Byron On the streets after a New York blizzard 1899
The world’s oldest central bank has ventured into uncharted territory. Last week, Sweden’s Riksbank slashed its main policy rate into negative territory. In doing so, it became the 14th central bank to ease monetary policy so far this year, but the first to actually take its “repo rate” below zero to -0.1pc. This means Sweden is actually charging its banks to lend money. In Britain, the same interest rate currently stands at a historic low of 0.5pc, but could well be cut further if Mark Carney is to be believed. Switzerland and Denmark have already sent their deposit rates to -0.75pc to prevent currency appreciation and defeat deflation.
Faced with the twins threats of deflation and economic stagnation, monetary policymakers are reaching for their interest rate levers and digital money-printing tools in a bid to stave off recessions and debt deflationary dynamics. In energy exporting nations such as Russia, the collapse in oil prices has led to a flight of capital forcing central banks into massive foreign exchange intervention and dramatic rate hikes to prop up the value of their currencies. Loose monetary policy, coupled with the much anticipated tightening from the world’s largest economy later this year, is provoking fears that central banks are losing their grip on the global economy. Here’s a breakdown of the consequences that could emerge from their actions. “Competitive easing” among central banks has stoked fears of a return of international currency wars.
The announcement of unprecedented monetary stimulus from the ECB and the Bank of Japan has led to the respective weakening of their exchange rates and prompted dramatic responses from the smaller central bank players. In Europe, the Swiss, Danish and Swedish authorities have all moved to impose punitive negative interest rates in a bid to prevent their currencies from rocketing in value. The Swiss kicked off this round of devaluation with a shock decision to abandon its de facto peg with the euro in January. The Riksbank has gone further and will begin its own round of bond-buying in response to the ECB’s moves. Denmark meanwhile, has been forced to lower rates four times in three weeks and purchase €32bn in foreign exchange to prevent the krone from developing into a safe haven for investors. This co-ordinated central bank action is reviving the “ghosts of the 1930s”, according to investment bank Morgan Stanley.
“If it becomes at all clear that the ECB is struggling to buy a sufficient quantity of bonds, it makes it even less likely that anybody will want to sell..”
As if Mario Draghi doesn’t have enough problems already. Europe is trying to avert a crippling bout of deflation. Germany wants austerity and less stimulus. And Greece is demanding to renegotiate the terms of its bailout, a move that has revived the risk of the euro area splintering. Now, there’s yet another: the European Central Bank president’s unprecedented plan to jolt the euro zone out of its economic malaise by buying €1.1 trillion of bonds may be hamstrung, even before it starts. The reason? A dearth of new supply and a lack of willing sellers. Morgan Stanley estimates net issuance from governments will be negative for the first time, once the ECB’s plan is taken into account.
The resulting scarcity makes hoarding of the safest euro-area securities by banks, insurers and pension funds all but inevitable, hindering ECB efforts to buy in 19 months roughly the same proportion of those bonds as the Federal Reserve accumulated in almost six years of Treasuries purchases. “If it becomes at all clear that the ECB is struggling to buy a sufficient quantity of bonds, it makes it even less likely that anybody will want to sell,” said Michael Riddell at M&G, who also said he’d been telling clients the ECB may have difficulty with its purchases. “This would scupper their attempts to boost inflation,” he said. The program has been carefully calibrated to take account of the size of different markets, an ECB spokesman said by e-mail on Monday.
The central bank is not at all worried about its success, and operational details will be regularly reassessed, the spokesman said. While the ECB faces economic risks akin to those in the U.S. when the Fed started quantitative easing, global debt trading has evolved. A tighter balance between supply and demand has pushed up prices, helping send rates in Europe to record lows and leaving €1.2 trillion of the region’s sovereign bonds yielding less than zero. That may make holders of the securities more reluctant to sell. “We have institutional investors, which are desperately looking for yield,” said Franck Dixmier at Allianz Global, a unit of Europe’s biggest insurer. “They will not sell. Because what really matters for a pension fund or an insurance company is the yield at the time you purchase the bond – and there’s the question of reinvestment for those investors.”
Talks between Greece and its eurozone creditors collapsed in disarray on Monday night, heightening concerns that the country is edging closer to a disruptive exit from the eurozone. The breakdown of discussions in Brussels over the Greek bailout programme appeared to leave both sides as far apart as ever, although eurozone finance ministers said a last-ditch summit could be held on Friday. However, the Greek delegation was told in no uncertain terms that talks would recommence only if the country was willing to extend its bailout package, which carries a list of austerity measures that the new left-wing government in Athens has vowed to pare back. Effectively presenting Greece with an ultimatum, the eurogroup of eurozone finance ministers said Athens had until Friday to agree to maintain the current bailout under the auspices of the Troika – something that Greece has said is unacceptable.
