Harris&Ewing Army surplus 1919
Alexis Tsipras will accept all his bailout creditors’ conditions that were on the table this weekend with only a handful of minor changes, according to a letter the Greek prime minister sent late Tuesday night and obtained by the Financial Times. The two-page letter, sent to the heads of the EC, IMF and ECB, elaborates on Tuesday’s surprise request for an extension of Greece’s now-expired bailout and for a new, third €29.1bn rescue, writes Peter Spiegel. Although the bailout’s expiry at midnight Tuesday night means the extension is no longer on the table, Mr Tsipras’ new letter could serve as the basis of a new bailout in the coming days.
Mr Tsipras’ letter says Athens will accept all the reforms of his country’s value-added tax system with one change: a special 30 per cent discount for Greek islands, many of which are in remote and difficult-to-supply regions, be maintained. On the contentious issue of pension reform, Mr Tsipras requests that changes to move the retirement age to 67 by 2022 begin in October, rather than immediately. He also requests that a special “solidarity grant” awarded to poorer pensioners, which he agrees to phase out by December 2019, be phased out more slowly than creditors request. “The Hellenic Republic is prepared to accept this staff-level agreement subject to the following amendments, additions or clarifications, as part of an extension of the expiring [bailout] program and the new [third] loan agreement for which a request was submitted today, Tuesday June 30th 2015,” Mr Tsipras wrote.
No wonder they were never published: policy is 180º removed from the findings.
Greece would face an unsustainable level of debt by 2030 even if it signs up to the full package of tax and spending reforms demanded of it, according to unpublished documents compiled by its three main creditors. The documents, drawn up by the so-called troika of lenders, support Greece’s argument that it needs substantial debt relief for a lasting economic recovery. They show that, even after 15 years of sustained strong growth, the country would face a level of debt that the IMF deems unsustainable. The documents show that the IMF’s baseline estimate – the most likely outcome – is that Greece’s debt would still be 118% of GDP in 2030, even if it signs up to the package of tax and spending reforms demanded.
That is well above the 110% the IMF regards as sustainable given Greece’s debt profile, a level set in 2012. The country’s debt level is currently 175% and likely to go higher because of its recent slide back into recession. The documents admit that under the baseline scenario “significant concessions” are necessary to improve Greece’s chances of ridding itself permanently of its debt financing woes. Even under the best case scenario, which includes growth of 4% a year for the next five years, Greece’s debt levels will drop to only 124%, by 2022. The best case also anticipates €15bn (£10bn) in proceeds from privatisations, five times the estimate in the most likely scenario.
But under all the scenarios, which all assume a third bailout programme, looked at by the troika, Greece has no chance of meeting the target of reducing its debt to “well below 110% of GDP by 2022” set by the Eurogroup of finance ministers in November 2012. In the creditors own words: “It is clear that the policy slippages and uncertainties of the last months have made the achievement of the 2012 targets impossible under any scenario”. These projections are from the report Preliminary Debt Sustainability Analysis for Greece, one of six documents that are part of the full set of materials that comprise the “final” proposal sent to Greece by its creditors last Friday.
Why would the banks and bond buyers of northern Europe have lent money to Greece in the first place? Or, for that matter, to housing speculators in Spain, to banks in Ireland or to the governments of Italy and Portugal? The answer is that the structure of the incomplete European monetary union gave them strong incentive to do so. After all, with substantial excess wealth and a resistance to inflating their own economies through internal spending, the euro regime itself encouraged trade-surplus countries such as Germany and the Netherlands to lend to their weaker brethren in order to bolster the peripheral countries’ ability to import even more of the surplus nations’ production (to the increasing benefit of the latter and the eventual implosion of the former).
And they were able to do so in a common currency, without the risk of currency devaluation by borrowers. This was mercantilism writ large and was without precedent in modern economic history, as there is no mechanism in the EMU to resolve the resulting imbalances and the captive peripheral countries had relinquished their ability to address the imbalances by adjusting exchange rates. And yet the credit providers expected -and still expect- to get their money back. The flip side of this debacle is that, when Greece defaults (or goes into what the IMF will almost certainly deem on this week to be “arrears,” to avoid use of the “D” word), there is really not much that the IMF, the ECB and the euro group central banks can do to get their money back.
