers for Solera Holdings this week had trouble generating interest in bonds for a takeover of the software firm, suggesting it is getting harder for heavily indebted companies to borrow. The slowdown in the market for high-yield, or riskier, corporate bonds comes amid a poor fourth-quarter earnings season. Earnings at S&P 500 companies are on track to have dropped from a year ago for three straight quarters, which would be the first time that has happened since 2009.

Overall, earnings for S&P 500 companies fell 3.6% from a year ago in the fourth quarter, with about 95% of companies having reported, according to FactSet data. “You still have a profits recession,” said Russ Koesterich at BlackRock. “There are limits to how far [the rally is] going to go.”

Export it?!

• The Big New Threat to Oil Prices: A Glut of Gasoline (WSJ)

Refineries in the U.S. Midwest are losing their thirst for oil, posing a new risk for the battered crude market. The Midwest accounts for nearly a quarter of the crude processed in the U.S. and is home to shale producers that have few other outlets for their oil. But refiners there are already swimming in gasoline and other fuel, forcing them to cut back production until the excess can be worked off. The result has been more crude oil available in the market, worsening a glut that has been undermining oil prices for the past year and a half. With U.S. crude inventories at the highest level in more than 80 years, some storage hubs have little room left to store oil. CVR Refining is among the companies that have scaled back. The company said recently that it reduced runs at its 70,000-barrels-a-day refinery in Wynnewood, OK, by as much as 10,000 barrels a day.

“It doesn’t make sense to process something when you’re not making anything on it,” Chief Executive Jack Lipinski said during a Feb. 18 earnings call. Refiners in the Department of Energy’s Midwest region, which stretches from North Dakota to Ohio and south to Oklahoma and Tennessee, ran at 92.9% of capacity last week, down from 98.2% a month ago. That drop is significant because it marks the first time several refineries in the region have opted to reduce activity for economic reasons—a marked change after more than a year of refiners processing as much crude as possible. Refining margins are lower throughout the country this year, including in the Gulf Coast region, where more than 50% the country’s refining capacity is concentrated.

But refiners there have more choices when it comes to buying crude oil and can substitute cheaper options if they become available. And they can put fuel on tankers to sell overseas if supplies build up too much. Refiners profit on the difference between oil prices and fuel prices. Oil prices have dropped 70% since mid-2014 to around $32 a barrel currently, but robust demand for gasoline kept prices at the pump from falling as quickly last year, boosting refiner margins. However, analysts question whether demand will increase strongly this year, especially given broader concerns about sluggish economic growth. On a four-week average basis, U.S. gasoline demand fell in January compared with the year before, according to Energy Information Administration estimates. “Crude is well-supplied, products are well-supplied,” said David Leben at BNP Paribas. “We have to find the demand.”

29,000 in total now.

• Halliburton Cuts Another 5,000 Workers to Cope with Oil Downturn (BBG)

Halliburton said it’s cutting another 5,000 workers, or 8% of its global workforce, to cope with the worst crude market downturn in 30 years. The world’s second-largest oilfield services provider said last month it cut nearly 4,000 jobs in the final three months of 2015. With the latest layoffs, the company will have let go of nearly 29,000 workers, or more than a quarter of its headcount since staffing reached its peak in late 2014. “We regret having to make this decision but unfortunately we are faced with the difficult reality that reductions are necessary to work through this challenging market environment,” Emily Mir, a spokeswoman, said Thursday in an e-mailed statement. “We thank all impacted employees for their many contributions to Halliburton.” The oil industry slashed more than $100 billion in spending and more than 250,000 jobs globally last year to cope with tumbling oil prices, which are down about 70% over the past year and a half due to an oversupply of crude.

Too many threats to defuse them all.

• Brexit: Fraying Union (FT)

“We are not withdrawalists as a party, but we want to have a new deal with the EU,” says Morten Messerschmidt, who won a seat in the European parliament after [his] party topped all others in Denmark’s 2014 EU elections, with 26.6 per cent of the vote. “We are happy that a big country such as Britain is talking about taking back sovereignty and is willing to make the final sacrifice.” Denmark is seen as one of the countries most vulnerable to contagion if Britain were to vote to leave the EU. In many ways, the Danish are the most British of continental Europeans when it comes to Brussels, delaying its EU membership until the UK became a member in 1973 and remaining the only other country with an “opt-out” of the EU requirement to join the euro.

Denmark is hardly alone in harbouring political movements that wish to leave the EU. The failure of most of Europe to pull out of its post-eurocrisis economic funk, coupled by the largest influx of refugees in more than a generation, has left mainstream parties across the continent under siege. Some fear a British exit would push many of these countries over the edge, sparking louder calls for copycat referendums that could begin to unravel the great postwar European project. Although EU leaders believe Scandinavia and the “Visegrad Four” countries in central and eastern Europe — Poland, Hungary, Slovakia and the Czech Republic — would feel the most immediate pressure from a British exit because of longstanding anti-EU sentiment in those blocs, leading voices from “core Europe” are now lending support for similar ventures.

In the Netherlands, a founding member of both the EU and the euro, Geert Wilders, whose far-right Freedom party has held a commanding lead in national polls for months, recently said a British exit would make it easier for his country to leave the EU — something he promised to deliver should he become prime minister. “The beginning of the end of the EU has already started,” he said last month. “And it can be an enormous incentive for other countries if the UK would leave.” In France, another member of the EU’s founding six, the far-right National Front, which like the Freedom party is also leading in polls ahead of a presidential election next year, has promised a British-style referendum over EU membership within six months of coming to power. “Until now, the EU has only enlarged itself. Brexit would prove the EU is not an inevitable plan,” says Florian Philippot, the National Front vice-president. “Soon people would also realise that the UK lives well without being part of the EU. That there would be no economic collapse, no chaos.”

That’s how to do it.

• Greek Health Minister Instructs Hospitals To Treat Uninsured Patients (Kath.)

The process of providing free healthcare to patients who have not recently earned social security credits got under way on Thursday. Health Minister Andreas Xanthos issued instructions to state hospitals to provide medicines, tests and treatment to uninsured patients without charge. The minister’s note came in the wake of the so-called “parallel program” being voted through Parliament on Saturday. The package of measures is aimed at easing the impact of the crisis on the most vulnerable social groups, with the provision of free healthcare for all being its centerpiece.

The law also allows migrants living in Greece legally, as well as specific categories that do not have residence papers, such as pregnant women, refugees and minors, to receive free care. According to ministerial decisions in 2014, uninsured Greeks could claim free healthcare if they could prove they could not afford it, while they could also obtain medicines under the same terms as those insured with EOPYY, meaning they would have to pay 1 euro for each prescription as well as part of the cost of the drugs.