Greece’s finance minister, Yanis Varoufakis, made it clear in the acrimonious discussions in Brussels on Monday that Greece would not accept prolonging the bail out for six months unless the other 18 members of the eurozone agreed to water down the austerity conditions attached to the deal. Varoufakis insisted that an “honourable agreement” was within reach for Greece, despite voicing strong criticism of unspecified advocates of Greece’s current bailout, who were playing “games with the future of Europe”. “We are going to meet half way during the next couple of days,” he said. “Europe will do the usual trick, it will pull a good agreement, an honourable agreement, out of what appears to be an impasse.”
The Syriza-led coalition in Athens is convinced that, despite the tough language used by Germany, it can secure more favourable terms by holding out until closer to the 28 February deadline when its current €172bn bailout expires. But it ran the risk on Monday night of infuriating other eurozone members through its negotiating stance and by leaking the details of a draft agreement while the meeting was going on. A Greek official described the draft agreement as “unacceptable” because it restated that Greece must continue in its current bailout programme. “The Greek authorities have indicated that they intend to successfully conclude the programme, taking into account the new government’s plans,” stated a phrase in the rejected communique, which had been crossed out.
Jeroen Dijsselbloem, the Dutch finance minister who chairs the eurogroup, said there had been disappointment about the failure to find common ground. But he insisted that the Greek government had to make the next move by asking to continue in the bailout programme. “The next step has to come from the Greek authorities; they have to make up their mind.” He said eurozone ministers were likely to meet on Friday, but this would be the last chance to get an agreement.
“..carrying out the bailout programme was off the table at the summit. Those who bring this back are wasting their time.”
The latest meeting between Greece and its international lenders over the debt-stricken country’s €172bn bailout ended in disarray on Monday, as the eurozone’s offer was rejected as “absurd” and “unacceptable”. Greece has demanded an end to the EU and IMF’s “adjustment” programme of economic reforms and austerity agreed three years ago in return for a bailout. Eurozone finance ministers met in Brussels on Monday hoping to reach a compromise before the bailout expires on February 28. However, Greek politicians reacted with anger to a draft statement tabled by Jeroen Dijsselbloem, the Dutch finance minister who chairs meetings of eurozone finance ministers. The communique committed Greece’s far-Left Syriza government to “successfully conclude” the EU-IMF programme.
“The Greek authorities gave their firm commitment to refrain from unilateral action and will work in close agreement with its European and international partners, especially in the field of tax policy, privatisation, labour market reforms, financial sector and pensions,” the draft stated. “The Greek authorities committed to ensure appropriate primary fiscal surpluses and financing in order to guarantee debt sustainability in line wit the targets agreed on the November 2012 Eurogroup statement. Moreover, any new measures should be funded, and not endanger financial stability. “On this basis the Greek authorities expressed their intention to request a six-month technical extension of the current programme as an interemediate step. This would bridge the time for the Greek authorities and the eurogroup to work on a follow up arrangement.”
Greece’s government blasted the document, with one source telling Reuters that “carrying out the bailout programme was off the table at the summit. Those who bring this back are wasting their time.” To replace the bailout, Greece is seeking a “bridging arrangement”, worth up to €21bn, that would allow the government in Athens breathing space to implement radical economic reforms. Wolfgang Schaeuble, the German finance minister, accused the Greek government of “behaving irresponsibly” by threatening to tear up agreements made with the eurozone in return for access to the loans which are all that stand between Greece and financial collapse. “It seems like we have no results so far. I’m quite sceptical. The Greek government has not moved, apparently,” he said.
“He cited what he called a “splendid” proposal from the European Commission by which Greece would get four to six months credit in return for a freeze on its anti-austerity policies..”
Talks between Greece and euro zone finance ministers over the country’s debt crisis broke down on Monday when Athens rejected a proposal to request a six-month extension of its international bailout package as “unacceptable”. The unexpectedly rapid collapse raised doubts about Greece’s future in the single currency area after a new leftist-led government vowed to scrap the €240 billion bailout, reverse austerity policies and end cooperation with EU/IMF inspectors. Dutch Finance Minister Jeroen Dijsselbloem, who chaired the meeting, said Athens had until Friday to request an extension, otherwise the bailout would expire at the end of the month. The Greek state and its banks would then face a looming cash crunch. How long Greece can keep itself afloat without foreign support is uncertain.
The euro fell against the dollar after the talks broke up but with Wall Street closed for a holiday, the full force of any market reaction may only be felt on Tuesday. The European Central Bank will decide on Wednesday whether to maintain emergency lending to Greek banks that are bleeding deposits at an estimated rate of €2 billion a week. The state faces some heavy loan repayments in March. Seemingly determined not to be browbeaten by a chorus of EU ministers intoning that he needed to swallow Greek pride and come back to ask for the extension, Finance Minister Yanis Varoufakis, a left-wing academic economist, voiced confidence that a deal on different terms was within reach within days.
