The Automatic Earth

Lewis Wickes Hine Workshop of Sanitary Ice Cream Cone Co., OK City 1917

Wow, look at that. Even Bloomberg manages to get it right. Congrats to all my gay friends- happy to say they are plentiful. Big day no matter how you look at it.

• A Gay-Rights Decision for the Ages (Bloomberg)

This one is for the ages. Justice Anthony Kennedy’s opinion for the U.S. Supreme Court announcing a right to gay marriage in Obergefell v. Hodges will take its place alongside Brown v. Board of Education and Loving v. Virginia in the pantheon of great liberal opinions. The only tragic contrast with those landmarks in the history of equality is that both of those were decided unanimously. Friday’s gay-rights opinion went 5-4, with each of the court’s conservative justices writing a dissent of his own. Eventually, legal equality for gay people will seem just as automatic and natural as legal equality for blacks. But history will recall that when decided, Obergefell didn’t reflect national consensus, much less the consensus of the court itself.

Kennedy’s opinion offered two different yet interrelated constitutional rationales, one focused on the institution of marriage, the other on the equality of gay people. First, he made the case that marriage is a fundamental liberty right under the due process clause of the Constitution, which says no one may be deprived of life, liberty or property without due process of law. Applying what’s known as “substantive” due process analysis, Kennedy held that the government may not infringe the liberty to marry absent a compelling interest and along narrowly tailored lines to achieve that interest. Because no such interest exists, gay people as well as straight people must have the right to marry. This same approach was used by the court in the Loving case, which struck down laws barring interracial marriage.

It was symbolically important for Kennedy to connect same-sex marriage to marriage between the races. Kennedy’s favorite concept of dignity figured large in the finding that marriage is a fundamental right. “The lifelong union of a man and a woman always has promised nobility and dignity to all persons, without regard to their station in life.” The reference to dignity connected the decision to Kennedy’s earlier gay-rights decisions, which featured the concept centrally. It is now an important part of our constitutional law — no matter that it doesn’t appear in the Constitution. Another crucial feature of the opinion was Kennedy’s recognition that marriage has evolved over time. This acknowledgement counteracted the conservatives’ emphasis on tradition in their dissents.

It also resonated with the doctrine of due process, which looks to evolving tradition to identify the content of protected liberty. When it came to equality, Kennedy avoided announcing that laws burdening gay people would be subject to especially strict scrutiny, like laws burdening racial minorities, or even what’s called intermediate scrutiny, like laws differentially burdening the sexes. Instead, he spoke of the “synergy” between due process and equality. In legal terms, this almost certainly meant that once a fundamental right is invoked, any distinction between people for any reason requires strict scrutiny – a longtime doctrinal norm.

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Integral text. Worth the space.

• An End to the Blackmail (Alexis Tsipras)

Televized speech, Athens, June 27, 2015, 1 AM local time. For six months now the Greek government has been waging a battle in conditions of unprecedented economic suffocation to implement the mandate you gave us on January 25. The mandate we were negotiating with our partners was to end the austerity and to allow prosperity and social justice to return to our country. It was a mandate for a sustainable agreement that would respect both democracy and common European rules and lead to the final exit from the crisis. Throughout this period of negotiations, we were asked to implement the agreements concluded by the previous governments with the Memoranda, although they were categorically condemned by the Greek people in the recent elections. However, not for a moment did we think of surrendering, that is to betray your trust.

After five months of hard bargaining, our partners, unfortunately, issued at the Eurogroup the day before yesterday an ultimatum to Greek democracy and to the Greek people. An ultimatum that is contrary to the founding principles and values of Europe, the values of our common European project. They asked the Greek government to accept a proposal that accumulates a new unsustainable burden on the Greek people and undermines the recovery of the Greek economy and society, a proposal that not only perpetuates the state of uncertainty but accentuates social inequalities even more. The proposal of institutions includes: measures leading to further deregulation of the labor market, pension cuts, further reductions in public sector wages and an increase in VAT on food, dining and tourism, while eliminating tax breaks for the Greek islands.

These proposals directly violate the European social and fundamental rights: they show that concerning work, equality and dignity, the aim of some of the partners and institutions is not a viable and beneficial agreement for all parties but the humiliation of the entire Greek people. These proposals mainly highlight the insistence of the IMF in the harsh and punitive austerity and make more timely than ever the need for the leading European powers to seize the opportunity and take initiatives which will finally bring to a definitive end the Greek sovereign debt crisis, a crisis affecting other European countries and threatening the very future of European integration.