And we thought they were so well organized…

• Over 130,000 Migrants Missing In Germany (EUO)

More than 13 percent of asylum seekers arriving to Germany last year have disappeared from view of the authorities, the German daily Sueddeutsche Zeitung reported Friday (26 February) based on a response from the federal interior ministry to a question by the left-wing Die Linke party. More than 130,000 asylum seekers who were registered last year in Germany have not arrived at their designated reception facility, according to the report. The interior ministry said the reasons could be traveling on to a different country or “submersion into illegality”. Some asylum seekers who have family or friends already living in Germany might decide to stay with them, rather than in big reception facilities with little information or few things to do.

The head of Germany’s federal office for migration Frank-Juergen Weise said on Thursday that there are currently up to 400,000 people in the country whose identities are unknown to authorities. Germany is also struggling to send back asylum seekers to other EU countries under the Dublin regulation, which says people have to register their request in the country where they first enter the EU. German authorities made a request to a European partner to take back refugees for only one in every 10 applicants. In 2014, this was the case for one in every five refugees. The report comes on a day when the German upper house, the Bundesrat is to hold a final vote on new asylum rules.

The legislation, already passed by the Bundestag, the lower house on Thursday, aims to speed up asylum procedures, making it easier to deport migrants whose claim has been rejected. It also sets up special reception centers in which asylum applications by certain groups of asylum-seekers would be processed within three weeks. Asylum seekers from so-called “safe countries of origin”, where they can be sent back or people who have refused to help authorities process their applications would be housed there.

if Turkey doesn’t do what they want, they will close the Greek border? That’s exactly what Turkey ia aiming for, put pressure on Greece.

• Ministers Demand Drop In Migrant Flows From Turkey Before March 7 (Reuters)

EU ministers on Thursday raised the prospect of further tightening unilateral border controls unless there was a sharp drop in the number of migrants arriving from Turkey by the time of an EU-Turkey summit on March 7. Seven European states have already reinstated border controls within the cherished but creaking Schengen free-travel zone, putting huge strain on Greece, which can no longer wave the tide of arrivals from Turkey onward through the Balkans. More states said they would follow suit unless a deal promising Turkey €3 billion in help to house refugees from the Syrian war in return for preventing them travelling on to Europe yielded fruit before the summit. “By March 7, we want a significant reduction in the number of refugees at the border between Turkey and Greece,” German Interior Minister Thomas de Maiziere said as he arrived at an EU justice and home affairs ministers’ meeting in Brussels.

Germany has been pushing the Turkey plan hard but many other EU states are increasingly frustrated and sceptical. [..] “The 6th of March, the 7th of March is when you can expect the spring influx to rise … we have until that time to find solutions that mostly involve the Greek-Turkish influx, the border there,” said Klaas Dijkhoff, migration minister for the Netherlands, which now holds the EU’s rotating presidency. ”If that doesn’t lead to lower numbers, we’ll have to find other measures and we’ll have to do more contingency planning … That’s a very crucial date to see to what extent we succeed in lowering the influx towards Europe as a whole, or we have to take other measures.” [..] “The outlook is gloomy … We have no policy any more. We are heading into anarchy,” said Jean Asselborn, Luxembourg’s foreign minister. “Our credibility is in doubt, and that is very bad for Schengen and the EU.”

This is exactly what I talked about in my article “The Balkanization of Europe” yesterday. Now Erdogan holds the power over the survival of Schengen, and the EU. What an insane alliance that is. Stick a fork in all of it.

• Europe’s Free Travel Will End Unless Turkey Halts Migrant Flow (Reuters)

Europe’s cherished free-travel zone will shut down unless Turkey acts to cut the number of migrants heading north through Greece by March 7, EU officials said on Thursday. Their declaration came as confrontations grow increasingly rancorous among European countries trying to cope with the influx of refugees. Those recriminations culminated in Greece’s recalling its ambassador to Austria on Thursday. “In the next ten days, we need tangible and clear results on the ground,” the top EU migration official, Dimitris Avramopoulos, said after EU justice and home affairs ministers met in Brussels on Thursday. “Otherwise there is a danger, there is a risk that the whole system will completely break down.” EU leaders are now pinning their hopes on talks with Turkey on March 7 and their own migration summit on March 18-19. The two meetings look like their final chance to revive a flailing joint response to the crisis before warmer weather encourages more arrivals across the Mediterranean.

Seven European states have already restored border controls within the creaking Schengen passport-free zone. More said they would unilaterally tighten border controls unless a deal with Turkey shows results before the two March summits. That deal promises Turkey 3 billion euros ($3.3 billion) in aid to help it shelter refugees from the Syrian war, in return for preventing their traveling on to Europe. “By March 7, we want a significant reduction in the number of refugees at the border between Turkey and Greece,” German Interior Minister Thomas de Maiziere said. “Otherwise ,there will have to be other joint, coordinated European measures.” Germany has been pushing the Turkey plan hard. Many other EU states are increasingly frustrated and skeptical, though.

[..] “Many discuss how to handle a humanitarian crisis in Greece, which they themselves are trying to create,” said the country’s migration minister, Yannis Mouzalas. “Greece will not accept unilateral moves. Unilateral moves can also be made by Greece.”

A set-up.

• EU: Greece Wouldn’t Be The Worst Place To Have A Humanitarian Crisis (WSJ)

Senior European officials are embracing the so-far taboo idea of cutting off the migrant trail in Greece, a step that they acknowledge could create a humanitarian crisis in the country. This so-called Plan B, floated until now only by Europe’s populist leaders, is a sign of rapidly waning confidence in other European Union policies to deal with the migration crisis—in particular in German Chancellor Angela Merkel’s game plan of relying mainly on Turkey to stem the human tide. Greece in recent days has tried to fight back at the prospect of having tens of thousands of migrants trapped on its territory. “We will not accept turning the country into a permanent warehouse of souls,” Prime Minister Alexis Tsipras said Wednesday night.

During fractious talks among interior ministers in Brussels on Thursday, several people present said the Greek migration minister made an impassioned plea to EU counterparts not to ringfence Greece as nationalist leaders in Central and Eastern Europe, notably Hungary’s Viktor Orban and Slovakia’s Robert Fico, have long demanded. But the ringfencing is already happening, as Austria and the Balkan countries over the past week have coordinated a tightening of their borders and started to send back Afghan migrants, resulting in more than 10,000 people being stuck in Greece. On Thursday, the Greek government recalled its ambassador to Austria—a rare move within the EU—in outrage over the border controls and for being left out of a meeting of Balkan countries called by Vienna on the crisis.

Some European officials are now looking to a March 7 summit of EU and Turkish leaders as a deadline for the bloc’s existing migration strategy, particularly the cooperation with Turkey and a NATO sea-monitoring mission, to yield fruit. If it doesn’t, it will become more imperative, they warn, to stop migrants from traveling farther north and to speed up preparations for assisting Greece with a possible humanitarian emergency. “Greece wouldn’t be the worst place to have a humanitarian crisis for a few months,” one EU official said, adding that the population there was much more refugee-friendly than those in the Balkans or Eastern Europe.