“I have no doubt that, within the next 48 hours Europe, is going to come together and we shall find the phrasing that is necessary so that we can submit it and move on to do the real work that is necessary,” Varoufakis told a news conference, warning that the language of ultimatum never worked in Europe. He cited what he called a “splendid” proposal from the European Commission by which Greece would get four to six months credit in return for a freeze on its anti-austerity policies. He said he had been ready to sign that – but that Dijsselbloem had then presented a different, and “highly problematic”, deal. A draft of what Dijsselbloem proposed, swiftly leaked by furious Greek officials, spoke of Athens extending and abiding by its “current programme” – anathema to a government which, as Varoufakis said, was elected last month to scrap the package.
“In the corridors of the European commission, officials will tell anyone interested that Greece long ago relinquished its autonomy.”
Rarely have European finance ministers given such a clear statement. To the request from Greece to scrap its toxic austerity programme, the answer was no. Jeroen Dijsselbloem, the Dutch finance minister, is not the worst when it comes to convoluted euro-speak. Still, he has rarely delivered such a pithy response. Two weeks of shuttle diplomacy is the blink of an eye in Brussels. But that is all it took for Athens to be told its demand for an alternative bailout, with more relaxed rules, was a dream. The eurogroup said the troika programme must continue. As a concession it agreed the programme could be extended, and it would also allow for some elements to be up for discussion. But an extension must bring with it a commitment to carry through the majority of the reforms attached to the programme.
And any dropping of certain measures – such as a squeeze on public sector employment – must be matched by an agreement to add other elements of austerity. In other words, the abandonment of one public sector cut simply brings with it an equally tough one in a different guise. Dijsselbloem gave Greek prime minister Alexis Tsipras until Thursday to buckle, with a view to holding an emergency eurogroup meeting on Friday to discuss surrender terms. Without a call from Tsipras, Dijsselbloem said the bailout would end on 28 February. From 1 March a new bailout could be debated, but the hint was clear – the terms would be just as tough. And let’s face it, the terms are for a full and total surrender.
Not only will Tsipras give up his economic project, he will effectively be telling the Greek people something many have felt since the first bailout in 2010 – that they are governed from Brussels, and how they vote is irrelevant. In the corridors of the European commission, officials will tell anyone interested that Greece long ago relinquished its autonomy. Such was the severity of its financial crash and the dysfunction in its economy, being run from Brussels was the only answer. For Tsipras to have other ideas was wholly naive. And when last week, after the first eurogroup meeting, he told finance minister Yanis Varoufakis to keep pushing for more and the dapper economics professor went public again with accusations of financial waterboarding, the Eurogroup was left with no alternative but to say no.
“The rallies show how exhausted Greek society is, how it’s a society on the brink.”
Christina Zografou wasn’t among the thousands of Athenians who gathered in Syntagma square on Sunday to support Prime Minister Alexis Tsipras. That’s not because the 21-year-old university student doesn’t support the efforts of his three-week-old government. Rather it’s because Zografou is more anxious than hopeful about what Tsipras will achieve. On Monday night, talks between Greece and its European creditors foundered after Tsipras’s government said the euro area’s proposal to extend existing bailout commitments was “absurd” and “unacceptable.” “I’m not optimistic this government won’t end up like the others; they aren’t prepared,” Zografou said. “The rallies show how exhausted Greek society is, how it’s a society on the brink.”
While opinion polls in Greece point to unprecedented support for the new government, they also show an undercurrent of concern. A Kapa survey of 1,015 Greeks published the day of the rally showed that hope was the overwhelming feeling chosen to describe Tsipras’s handling of the crisis since his election. The most prevalent feeling after that was anxiety. The rallies “place an even greater burden on the government to deliver a ’new deal’ for Greece,” said Spyros Economides, a professor at the London School of Economics. “If they don’t deliver, the goodwill generated among the electorate up to now could quickly be eroded.” Greece’s new anti-austerity government wants to exit the current bailout program, which it blames for the country’s economic hardships, and replace it with a new plan while obtaining bridge financing to avoid defaulting on its international debt.
The plan, which would include raising wages and reinstating government workers, is not getting much support from the country’s creditors. Germany, as the biggest country contributor to Greece’s €240 billion bailouts and the chief proponent of economic reform and budget cuts in return, insists that Tsipras’s government commit to an extension of its current rescue program, which expires Feb. 28. Without a deal, Greece could run out of money, forcing Tsipras to consider abandoning his promises to the electorate to prevent the country from leaving the single currency. In the weeks since Tsipras came to power and as European officials bear down on the new premier, the focus of conversations in Athens’s cafes, bars and sidewalks is all about what needs to be done and what can be done.
