DPC Surf Avenue, Coney Island, NY 1903
• The World’s Next Credit Crunch Could Make 2008 Look Like A Hiccup (Telegraph)
In 1937 the US was, economically speaking, an island, entire of itself; today, thanks to globalisation, the power of the dollar and a long period of ultra-loose monetary policy, it is a part of the main. Christine Lagarde, the head of the IMF, recently raised concerns in India about the ripple effect of Fed tightening on countries that have borrowed heavily in dollars and whose still-recovering economies remain vulnerable to a rate rise. And in 1937 the equity markets were the financial be-all and end-all; today they are dwarfed by the debt markets, which are, in turn, dwarfed by the derivatives markets. The total value of all global equities was around $70 trillion in June last year, according to the World Federation of Exchanges; meanwhile, the notional value of all outstanding derivatives contracts was more than $690 trillion.
It is worth noting that the vast majority (around four-fifths) of all existing derivatives contracts are based on interest rates. The derivatives market is the not the vast roulette table of popular perception. These financial instruments are essentially insurance policies – they are designed to protect the holder from adverse price movements. If you are worried about (to pick some unlikely examples) a strong euro, or expensive oil, or rising interest rates, you can buy a contract that pays out if your fears are realised. Managed well, the gain from the derivative should offset the loss from the underlying price movement. Nevertheless, the arguments employed by the derivatives industry sometimes sound similar to those employed by the pro-gun lobby: derivatives aren’t dangerous, it’s the people using them that you need to worry about. That’s not hugely reassuring.
What could go wrong? Let’s say that US interest rates do rise sooner and faster than the market expects. That means bond prices, which always move in the opposite direction to yields, will plummet. US Treasury bonds are like a mountain guide to which most other global securities are roped – if they fall, they take everything else with them. Who will get hurt? Everyone. But it’ll likely be the world’s banks, where even little mistakes can create big problems, that suffer the most pain. The European Banking Authority estimates that the average large European lender still has 27 times more assets than it does equity. This means that if the stuff on their balance sheets (including bonds and other securities priced off Treasury yields) turns out to be worth just 3.7pc less than was assumed, it will be time to order in the pizzas for late night discussions about bail-outs.
• No Risk Too Big as Bond Traders Plot Escape From Negative Yields (Bloomberg)
In the negative-yield vortex that is the European bond market, investors are discovering just what lengths they’re willing to go to generate returns. Norway’s $870 billion sovereign wealth fund said this month that it added Nigeria and lifted its share of lower-rated company debt to the highest since at least 2006. Allianz SE, Europe’s biggest insurer, is shifting from German bunds to bulk up on mortgages. JPMorganis buying speculative-grade corporate debt to boost returns. With the ECB’s fight against deflation pushing yields on almost a third of the euro area’s $6.26 trillion of government bonds below zero, even the most risk-averse investors are taking chances on assets and regions that few would have considered just months ago.
That’s exposing more clients to the inevitable trade-off that comes with the lure of higher returns: the likelihood of deeper losses. “We are wandering into uncharted territory that’s subject to uncertainty and mistakes,” said Erik Weisman at MFS Investment Management. He’s buying debt with longer maturities and increasing his allocation of top-quality government holdings to Australia and New Zealand, which have some of the highest yields in the developed world. The shift is a consequence of how topsy-turvy the bond market has become as falling consumer prices and stubbornly high unemployment prompted the ECB to step up its quantitative easing with government debt purchases.
About €1.44 trillion sovereign debt, valued at about $1.9 trillion as of their issue dates, from Germany to Finland and even Slovakia, carry negative yields. That means the bonds guarantee losses for buyers who hold them to maturity. In effect, investors are betting the securities will appreciate in price before then, allowing them to sell at a profit before they come due. [..] The bond market worldwide is more vulnerable to losses than at any time on record, based a metric known as duration, index data compiled by Bank of America show. The risk has ballooned as issuers worldwide took advantage of the decline in borrowing costs to sell more and more longer-term bonds. This probably means we end up seeing all these reverse in a very unpleasant fashion,” Weisman said.