What I wrote yesterday in The Balkanization of Europe.

• “We Are Heading Into Anarchy”, “EU Will “Completely Break Down In 10 Days” (ZH)

[..[] on Thursday, EU migration commissioner Dimitris Avramopoulos warned that the bloc has just 10 days to implement a plan that will bring about “tangible and clear results on the ground” or else “the whole system will completely break down.” Avramopoulos also cautioned that a humanitarian crisis in Greece and in the Balkans is “very near.” Moves by countries to adopt ad hoc, state-specific measures to stem the flow are exacerbating the problem, the commissioner contends. “We cannot continue to deal through unilateral, bilateral or trilateral actions; the first negative effects and impacts are already visible,” he said. “We have a shared responsibility – all of us – towards our neighbouring states, both EU and non-EU, but also towards those desperate people.”

By “the negative effects,” of unilateral actions, Avramopoulos is likely referring to the bottlenecks that are leaving thousands stranded in the Balkans. The chokepoints are being pressured by a series of border fences that have been erected over the past six months and the problem is exacerbated by stepped up border checks. In short: we’re witnessing the death of the bloc’s beloved Schengen. “Seven European states have already reinstated border controls within the cherished but creaking Schengen free-travel zone, putting huge strain on Greece, which can no longer wave the tide of arrivals from Turkey onward through the Balkans,” Reuters writes. Earlier today, Athens recalled its Austrian ambassador.

“Greece will not accept unilateral actions. Greece can also carry out unilateral actions,” migration minister, Yannis Mouzalas told reporters on Thursday. “Greece will not accept becoming Europe’s Lebanon, a warehouse of souls, even if this were to be done with major [EU] funding.” On March 7, officials will attend a summit with Turkey where buy in from Ankara is critical if there’s to be meaningful reduction in the flow of asylum seekers to Western Europe. Leaked documents recently showed President Erdogan is essentially attempting to blackmail Europe. “We can open the doors to Greece and Bulgaria at any time. We can put them on busses,” he was quoted as saying, during a conversation with European Commissioner Jean Claude Juncker and President of the European Council Donald Tusk on 16th November 2015 during the G20 Summit in Antalya.

In addition to the seven states that have already reinstated border checks, more countries have promised to follow suit unless Erdogan and Tsipras can figure out a way to make progress in defending the bloc’s external border. Officials fear the onset of spring will embolden still more migrants to make the journey as warmer weather will thaw the Balkan route. On Wednesday, Hungarian PM Viktor Orban called for a referendum on the propsed quota system that Brusells hoped would help distribute and place refugees. It’s only a matter of time before other countries conduct similar plebiscites. Perhaps Jean Asselborn, Luxembourg’s foreign minister put it best: “The outlook is gloomy … We have no policy any more. We are heading into anarchy.”

Debt Rattle September 6 2015

Sep 062015

September 6, 2015 Posted by Raúl Ilargi Meijer at 9:05 am Finance Tagged with: Catalunya, China, debt, EU, G-20, Greece, Hungary, refugees, Syria, trillions 9 Responses »

NPC Grief monument, Rock Creek cemetery, Washington, DC 1915

• Central Banks Can Do Nothing More To Insulate Us From An Asian Winter (Guardian)

• Europe’s Biggest Bank: Is The Fed Preparing For A ‘Controlled Demolition’? (ZH)

• China FinMin: Growth Of About 7% Is The New Normal

• Don’t Forget China’s “Other” Spinning Plate: Trillions In Hidden Bad Debt (ZH)

• China Stock-Market Correction Almost Done, Says PBOC Governor (Bloomberg)

• Barclays Warns On Massive Cost Of China’s FX Intervention (Zero Hedge)

• Hundreds Of 3-Year-Old Toddlers Have Died As A Result Of The Syrian War (WaPo)

• Hungary PM Orban: Tens Of Millions Of Refugees Coming To Europe (Reuters)

• The Huge Wave Of Syrian Refugees To Europe Has Only Just Begun (Haaretz)

• First Trainloads Of Syrian Refugees Reach Germany (WaPo)

• Elation As Migrants Received With Open Arms In Austria And Germany (Reuters)

• We Are People – The Façade Of European Values (MSF-Doctors Without Borders)

• Refugees Who Could Be Us (Nicholas Kristof)

• Germany At Fault In Europe’s Tragic Refugee Crisis (MarketWatch)

• Migration Crisis Tears At EU’s Cohesion And Tarnishes Its Image (Reuters)

• East And West Europe Split As Leaders Resent Germany For Waiving Rules (Guardian)

• Greece Still Needs To Build Trust: Eurogroup Head Dijsselbloem (CNBC)

• Varoufakis Might Come Back To Greek Politics To Give ‘Bitter Medicine’ (BBG)

• Spain Set For Secessionist Clash As Catalonia’s Election Looms (Guardian)

So much for that game indeed. But they’re not done yet.

• Central Banks Can Do Nothing More To Insulate Us From An Asian Winter (Guardian)

The ECB proudly announced on Friday that it is erecting a 17-metre-high bronze and granite tree outside its Frankfurt headquarters – an artwork intended to “convey a sense of stability and growth” – and, with its gilded leaves and massive trunk, presumably also wealth and power. But when Mario Draghi, the ECB’s president, appeared before the world’s media on Thursday at his regular press conference, it was the limit to central bankers’ power that was on display. Draghi was forced to admit that the outlook for eurozone growth and inflation had darkened considerably as a result of the slowdown in emerging economies and the market turmoil in China – the latter an issue he said he would take up with officials at the People’s Bank of China at this weekend’s G20 meeting in Ankara.

Meanwhile, Federal Reserve policymakers will have to decide in the coming days whether to stick to their carefully signalled plan to push up America’s interest rates at their next policy meeting on 17 September, in the face of growing fears about a Chinese slowdown. Certainly, the IMF made it clear last week that it believed policymakers should be cautious about pushing up rates in the current fragile environment. Central bankers slashed rates to their current emergency levels in the depths of the crisis. They also unleashed quantitative easing on a massive scale, as a short-term measure meant to prevent an outright economic slump and buy time for other engines of growth – trade, investment, consumer demand – to be restarted.

Yet even with rock-bottom borrowing costs, the recovery in many countries has been tepid, leaving central bankers little choice but to keep the cash taps on. The ECB and the Japanese central bank are still quantitatively easing; and the Bank of England and the Fed are yet to raise rates, seven years on from the collapse of Lehman Brothers. Whatever the diagnosis for the less-than-impressive post-crisis recovery – the debt overhang from the boom years, chronic underinvestment, weak consumer demand as a result of deep-seated inequality, or some other as yet undiagnosed economic disease – the cure is unlikely to lie with the central banks.