“Varoufakis said his government had been “happy” with a “splendid,” separate draft communique that was produced by European Economic Affairs Commissioner Pierre Moscovici before the meeting.”
European Commission President Jean-Claude Juncker’s 11th-hour effort to strike a deal with Greece on Monday was parried by euro-area finance ministers who sought to extend an austerity program in exchange for financial support. Talks in Brussels ended abruptly and Greek Finance Minister Yanis Varoufakis claimed a bait-and-switch, saying Juncker’s commission offered a path forward that finance ministers then refused to put on the table. Instead, Dutch Finance Minister Jeroen Dijsselbloem offered a different statement tying Greece to its current agreement. Varoufakis rejected that proposal out of hand, and the euro weakened on the impasse. Time is running out: The current aid agreement expires at the end of February.
Failure to reach an accord could see Greece stumble out of the euro, and while Europe’s defenses are stronger than when the country flirted with exit from the single currency three years ago, a departure could ultimately trigger a flight from risk, bank runs and a downturn in European demand. According to seven European officials with direct knowledge of the talks, the meeting quickly unraveled, sending the euro lower. Dijsselbloem, who leads the finance ministers’ group, eventually halted the proceedings, saying ministers could reconvene on Friday if there’s a breakthrough. “The next step has to come from the Greek authorities,” Dijsselbloem told reporters. “They have to make up their minds whether they will ask for an extension.”
Varoufakis said Greece had no choice but to refuse the statement on offer. “In the history of the European Union nothing good has ever come out of ultimatum,” he told reporters after the meeting. Greece is willing to extend the current aid program as long it’s done on the right terms, Varoufakis said. Prime Minister Alexis Tsipras’s government will now return to the bargaining table and “we are ready and willing to do whatever it takes to reach an honorable agreement over the next two days,” he said. [..] Varoufakis said his government had been “happy” with a “splendid,” separate draft communique that was produced by European Economic Affairs Commissioner Pierre Moscovici before the meeting.
Moscovici, speaking after the meeting, called on euro-area finance ministers to be “logical, not ideological” as negotiations continue. He urged Greece to request an extension and said concessions so far leave ample room for a deal. “We both agreed that it could be possible to keep 70% of the current program and to replace measures, but which have to be fully financed, up to 30%” of current requirements, Moscovici said. “30% is not a minor room for politics.”
“With no access to any source of financing, the insolvent state and its banks would have to start using a new currency, or a currency equivalent, as no economy can survive without cash.”
The standoff between Greece and its creditors on how to proceed on its bailout program risks triggering a simultaneous cash and credit crunch, which could drive the country out of the euro area. Here’s how a worst-case scenario could unfold: The Greek government, companies and lenders have all effectively lost access to international markets, due to the uncertainty over the country’s future. The current sources of liquidity are bailout funds from the euro-area nations, the currency bloc’s crisis fund, the IMF and the ECB’s Emergency Liquidity Assistance. Failure to strike a compromise means that these payments would cease. This means that the state would be unable to service its debt obligations, which stand at €22 billion this year, excluding treasury bills, according to the 2015 budget.
Greek aid talks in Brussels ended abruptly Monday. “If the ECB considers the talks to have stalled, there is a risk that it will suspend ELA, perhaps leaving Greece with no choice but to exit the euro zone,” Jennifer McKeown at Capital Economics said. Lack of access to bailout funds would also mean that the Greek state wouldn’t be able to repay its €15 billion outstanding of short-term debt held by the country’s lenders. At present, Greek banks continuously roll over bills, helping the government stay afloat. The ECB decision not to accept Greek bills as collateral for financing operations and accelerating deposit outflows are limiting the ability of banks to buy new bills.
With no access to any source of financing, the insolvent state and its banks would have to start using a new currency, or a currency equivalent, as no economy can survive without cash. This would be the start of a de-facto exit from the euro area, caused by Greece’s inability to deal with a stripping of liquidity worth as much as 96 billion euros, according to Bloomberg calculations below.
Britain gets nervous. It should offer to act as mediator.
The UK chancellor, George Osborne, has warned that Britain’s economic stability would be rocked if a deal cannot be reached on Greece’s bailout. Speaking on his way into the European Union ministers’ meeting on Tuesday morning, Osborne said: “We are reaching crunch time for Greece and the eurozone, and I’m here to urge all sides to reach an agreement, because the consequence of not having an agreement would be very severe for economic and financial stability.” He added: “What Britain really needs to see is competence not chaos.”