Fellow Greeks, right now weighs on our shoulders the historic responsibility towards the struggles and sacrifices of the Greek people for the consolidation of democracy and national sovereignty. Our responsibility for the future of our country. And this responsibility requires us to answer the ultimatum on the basis of the sovereign will of the Greek people. A short while ago at the cabinet meeting I suggested the organization of a referendum, so that the Greek people are able to decide in a sovereign way. The suggestion was unanimously accepted.

Tomorrow the House of Representatives will be urgently convened to ratify the proposal of the cabinet for a referendum next Sunday, July 5 on the question of the acceptance or the rejection of the proposal of institutions. I have already informed about my decision the president of France and the chancellor of Germany, the president of the ECB, and tomorrow my letter will formally ask the EU leaders and institutions to extend for a few days the current program in order for the Greek people to decide, free from any pressure and blackmail, as required by the constitution of our country and the democratic tradition of Europe.

Fellow Greeks, to the blackmailing of the ultimatum that asks us to accept a severe and degrading austerity without end and without any prospect for a social and economic recovery, I ask you to respond in a sovereign and proud way, as the history of the Greek people commands. To authoritarianism and harsh austerity, we will respond with democracy, calmly and decisively. Greece, the birthplace of democracy will send a resounding democratic response to Europe and the world. I am personally committed to respect the outcome of your democratic choice, whatever that is. And I’m absolutely confident that your choice will honor the history of our country and send a message of dignity to the world.

In these critical moments, we all have to remember that Europe is the common home of peoples. That in Europe there are no owners and guests. Greece is and will remain an integral part of Europe and Europe is an integral part of Greece. But without democracy, Europe will be a Europe without identity and without a compass. I invite you all to display national unity and calm in order to take the right decisions. For us, for future generations, for the history of the Greeks. For the sovereignty and dignity of our people.

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Still no debt relief proposed, though troika has knpwn all along that would break any deal. Not in good faith.

• Tsipras Calls Referendum on Greek Debt Deal for July 5 (Bloomberg)

Greek Prime Minister Alexis Tsipras called a referendum on the terms offered by creditors for the latest aid package, saying they’re seeking to humiliate the Greek people who must provide a democratic response. The vote will take place on July 5, Tsipras said in a televised address in the early hours of Saturday. A Greek government official said the country’s banks will open as normal on Monday and no capital controls are planned, asking not to be identified in line with policy. Tsipras said that German Chancellor Angela Merkel and European Central Bank chief Mario Draghi have been informed of the plan, and he’ll request an extension of Greece’s existing bailout, due to end June 30, by a few days to permit the vote. Further details weren’t immediately clear.

Later on Saturday, European finance ministers were due to discuss details of their latest proposal, which would unlock €15.5 billion and extend Greece’s program through November, in return for a commitment to pension cuts and higher taxes that Tsipras opposes. While German Chancellor Angela Merkel touted the five-month bailout extension as “very generous,” Tsipras compared its terms to an “ultimatum” and “blackmail.” It doesn’t include the debt relief that his government seeks.

Tsipras came to power with a mandate to end the austerity imposed by Greece’s creditors while keeping the country in the euro. By calling a referendum on the latest EU offer, his government “will argue that it does not have the mandate to sign it without consulting the Greek people,” said Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics in Washington. “I am convinced that such a referendum would be comfortably won,” he said. “However, it will be risky as the uncertainty is likely to see deposits flee and deposit controls imposed until the result.” Failure to reach a Greek deal also puts at risk a payment due June 30 to the International Monetary Fund.

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Must read.

• An Alternative Version Of How The Greek Crisis Could Have Played Out (Whelan)

The Grexit scenario relies crucially on the Eurozone not having a proper lender of last resort or a functioning banking union. It is easy to imagine an alternative scenario to the current one. Consider the following alternative version of how the Greek crisis could have played out. As tension builds up in Greece prior to the Greek election in early 2015, Mario Draghi assures depositors in Greece that the ECB has fully tested the Greek banks and they do not have capital shortfalls. For this reason, their money is safe. Draghi announces that the ECB will thus provide full support to the Greek banks even if the government defaults on its debts, subject to those banks remaining solvent.