“..equity price appreciation could decelerate easily to 20 or even 40% based on near zero central bank liquidity..”

• Europe’s Biggest Bank: Is The Fed Preparing For A ‘Controlled Demolition’? (ZH)

Before we continue, we present a brief detour from Deutsche Bank’s Dominic Konstam on precisely how it is that in the current fiat system, global central bank liquidity is fungible and until a few months ago, had led to record equity asset prices in most places around the globe. To wit: [..]

Liquidity in the broadest sense tends to support growth momentum, particularly when it is in excess of current nominal growth. Positive changes in liquidity should therefore be equity bullish and bond price negative. Central bank liquidity is a large part of broad liquidity and, subject to bank multipliers, the same holds true. Both Fed tightening and China’s FX adjustment imply a tightening of liquidity conditions that, all else equal, implies a loss in output momentum.

But while the impact on global economic growth is tangible, there is also a substantial delay before its full impact is observed. When it comes to asset prices, however, the market is far faster at discounting the disappearance of the “invisible hand”:

Ultimately in a fiat money system asset prices reflect “outside” i.e. central bank money and the extent to which it multiplied through the banking system. The loss of reserves represents not just a direct loss of outside money but also a reduction in the multiplier. There should be no expectation that the multiplier is quickly restored through offsetting central bank operations.

Here Deutsche Bank suggests you panic, because according to its estimates, while the US equity market may have corrected, it has a long ways to go just to catch up to the dramatic slowdown in global plus Fed reserves (that does not even take in account the reality that soon both the BOJ and the ECB will be forced by the market to taper and slow down their own liquidity injections):

Let’s start with risk assets, proxied by global equity prices. It would appear at first glance that the correlation is negative in that when central bank liquidity is expanding, equities are falling and vice versa. Of course this likely suggests a policy response in that central banks are typically “late” so that they react once equities are falling and then equities tend to recover. If we shift liquidity forward 6 quarters we can see that the market “leads” anticipated” additional liquidity by something similar. This is very worrying now in that it suggests that equity price appreciation could decelerate easily to 20 or even 40% based on near zero central bank liquidity, assuming similar multipliers to the post crisis period.

The G-20 hires comedy acts these days.

• China FinMin: Growth Of About 7% Is The New Normal

China’s financial markets are expected to remain stable and the renminbi is not on course for a long-term devaluation, while fiscal spending will grow faster than expected this year, the country’s top financial officials told the G20. Finance Minister Lou Jiwei said that central government spending will rise 10% this year, more than the 7% growth budgeted at the start of the year, according to a statement late Saturday on the People’s Bank of China website. China will raise dividend payments from designated state-owned enterprises to make up for any shortfalls. China is headed for its slowest economic expansion in 25 years in 2015 and mainland markets have slumped 40% since mid-June, sending global financial markets skittering.

Ailing Chinese shares dragged down Hong Kong stocks to their lowest close in two years on Wednesday. China’s financial markets were closed on Thursday and Friday to commemorate the 70th anniversary of the end of World War Two. China’s overall GDP growth will remain around 7%, as predicted earlier in the year, and the new economic normal may last for four to five years, Lou said. The government will not particularly care about quarterly economic fluctuations and maintain steady macro-economic policy, he added.

China can no longer rely on policy supports to achieve 9-10% growth, as it may already take several years to digest excess industrial capacity and inventories, he said. It will go through “labour pains” in the next five years as it aims to complete main structural reforms by 2020, Lou added. The quality of growth, however, is already improving with 7 million jobs created in the first half of the year, consumption overtaking investment in contributing to economic growth and the balance of payments becoming more even, he said.

The shadow banks need far more scrutiny.

• Don’t Forget China’s “Other” Spinning Plate: Trillions In Hidden Bad Debt (ZH)

To be sure, there’s every reason to devote nearly incessant media coverage to China’s bursting stock market bubble and currency devaluation. The collapse of the margin fueled equity mania is truly a sight to behold and it’s made all the more entertaining (and tragic) by the fact that it represents the inevitable consequence of allowing millions of poorly educated Chinese to deploy massive amounts of leverage on the way to driving a world-beating rally that, at its height, saw day traders doing things like bidding a recently-public umbrella manufacturer up 2,700%.

Meanwhile, the world has recoiled in horror at China’s crackdown on the media and anyone accused of “maliciously” attempting to exacerbate the sell-off by engaging in what Beijing claims are all manner of “subversive” activities such as using the “wrong” words to describe the debacle and, well, selling stocks. Finally, China’s plunge protection has been widely criticized for, as we put it, “straying outside the bounds of manipulated market decorum.” And then there’s the yuan devaluation that, as recent commentary out of the G20 makes abundantly clear, is another example of a situation where China will inexplicably be held to a higher standard than everyone else. That is, when China moves to support its export-driven economy it’s “competitive devaluation”, but when the ECB prints €1.1 trillion, it’s “stimulus.”

Given the global implications of what’s going on in China’s stock market and the fact that the devaluation is set to accelerate the great EM FX reserve unwind while simultaneously driving a stake through the heart of beleaguered emerging economies from LatAm to AsiaPac on the way to triggering a repeat of the Asian Financial Crisis complete with the implementation of pro-cyclical policy maneuvers from a raft of hamstrung central banks, it’s wholly understandable that everyone should focus on equities and FX. That said, understanding the scope of the risk posed by China’s many spinning plates means not forgetting about the other problems Beijing faces, not the least of which is a massive collection of debt that, thanks to the complexity of local government financing and the (related) fact that as much as 40% of credit risk is carried off balance sheet via an eye-watering array of maturity mismatched wealth management products, is nearly impossible to quantify or even to get a grip on.

Just 50% or so to go?

• China Stock-Market Correction Almost Done, Says PBOC Governor (Bloomberg)

China’s stock-market rout that erased $5 trillion in value is close to ending, according to the nation’s central bank governor. With the yuan’s exchange rate versus the dollar close to stabilizing and a stock-market correction almost done, China’s financial markets are expected to be more stable, governor Zhou Xiaochuan said. His comments were made in a statement on the bank’s website Saturday after a meeting by finance ministers and central bankers from the Group of 20 nations in Ankara. The Shanghai Composite Index has tumbled 39% since June 12, when the gauge reached its highest level in more than seven years as mainland investors borrowed record amounts of funds to buy equities. China’s shock devaluation of the yuan in August rattled world markets and sparked exchange-rate declines in emerging economies.