Talks between Greece and its eurozone creditors collapsed in disarray on Monday night, after Athens rejected a plan to prolong its bailout for six months. Jeroen Dijsselbloem, the chairman of eurozone finance ministers, said on Tuesday morning that eurozone ministers were ready to work with Greece to break the deadlock but insisted that the next move had to come from Athens. “I hope [Greece] will ask for an extension to the programme, and once they do that we can allow flexibility, they can put in their political priorities,” Dijsselbloem said as he arrived for the meeting. Analysts at Commerzbank said the chances of Greece leaving the eurozone were now as high as 50%.
After the eurozone finance ministers again failed to reach an agreement with Greece today, the euro membership of the country hangs in the balance.” Before yesterday’s failed meeting, Commerzbank rated the chances of Greece leaving the currency bloc at 25%.”
Greece is not on the official agenda of the meeting, but a further round of talks between Athens and its eurozone creditors is expected to be getting underway. Dijsselbloem has laid down a deadline of Friday for Greece to ask for an extension to its current bailout deal, which is due to expire on 28 February.
Truth to power. “I am writing this piece on the margins of a crucial negotiation with my country’s creditors — a negotiation the result of which may mark a generation..”
I am writing this piece on the margins of a crucial negotiation with my country’s creditors — a negotiation the result of which may mark a generation, and even prove a turning point for Europe’s unfolding experiment with monetary union. Game theorists analyze negotiations as if they were split-a-pie games involving selfish players. Because I spent many years during my previous life as an academic researching game theory, some commentators rushed to presume that as Greece’s new finance minister I was busily devising bluffs, stratagems and outside options, struggling to improve upon a weak hand. Nothing could be further from the truth. If anything, my game-theory background convinced me that it would be pure folly to think of the current deliberations between Greece and our partners as a bargaining game to be won or lost via bluffs and tactical subterfuge.
The trouble with game theory, as I used to tell my students, is that it takes for granted the players’ motives. In poker or blackjack this assumption is unproblematic. But in the current deliberations between our European partners and Greece’s new government, the whole point is to forge new motives. To fashion a fresh mind-set that transcends national divides, dissolves the creditor-debtor distinction in favor of a pan-European perspective, and places the common European good above petty politics, dogma that proves toxic if universalized, and an us-versus-them mind-set.
As finance minister of a small, fiscally stressed nation lacking its own central bank and seen by many of our partners as a problem debtor, I am convinced that we have one option only: to shun any temptation to treat this pivotal moment as an experiment in strategizing and, instead, to present honestly the facts concerning Greece’s social economy, table our proposals for regrowing Greece, explain why these are in Europe’s interest, and reveal the red lines beyond which logic and duty prevent us from going. The great difference between this government and previous Greek governments is twofold: We are determined to clash with mighty vested interests in order to reboot Greece and gain our partners’ trust. We are also determined not to be treated as a debt colony that should suffer what it must.
“Our country is literally being pushed under water. Just before we suffer an actual cardiac arrest, we are granted a momentary respite. Then we’re pushed back under water, and the whole thing starts again. My aim is to end this permanent terror of asphyxiation.”
SPIEGEL: Mr. Varoufakis, you have referred to the European Union’s bailout policy for Greece as “fiscal waterboarding.” What exactly do you mean by that?
Varoufakis: For the past five years, Greece has been subjected to austerity measures that it cannot, under any circumstances, meet. Our country is literally being pushed under water. Just before we suffer an actual cardiac arrest, we are granted a momentary respite. Then we’re pushed back under water, and the whole thing starts again. My aim is to end this permanent terror of asphyxiation.
SPIEGEL: Do you really think “waterboarding” is an appropriate metaphor for a rescue package?
Varoufakis: Well, it managed to get your attention, didn’t it? So it worked.
SPIEGEL: You are comparing a rescue package with a form of torture the CIA used on prisoners. But Greece was showered with money, not water.
Varoufakis: That money was used to bail out banks, especially banks in Germany and in France, to prevent them from taking losses.
SPIEGEL: Greece would have become insolvent long ago if it hadn’t received help.
Varoufakis: The truth of the matter is that 90% of that money never arrived in Greece.
SPIEGEL: Going back to your metaphor, who is the torturer that keeps pushing Greece under water?
Varoufakis: The troika of technocrats sent periodically to Greece to enforce an unenforceable program, technocrats representing the European Commission, the European Central Bank and the International Monetary Fund. I have nothing against these three institutions as such. However, they sent a cabal of technocrats to Greece to implement and monitor an entirely destructive program.
The parallel universe: “The problem is that Greece has lived beyond its means for a long time..” And built soupkitchens with all that money?