The multi-voiced good cop bad cop narrative continues.
• Fed’s Fischer Says Rate Rise Probably Warranted by End-2015 (Bloomberg)
Federal Reserve Vice Chairman Stanley Fischer said raising interest rates from near zero “likely will be warranted before the end of the year” and subsequent increases probably won’t be uniform or predictable. “A smooth path upward in the federal funds rate will almost certainly not be realized” as the economy encounters shocks such as the surprise plunge in oil prices, Fischer, said on Monday in remarks to the Economic Club of New York. Officials last week opened the door to a rate increase as soon as June, while also indicating in their forecasts they will go slow once they get started. Fischer’s comments are the first from Fed leadership since Chair Janet Yellen’s press conference after the Federal Open Market Committee meeting on Wednesday.
The Fed wants to be “reasonably confident” inflation is rising toward its 2% goal before moving. A stronger dollar could interfere by holding down import prices. Fisher, however, was unfazed by the strength of the dollar, which has advanced almost 5% this year on the Bloomberg Dollar Spot index. He argued that its rise reflected the performance of the U.S. economy and central bank bond buying in Europe and Japan, which will also benefit U.S. growth. “What is not acceptable is manipulating exchange rates – purely exchange rates – trying to use that as the sole means of generating growth,” Fischer told the audience. “That has not happened as far as we can tell in our partner countries.”
The dollar dropped against all its 16 major peers except the pound on Fischer’s comments on rate-increase timing, which he left vague and stressed would be data-dependent. “Whether it’s going to be June or September, or some later date, or some date in between, will depend on the data,” said Fischer, although he said labor market readings would be an important guide. The March payrolls report is due on April 3. “We’ve got two very positive numbers for the first quarter of 2015 and we’re waiting for another one,” said Fischer, 71, the former Bank of Israel governor who joined the Fed in May. U.S. employers added 534,000 new jobs in the first two months of 2015 and the jobless rate fell to 5.5% in February.
Make it sound like a good thing, why don’t you?
• Shadow Banking System Shows Signs of Stabilizing After Collapse (Bloomberg)
The financing markets that help ease most U.S. debt trading are showing signs of stabilizing after shrinking by almost 50% since the financial crisis. The amount, known as shadow banking, was $4.124 trillion in February and averaged $4.139 trillion over the past three months, according to data compiled by the Center for Financial Stability, a nonpartisan research group. The measure, which includes money-market funds, repurchase agreements and commercial paper, all adjusted for inflation, peaked at $7.61 trillion in March 2008. “The flicker of good news is that we are starting to see a bottom form and hopefully we will start to see a recovery,” Lawrence Goodman at the Center for Financial Stability.
“The damage is done and we still have a long ways to go for there to be re-engagement of market finance in the economy. The economy has been growing substantially below potential, in part because market finance has failed to provide the fuel to the economy.”
Federal Reserve officials last week cut their economic growth estimate for the fourth quarter from a year earlier to 2.3% to 2.7%, down from as much as 3% in December. Inflation will range from 0.6% to 0.8% at the end of this year, policy makers forecast, down from a range of 1% to 1.6% projected in December.
Global regulators have focused on reducing the footprint of shadow banking, which was viewed as a catalyst for the collapse of Lehman Brothers Holdings Inc. in 2008 that shook markets worldwide. In the process, market finance contracted to a degree that starved financial markets of liquidity and was detrimental to growth, according to the CFS. Repo agreements are a source of short-term finance for banks, allowing them to use securities as collateral for short-term loans from investors such as other banks or money-market mutual funds. The amount of securities financed through a part of the market known as tri-party repo averaged $1.62 trillion as of Feb. 10, compared with $1.58 trillion in January and down from $1.96 trillion in December 2012, according to data compiled by the Fed.
The term ‘bubble’ doesn’t begin to describe it.