Eurozone governments agree that, should Greek banks require recapitalisation to maintain solvency, the European Stabilisation Mechanism (ESM) will provide the capital in return for an ownership stake in the banks. Provided with assurances of liquidity and solvency support, there is no bank run as Greek citizens believe there banking system is safe even if the government’s negotiations with creditors go badly. The ECB stays out of the negotiations for a new creditor deal for Greece (because they are not a political organisation and are not involved in directly loaning money to the government) and its officials assure everyone that the integrity of the common currency is in no way at stake. There are no legal impediments to this scenario.

Despite the constant blather from ECB officials about how it is constantly constrained by its own persnikety rules, it is well known that the ECB can stretch these rules pretty much as far as it likes. Supporting banks that you have deemed solvent is pretty standard central banking practice. So Draghi’s ECB could have provided full and unequivocal support to the Greek banks if they wished. They just chose not to. Similarly, procedures are in place for the ESM to invest directly in banks so a credible assurance of solvency could have been offered. Why did this not happen? Politics. European governments did not feel like providing assurances to Greek citizens about their banking system at the same time as their government was openly discussing the possibility of not paying back existing loans from European governments. Indeed, the ability to unleash the bank-driven Grexit mechanism has been the ace in the creditors’ pack all along.

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And you children too.

• “With The Euro, We’ll Forever Have A Noose Around Our Necks” (WSJ)

CHALKIDA, Greece—This small city once had a major cement plant, timber mill and ironworks. All are gone. It is trying to develop a tourism industry, but there is no money to upgrade hotels or roads. This week, as with most places in Greece, it is waiting for the country’s future to be decided in meeting rooms in Brussels. Many here are urging Prime Minister Alexis Tspiras to stand firm in his battle with Europe. “He’s doing the right thing,” said Yannis Liopides, a retired electrician in a textile factory, sitting in a square on Thursday afternoon. The square abuts a promenade fronting onto a crystalline sea. “If Tsipras doesn’t do anything, the only ones left are Golden Dawn,” he said, referring to the far-right party whose leaders are on trial for allegedly running a criminal organization.

Mr. Tsipras may be isolated in negotiations with his fellow European leaders, but he still has plenty of friends here. Many Greeks—and many well beyond Mr. Tsipras’s coterie on the far left—have adopted a mood of resistance, forged by a perception that the country’s European creditors are pushing their demands too far. Europe and the IMF “want a country that is a colony,” said Thanasis Stratis, a cement-plant worker laid off in September. “They want to squeeze every last drop from it.” Chalkida sits at the neck of a narrow sea channel that separates a long island from the Greek mainland. Outside the city, patchwork fields lead to pine forests and on to rocky mountains. Along the coast is a port and shipyards and the hulking cement plant where Mr. Stratis once worked in the accounting department.

A big wave of industrialization came to Chalkida in the 1970s, said Mayor Christos Pagonis. Deindustrialization began in the 1990s and accelerated. “It has created thousands of unemployed,” said Mr. Pagonis, who puts the unemployment rate at more than 30%. The cement plant shut in spring 2013. The economic crisis had all but stopped construction activity in Greece. The plant was incurring losses, said a spokeswoman for Lafarge SA, which owned the facility. At the time, the company estimated that closure would save it €18 million ($20 million) a year. Prevented by Greek labor law from firing the 236 workers en masse, the French industrial company instead has laid them off in small chunks of a dozen or so each month. Only a few remain on the payroll to guard the now-quiet plant, where dogs nap in the sun and eucalyptus trees flutter in the sharp breeze.

Mr. Stratis and a handful of other plant workers man a kiosk in the city center, where they post the number of days the plant has been closed (821, as of Thursday). The names of the laid-off workers are stapled to the wall on 16 laminated sheets. Elias Koukouras, the union president and one of the few still remaining on the payroll, said Greece should quit the eurozone. “The country needs to be rebuilt. With the euro, we’ll forever have a noose around our necks.”

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Wishful fencing.

• Creditors To Ringfence Greek Economy If Tsipras Refuses To Give In (Guardian)

Eurozone finance ministers and Greece’s creditors are to draw up plans for emergency measures to ringfence the country’s financial system unless the Greek prime minister, Alexis Tsipras, accepts the creditors’ terms for a five-month extension of Athens’ bailout on Saturday. Greece has its last chance to bow to the lenders’ terms following five months of stalemate at a meeting of eurozone finance ministers in Brussels on Saturday afternoon, the fifth such session in 10 days. Fearing a financial implosion and social unrest in the event of the negotiations collapsing, the ministers are scheduled to draw up plans on Saturday that could involve Greece imposing capital controls, including curbs on ATM withdrawals, to stem a flood of funds out of the ailing Greek financial system.