Volatility in China’s stock markets is nearing its end, Zhu Jun, director-general in the People’s Bank of China’s international department, said in an interview on Saturday in Ankara, after G20 finance chiefs flagged concerns about potential global spillovers. The Chinese government’s intervention has prevented a free-fall in the market and systemic risk, Zhou said in the statement. The leverage ratio has clearly dropped and the impact on the real economy is limited, Zhou said. Zhou reiterated that China’s economic fundamentals are substantially unchanged, and that there is no basis for long-term yuan depreciation. The country’s determination to deepen market reforms has not changed, he said.

“..when China liquidates its reserves, it sucks liquidity out of the system. That works at cross purposes with the four RRR cuts the PBoC has implemented so far this year.”

• Barclays Warns On Massive Cost Of China’s FX Intervention (Zero Hedge)

One of the most important things to understand about China’s doomed attempt to simultaneously manage the stock market, the economy, a deleveraging in some sectors, a re-leveraging in others, and the yuan is that it’s bound to produce all manner of conflicting directives and policies that trip over each other at nearly every turn. One rather poignant example of this is the attempt to rein in shadow lending without choking off credit growth. Another – and the one that will invariably receive the most attention going forward – is the push and pull on money markets by the PBoC’s FX intervention and offsetting liquidity injections. Recall that Beijing’s open FX ops in support of the yuan necessitate the drawdown of the country’s vast store of USD reserves. In other words, they’re selling USTs.

The effect this historic liquidation of US paper will have on global liquidity, core yields, and Fed policy has become the subject of fierce debate lately although, as we’ve been at pains to make clear, this is really just a continuation of the USD asset dumping that was foretold nearly a year ago when Saudi Arabia killed the petrodollar. In any event, when China liquidates its reserves, it sucks liquidity out of the system. That works at cross purposes with the four RRR cuts the PBoC has implemented so far this year. In short, Beijing, in a desperate attempt to boost lending and invigorate the decelerating economy, has resorted to multiple policy rate cuts, but to whatever degree those cuts freed up banks to lend, the near daily FX interventions undertaken after the August 11 deval effectively offset the unlocked liquidity.

What this means is that each successive round of FX intervention must be accompanied by an offsetting RRR cut lest managing the yuan should end up completely negating the PBoC’s attempts to use policy rates to boost the economy – or worse, producing a net tightening. What should be obvious here is that this is a race to the bottom on two fronts. That is, the more you intervene in the FX market the more depleted your reserves and the more you must cut RRR until eventually, both your USD assets and your capacity to deploy policy rate cuts are exhausted.

There are only two ways to head off this eventuality i) move to a true free float, or ii) implement a variety of short- and medium-term lending ops to offset the tightening effect of FX interventions in the hope of forestalling further RRR cuts. Clearly, this is a spinning plate if there ever was one, as attempting to figure out exactly what the right mix of RRR cuts and band-aid reverse repos is to offset FX interventions is well nigh impossible. It’s against this backdrop that Barclays is out with what looks like one of the more cogent attempts yet to outline and illustrate the above and explain why it simply isn’t sustainable.

Make that thousands.

• Hundreds Of 3-Year-Old Toddlers Have Died As A Result Of The Syrian War (WaPo)

A photograph of Aylan Kurdi, a 3-year-old Syrian child, lying face down and lifeless in the sand on a Turkish beach, has sparked anger and anguish worldwide. It’s raised a difficult question: Why did Aylan’s family leave Syria and decide to take the journey that led to his death? The answer to that question is equally uncomfortable: By staying in Syria, Kurdi would have risked becoming one of the hundreds of other 3-year-olds killed by the civil war there. These children’s deaths are little acknowledged by the international community, but a variety of activist groups have recorded their deaths in the hope that they won’t be totally in vain.

One group which tracks the deaths in the war, the Syrian Revolution Martyr Database, has detailed records for the deaths of at least 232 children aged 3. The real number may be far higher: The organization, which is run by opponents to the Syrian regime, notes that in many cases the age of the child is not known and thus cannot be recorded. In other cases, the death itself is never even recorded. A closer look at the database’s details reveals more horror. Of the 232 known deaths, almost half were killed by artillery fire. Most of the rest were killed either by aerial bombing or gunfire, with a smaller amount reported to have died from a variety of other causes – including, in one case, a slit throat.

Children of other ages suffered as well. In total, the Syrian Revolution Martyr Database found evidence of almost 2,000 children under the age of 10 who had been killed since the fighting began. Estimates from other groups may skew far higher – the Syrian Observatory for Human Rights, a group based in Britain, has said that at least 11,493 children have died since the war began. These estimates do not include children like Kurdi who died after fleeing the chaos.

“..the supply of immigrants is endless.”

• Hungary PM Orban: Tens Of Millions Of Refugees Coming To Europe (Reuters)

Hungary could deploy its military along its southern border to stem the influx of refugees, Viktor Orban, the country’s prime minister, has said. Mr Orban said that police would be deployed after the 15 September and that military units could follow if parliament approves the proposal. “We’ll bring the border under control step by step,” he said. “We’ll send in the police, then, if we get approval from parliament, we’ll deploy the military.” He said the proposed move was because there was a potentially “endless” number of migrants and refugees heading for Europe. He was quoted by Reuters as saying: “It’s not 150,000 [migrants and refugees] that some want to divide according to quotas, it’s not 500,000, a figure that I heard in Brussels, it’s millions, then tens of millions, because the supply of immigrants is endless.”

Hungary has faced days of tension with thousands of refugees attempting to cross the country to reach other parts of Europe. The authorities eventually opted to bus the refugees to the Western border with Austria, after Austria and Germany said that they would accept them. Amid the refugee crisis, the Hungarian prime minister has previously indicated he plans to send military to his country’s border with Serbia, where a 100-mile long fence is already under construction. He has also several times antagonised his European colleagues over the crisis, claiming that it should be seen as a “German problem” since the majority of migrants want to settle in Germany, due at least in part to Germany’s willingness to accept them.

“Turkey has taken in two million Syrian refugees over the past four years..”

• The Huge Wave Of Syrian Refugees To Europe Has Only Just Begun (Haaretz)

“I am not willing to register for anyone until I get to Germany” says Alaa, who refused to give his last name. Until last week, he had been working as a chef in a Damascus hotel until he decided to leave because “I’m simply too afraid to walk down the street for fear Assad’s men will arrest me and make me disappear.” Alaa traveled with his wife Maryam and their 8-month-old son Tayim, to Lebanon and from there to Turkey. Like almost all the Syrian migrants reaching Europe, he paid Turkish smugglers $3,000 for himself and his wife – he did not have to pay for Tayim. The boat capsized and the family floated for five hours, until they were rescued by the Greek Coast Guard, Alaa said. The family lost almost everything except the clothes on their back when the boat overturned.