• The Unbearable Exuberance of China’s Markets (Pesek)
Chinese investors are acting as giddy as Americans were on Dec. 5, 1996, the day Alan Greenspan made his infamous “irrational exuberance” dig at markets. Don’t take my word for it. Here’s what the country’s securities regulator said Friday, the day the Shanghai Composite Index rallied to its highest close since May 2008: “Investors should be cautious about market risks,” the China Securities Regulatory Commission said on its microblog. “We shouldn’t be thinking if we don’t buy now, we will miss it.” Not much ambiguity there, and yet Shanghai stocks rallied Monday, heading to their longest streak of gains since 2007. What gives? Beijing is making the same mistake Washington did 18-plus years ago by not clamping down on a stock-market boom that’s based more on leverage than reality.
Then-Federal Reserve Chairman’s Greenspan’s swipe at Wall Street froth was a halfhearted one – so cryptic, in fact, that many seasoned Fed reporters missed it. It came in the middle of a mind-numbingly boring speech about Japan’s 1980s bubble. For a couple of days, markets quaked at the prospect that the Fed might cut short the ongoing rally, which had assigned astronomical valuations to the dodgiest startups. But then Greenspan blew the endgame. Lawmakers were apoplectic over the Fed targeting stocks. Rather than stand his ground, Greenspan shut up and moved on. If the Fed had clamped down more assertively in the late 1990s – say, with stringent margin requirements – a Nasdaq crash might’ve been averted. Chastened investors might’ve been less inclined to overleverage in the decade that followed.
In Beijing, central bank governor Zhou Xiaochuan can’t afford to make the same mistake. Economic fundamentals aren’t driving this rally – political expedience is. Chinese growth is slowing – an early indicator of factory activity hit an 11-month low in March – Beijing is clamping down on credit and a property market that once seemed unstoppable is reeling. That leaves one place for Chinese to satisfy their urge to get rich quick: equities. And recent policy tweaks are helping them. In September, China reduced fees by more than half for individuals and institutions to open share accounts. At the same time, the futures exchange cut margin requirements for equity-index contracts. Last month, it trimmed the amount of cash banks must hold back from lending by 50 basis points to 19.5%.
Everyone piles on debt. There’s nothing else left.
• Oil Majors Pile On Record Debt To Plug Cash Shortfalls (FT)
The world’s biggest energy groups have sold record amounts of debt this year, taking advantage of historically low interest rates to plug cash shortfalls with borrowing, after a 50% plunge in oil prices. The total debt raised in the first two months of 2015 by large US and European oil and gas companies has jumped by more than 60% from the final three months of 2014. It outstrips the previous quarterly record set six years ago after the last price collapse, Morgan Stanley research shows. Sales by half a dozen of these companies, which include multibillion dollar bond offerings from ExxonMobil, Chevron, Total and BP, reached $31bn in January and February, accounting for almost half the $63bn raised by oil and gas groups globally.
The dominance of the majors also reflects the increasing difficulties faced by the smaller oil explorers, whose borrowing costs are rising. Gulf Keystone recently put itself up for sale and EnQuest had to renegotiate its banking covenants. Martijn Rats, analyst at the US bank, says some of the so-called oil “majors” could be preparing the ground for acquisitions, borrowing now to be able to act quickly should smaller, weakened groups become vulnerable to take over. Mr Rats said that mergers and acquisitions could pick up as early as the second half of this year: “As a result, it would seem reasonable for integrated oil companies to lock in extremely competitive rates of financing,” he said. Another reason for the high levels of issuance is that debt remains a relatively cheap way to cover spending on big projects and fund dividends as cash flow dwindles due to lower prices.
Apart from Italy’s Eni, which has said it will cut its dividend this year, most of the big groups have vowed to protect payouts to investors. They are also pressing suppliers to cut costs, delaying projects and selling assets. “If you see a protracted period of lower oil prices ahead, you will probably think that it takes a while for cost deflation to come through and restore cash flow, so the first thing you can do is use the balance sheet to borrow money to plug that gap,” said Mr Rats. The majors have made up a much larger share of overall oil and gas debt issuance, accounting for 48% of such fundraising this year, up from 30% in the last three months of 2014. By contrast, the share of state-owned oil companies has fallen to just 22% from 35% in the first quarter of last year.