“Game over”, said senior EU officials engaged in back-to-back meetings and negotiations for the past 10 days, as the brinkmanship in the Greek negotiations reached breaking point. If no deal is agreed at the weekend, Greece will miss a €1.6bn payment due to the International Monetary Fund next Tuesday, along with access to emergency support from the ECB that is keeping the Greek banking system afloat. The creditors have prepared a new funding offer, providing a lifeline to keep Greece afloat until the end of November by extending the bailout by five months and supplying €15.5bn in loans tied to budget cuts and tax rises.

As a two-day EU leaders’ summit ended in Brussels on Friday, several senior officials said Tsipras had to make a choice between accepting the creditors’ ultimatum or embarking on a road that could take Greece out of the euro. The chances of saving Greece were put at 50-50. Angela Merkel, the German chancellor, who talked privately with the Greek leader in Brussels on Friday morning, urged him to go the “extra step” and accept what she described as “a very generous offer”. She ruled out any more emergency summits on the Greek crisis and delivered a pointed message to Tsipras by stressing how, during the Cyprus bailout two years ago, Cypriot banks had to be closed “for a few days”, forcing the political leaders to come to Brussels to deal with the creditor institutions and the Eurogroup finance ministers in order to resolve the issue.

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The refrendum trumps all this. Let’s see of Lagarde has the guts to get even more political.

• Why It Won’t Be a Default If Greece Misses IMF Payment Next Week (Bloomberg)

If Greece fails to pay the $1.7 billion it owes the IMF on Tuesday, it might be worse for the lender than for Greece. There’s a difference between missing a payment to bond investors, and to an official institution such as the IMF. Under the fund’s policy, countries that miss payments are deemed to be in “arrears.” The lender plans to stick to that language, rather than using the term “default,” IMF spokesman Gerry Rice said Thursday. The three major credit-rating companies have also said failure to pay the IMF wouldn’t constitute a formal default. So while the practical consequences for Greece may be temporary and small as long as the nation remains in talks with creditors for an accord, the blow to the IMF’s reputation as the world’s lender of last resort could be longer-lasting, making it tougher for the fund to win support for some future bailouts.

“There’s going to be severe scrutiny of interventions in countries that can either be considered wealthy in their own right or are part of a larger geo-economic structure like the euro zone,” Benn Steil, director of international economics at the Council on Foreign Relations in New York. Non-payment would land Greece in a club of countries in arrears that currently includes Zimbabwe, Sudan and Somalia. The three nations have combined overdue payments of about $1.8 billion. The bottom line is that a missed IMF payment probably won’t trigger a wave of defaults on other loans provided by the country’s other official creditors or debt held by private investors. “Non-payment of the IMF is unlikely to cause a catastrophic cascade of other liabilities,” said Zoso Davies, a credit strategist at Barclays Plc in London.

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Good to see some incisive words on the disaster that’s fast enveloping Merkel and her legacy. Can you save that legacy in the next 7 days?

• Is The Greek Crisis Too Big For Europe’s Most Powerful Woman? (Augstein)

nngela Merkel has recently been making much use of the old cliche, “Where there’s a will, there’s a way”. She has rolled it out to Alexis Tsipras and the Greek people, and David Cameron has heard it fall from her lips at least once – because, of course, she knows all too well that a Greek exit from the euro would hardly bolster Britain’s enthusiasm for the EU. The Greek crisis is the biggest challenge Merkel has had to face in the 10 years of her chancellorship. If Greece had to exit the single currency, Merkel would go down in history as the one politician who had the power to stop the EU’s decline but failed to do so. Some experts believe that to a large extent she contributed to the crisis: had she wholeheartedly backed a full bailout in 2010, the collapse of the Greek economy might have been averted.

Instead, Merkel involved the IMF– against the advice of her finance minister, Wolfgang Schäuble. Those well disposed towards the German chancellor say she brought in the IMF to prevent Greece from putting the European commission under too much pressure. But at least as important is the less flattering interpretation: that the most powerful woman in Europe (if not the world) shied away from taking sole responsibility for Greece’s fate because sharing it out among as many players as possible was a way of protecting herself from any blame. Unlike her mentor, the former German chancellor Helmut Kohl, Merkel did not embark on her political career with much instinctive passion for the European project.