Germany’s Finance Minister Wolfgang Schaeuble said in a radio interview on Monday that he was not very optimistic that Greece and its euro zone partners would reach a debt agreement at a meeting in Brussels later in the day. Asked if the Eurogroup of euro zone finance ministers would find a solution for Greece’s debt problems, Schaeuble told Deutschlandfunk: “From what I’ve heard about the technical talks over the weekend, I’m very sceptical, but we will get a report today and then we’ll see.” Schaeuble said Germany did not want Greece ot leave the euro zone, but that the new government in Athens had to fulfil the core conditions of its bailout programme and that it was not about finding a compromise deal “just for the sake of a compromise”.
“The problem is that Greece has lived beyond its means for a long time and that nobody wants to give Greece money anymore without guarantees,” Schaeuble said, noting that Athens had to stick to agreed reforms to become competitive. Schaeuble added that the new Greek government was behaving “quite irresponsibly” right now and that it was no help to insult others who have supported the country in the past. A Greek leftist newspaper close to the ruling party in Athens published a cartoon last week which showed Schaeuble in a Nazi uniform. He is quoted saying “we insist on soap from your fat” and “we are discussing fertilizer from your ashes”, references to the fate of Jews in Nazi death camps. In a separate interview with German broadcaster ZDF, Austria’s finance minister Hans-Joerg Schelling said the new Greek government still appeared to be in “election mode not working mode”.
Bad to worse.
The average price of new homes in China’s 70 major cities fell 0.4% in January from a month ago, marking the ninth consecutive decline. Government data showed that prices in the cities of Beijing and Shanghai also fell more last month than they did in December on an annual basis. China’s once red-hot real estate market has been facing headwinds from a slowing economy and oversupply issues. Investors have been turning away from the market and investing in stocks. Home prices fell in 64 of the 70 cities tracked by the National Bureau of Statistics. On an annual basis, prices fell 5.1% in January – marking the fifth consecutive month that prices fell from a year ago.
The continuing slump comes despite a surprise interest rate cut by China’s central bank in November in an attempt to boost growth in the flagging economy. The world’s second-largest economy grew at its slowest pace in 24 years last year, missing its official target and putting pressure on the government to take measures to avoid a sharper downturn. Earlier this month, China’s central bank surprised markets once again by lowering banks’ reserve requirements to boost lending, which is expected to help the property sector. The rate cut was the first since May 2012, although there have been cuts for select small lenders.
“New home prices fell in 69 of 70 cities by from the year-ago period..”
New home prices fell in 69 of 70 cities by an average of 5.1% from the year-ago period, according to Reuters calculations based on fresh data from the National Bureau of Statistics (NBS) on Tuesday. The pace pips the 4.3% decline in December, which was the largest drop since the current data series began in 2011, according to the FT. Both Beijing and Shanghai clocked in steeper on-year price falls, of 3.2% and 4.2%, respectively, in January compared with the 2.7% and 3.7% respective declines seen in December. The People’s Bank of China slashed the reserve requirements of major banks – or the minimum amount of cash banks need to hold back from lending – last month. The move follows the central bank’s surprise interest rate cut in November.
After skyrocketing in recent years, China’s property prices have been cooling amid a glut of supply and as economic growth moderated. The housing sector contributes to about 15% of China’s economy. The world’s second-biggest economy slowed to 7.4% in 2014, the slowest rate in 24 years. “Since the beginning of last year we are already seeing a steady drop in housing prices across the board,” said David Ji, head of research, Greater China, at Knight Frank. “The problem that we have now is that the developers have two to five years of stock to clear. So until that has been cleared, prices aren’t going up any time soon,” he added.
The pain in the sector is being felt by property developers like Kaisa, which on Tuesday said its assets frozen by courts to protect its creditors have risen to more than $2 billion, sending its shares down nearly 10% in Hong Kong. The troubled developer said Monday its debts now exceed $10 billion, of which it may have to repay more than half this year, and that it was in discussions with creditors to restructure its borrowings urgently. Kaisa’s problems underscores the role the informal – or shadow – banking sector plays in the slumping property market. These nontraditional Chinese lenders, or investment vehicles known as trusts, have lent massive amounts to the sector following the Global Financial Crisis, resulting in the accumulation of ballooning debt.
This could cost US tech firms a fortune.
The U.S. National Security Agency has figured out how to hide spying software deep within hard drives made by Western Digital, Seagate, Toshiba and other top manufacturers, giving the agency the means to eavesdrop on the majority of the world’s computers, according to cyber researchers and former operatives. That long-sought and closely guarded ability was part of a cluster of spying programs discovered by Kaspersky Lab, the Moscow-based security software maker that has exposed a series of Western cyberespionage operations. Kaspersky said it found personal computers in 30 countries infected with one or more of the spying programs, with the most infections seen in Iran, followed by Russia, Pakistan, Afghanistan, China, Mali, Syria, Yemen and Algeria.