And therein lies the realpolitik of the situation. Yes, it is not unlikely that the ECB may conclude that, upon Greece’s default, that country’s banks are no longer solvent and are not worthy of infusions of additional euro to maintain their liquidity. And, yes, that would result in the prolonging of the bank-capital controls Greece instituted on Monday to hold onto whatever euro they have left, and likely even to the issuance by Greece of an internal (and heavily devalued) currency to permit its moribund economy some semblance of functionality.
But none of those things will get the rest of the Europeans their money back. Moreover, as there is no provision in the treaty governing the EMU for ejecting a country from the euro zone (and certainly no basis for ejecting Greece from the European Union), further recourse is severely limited and of questionable force even if it were available. As a result, Greece, with its back to the wall already and its economy in shambles, will suffer further until it rebuilds but it will suffer the double-edged fate of a “debtor-in-possession,” to use a U.S. bankruptcy analogy. It will no longer be making payments on its debt, and may end up disavowing some of that debt altogether, but will remain a sovereign power in possession of its internal assets and resources. And unlike a private party in bankruptcy, Greece will be operating under its own rule of law.
The IMF is in the hands of the lenders, who don’t want restructuring. The IMF is making itself redundant.
As Greece defaults on its payments to the IMF, is the emergency lender at risk of repeating bailout history? So say some of its sharpest critics. A host of economists have accused the IMF of setting up Greece for failure in 2010 by rejecting an initial debt restructuring and focusing heavily on near-term budget cuts. Instead of a return to growth by 2012, as the fund forecast, the country’s economy ended up shrinking by 25% over four years. By 2012, the IMF appeared to have learned its lesson. Besides facilitating a restructuring of privately held debt, fund officials also pressed Europe to give Greece significantly more debt relief. The IMF seemingly took every opportunity to remind the eurozone of its promise to help cut Greece’s debt ratio to significantly below 110% of GDP from over 170%.
Some IMF officials privately said it would be difficult to reach that level without a write-down of the value of the debt. The fund also admitted that it underestimated the effects of budget belt-tightening on Greece and other eurozone countries. And the fund gave a half-hearted mea culpa in 2013, saying that a restructuring earlier would have been helpful, (despite saying in the same breath it wouldn’t have done anything different). But Ajai Chopra, a visiting fellow at the Peterson Institute for International Economics and a former deputy director of the IMF’s European Department, said recent bailout negotiations with Greece show the IMF and European creditors are treading the same ground.
“They are bent on repeating past policy errors of forcing drastic growth-killing fiscal adjustment in a short period of time instead of providing debt relief,” Mr. Chopra said. “I recognize that it is a fantasy to think that creditors are willing to adopt a less stifling mix of financing and adjustment that promotes growth,” he said. “But it is equally a fantasy to think the current set of policies insisted on by creditors will address Greece’s long-term problems.” Joseph Stiglitz, a Columbia University professor and former chief economist for the World Bank, said “doubling down on a set of recipes that have proven themselves to produce a depression is not a recipe for success.”
“The body watered down long-held lending principles and its economic projections turned out to be worthless..”
One big loser from Greece’s (likely) default is the reputation of the IMF. The IMF, we used to believe, only stepped in when a country’s path to debt sustainability was clear and economic revival could be plotted with reasonable confidence. The organisation’s standing as a global lender of last resort relied on the even-handed application of that principle. In Greece, it’s hard to say the debt was ever sustainable in the world after the global financial crisis of 2007-09. In 2010, when the IMF contributed €30bn to the first bailout programme, Greece hadn’t yet experienced its deep recession. But the risk of deep spending cuts making the position worse was obvious: the unpromising backdrop was a weak eurozone in which banks remained under-capitalised.