During her childhood in the GDR, her mother’s praise of the west coloured Merkel’s view of the world – but the west then was the United States. Realising that the EU is worth every political effort has been something she has had to learn. Added to the reticence with which Merkel approaches any momentous decision, it is easy to see why the German government did so little to nip the Greek crisis in the bud. Acting in unison, the German leader and her finance minister, the IMF, the European commission and the European Central Bank forced an austerity programme on the Greek people based on the principles of neoliberal economics. In the former eastern bloc states such shock therapy had succeeded in returning struggling economies to growth. However, it generated immense hardship and created profound social divisions: the well-off benefited because investments became cheaper, but the bulk of the population suffered.

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“We will not accept the proposal, as we said, we were waiting to bring us another proposal tomorrow.”

• Tsipras Rejects Bailout Extension, “Won’t Be Blackmailed” (ZH)

Update: Protothema now says the Greek parliament will meet on Saturday and a referendum will be called as early as next week. Whether this is simply a last minute attempt to put pressure on EU finance ministers ahead of Saturday’s Eurogroup meeting remains to be seen, but one thing is for sure: Tsipras is playing a dangerous game with the ECB ahead of a difficult week that could very well see the imposition of capital controls. Update: Protothema is reporting that Tsipras has confided in a fellow EU official that if the country’s creditors insist on sticking to pension and VAT red lines and if Friday’s bailout extension proposal (which the Greek government apparently views as a patronizing stopgap) is the troika’s final offer, he is prepared to call for snap elections. Via Protothema (Google translated):

“The dramatic developments of the last few hours, following the government’s move to reject the proposal of the creditors may conceal preparation for use of the popular verdict, a decision which is expected to be finalized in the next few hours if the lenders do not move from its rigid positions. According secure information protothema.gr, a few hours ago he Prime Minister Alexis Tsipras European leader confided in Eurozone member country adjacent friendly in Greece that the data are up to this moment is ready even to call early elections. This revelation of thought by the Greek prime minister to the foreign leader can be interpreted in two ways: Either Mr. Tsipras is ready for “plan B” if tomorrow the negotiation fails or leaked deliberately in order to exert indirect pressure on lenders to mitigate their requirements.

Upon completion of the meeting Mr. Tsipras with Angela Merkel and Francois Hollande, the Greek side revealed that the Prime Minister pointed out to the leaders of Germany and France that he does not understand why the institutions insist on so hard measures. The prime minister insisted his decision to reject the proposal of the creditors for a five-month extension of the existing agreement with a funding of €15.5 billions. “The proposal does not cover us, because the financial part of barely meets the needs for payment of installments to the lenders, not help anywhere else the economy,” emphasized a close associate of Alexis Tsipras and adds: “We will not accept the proposal, as we said, we were waiting to bring us another proposal tomorrow.”

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And then there’s this.

• Paul Craig Roberts: Greek Government May Be Assassinated If They Pivot East (KWN)

The Greek people and the Greek government have before them the unique opportunity to prevent World War III. All the Greek government needs to do, if the Greek people will get behind the government, is to default on the loans, resign from the EU and from NATO, and accept the deal that the Russians have offered them This would begin the unraveling of NATO. Very quickly Spain and Italy would follow. So southern Europe would desert NATO and so would Austria, Hungary and the Czech Republic. NATO is the mechanism that Washington uses to cause conflict with Russia. So as the EU and NATO unravel, the ability of Washington to produce this conflict disappears. The Greek government understands that what is being imposed on Greece is not workable.

Since the (implementation of) austerity the Greek economy has declined by 27%. That’s a depression. And they keep hoping that the Germans wake up one day and realize that austerity is not the way you cure debt, and that the Greek government cannot agree to conditions that drive the Greek population into the ground. They (the troika) are talking about (a) genocide (of the Greek population). The Russians understand that Greece is being plundered by the West and met with the leader of Greece and offered him a deal. They said: “We’ll finance you. But not to pay off the German and Dutch banks, the New York hedge funds or the IMF”. [..]

The troika has no interest in the facts of the matter. They have another agenda that we already discussed. And the Greek government has to see that there is no interest on the part of the troika to resolve the issue. That does suggest they understand that the real solution is not open to them. That they will not be permitted to leave the EU and NATO and make this deal with the Russians. I wouldn’t be surprised if they have simply been told, ‘You can make a good show of it, but if you leave (the EU,) you are dead.’

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Don’t think this is Jim’s strongest field.