The targets included government and military institutions, telecommunication companies, banks, energy companies, nuclear researchers, media, and Islamic activists, Kaspersky said. The firm declined to publicly name the country behind the spying campaign, but said it was closely linked to Stuxnet, the NSA-led cyberweapon that was used to attack Iran’s uranium enrichment facility. The NSA is the agency responsible for gathering electronic intelligence on behalf of the United States. A former NSA employee told Reuters that Kaspersky’s analysis was correct, and that people still in the intelligence agency valued these spying programs as highly as Stuxnet. Another former intelligence operative confirmed that the NSA had developed the prized technique of concealing spyware in hard drives, but said he did not know which spy efforts relied on it.
Kaspersky published the technical details of its research on Monday, which should help infected institutions detect the spying programs, some of which trace back as far as 2001. The disclosure could further hurt the NSA’s surveillance abilities, already damaged by massive leaks by former contractor Edward Snowden. Snowden’s revelations have hurt the United States’ relations with some allies and slowed the sales of U.S. technology products abroad. The exposure of these new spying tools could lead to greater backlash against Western technology, particularly in countries such as China, which is already drafting regulations that would require most bank technology suppliers to proffer copies of their software code for inspection.
Can it get any crazier?
The European Union placed more Ukrainians and Russians under sanctions on Monday, accusing them of “undermining or threatening” Ukraine’s independence. The new list places “restrictive measures” on 28 people or organizations, including Russia’s First Deputy Minister of Defense, Arkady Bakhin. Also on the list was Deputy Minister of Defense Anatoly Antonov and Andrei Kartapolov, the deputy chief of the general staff of the Russian armed forces. The sanctions are due to come into effect immediately. The new penalties are part of an ongoing program by the European Union, but come just days after a cease-fire was announced in Ukraine. Military conflict with Russian separatists has been one of the biggest factors weighing on markets in recent months, but despite the cease-fire some of the rebels have not observed the truce, according to reports.
The Russian Foreign Ministry said that Moscow would “adequately” respond to the sanctions, according to Reuters. It added that the measures contradicted common sense and would not result in a solution to the conflict in eastern Ukraine. Ukraine was thrown into turmoil at the start of last year, after protests between anti-government and pro-EU demonstrators led to a change of leadership. Tensions on the streets of Kiev turned into military conflicts on the eastern border, with Moscow accused of aiding pro-Kremlin rebels in the region. Moscow continues to deny the involvement of Russian troops in the conflict.
Despite these denials, the tensions have hit Russia’s economy hard. It is expected to fall into a recession in the coming year on the back of international economic sanctions from both the U.S. and Europe, combined with a dramatic fall in oil prices. The Russian ruble fell sharply against the dollar after the news of more sanctions Monday, despite appreciating much of the morning session. The economic sanctions now mean Western asset freezes and travel bans for yet more Ukrainians and Russians. As well as commanders of armed separatist group in the region, the list also includes Iosif Kobzon, a Russian singer, who the EU has accused of making statements supporting separatists and voting in favor of the annexation of Crimea.
“Along came that unlikely man of peace, Russia’s Vlad Putin, who charted a diplomatic course out of the Syria mess for the bumbling White House which had talked itself into corner.”
Has Russia’s Vladimir Putin pulled Barack Obama’s chestnuts out of the fire for a second time? Will the shaky cease-fire in Ukraine that began this weekend hold up and end a conflict that was threatening a nuclear war between the United States and Russia? The answer to the first question is yes. Remember back in 2013 when the Obama White House was threatening to attack Syria over allegations it was using poison gas? As it turned out, the UN found it was the US-backed Syrian rebels who were likely to have used chemical weapons rather than the Damascus regime. Noble Peace Prize Winner Obama and his lady strategists almost got the US into a war in Syria that could have led to direct clashes with Russia, which was backing the Damascus government.
Along came that unlikely man of peace, Russia’s Vlad Putin, who charted a diplomatic course out of the Syria mess for the bumbling White House which had talked itself into corner. Now, it seems the much-reviled Russian leader is doing it again. The cease-fire agreement forged in Minsk late last week may end or at least de-escalate the conflict in eastern Ukraine that was drawing the US and Russia into a direct confrontation. Whether the cease-fire/truce holds up is uncertain but the absolute necessity of a negotiated settlement over the Ukraine crisis could not be more clear. Nuclear-armed powers must never, ever clash militarily. President Putin proposed the solution over a year ago: autonomy in a federal state and the right to speak Russian for eastern Ukraine.
Most important, Ukraine would never join NATO. Doing so would have put Russia’s vital naval base at Sevastopol under NATO control – as unthinkable for Moscow as for the US to see Norfolk, Virginia or Houston under Russian or Chinese control. Ukraine’s fierce nationalists and their US backers rejected Putin’s plan and set about trying to impose Kiev’s total control by military force. It’s ironic that the US has given total support to Kiev’s war against what it calls “rebels” and “terrorists” while arming and financing Syria’s Sunni rebels whom Damascus brands “rebels” and “terrorists.”