Indeed, the IMF itself has admitted that it let its lending standards slip in Greece and that its economic projections may have been “overly optimistic”. A 2013 evaluation report confessed there was “a tension between the need to support Greece and the concern that debt was not sustainable with high probability.” The response was “to lower the bar for debt sustainability in systemic cases”. In other words, Greece was viewed as an exceptional case because it was a member of the eurozone, where a blow-up could ricochet around the world. You can’t blame non-eurozone contributors to the IMF coffers for smelling a European rat. The managing director of the IMF in 2010 was Dominique Strauss-Kahn and he was followed by another member of the French financial establishment, Christine Lagarde.
Hindsight is perfect but even in 2010 the IMF was behaving out of character. Normally, the body only gets involved when other lenders have been made to accept steep losses. In Greece, debt relief only arrived in the second bailout in 2012 and, even then, private lenders suffered only modest financial pain. Over the past six months of talks, the IMF’s stance on debt write-downs has also been wishy-washy: it seemed to be in favour without ever championing the cause openly. In the end, the IMF, at the head of the queue of creditors, will probably be repaid by Greece. But this saga is an embarrassment. The body watered down long-held lending principles and its economic projections turned out to be worthless. There is fuel there for critics of the IMF who argue the body is designed for the pre-globalisation world of the 1940s. Those voices will grow louder.
Plent of misery to go around.
It couldn’t have come at a worse time for Greece. With the country on its knees, the number of refugees arriving by sea is at a record and for the first time overtakes Italy, a country almost nine times as rich. In the first six months of the year, Greece – a country of 11 million – received more migrants than Italy – a country of 60 million – according to a report by the UN Refugee Agency. The reason is Syria. Almost 40,000 Syrians seeking to escape the war take the eastern Mediterranean route from Turkey to reach a handful of Greek islands, principally Lesbos. Conditions on arrival are notoriously inadequate and unlikely to get better with the country now under capital controls with its citizens limited to 60 euros a day in daily withdrawals.
Not its function.
When the eurozone’s central bankers meet in Frankfurt on Wednesday, they could make a decision which some officials fear could push one or more of Greece’s largest banks over the edge. The ECB’s governing council is poised to impose tougher haircuts on the collateral Greek lenders place in exchange for the emergency loans. If the haircuts are tough enough, it could leave banks struggling to access vital funding. The ECB on Sunday imposed an €89bn ceiling for so-called emergency liquidity assistance, effectively putting the Greek banking system into hibernation. If, to reflect the increased risk of default, the ECB now applied bigger discounts to the Greek government bonds and government-backed assets which lenders use as collateral, that could leave banks struggling to roll over those emergency overnight loans.
Doubts abound in Frankfurt and Brussels about whether all of Greece’s four biggest banks can survive the week. Even with bank branches closed until next Tuesday and ATM withdrawals limited to €60, officials fear some of the country’s lenders are so weak that they will struggle to honour their customers until Sunday’s referendum, when Greeks will decide whether to accept the terms offered by international creditors. The Syriza-led government’s confirmation that it will not pay the €1.5bn it owes to the International Monetary Fund on Tuesday and the expectation that Athens will fall out of its bailout programme at midnight has put the ECB in a delicate position.
The ECB’s senior officials have now openly acknowledged the possibility of a Greek exit from the currency union. Benoît Cœuré, a member of the ECB’s executive board, told French newspaper Les Echos in an interview published on Tuesday: “A Greek exit from the eurozone, so far a theoretical issue, can unfortunately not be excluded any more.”
Still got a few billion to go.
You know when you just have a little idea, have a laugh to yourself and then move on with your day? I do that a lot, only on Sunday night, I didn’t let it pass but decided to try it out for real. I wondered, could the people of Europe have a crack at fixing this? Less talk, more direct action So, sat at the table after dinner, I started a crowdfunding campaign to try to rescue the Greek economy. Some basic maths told me that I only needed the entire population of Europe to donate €3.19 (£2.26) to reach the amount of the bailout fund. I included some nice perks for donating, including a Greek salad and holiday in Athens for two, and set up a page on IndieGoGo and a Twitter account.