• There Will Be No “Grexit” (Jim Rickards)

Let me spend a minute on what I call the game theoretic approach. It will show why this scenario is unlikely. Europe would like to tell Greece to just put up or shut up. And Greece would like to tell Europe that they’re not going to put up with any more austerity. But what you have to do is you have to think two or three moves ahead. You have to say, “What would that actually mean? How will that actually play out? If one side acts that way, what does it mean for their constituency? Or other people — will the rest of the European Union or, for that matter, Austrian, Dutch, or German citizens be on the receiving end of any bad consequences?” Some analysts claim “Greece leaving the euro is no big deal.” I couldn’t disagree more.

Think of such a situation three steps ahead from the Institutions’ perspective. It is true that Greece is not a big part of the world economy. It is true that if Greece’s GDP disappeared, that, by itself, it wouldn’t make that large of an impact on the world. But that’s not the danger. The danger is contagion. The danger is that dominos that start falling. Going back to 2007, 2008, I remember when JPMorgan rescued Bear Stearns in March 2008. Everyone said, “The crisis is over.” Then Fannie and Freddie were rescued in July of 2008, and everybody said, “The crisis is over.” And I kept looking at the situation and saying, “This crisis is not over. These are dominoes that are falling. Each one’s hitting the next one and taking the crisis further. We don’t have resolution.”

As I expected, Lehman Brothers was next, and then AIG behind that. Then we saw how bad things got between October of 2008 and the stock market bottom in March 2009 when investors lost 30 to 50 percent of their net worth on that market decline. Not just stocks, but real estate and other assets across the board. So I see these dominos falling if Greece goes. It’s not about Greece — it’s about Spain, Italy, Portugal, Ireland. It’s about the whole eurozone. It’s about confidence. That doesn’t mean that if Greece quits the euro, that the next day Italy says, “Oh, we’re quitting too.” I’m not saying that. What I’m saying is that markets will do the job for them.

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“This artificial construct foisted on a European public by a political elite far less idealistic than it pretended is wearing out its welcome.”

• Greece Will Survive, But Will The Euro Or The EU? (MarketWatch)

Whatever happens with the bailout talks, the one certain thing is that Greece will survive, in or outside the eurozone. One of the most beautiful countries in the world in an incredibly strategic location, it will remain a world-class tourist destination and a sought-after ally. In the past century alone, the country has survived Nazi occupation, civil war, military dictatorship, and decades of a political class riven with corruption. It will survive European Union’s austerity policies, or Grexit, or default. So don’t cry for Greece — the country has been there for millennia and it’s not going anywhere. What is far less certain is whether the euro and the EU will survive. This artificial construct foisted on a European public by a political elite far less idealistic than it pretended is wearing out its welcome.

With its bloated and corrupt bureaucracy in Brussels, the craven submission of its political leaders to a dominant reunified Germany, its increasingly obvious disrespect for democratic principles, the EU has strayed far from the founders’ concept of a free-trade zone designed to contain a defeated Germany. It is not just about Greece — or Portugal, which MarketWatch columnist Matthew Lynn identified as the next country to fall, or Spain, or Italy — but about the whole concept of political and economic integration across the entire continent, the so-called “European project.” It is difficult to see how Britain can retreat from David Cameron’s rejection of the “ever closer union” enshrined in the EU treaties as he seeks to renegotiate the terms of his country’s membership.

And without this goal — or without Britain — how can the EU hope for anything but sliding back into a loose trade confederation? The British are so done with the EU, as the Greek debacle confirms all their worst fears about the ever closer union and the joint currency. Last week, former Chancellor of the Exchequer Norman Lamont celebrated his decision in 1991 to opt out of the euro in an op-ed titled “The euro was doomed from the start.” “The creation of the euro has been an error of historic dimensions and done great harm to the EU,” Lamont wrote in The Telegraph. The early decades of European integration helped bring prosperity to Europe, Lamont continued, as rich and poor countries alike benefited from lower tariffs and increased internal trade.

“Britain is extremely fortunate that it is not at the ‘heart of Europe,’” this Conservative politician wrote, “but it still needs a real, robust renegotiation to make sure it is protected against Europe’s dangerous dreams and visions.” Telegraph columnist Ambrose Evans-Pritchard, a longtime opponent of monetary union, was even less measured in his comments on the bullying tactics employed against Greece by the EU, the ECB and the IMF. “Rarely in modern times have we witnessed such a display of petulance and bad judgment by those supposed to be in charge of global financial stability, and by those who set the tone for the Western world,” he railed in a column last week.