No more road building.
• Pension Funds Shun Bonds Just as Southeast Asia Needs Them Most (Bloomberg)
The biggest state pension funds in Thailand and the Philippines are shifting money from bonds to stocks, which could push up the cost of government stimulus programs. The Social Security Office and Government Service Insurance System said they’re increasing holdings of shares, while the head of Indonesia’s BPJS Ketenagakerjaan said he sees the nation’s stock index rising 14% by year-end. Rupiah, baht and peso notes have lost money since the end of January, after handing investors respective returns of 13%, 9.9% and 6.6% last year, Bloomberg indexes show. “There has been frustration among domestic institutional investors about the falling returns on bonds,” Win Phromphaet, who manages 1.2 trillion baht ($37 billion) as Social Security Office’s head of investment in Bangkok, said.
“Large investors including SSO must quickly expand our investments in other riskier assets.” Appetite for sovereign debt is cooling just as Southeast Asian governments speed up construction plans in response to slowing growth in China and stuttering recoveries in Europe and Japan. Indonesian President Joko Widodo has added 100 trillion rupiah ($7.7 billion) of spending on projects including ports and power plants in his 2015 budget, Thailand’s military rulers are accelerating outlays on rail and roads and Philippine President Benigno Aquino is relying on new infrastructure to increase growth to 8% in his last two years in office.
“Some of the valuations are mind-boggling..”
• Hedge Funds Are Boosting Tech Valuations to Dangerous Heights (Bloomberg)
A flood of money from unconventional sources has sent valuations of late-stage technology startups, including Uber Technologies Inc. and Snapchat Inc., to levels that haven’t been seen since before the dot-com crash. Hedge funds and mutual funds that once shunned venture-style deals are flocking to the market’s hottest corner, paying 15 to 18 times projected sales for the year ahead in recent private-funding rounds, according to three people with knowledge of the matter. That compares with 10 to 12 times five years ago for the priciest companies, one said. While some of the startups may become profitable, others are consuming cash and could fail.
The torrid action is spurring talk that 15 years after the collapse of the Internet bubble, the market may be setting itself up for another bruising fall. “Some of the valuations are mind-boggling,” said Sven Weber, investment manager of the Menlo Park, California-based SharesPost 100 Fund, which backs late-stage tech startups. Companies now valued at 16 times future revenue could easily lose a third of their value in a market pullback that Weber and others say may occur in the next three years. The other people asked not to be named because they didn’t want to be seen criticizing competitors’ deals. Such worries have done little to cool the market. Investors’ appetites have been stoked by jackpots won in initial public offerings.
Among the biggest: an almost fourfold $3.2 billion paper profit earned by Silver Lake in Chinese e-commerce giant Alibaba’s record-breaking, $21.8 billion September IPO. It was a quick kill for Silver Lake, coming three years after the private-equity firm’s investment in the company. Private values also are soaring. Online scrapbooking startup Pinterest Inc. raised $367 million this month, valuing the company at $11 billion. Snapchat, the mobile application for sending disappearing photos, is valued at $15 billion, based on a planned investment by Alibaba, according to people with knowledge of the deal. Uber’s valuation climbed more than 10-fold since the middle of 2013, reaching $40 billion in December.
“The frustration with the U.S. is palpable.”
• IMF, World Bank Throw Weight Behind China-Led Bank (CNBC)
Global institutions, including the IMF and the World Bank, have endorsed a China-led international bank, despite opposition from the U.S. “We are comfortable with the idea of a bank that puts together finance for infrastructure, because our view is that there is a huge need for infrastructure in emerging markets countries,” David Lipton, the first deputy managing director of the IMF, told CNBC early on Monday. The $50-billion Asian Infrastructure Investment Bank (AIIB) is being established to meet the need for greater infrastructure investment in lower- and middle-income Asian countries. It comes amid complaints by China and other major emerging economies that they lack influence in institutions such as the IMF, the Asian Development Bank and the World Bank.