Nobody was that interested at first, but after a couple of small stories on the internet, the idea seemed to explode overnight. I woke up to 1,200 emails and it got even more crazy from there. I set up the crowdfunding campaign to support the Greek bailout because I was fed up with the dithering of our politicians. Every time a solution to bail out Greece is delayed, it’s a chance for politicians to posture and display their power, but during this time the real effect is on the people of Greece. I wondered, could the people of Europe just have a crack at fixing this? Less talk, more direct action. If we want to sort it, let’s JFDI (just effing do it)! On Tuesday, between leaving for work and returning home, the crowdfunding page had raised over €200,000 in around six hours, which was incredible.
This isn’t just about raising the cash, though. In providing the perks, we would be stimulating the Greek economy through trade – buying Greek products and employing Greeks to source and send the perks out. The way to help a struggling economy is by investment and stimulus – not austerity and cuts. This crowdfunding is a reaction to the bullying of the Greek people by European politicians, but it could easily be about British politicians bullying the people of the north of England, Scotland and Wales. I want the people of Europe to realise that there is another option to austerity, despite what David Cameron and Angela Merkel tell you.
The reaction has been tremendous, I’ve received thousands of goodwill message and as I write almost €630,000 has been pledged by more than 38,000 donors. Many Greek people are messaging me to say how overjoyed they are to hear that real people around Europe care about them. It must be hard when you think the rest of the continent is against you.
China’s domestic stock markets may have bounced back Tuesday, but the damage from the panic despite interest-rate and reserve-ratio cuts at the weekend will take longer to heal. The big problem is that the People’s Bank of China explicitly targeted the plunging stock market, and yet the Shanghai Composite kept falling, revealing that the PBOC was not in control. Even after Tuesday afternoon’s sharp rebound, the index is still flirting with bear territory, taken as a 20% drop from the recent high. The reprieve for the stock market came only after the Ministry of Finance stepped in to say that the state’s pension fund may be allowed to invest up to 30% of its 3.5 trillion yuan ($565 billion) into securities.
Now that the PBOC has played its hand — and revealed it to be a weak one — the next question is: What else is beyond its control? This new frailty can be expected to resonate beyond the millions of novice retail investors who might now conclude the Chinese equity rally is over. So much of the “risk-on” case for China is underpinned by a belief that a Beijing Put of never-ending stimulus can be deployed whenever the authorities so choose. This goes together with a belief that policy makers have a plan to deal with slower growth, scary debt levels, and negotiating a variety of financial and currency reforms. Yet much of this is faith based on little more than fear, as the alternative is so unpalatable.
For now, the immediate concern is what the ongoing slump in Chinese shares does to the psyche of domestic retail investors. As this column has argued, the new issues market is pivotal, as it has been instrumental in driving stock mania by continuously delivering outsized gains. Reports that China’s securities regulator is considering suspending IPOs to help stabilize the wider market underlines this. But it could be a high-risk move and just as easily send an unequivocal signal that the bull market is over.
“..how can workers say they feel both burned out and claim to be happy?”
American workers have found themselves in a 21st century paradox. More than half of Americans (53%) are burned out and overworked, according to an inaugural survey of more than 2,000 workers by Staples Advantage, the business-to-business division of office supplier Staples. And yet an overwhelming number (86%) say they’re happy and willing to work for a promotion within their organization, says Dan Schawbel, founder of WorkplaceTrends.com, a research and advisory service for the human resources industry, who helped create the Staples survey. So how can workers say they feel both burned out and claim to be happy?
“While many are still happy at work, we have to ask whether it’s because they’re truly inspired and motivated, or simply conditioned to the new reality,” says Schawbel, who is also the author of “Promote Yourself: The New Rules for Career Success” and founder of Millennial Branding, a management and consulting firm. “People understand that this is just the world they’re living in now.” But all this overworking may be hurting productivity, the survey found. About half of respondents acknowledged they receive too much email, with about one-third of those saying that email overload hurts productivity. There is an expectation to be always available: The majority of people (52%) who send a work-related email expect a reply within 12 and 24 hours, according to a separate survey released earlier this year of 1,500 people by MailTime.com, an app that aims to organize and simplify emails.