Tayim has only his shorts, a shirt and one pair of socks to face the cold Hungarian autumn. Tayim and his parents are now sitting by the roadside, a few hundred meters from the Hungarian-Serbian border, on the Hungarian side. Alaa is trying to hide from the Hungarian police patrols who are trying to pick up the thousands of refugees who every day try to walk across the old Belgrade-Budapest train tracks. The thousand Euros he managed to save from the sea he gave to a man who said he would drive them to Budapest. “He took us to the end of the road, threw us out and disappeared with the money,” Alaa said. Refugees are easy prey. The fact that tens of thousands of them can find a smuggler so easily in the streets of Turkish cities to take them to Greece shows that the authorities are turning a blind eye to the operations.

One refugee said: “If I, who have never been to Turkey, can find a smuggler so quickly in the street in Izmir, I imagine that they are bribing the police to continue their operations.” Turkey has taken in two million Syrian refugees over the past four years. Smugglers have already been responsible for thousands of deaths. Meanwhile, the Hungarian government seems unable to formulate a policy regarding the refugees. At one point, police look the other way, in another, they are welcoming and give out food collected by volunteers. But in many cases, they beat the refugees with their batons and use pepper spray to force them into registration camps. When the refugees who agree to go to the camps arrive there, they find installations too small to accommodate them and the police give no information as to what to expect.
read more: https://www.haaretz.com/news/world/.premium-1.674670

The WaPo doesn’t understand what happened at all. It’s not a defeat for Orban, but a victory. He got Merkel to give in.

• First Trainloads Of Syrian Refugees Reach Germany (WaPo)

A column of thousands of people fleeing war and poverty made it to Western Europe on Saturday, after forcing Hungary’s anti-immigrant leaders to yield in a days-long campaign to turn them back. But with a fresh rush of migrants at Europe’s borders, the broader refugee crisis only looked to be worsening. The Hungarian reversal was a defeat for the country’s nationalist prime minister, Viktor Orban, who had declared himself a defender of Europe’s Christian heritage against the mostly Muslim families seeking entrance. He has vowed to seal the country’s southern border by Sept. 15. But with passage to Europe soon to grow more difficult, the number of newcomers has only expanded in the continent’s worst refugee crisis since the Balkan wars of the 1990s.

New asylum-seekers were arriving in Hungary as quickly as they were draining out Saturday, highlighting the absence of a unified European plan for their accommodation. Germany and Sweden have thrown open their doors to people fleeing Syria’s war. Other nations have barred themselves shut. The turnabout began in the early hours of Saturday, when Hungary’s leaders dispatched blue city buses to pick up migrants who had paralyzed traffic when they set off on the hundred-mile trek to Austria after spending days in squalid conditions in Budapest. By midday, the asylum-seekers were limping across the border into the arms of Austrian volunteers.

As the day ended, thousands were pulling up on trains in Germany, where they were receiving sustenance, shelter and welcome in a nation that has declared no limit to the numbers it will aid. As many as 7,000 were expected Saturday. “I had a smile to both my ears. I was finished with Hungary,” said Omar Mansour, a 24-year-old Syrian physical education teacher, who sat Saturday on a large stone in the border-station parking lot in the pastoral Austrian town of Nickelsdorf, warming himself against the September chill with a green sleeping bag before he continued on to Germany. He said he had spent the past week at Budapest’s main train station, where a makeshift refugee camp accumulated after authorities blocked migrants’ paths to Western Europe on Tuesday.

Back to ‘migrants’. No more refugees, Reuters?

• Elation As Migrants Received With Open Arms In Austria And Germany (Reuters)

Austria and Germany threw open their borders to thousands of exhausted migrants on Saturday, bussed to the Hungarian border by a rightwing government that had tried to stop them but was overwhelmed by the sheer numbers reaching Europe’s frontiers. Left to walk the last yards into Austria, rain-soaked migrants, many of them refugees from Syria’s civil war, were whisked by train and shuttle bus to Vienna, where authorities promptly arranged for thousands to head straight on to Germany. German police said the first 1,000 of up to 10,000 migrants expected on Saturday had arrived on special trains in Munich. Austrian police said more than 6,000 people had entered the country by Saturday afternoon.

Munich police said Arabic-speaking interpreters helped refugees with procedures at emergency registration centres. The seemingly efficient Austrian and German reception contrasted with the disorder prevalent in Hungary. “It was just such a horrible situation in Hungary,” said Omar, arriving in Vienna with his family. In Budapest, almost emptied of migrants the night before, the main railway station was again filling up with new arrivals, but trains to western Europe remained cancelled. So hundreds set off by foot, saying they would walk to the Austrian border, 110 miles away, like others had tried on Friday. After days of confrontation and chaos, Hungary’s government deployed over 100 buses overnight to take thousands of migrants to the Austrian frontier.

Austria said it had agreed with Germany to allow the migrants access, waiving asylum rules that require them to register in the first EU state they reach. Wrapped in blankets and sleeping bags against the rain, long lines of weary migrants, many carrying small, sleeping children, got off buses on the Hungarian side of the boundary and walked into Austria, receiving fruit and water from aid workers. Waiting Austrians held signs that read “Refugees welcome”. “We’re happy. We’ll go to Germany,” said a Syrian man who gave his name as Mohammed, naming Europe’s famously biggest and most affluent economy that is the favoured destination of many refugees. Another, who declined to be named, said: “Hungary should be fired from the European Union. Such bad treatment.”

“The majority of MSF’s 36,000 employees are not European. We are not Europe, we are people and many of us have no illusions about European double standards..”

• We Are People – The Façade Of European Values (MSF-Doctors Without Borders)

In a recent opinion piece, the Director of MSF UK states that “we are Europe – we should do better”. The logic of the argument is that because Europe promotes human rights abroad, it should uphold the values of human rights at home in its response to the refugees risking their lives in crossing the Mediterranean into Europe. But what is implied in this logic is that Europe should do better because Europe is better. This is not the case. Almost all states preach and promote the respect of human rights, and very few respect and act according to such rights at home or abroad. For example, Saudi Arabia is currently the chair of the Human Rights Commission and yet can hardly be considered to practice the values it is tasked to uphold both abroad and in its approach to its own population.

“Europe [is] – a continent that respects and protects human life and dignity”, asserts this opinion piece – the problem with this assertion is that it ignores the fact that Europe has rarely upheld its virtuous rhetoric in its foreign policy practice. The inadequate response to the Syrian refugee crisis, the war in Iraq and the failure to condemn the Israeli occupation of Palestine, all issues set within a history of European colonisation of the Middle East, are just a few examples that illustrate Europe’s complicity in the crises that animate the region today. Here are some important questions and real reasons why Europe “should do better” in its response to the current refugee crisis:

What role has Europe played in contributing to the conditions from which people flee? Whether through the history of colonialism and the arbitrary drawing of borders, the propping up for decades of dictators, or in the case of Libya and Iraq, direct involvement in a military offensive. Historical amnesia is used to turn the act of welcoming refugees and migrants from a responsibility to an act of charity that has its limits. Contrary to international conventions and legislation signed by European governments, the European Union decided to have an active policy of restricting and denying refugees safe and legal routes to Europe, and this is why people are drowning at sea.