He took particular umbrage at the report from the Greek central bank — a component after all of the European System of Central Banks — that undermined the government’s negotiating position by warning that failure to reach a deal could lead to an “uncontrollable crisis.” The report, as it no doubt was intended to do, drove capital flight out of Greece to a new level, an unconscionable act of sabotage, Evans-Pritchard felt, by an institution that is supposed to be a “guardian of financial stability.” “If we want to date the moment when the Atlantic liberal order lost its authority — and when the European Project ceased to be a motivating historic force — this may well be it,” he concluded.

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The new normal doesn’t look very solid. If the recovery must be borrowed, then where are we?

• Euro-Area Bank Lending Grows at Fastest Pace Since February 2012 (Bloomberg)

Euro-area banks expanded lending at the fastest pace in more than three years in a sign that credit is starting to support the region’s recovery. Bank loans to companies and households increased 0.5% in May from a year earlier, the most since February 2012, ECB data showed on Friday. Loans posted annual declines every month from May 2012 until February 2015. The ECB has deployed a range of unconventional tools to promote lending, including targeted long-term loans to banks and government-bond purchases that cut market borrowing costs. After deleveraging since the financial crisis, banks are showing an increasing appetite for supplying credit to the region’s fragile recovery.

“The lending aggregates to the real economy still have ample scope to improve in the months ahead, so financial conditions should support growth,” said Colin Bermingham, an economist at BNP Paribas SA in London. In June, euro-area banks took up almost €74 billion of targeted central-bank loans, known as TLTROs, that they can access if they increase lending to companies and households. Since the start of the program last year, the ECB has handed out €384 billion in total. The ECB’s measures have contributed to “more favorable borrowing conditions for firms and households,” ECB President Mario Draghi said in a press conference on June 3. “The effects of these measures are working their way through to the economy and are contributing to economic growth, a reduction in economic slack, and money and credit expansion.”

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Monday will be interesting.

• China Politburo Opines On Market Crash: “Black Friday Massacre” (Zero Hedge)

[..] as Xinhua reports (via Google Translate): Shanghai and Shenzhen stock markets plunged more than 7% today fall 4200, over 1500 stocks daily limit. Will this “roller coaster” market stop there? Will history continue to repeat itself? How much further will it fall after the massacre on the A-share stock market day and after. In this rampant speculation, full of legends of the stock market wealth, wealth and opportunities and risks coexist forever; while everyone wants to share the wealth with this situation in the stock market to make a profit, we hope investors can have more risk awareness!

Local analysts are much more concerned… “It’s a do-or-die moment for all investors,” said Dong Jun, a Shanghai-based hedge fund manager. “If retail investors become skittish now, panic selling will continue next week.” “I think this is a very dangerous moment,” says Anne Stevenson-Yang of J Capital Research, the Beijing-based research firm. She’s right. Not only are there the technical liquidity factors she cites, but anything could further rock confidence. “The tide is going to go out, and there’s going to be a lot of people without their swimming trunks on,” Ewen Cameron Watt, chief investment strategist at BlackRock — which oversees $4.8 trillion as the world’s biggest money manager — said in an interview on Bloomberg Television in London. “We’re seeing it deflating quite rapidly.”

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Unofficially, it has done nothing else.

• For The First Time Ever, QE Has Officially Failed (Zero Hedge)

Over two years ago in “Desperately Seeking $11.2 Trillion In Collateral”, Zero Hedge first warned that as a result of relentless central bank monetization of debt, liquidity in bond markets would decline at an ever faster pace even as, paradoxically, these same central banks added “phantom liquidity” (the topic of another post from two years ago) to equity markets in their attempt to artificially inflate stock prices to record levels without fundamental justification. Sure enough, with the usual 2-5 year delay, in 2015 the primary financial topic sweeping the mainstream financial media and all the “serious” pundits, is the collapse in bond market liquidity. Some, the more naive ones, blame regulation.

Others, such as iconic Citigroup credit strategist Matt King strategist explained – once again – that Dodd Frank is a negligible reason for the total plunge in bond market liquidity which is the result of, just as we warned, central bank intervention and the relentless ascent of algorithmic trading. But even as everyone is finally arguing about the cause of the plunging bond market liquidity and has no clue how to resolve this biggest nightmare for what once used to be the deepest and most liquidity of markets (at least not without forcing central banks to sell the trillions in bonds they hold, a step which would free up collateral but also result in the biggest market crash ever), a far more ominous question has reappeared. One which, as usual, we asked nearly three years ago: what happens when central banks soak up too much liquidity.