Support for the AIIB has gathered speed in Europe this month, with the U.K. the first country to sign up, followed by Germany, France and Italy and then Luxembourg and Switzerland. However, Washington has expressed misgivings, officially because of concerns about standards of governance and environmental and societal safeguards. Unofficially, the country’s is thought to be worried about sacrificing its clout in Asia to China, as well as piqued by criticism of slow reforms in the IMF and World Bank. “While this is seen as a diplomatic setback for the Obama administration, the underlying (blame) may lie with Congress,” said strategists led by Marc Chandler at Brown Brothers Harriman in a research note on Monday.
“It has blocked IMF funding which is the precondition for reforming the voting (quotas), which would give China and other developing countries a greater voice. In contrast, the Obama Administration seems to recognize that if China (and others) do not get a larger voice in the existing institutions, it will create parallel institutions.” He added: “The frustration with the U.S. is palpable.” “China is now the leader of the world,” Sri Mulyani Indrawati, managing director of the World Bank, told CNBC on Sunday in Beijing. “They (Chinese leaders) try to show that they have sound principles in not only presenting a development solution, but also in establishing this new institution and that is why many of the countries now are becoming members of this institution.”
Timing is everything.
• Tsipras Raises Nazi War Reparations Claim At Berlin Press Conference (Guardian)
Greece’s leftwing prime minister Alexis Tsipras stood beside German leader Angela Merkel and demanded war reparations over Nazi atrocities in Greece on Monday night, even as the two leaders sought to bury the hatchet following weeks of worsening friction and mud-slinging. “It’s not a material matter, it’s a moral issue,” said Tsipras, unusually insisting on raising the “shadows of the past” at the heart of German power in the gleaming new chancellery in Berlin. It was believed to be the first time a foreign leader had gone to the capital of the reunified Germany to make such a demand. Merkel was uncompromising, while appearing uncomfortable and irritated. “In the view of the German government, the issue of reparations is politically and legally closed,” she said.
While the two leaders clashed over the second world war, there was no sign of any meeting of minds on the substance of their dispute over Greece’s bailout and what Tsipras has to deliver to secure fresh funding and avoid state insolvency within weeks. Two months after winning the election by promising to abolish “Merkelism” – the harsh austerity ordained by the eurozone and other creditors in return for €240bn in bailout loans over the past five years – Tsipras held to the view that Greece’s crisis was not of his making. He delivered a lengthy diagnosis of what had gone wrong in the last five years, but had next to nothing to say about his own policies except vague references to fighting corruption.
And when he raised the corruption issue, he singled out a German company, Siemens, because of its alleged activities in Greece. A stony-faced Merkel reiterated what she had said in Brussels on Friday after a late-night session with Tsipras – that a 20 February agreement with the eurozone extending Greece’s bailout until the end of June remained the yardstick. That agreement obliges Tsipras to deliver a persuasive menu of detailed fiscal and structural reforms which need to be vetted by the eurozone before any further bailout funding can be released. Asked if she had reached any agreements with Tsipras, Merkel avoided the question and stressed she was only one of 19 eurozone national leaders.
“.. the punishment of Greek people for the feckless borrowing of their government and the feckless lending of German banks has surely gone well beyond what is necessary to instruct Greece in the merits of fiscal rectitude..”
• Why Greek Default Looms (BBC)
I have used the metaphor before of Greece and Germany being a feuding married couple, not really wanting a divorce but so unable ever to understand the other’s point of view that terminal rupture remains a significant probability. So for the Greek prime minister, Alexis Tsipras, it must have been personally humiliating to send his “please-send-cash-soon” letter to Angela Merkel, the German chancellor (the letter has been obtained by the FT). He complains that there is no sign, in the conduct of eurozone officials working on the new financial rescue plan, of wanting to make the promised new start in the fraught relationship. Mr Tsipras accuses them of trying to hold the country to a reform and reconstruction programme that his Syriza government has rejected, and which he thought had been dropped, too, by eurozone leaders.