“..it is those institutions that are farthest from the voters that wield the greatest power – the ECB, the IMF and the executive.”
Tired. Everyone is so tired — the politicians, the people, the media, the institutions, democracy. Europe is tired, exhausted, haggard. Yet another marathon negotiating session? How many have there already been? Yet again these tired eyes of overexertion of those involved in the negotiations. Once again a postponement or a compromise that nobody is convinced of and is really just the start of the next crisis. This is how things have been proceeding for years now. Enough already. We don’t want to speak of greatness, or of political heroes or of far-reaching actions. That’s difficult in a complex system like Europe. We want to speak of the minimum: Politics requires successes in order to legitimate itself. It has to solve problems, especially the really tough ones that require a lot of effort.
But that’s not happening. In the case of Greece, all we have been seeing are pseudo-solutions, if even that. A brief breather is always given, only to be followed by the next marathon meeting and the next expedited proceedings in the German parliament. The exhaustion will continue to grow, as will the weariness that will catapult the next populists into power – the very ones who will make solving the problems even harder. It’s a vicious cycle. But exhaustion is merely one of the costs of this permanent state of crisis. The truth is that we have lost Europe in recent years. It is no longer the Europe that its generation of founders and builders promised – people like Robert Schuman, Konrad Adenauer, Helmut Kohl and François Mitterrand. It’s almost the opposite. What we are living in today is an anti-Europe.
Much has contributed to this state of affairs – not least the euro crisis. But nothing has been as damaging as the protracted fight over Greece. Europe promised joint growth for everyone. Instead we have competition for prosperity. Many Germans don’t want to have to sacrifice anything for Greece, whereas many Greeks expect Germans to make a contribution to ensure that what the Greeks are forced to give up doesn’t become too harsh. Europe promised an end to nationalist thinking and even the end of the nation-state at some point in the future. In truth, the Continent is going through a renationalization. Few continue to believe in the greater good and the states have their eyes set on their own interests.
Europe promised reconciliation with its history. But instead, history has become a weapon, with Greece demanding that Germany pay World War II reparations. Meanwhile, images of German Chancellor Angela Merkel wearing a Hitler mustache have become a regular feature at anti-austerity protests all over Europe. Europe promised political equality. The intention was for France and Germany to lead on the Continent, while at the same time taking into account the concerns of the smaller member states. But in the crisis, Germany has overtaken its partners and become the EU’s dominant power.
Europe promised a Europe of the people. Instead, it is those institutions that are farthest from the voters that wield the greatest power – the ECB, the IMF and the executive. Parliaments, on the other hand, which have the greatest democratic legitimacy, are being forced to fast-track their approval of decisions made in Brussels.
“..the euro has been like a brick – you can throw it, just not very far..”
Amid Greece’s Sisyphean drama, the euro has been like a brick – you can throw it, just not very far. But that’s only temporary, Goldman Sachs says, sticking with its call for near-parity with the dollar. “This week’s jump in the euro on news of the Greek referendum made no sense to us,” the bank’s analysts said in a note Tuesday. “We continue to see mounting tensions over Greece as a catalyst for the euro-dollar to go near parity, if contagion to other peripherals causes the European Central Bank (ECB) to accelerate quantitative easing.” In one year’s time, the euro will be fetching just 95 cents, Goldman said.
Greece missed a repayment worth about €1.5 billion that was due to the IMF Tuesday, making it the first advanced nation to ever default on a debt to the global financial stability agency. That followed months of contentious negotiations with its creditors over exchanging reforms for another bailout. Those talks came to a standstill after a surprise move by Greek Prime Minister Alexis Tsipras to call for a referendum on whether to accept the creditors’ proposals, even though those proposals may no longer be on the table. The country is now subject to capital controls, meaning funds can no longer be transferred outside the country and ATM withdrawals are limited to just €60 a day.
“All this trouble with money comes from one meta problem: aggregate industrial growth has ended.”