Our answer, at that point, QE will have officially failed, because instead of lowering bond yields – which as a reminder is the primary QE transmission mechanism, one which forces investor to reach not only for yield but also for risk in other asset classes such as equities – any incremental bond purchases will start raising yields as the adverse impact from the illiquidity “premium” surpasses the price appreciation benefit from frontrun central bank buying. Impossible, you say? Not only not impossible but in one country it just happened. Sweden, and as Bloomberg sarcastically notes, “It’s probably not what the Riksbank expected.”

What is “it”? Precisely what we said would happen three years ago: Quantitative easing is supposed to drive down longer-dated yields. But as investors obsess over market depth, the Riksbank’s bond purchases are undermining liquidity and driving Swedish yields higher. The financial conditions — the currency and the bond yields — are moving in the wrong direction,” Roger Josefsson, chief economist at Danske Bank A/S in Stockholm, said by phone. The assumption is that “the Riksbank wants yields to go down and the krona to weaken, but it’s been the opposite direction recently. That should pose a problem.”

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This should be a huge, widespread project all over Europe. Greece and Italy!

• Dutch City Utrecht To Try Out Universal, Unconditional ‘Basic Income’ (Ind.)

The Dutch city of Utrecht will start an experiment which hopes to determine whether society works effectively with universal, unconditional income introduced. The city has paired up with the local university to establish whether the concept of ‘basic income’ can work in real life, and plans to begin the experiment at the end of the summer holidays. Basic income is a universal, unconditional form of payment to individuals, which covers their living costs. The concept is to allow people to choose to work more flexible hours in a less regimented society, allowing more time for care, volunteering and study. University College Utrecht has paired with the city to place people on welfare on a living income, to see if a system of welfare without requirements will be successful.

The Netherlands as a country is no stranger to less traditional work environments – it has the highest proportion of part time workers in the EU, 46.1%. However, Utrecht’s experiment with welfare is expected to be the first of its kind in the country. Alderman for Work and Income Victor Everhardt told DeStad Utrecht: “One group is will have compensation and consideration for an allowance, another group with a basic income without rules and of course a control group which adhere to the current rules.” “Our data shows that less than 1.5% abuse the welfare, but, before we get into all kinds of principled debate about whether we should or should not enter, we need to first examine if basic income even really works. ”

What happens if someone gets a monthly amount without rules and controls? Will someone be sitting passively at home or do people develop themselves and provide a meaningful contribution to our society?” The city is also planning to talk to other municipalities about setting up similar experiments, including Nijmegen, Wageningen, Tilburg and Groningen, awaiting permission from The Hague in order to do so.

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Don’t believe the hype.

• Half Of Europe’s Electricity Set To Be From Renewables By 2030 (Guardian)

Europe will likely get more than half of its electricity from renewable sources by the end of the next decade if EU countries meet their climate pledges, according to a draft commission paper. A planned overhaul of the continent’s electricity grids will now need to be sped up, says the leaked text, seen by the Guardian. “Reaching the European Union 2030 energy and climate objectives means the share of renewables is likely to reach 50% of installed electricity capacity,” says the consultation paper, due to be published on 15 July. “This means that changes to the electricity system in favour of decarbonisation will have to come even faster.”

The EU has set itself a goal of cutting emissions 40% on 1990 levels by 2030, and an aspiration for a 27% share for renewables across Europe’s full energy mix, which includes sectors such as transport, agriculture and buildings that do not necessarily rely on electricity. Around a quarter of Europe’s electricity currently comes from renewable sources. Oliver Joy, a spokesman for the European Wind Energy Association welcomed the draft text but noted the 27% goal for 2030 was non-binding, and some countries were looking likely to even miss an earlier goal, for 2020, that is binding. “Even with a binding provision, we are seeing the Netherlands, UK and France potentially missing their 2020 target [to source a fifth of energy provision from renewables].”

Joy called for the commission to deliver a governance system for renewables that prevented slacker states from hiding behind the more fast-moving ones. Downing Street would almost certainly resist more stringent oversight from Brussels on renewable energy. Other measures put up for discussion in the paper could be an anathema to the government’s eurosceptic backbenchers.

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