[..] The majority of MSF’s 36,000 employees are not European. We are not Europe, we are people and many of us have no illusions about European double standards – especially for those of us whose families, friends, and communities have been affected by these double standards. Europe should do more because it has a responsibility that comes with power that has been built on the backs of the mothers and fathers of those now seeking refuge on European shores and it has duties that come with international laws and conventions. Most of all Europe should do more for the same reason everyone else should do more: not because ‘we’ are Europe, but because ‘we’ are people.

Even Kristof is right sometimes.

• Refugees Who Could Be Us (Nicholas Kristof)

Watching the horrific images of Syrian refugees struggling toward safety or in the case of Aylan Kurdi, 3, drowning on that journey I think of other refugees. Albert Einstein. Madeleine Albright. The Dalai Lama. And my dad. In the aftermath of World War II, my father swam the Danube River to flee Romania and become part of a tide of refugees that nobody much cared about. Fortunately, a family in Portland, Ore., sponsored his way to the United States, making this column possible. If you don’t see yourself or your family members in those images of today s refugees, you need an empathy transplant. Aylan’s death reflected a systematic failure of world leadership, from Arab capitals to European ones, from Moscow to Washington. This failure occurred at three levels:

• The Syrian civil war has dragged on for four years now, taking almost 200,000 lives, without serious efforts to stop the bombings. Creating a safe zone would at least allow Syrians to remain in the country.

• As millions of Syrian refugees swamped surrounding countries, the world shrugged. United Nations aid requests for Syrian refugees are only 41% funded, and the World Food Program was recently forced to slash its food allocation for refugees in Lebanon to just $13.50 per person a month. Half of Syrian refugee children are unable to go to school. So of course loving parents strike out for Europe.

• Driven by xenophobia and demagogy, some Europeans have done their best to stigmatize refugees and hamper their journeys.

Bob Kitchen of the International Rescue Committee told me he saw refugee families arriving on the beaches of Greece, hugging one another and celebrating, thinking that finally they had made it unaware of what they still faced in southern Europe. This crisis is on the group of world leaders who have prioritized other things, rather than Syria, Kitchen said. This is the result of that inaction. Antonio Guterres, the head of the U.N. refugee agency, said the crisis was in part a failure of leadership worldwide. This is not a massive invasion, he said, noting that about 4,000 people are arriving daily in a continent with more than half a billion inhabitants. This is manageable, if there is political commitment and will.

We all know that the world failed refugees in the run-up to World War II. The U.S. refused to allow Jewish refugees to disembark from a ship, the St. Louis, that had reached Miami. The ship returned to Europe, and some passengers died in the Holocaust. Aylan, who had relatives in Canada who wanted to give him a home, found no port. He died on our watch. Guterres believes that images of children like Aylan are changing attitudes. Compassion is winning over fear, he said. I hope he’s right. Bravo in particular to Icelanders, who on Facebook have been volunteering to pay for the flights of Syrian refugees and then put them up in their homes. Thousands of Icelanders have backed this effort, under the slogan Just because it isn t happening here doesn t mean it isn t happening.

Germany wants to lead. And then doesn’t. Yeah, after 20,000 deaths, and photos in the media. Sure.

• Germany At Fault In Europe’s Tragic Refugee Crisis (MarketWatch)

German Chancellor Angela Merkel is belatedly taking a leadership role in pushing the European Union to solve its refugee crisis, but the EU’s difficulty in acting together is largely a result of policies championed by Germany. It is Germany that has blocked every effort to name an EU leader of any stature to a top post for the union, because it prefers for national leaders to call the shots. So Poland’s Donald Tusk, who has little international experience but was Merkel’s choice, is president of the European Council, while Jean-Claude Juncker from tiny Luxembourg, also Merkel’s choice, is the hapless president of the European Commission.

It is Germany, and Merkel specifically, that has systematically turned France into an unequal partner, paying French Presidents Nicolas Sarkozy and François Hollande little heed except when they were needed as a fig leaf to make Merkel’s chosen policies more palatable. And of course it was Germany that inflexibly led EU negotiators to impose a new load of unsustainable debt and more economic austerity on Greece in July’s bailout accord. Germany is indeed opening its doors to a much larger share of the refugees from the Middle East and Africa than other EU countries and is offering more generous settlement conditions. It is the only EU country that has provided financial aid to Greece to help it bear the brunt of the flow of refugees.

There is no doubt that the vast majority of Germans are genuinely motivated by altruism to aid these displaced persons. But German political leaders can hardly complain of the lack of solidarity and compassion in the EU after railroading through the exceedingly harsh treatment of Greece. They can scarcely make an appeal to EU humanitarian values after ruthlessly fomenting a humanitarian crisis in a member state. While some commentators see the German response to the refugee crisis making up in part for its brutal treatment of Greece, it is rather the case that Berlin’s loss of moral authority from that crisis prevents it from forging any sort of unity on refugees. And Europe, with its postwar history of stinginess and not-in-my-backyard myopia, would require strong moral leadership to come together on an issue like this.

It exposes EU for what it is.

• Migration Crisis Tears At EU’s Cohesion And Tarnishes Its Image (Reuters)

Deep divisions over how to cope with a flood of migrants from the Middle East, Africa and Asia pose a threat to the European Union’s values and global standing and may diminish its ability to act jointly to reform the euro zone and ease Greece’s debt. With harrowing images of drowning children, refugees being herded on and off trains and beaten by police, and barbed-wire fences slicing across Europe, the migration crisis is the moral equivalent of the euro zone crisis. In both cases, the principle of solidarity is being sorely tested. By making the EU look ineffective, disunited and heartless, pitting member states against each other and fuelling political populism and anti-Muslim sentiment, the latest crisis is undermining the ideals of European integration.

However, it often takes a bout of disarray and recrimination before the EU finds a joint response to a new challenge. Policy may be shifting in reaction to unbearable pictures of suffering, and to fears that the Schengen zone of open-border travel among 26 continental European countries may otherwise fall apart. “The world is watching us,” German Chancellor Angela Merkel said last week as she tried to persuade European peers to share the burden of taking in people fleeing war and misery in Syria, Iraq, Afghanistan, Libya and beyond. “If Europe fails on the refugee question, its tight bond with universal human rights will be destroyed, and it will no longer be the Europe we dreamed of,” she said.

Merkel’s bold attempt to exercise leadership, in contrast to her deep caution in the euro crisis, has won only cautious support from close allies like France, where domestic opposition to more immigration is strong, and been rejected outright by countries such as Hungary and Britain. For many European politicians trying to keep in tune with voters, preventing unwanted immigration is a greater priority than welcoming hundreds of thousands of haggard, uprooted foreigners, especially if they are Muslims.