Can anyone stabilize this bitch? At daybreak, anyway, the Federal Reserve governors were all bagging Z’s in their trundle beds. Maybe after a few pumpkin lattes they’ll jump in and tell their trading shills to BTFD. The soma-like perma-trance among those who follow markets and money matters appears to be ending abruptly with the recognition that sometimes robots and humans alike run shrieking to the exit. A pity when they get to the door and discover it opens onto a cliff-edge. Look out below.
All this trouble with money comes from one meta problem: aggregate industrial growth has ended. It has stopped more in some parts of the world than others, while in the USA it has actually been contracting. The cause is simple: the end of cheap energy, oil in particular. At over $70-a-barrel the price kills economies; under $70-a-barrel the price kills oil production. The bottom line is that, in the broadest sense, the world can no longer count on getting more stuff, except waste, garbage, political unrest, and the other various effects of entropy. From now on, there is only less of everything for a global population that has not stopped growing. The folks on-board are still having sex, of course, which has a certain byproduct.
This dynamic was plain to see a decade ago, but the people who run finance and governments thought it would be a good idea to maintain the appearance of growth via the usufruct mechanisms of central banking: ZIRP, QE, market intervention, and universal accounting fraud. It’s not working so well. Debt was generated in place of the missing growth, and now there is too much of it that can’t be repaid on a coherent schedule. Many nations, parties, and entities are in trouble with debt and the prospective defaults are starting to pile up like SUVs on a fog-bound highway. Greece is just the first one fishtailing into a guard-rail.
The magic moment will come when it becomes obvious that these systemic quandaries have no solution. The system itself is programmed for implosion, in particular and most immediately the banking sector, where most of the untruth and illusion is lodged these days. As it stands exposed, the people are compelled to shake off their faith in what it represents: order, authority, trust. Institutions fail and each failure acts as a black hole, sucking air, light, and even time out of the system.
“..it’s puppets all the way down.”
A while ago I had the pleasure of hearing Sergey Glazyev—economist, politician, member of the Academy of Sciences, adviser to Pres. Putin—say something that very much confirmed my own thinking. He said that anyone who knows mathematics can see that the United States is on the verge of collapse because its debt has gone exponential. These aren’t words that an American or a European politician can utter in public, and perhaps not even whisper to their significant other while lying in bed, because the American eavesdroppers might overhear them, and then the politician in question would get the Dominique Strauss-Kahn treatment (whose illustrious career ended when on a visit to the US he was falsely accused of rape and arrested).
And so no European (never mind American) politician can state the obvious, no matter how obvious it is. The Russians have that pretty well figured out by now. Yes, maintaining a dialogue and cordial directions with the Europeans is important. But it is well understood that the Europeans are just a bunch of American puppets with no will or decision-making authority of their own, so why not talk to the Americans directly? Alas, the Americans too are puppets. The American officials and politicians are definitely puppets, controlled by corporate lobbyists and shady oligarchs. But here’s a shocker: these are also puppets—controlled by the simple imperatives of profitability and wealth preservation, respectively. In fact, it’s puppets all the way down. And what’s at the bottom is a giant, ever-expanding, financial black hole.
Do you like your black hole? If you aren’t sure you like it, then let me ask you some other questions: Do you like the fact that your credit cards still work, or that you can still keep money in the bank and even get cash out of an ATM, or that you are either receiving or hope to eventually receive a pension? Do you like the fact that you can get useful things—food, gas, airline tickets—for mere pieces of paper with pictures of dead white men on them? Do you like the fact that you have internet access, that the lights are on, and that there is water on tap? Well, if you like these things, then you must also like the financial black hole, because that’s what’s making all of these things possible in spite of your country being bankrupt. Perhaps it’s a love-hate relationship: you love being able to pretend that everything is still OK even though you know it isn’t, and you wish to enjoy a bit more of the business-as-usual before it all goes to hell, be it for a few more days or another year or two; but you hate the fact that eventually the black hole will suck you in, after which point things will definitely… suck.