Which broadly points to the biggest flaw in the entente reached in February between Greece and eurozone – namely that the agreement they approved disguised a continuing and profound emotional and ideological gulf. Both sides in essence want the other to admit they were wrong in the past and have turned over a new leaf: neither shows the inclination to do that. The clearest manifestation of mutual misunderstanding being a long way off was last week’s blog by the finance minister, Yanis Varoufakis. He makes a point that is both true and incendiary (in the present circumstances): namely that the eurozone’s and IMF’s original €240bn bailout was, in practice, a bailout of the feckless banks and investors who had lent to Greece, rather than of Greece itself. [..]
There is a high probability, most economists would say, of history vindicating Mr Varoufakis’s critique: the punishment of Greek people for the feckless borrowing of their government and the feckless lending of German banks has surely gone well beyond what is necessary to instruct Greece in the merits of fiscal rectitude. But whether it is altogether wise and diplomatic to tell the Germans they were selfish and wrong, at this juncture, is moot. There is no sign of the two sides forgiving each other and moving on.
I did not have financial realationships with that country.
• Draghi Rejects Accusation That ECB Is Blackmailing Greece (Bloomberg)
Mario Draghi pushed back against an accusation that the European Central Bank is blackmailing Greece and compounding the pressure on the country. “Let me disagree with you about everything you said,” Draghi told Portuguese lawmaker Marisa Matias during his regular hearing at the European Parliament in Brussels. He was responding to a question about the withdrawal of a waiver that allowed the ECB to accept the country’s junk-rated debt as collateral. “It’s bit rich when you look at our exposure to Greece” which totals €104 billion, Draghi says. “What sort of blackmail is this? We haven’t created any rule for Greece, rules were in place and they’ve been applied. The exchange came amid signs that Greece could run out of money by early next month.
Prime Minister Alexis Tsipras is meeting today with German Chancellor Angela Merkel to discuss reform commitments that could unlock stalled aid money. Draghi said the ECB will reintroduce the waiver at some point, ‘‘but several conditions have to be satisfied.’’ Shut out from ECB funding, Greek banks currently rely on emergency liquidity from their national central bank. The ECB reviews the allowance on a weekly basis to make sure it doesn’t run against a ban on state financing. Draghi said Greek lenders are solvent ‘‘at present,’’ even though ‘‘the liquidity situation has been deteriorating.’’ In his opening statement to the parliament in Brussels, Draghi pushed aside concerns that the ECB’s quantitative-easing plan will be hampered by a shortage of bonds available to buy.
‘‘We see no signs that there will not be enough bonds for us to purchase,’’ he said. ‘‘Feedback from market participants so far suggests that implementation has been very smooth and that market liquidity remains ample.’’ The central bank started buying government debt this month to revive inflation. While the region’s recovery is being helped by cheap oil and a weak euro, Draghi is faced with a resumption of the crisis in Greece, with the country on the verge of a default that would shake the foundations of the single currency. The ECB plans to buy €60 billion a month of public-sector debt under its latest stimulus program, which is slated to last until September 2016, or until inflation is back on track toward the central bank’s goal of just under 2%. In the first two weeks of the program, €26.3 billion of public sector purchases were settled.
Concerted effort to make Merkel look good.
• Merkel Points Tsipras Toward Deal With Greece’s Creditors (Bloomberg)
German Chancellor Angela Merkel encouraged Prime Minister Alexis Tsipras to follow the path set out by Greece’s creditors, saying his country belongs in Europe and she wants its economy to succeed. Merkel gave Tsipras a red-carpet reception at the Chancellery in Berlin on Monday without giving any signal that the emergency aid the Greek government is urgently seeking would be unlocked. Instead, she talked at their joint briefing of how she wanted to build trust with her Greek counterpart. “We want Greece to be economically strong, we want Greece to have growth,” Merkel said. “And I think we share the view that this requires structural reforms, solid finances and a functioning administration.”