A peace deal comes not an hour too soon. A full battalion of US Army troops is scheduled to arrive in western Ukraine to “train” government troops and lead them into battle. This hare-brained scheme has a potential clash with Russia written all over it. Imagine if Russian troops arrived outside Montreal to train Canadian forces. The US has no strategic interests in Ukraine, which was part of the Soviet Union/Russia until 1991. The whole crazy scheme was promoted by neocons as a way of undermining Russia and putting Ukraine into their ideological orbit.
“Russia is a great country, a great people, with which Europe has many common strategic interests. We need to talk with Russia..”
The leader of the French National Front Party, Marine Le Pen has urged the French government to recognize Crimea as part of Russia’s territory and to restore ties with Moscow, a “natural ally of Europe.” There is no alternative, but to recognize the legality of Crimea’s ascension into the Russian Federation, Le Pen told the Polish Do Rzeczy in an interview. The French politician says that Paris must accept Crimea’s choice, as it became part of Russia in the time of lawlessness following an orchestrated “coup” last year, when “Neo-Nazi militants organized a revolution in Ukraine.” Le Pen says the Peninsula had no other choice as “power in Kiev was illegal,” at that time. “The authorities [in Kiev] started to make decisions that would lead to civil war,” she added. The leader of the French National Front emphasized that “Russia is a natural ally of Europe.”
“We are pawns in the game of influence between the United States and Russia. Russia is a great country, a great people, with which Europe has many common strategic interests. We need to talk with Russia,” she said. Le Pen has been a strong critic of EU policies towards Russia and US influence in European geopolitics from the very beginning of the Ukrainian conflict. In March, speaking about the results of the referendum in Crimea, Le Pen said that on the peninsula, the people’s choice was to be expected. “This was to be expected,” Le Pen said. “And the people [of Crimea], who lived in fear, rushed into the arms of the country where they were from: as you know it, Crimea is part of Ukraine only for 60 years.”
Earlier this month, Le Pen voiced her disapproval of Washington’s stake in Europe. Regarding Ukraine, we behave like American lackeys,” she said, before warning that “the aim of the Americans is to start a war in Europe to push NATO to the Russian border.” She went on to accuse European leaders of turning a blind eye to the Ukrainian government’s “bombing of civilians,” adding that both those in Crimea and Eastern Ukraine believed the country should be federalized. Equally critical of the EU role in Ukraine, in September, she told Le Monde that the ongoing crisis in Ukraine is “all the European Union’s fault,” saying Brussels had “blackmailed the country to choose between Europe and Russia.” To resolve the conflict, Le Pen has more than once called on necessity to conduct negotiations on federalization and constitutional reforms to decentralize the power, rather than to try solve the issue by military means.
“Just as the Europeans seem to have been able to negotiate a ceasefire between the opposing sides in that civil war, President Obama plans to pour gasoline on the fire by sending in the US military.”
Last week President Obama sent Congress legislation to authorize him to use force against ISIS “and associated persons and forces” anywhere in the world for the next three years. This is a blank check for the president to start as many new wars as he wishes, and it appears Congress will go along with this dangerous and costly scheme. Already the military budget for next year is equal to all but the very peak spending levels during the Vietnam war and the Reagan military build-up, according to the Project on Defense Alternatives. Does anyone want to guess how much will be added to military spending as a result of this new war authorization? The US has already spent nearly $2 billion fighting ISIS since this summer, and there hasn’t been much to show for it. A new worldwide war on ISIS will likely just serve as a recruiting tool for jihadists.
We learned last week that our bombing has led to 20,000 new foreign fighters signing up to join ISIS. How many more will decide to join each time a new US bomb falls on a village or a wedding party? The media makes a big deal about the so-called limitations on the president’s ability to use combat troops in this legislation, but in reality there is nothing that would add specific limits. The prohibition on troops for “enduring” or “offensive” ground combat operations is vague enough to be meaningless. Who gets to determine what “enduring” means? And how difficult is it to claim that any ground operation is “defensive” by saying it is meant to “defend” the US?
Even the three year limit is just propaganda: who believes a renewal would not be all but automatic if the president comes back to Congress with the US embroiled in numerous new wars? If this new request is not bad enough, the president has announced that he would be sending 600 troops into Ukraine next month, supposedly to help train that country’s military. Just as the Europeans seem to have been able to negotiate a ceasefire between the opposing sides in that civil war, President Obama plans to pour gasoline on the fire by sending in the US military. The ceasefire agreement signed last week includes a demand that all foreign military forces leave Ukraine. I think that is a good idea and will go a long way to reduce the tensions. But why does Obama think that restriction does not apply to us?