It’s all turning into one giant blame game.

• East And West Europe Split As Leaders Resent Germany For Waiving Rules (Guardian)

Hungary’s prime minister, Viktor Orbán, is the cheerleader of the “Europe is useless” chorus, but Robert Fico, the Slovakian premier, and President Milos Zeman in Prague are not far behind. Ewa Kopacz, the prime minister of Poland, sounds more moderate, but she looks likely to lose an election next month to the nationalist right. Her hands are tied. When Europe’s leaders last met to grapple with the crisis, in June, they argued until 3.30am and dispersed without agreement, bringing Matteo Renzi, the Italian prime minister, to lament: “If this is Europe, you can keep it.” Entirely predictably, things have worsened considerably since then.

Governments are floundering, pirouetting on policy in response to front-page pictures of tragedy on a Turkish beach, engaging in a blame game which, coming on top of five years of division over Greece and the euro, is exposing major divisions. If the euro proved to be a fair-weather currency whose structures and rules buckled and nearly collapsed in a storm, the same is now evident on immigration. The system is flimsy, not fit for purpose in an emergency. There is no “European” immigration policy or regime. There is a mish-mash of national policies, a patchwork of systems and criteria which are contradictory, incoherent, fragmented. Italy is very far way from Finland, not only geographically, but when it comes to immigration and asylum.

France and Germany have quite different historical approaches to integrating newcomers. Sweden and Denmark are neighbours with a close shared history, but their immigration policies are chalk and cheese. National governments guard these prerogatives jealously. “Europe” in the form of the EU authorities in Brussels has minimal say over policymaking. Almost all power here lies with heads of national governments and interior ministries. Yet, in this crisis, Brussels-bashing has become routine, the cheap and easy option for shameless national leaders acting unilaterally, blocking every suggestion that comes out of Brussels and then blaming it for the ensuing chaos.

Orbán proved the point in Brussels last week. “Europe” had failed, its leaders had irresponsibly created this mess, their response was “madness”. He has put up a razor-wire fence on the border with Serbia and announced he was fasttracking legislation to establish a zero-immigration regime within 10 days, with the army deployed on the border. Brussels cannot stop him because these powers are national. If need be, he said, he would put up another fence on the border with Croatia, a barrier between two EU countries. On Friday Brussels shrugged and said it did not like this, but couldn’t do anything about it.

This will be used against all Greeks all the time for a long time to come. And therefore also against refugees, by default: no budgets to help them.

• Greece Still Needs To Build Trust: Eurogroup Head Dijsselbloem (CNBC)

Trust in the Greek government has yet to return after months of wrangling to secure a third bailout deal for the debt-struck country, the head of the Eurogroup of finance ministers said Saturday. “In the last half year with the Syriza government, trust has gone away completely…So what we need now is a serious government which is implementing (reforms) seriously and that will bring back trust and I think that’s the key issue…trust, consumers, producers, investors trust that’s key,” Eurogroup president Jeroen Dijsselbloem,told CNBC on the sidelines of the G20 meeting in Ankara, Turkey. Dijsselbloem, was a key figure in negotiating Greece’s bailout in return for the country implementing reforms.

The Dutch politician also had a number of clashes with Greece’s leftist Syriza government and in particular, the firebrand ex-finance minister Yanis Varoufakis. The debt saga saw a breakdown in relations between Greece and many of the negotiators, including Dijsselbloem, who said that trust has still not returned. The Eurogroup president said that the Syriza government wanted to reject “the whole fundamentals of the euro zone” which was not acceptable. “In the end, the Tsipras government decided we want to stay in the euro zone, we will accept the basic arrangements of that, and commit to a basic program which they need. So if you ask me has trust returned, that will be a bit quick to say that, it’s going to take time,” Dijsselbloem said.

“..if we don’t try to implement it, they will chuck us out of the euro zone. What? Is this what Europe has come to?” “It’s the height of irrationality..”

• Varoufakis Might Come Back To Greek Politics To Give ‘Bitter Medicine’ (BBG)

Former Greek Finance Minister Yanis Varoufakis has flagged his interest in a political comeback after the Greek election – but only if the new rulers ask him to administer “bitter medicine” rather than “poison.” The parties fighting the election are backing the reform package because they’ve been blackmailed, Varoufakis told Bloomberg TV, in an interview at the Ambrosetti Forum in Cernobbio, Italy. “If ever there is a government interested in bitter medicine and it is not simply committing to administering poison, then I am on board,” he said. Asked if he might play an active role in the new government, Varoufakis replied he would insist that the reform program “be very harsh.”

The former finance minister has since his resignation in July sought to justify his controversial sparring with European Union counterparts including Germany’s Wolfgang Schaeuble through interviews and public speeches. Varoufakis said political parties are hiding their opposition to the reform package. “You only have to listen to the parties themselves. All of them disagree with the program, but they vote on it on the basis of blackmail. The argument is: this is a terrible program, it will not work but if we don’t try to implement it, they will chuck us out of the euro zone. What? Is this what Europe has come to?” “It’s the height of irrationality,” Varoufakis said.

“Its reaction to Junts pel Sí has been to rush through an amendment to the constitution so that any politician who declares independence can be imprisoned.”

• Spain Set For Secessionist Clash As Catalonia’s Election Looms (Guardian)

Catalans go to the polls at the end of this month to choose a new regional government in what is shaping up to be a showdown between the secessionists and central government in Madrid and between Catalans themselves, who are split on independence. The majority of pro-independence groupings have come together as Junts pel Sí (United for a Yes Vote), a single-issue coalition that includes Artur Mas, the incumbent Catalan president. The poll has been billed as a plebiscite, and Mas has said he will declare unilateral independence if the group wins a majority of seats, even if it has not obtained a majority of the popular vote.

The first test will be the turnout on Friday, in what has become an annual show of force by the secessionists on Catalan National Day, as tens of thousands will converge on the capital to demand independence. This year the demonstration has been billed as “The Open Road to the Catalan Republic”. In spite of polls showing waning support for independence, Raül Romeva i Rueda, the ex-communist who leads Junts pel Sí, says a unilateral declaration of independence is justified because “they [Spain] have beaten us with unjust laws and huge fines”.

The Madrid government has refused to enter into a dialogue on independence and has adopted a hardline stance throughout. Its reaction to Junts pel Sí has been to rush through an amendment to the constitution so that any politician who declares independence can be imprisoned. Mas says there is no option but to treat the election as a plebiscite, as central government has refused to allow a referendum. He says that if Junts pel Sí wins the Catalan elections on 27 September and goes on to win in Catalonia at the general election expected on 20 December, “that will serve as a second plebiscite that will send an extraordinary message to Europe and the rest of the world”.