Meeting the chancellor for the second time in five days in an effort to build bridges between their governments after weeks of sniping, Tsipras echoed her tone, while resisting the embrace of the policy prescriptions that she has shaped for the past five years. “The Greek bailout program was an unprecedented adjustment effort but in our view it wasn’t a success story,” he said. “We’re trying to find common ground to reach an agreement soon on the reforms that the Greek economy needs and for the disbursement of the funds that it also needs.” The two countries have often been at loggerheads since Tsipras’s January election victory as the Greek leader tries to shape an alternative to the austerity program set out in the country’s bailout agreement. Merkel insists Greece must stick to the broad terms of that deal, though holding out the prospect of some flexibility.
With Greece’s financial predicament becoming ever more parlous, Tsipras was greeted by a group of supporters demonstrating outside the Chancellery who could be heard chanting during the ceremonial reception. His government needs to persuade its creditors to sign off on a package of economic measures to free up long-withheld aid payments that will keep the country afloat. Finance ministry officials may submit their latest plans as soon as this week, a Greek official said earlier. Hinting at the prickly relationship between their respective finance ministers, Tsipras said that he wants to avoid widening splits in the euro area and urged Germans and Greeks to avoid stereotyping each other, saying Germany isn’t to blame for all of Greece’s problems. “We have to understand each other better,” he said.
Who’s he again?
• Barroso: Greece Should Blame Itself (CNBC)
Greece’s problems can be laid at its own door and the country needs to provide a clear commitment to reform to reach an agreement with its creditors, Jose Manuel Barroso, the former president of the European Commission, told investors in Hong Kong. “The Greek people went through extremely difficult moments, hardship. But these difficulties of Greece were not provoked by Europe,” Barroso said in an address at the Credit Suisse Asian Investment Conference in Hong Kong. “It was provoked by the irresponsible behavior of the Greek government.” “The situation of Greece is the result of unsustainable debt that was created by the Greek government, mismanagement of their public finances, huge problems with tax evasion and tax fraud [and] problems of the administration,” he said, noting that the country had also misled the European Union by filing false figures on its economy. [..]
Barroso was generally unsympathetic to the Greek stance. “There is nothing that condemns Greece to be in a difficult situation. There are reforms they can make and they are as able as any other country to do,” he said. “There is an ideological difficulty that exists in the Greek government to understand that the way for Greece to recover the confidence of the markets is in fact for to go on with structural reforms that Greece has committed to.”
Podemos did not do well.
• Andalusia Election Increases Pressure on Spain’s Rajoy (Bloomberg)
Spanish Prime Minister Mariano Rajoy’s People’s Party scored its worst election result in 25 years in Spain’s most populous region, adding to pressure on the party leadership before general elections. Rajoy’s PP got 26.8% in Andalusia, compared with 40.7% in the last regional vote in 2012, according to the regional government data. That’s the lowest level of support since 1990, when the PP got 22.2%. Andalusia’s ballot marks the start of a Spanish electoral marathon to choose another 14 regional presidents, more than 8,000 mayors, and a new national government in the next 10 months. Rajoy struggled to mobilize his voters even as the fourth largest economy in the euro region is growing at the fastest pace since 2007. No date has been set for the national election which must be held by January 2016.
“Alternative leadership to Rajoy should be an urgent first point of discussion for the party based on public opinion criteria,” said Lluis Orriols, a political scientist at Carlos III University in Madrid. “Still, sometimes internal party power dynamics and public opinion follow different patterns.” Rajoy is scheduled to chair a meeting of his party’s executive committee in Madrid on Monday. The Spanish leader attended five political events in Andalusia during the two-week electoral campaign in the southern region, compared with two visited by his Socialist counterpart, Pedro Sanchez. Andalusia’s President Susana Diaz won the regional vote, paving the way for the Spanish Socialist Party, PSOE, to run the country’s most-populous area for the 10th term in a row.
Andalusia, located in southern Spain, is the nation’s largest and most populous region. It struggles with unemployment of about 35%, compared with 26% in Greece, the European Union state with the highest jobless rate. Farming and tourism comprise two of the largest sources of revenue and the region’s 16,843 euro ($18,330) gross domestic product per capita is the second lowest in the country after Extremadura. Sunday’s election also tested the advance of Podemos, allied to Greece’s Syriza party that won power in January in Athens after promising to raise public spending in defiance of its bailout agreement. The anti-austerity Podemos won 15 seats.
“German capital dominates Europe and it profits from the misery in Greece,” Glezos says. “But we don’t need your money.”
• ‘The Fourth Reich’: What Some Europeans See When They Look at Germany (Spiegel)
May 30, 1941 was the day when Manolis Glezos made a fool of Adolf Hitler. He and a friend snuck up to a flag pole on the Acropolis in Athens on which a gigantic swastika flag was flying. The Germans had raised the banner four weeks earlier when they occupied the country, but Glezos took down the hated flag and ripped it up. The deed turned both him and his friend into heroes. Back then, Glezos was a resistance fighter. Today, the soon-to-be 93-year-old is a member of the European Parliament for the Greek governing party Syriza. Sitting in his Brussels office on the third floor of the Willy Brandt Building, he is telling the story of his fight against the Nazis of old and about his current fight against the Germans of today.
Glezos’ white hair is wild and unkempt, making him look like an aging Che Guevara; his wrinkled face carries the traces of a European century. Initially, he fought against the Italian fascists, later he took up arms against the German Wehrmacht, as the country’s Nazi-era military was known. He then did battle against the Greek military dictatorship. He was sent to prison frequently, spending a total of almost 12 years behind bars, time he spent writing poetry. When he was let out, he would rejoin the fight. “That era is still very alive in me,” he says. Glezos knows what it can mean when Germans strive for predominance in Europe and says that’s what is happening again now. This time, though, it isn’t soldiers who have a chokehold on Greece, he says, but business leaders and politicians.
“German capital dominates Europe and it profits from the misery in Greece,” Glezos says. “But we don’t need your money.” In his eyes, the German present is directly connected to its horrible past, though he emphasizes that he doesn’t mean the German people but the country’s ruling classes. Germany for him is once again an aggressor today: “Its relationship with Greece is comparable to that between a tyrant and his slaves.” Glezos says that he is reminded of a text written by Joseph Goebbels in which the Nazi propaganda minister reflects about a future Europe under German leadership. It’s called “The Year 2000.” “Goebbels was only wrong by 10 years,” Glezos says, adding that in 2010, in the financial crisis, German dominance began.
Let’s see them try.
• Beijing to Close All Major Coal Power Plants to Curb Pollution (Bloomberg)
Beijing, where pollution averaged more than twice China’s national standard last year, will close the last of its four major coal-fired power plants next year. China’s capital city will close China Huaneng’s 845 megawatt power plant next year, after last week closing plants owned by Guohua Electric and Beijing Energy Investment, according to a statement Monday on the website of the city’s economic planning agency. A fourth major power plant, owned by China Datang, was shut last year. The plants will be replaced by four gas-fired stations with capacity to supply 2.6 times more electricity than the coal plants. Once complete, the city’s power and its central heating will be entirely generated by clean energy, according to the Municipal Commission of Development and Reform.
Air pollution has attracted more public attention in the past few years as heavy smog envelops swathes of the nation including Beijing and Shanghai. About 90% of the 161 cities whose air quality was monitored in 2014 failed to meet official standards, according to a report by China’s National Bureau of Statistics earlier this month. The level of PM2.5, the small particles that pose the greatest risk to human health, averaged 85.9 micrograms per cubic meter last year in the capital, compared with the national standard of 35. Beijing plans to cut annual coal consumption by 13 million metric tons by 2017 from the 2012 level in a bid to slash the concentration of pollutants. The city also aims to take other measures such as closing polluted companies and cutting cement production capacity to clear the air this year, according to the Municipal Environmental Protection Bureau.
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