Christopher Helin Kissel military Highway Scout Kar at Multnomah Falls, Oregon 1918
Killing off your manufacturing base is the worst thing you can do.
Thomaston, Ga. — Not so long ago, this rural town an hour outside Atlanta was a hotbed of textile manufacturing. In the late 1990s, there were six major mills here. Their machines spun children’s clothing for Carter’s, made tire cords for B.F. Goodrich and produced bed sheets for J.C. Penney, Sears and Walmart. In all, they employed about 4,000 workers. By 2001, all of those jobs were gone. What has happened here in the 15 years since then tracks the slow comeback of manufacturing in the United States. Two textile companies have come in, investing millions in new technology and adding about 280 jobs in this town where one-third of the residents still live below the poverty line. It is becoming more affordable to produce textiles in the United States as machines become more efficient, companies say.
Major firms are more willing to pay higher prices for domestically sourced products, and rising wages in China mean there is less of an advantage to making products overseas. Last week, there was new cause for celebration when Marriott International announced that all towels in its 3,000 U.S. hotels would be manufactured by Standard Textile in plants here and in Union, S.C., a move expected to bring $23 million worth of business and 150 jobs back to the United States. The hotelier joins a number of other companies, including Walmart, Apple and General Electric, that have pushed for more U.S.-made products in recent years. But manufacturing employment here is a small fraction of what it was. Although a company such as Standard Textile once might have employed close to 1,000 people, today it has a couple of hundred workers who oversee machines that spin, scour and weave cotton.
“We’ve had to redefine who we were because we were a mill town for so long,” said Kyle Fletcher, executive director of the Thomaston-Upton Industrial Development Authority. “We lost a lot of the middle class.” The United States lost 30% of its manufacturing jobs between 1998 and 2016, according to Federal Reserve data. As of February, the country had 12.3 million workers in the sector, down from 17.6 million in April 2008. In February 2010, that figure was 11.5 million. There are hints that manufacturing is returning to the United States in small ways: The nation’s quarterly output has climbed steadily since the end of the recession, growing 35% and adding 650,000 jobs since mid-2009, according to the Fed. But the glory days are gone, Fletcher said. About one-third of Thomaston’s 9,000 residents live below the poverty line, compared with 23% in 1999. Average income has dropped more than 20% since 1999, to $14,243 from $18,193, according to U.S. Census data.
Dreams of lengthy cruises and beach life may be just that, with 20 of the world’s biggest countries facing a pension shortfall worth $78 trillion, Citi said in a report sent on Wednesday. “Social security systems, national pension plans, private sector pensions, and individual retirement accounts are unfunded or underfunded across the globe,” pensions and insurance analysts at the bank said in the report. “Government services, corporate profits, or retirement benefits themselves will have to be reduced to make any part of the system work. This poses an enormous challenge to employers, employees, and policymakers all over the world.” The total value of unfunded or underfunded government pension liabilities for 20 countries belonging to the OECD – a group of largely wealthy countries — is $78 trillion, Citi said. (The countries studied include the U.K., France and Germany, plus several others in western and central Europe, the U.S., Japan, Canada, and Australia.)
The bank added that corporates also failed to consistently meet their pension obligations, with most U.S. and U.K. corporate pensions plans underfunded. Countries with large public pension systems in Europe appear to have the greatest problem. Citi noted that Germany, France, Italy, the U.K., Portugal and Spain had estimated public sector pension liabilities that topped 300% of GDP. Improvements in health care mean retirees need to string out their income for longer. Meanwhile, the increase in the retirement-age population versus the working population is straining government pension schemes. Several countries, including the U.K., France and Italy are gradually hiking retirement ages. Citi recommended that governments explicitly link the retirement age to expected longevity. It also advised that government-funded pensions should serve merely as a “safety net,” rather than the prime pension provider, and that corporate pensions should be “opt out” rather than “opt in” to encourage greater enrollment.
Osborne’s not worried. He knew everyone would be talking about his sugar tax. Great diversion tactic.
George Osborne’s latest Budget pretended to be many things it wasn’t. The Chancellor talked repeatedly about “borrowing falling”, yet in the next three years, borrowing on our behalf goes sharply up. He warned about “financial instability” and “storm clouds” on the economic horizon, yet he’s relying on growth assumptions that are surely too optimistic. While barely mentioning the EU referendum, the Chancellor’s determination to avoid Brexit pervaded almost every paragraph of his 63-minute Commons statement. Far from being “a Budget for the next generation” – a phrase wielded 18 times – his policies were aimed at attracting as many “Remain” voters as he could, while doing as little as possible to upset those still undecided. Rather than a “long-term Budget” (19 mentions), the package was designed for the next three months, ahead of the EU vote that will decide Osborne’s political future.
What we’ve just seen, then, was possibly the most short-term “long-term budget” in history. Bound to get the chattering classes chuntering (“G&T slimline, anyone?”), Osborne’s flab-fighting “sugar levy” was cynically tactical, broadening his appeal among non-Conservatives, while diverting attention from the statistical sleight of hand at the heart of this Budget. “Borrowing continues to fall,” the Chancellor told us. Really? It’s astonishing that, a full eight years after the financial crisis, and after a surge in growth and employment, the UK is still borrowing more than £72bn a year. Government debt stands at £1,591bn, 50pc up since Osborne took office, more than £50,000 per person in full or part-time employment. The Government is spending £46bn annually on interest payments alone – more than on defence – and that’s with interest rates at historic lows.
As the debt and rates spiral upwards, that interest bill can only rise, all at the expense of spending on services. Instead of cutting borrowing on Wednesday, the Budget fine print shows that, over the next three years, we’ll be adding another £116bn to our national debt – more than £36bn up on the borrowing projections in last November’s Autumn Statement. We’ll probably end up borrowing even more, of course, than these already gargantuan numbers, not least if growth is lower than forecast. Since last November, some £5 trillion has been wiped off global stock markets. Morgan Stanley now warns clients of a 30pc chance of global recession over the next year. Many financiers privately judge the chance of a financial collapse to be far higher. “As one of the most open economies in the world, the UK isn’t immune to global slowdowns and shocks,” Osborne told the Commons. Yet, over each of the next six years, the Budget borrowing projections rest on growth of 2pc or more. While I obviously hope that happens, it amounts to a mighty optimistic assumption.
“Yellen has surrendered after achieving victory.”
Well, here’s another nice mess you’ve gotten us into, Janet. U.S. Fed Chair Janet Yellen left rates unchanged this week, and confided after the Fed’s two-day policy meeting that, despite continuing improvement in the U.S. economy, weak global economic growth and turbulent markets had spooked the Fed into halving the number of times it expects to raise rates this year, to two from four. Yellen’s capitulation is already producing a predictable whoop of jubilation in Asian markets, as it confirms this column’s observation that the hot money crowd has succeeded in cry-bullying global central bankers into keeping the punchbowl of cheap cash full to overflowing. Stocks in Shanghai and Hong Kong rose by more than 1%, while Philippine stocks were up almost 2%.
While it’s often the case that Asian stocks move reflexively with those on Wall Street, today it’s all about the U.S. dollar, which fell 1% against the Japanese yen and about 0.7% against the Euro. Even though Tokyo stocks are up, the Fed’s move is bad news for Japan and Europe as well as their respective central bankers, Haruhiko Kuroda and Mario Draghi. As this column explained yesterday, both gentlemen are working furiously to use a negative interest-rate policy to weaken their currencies, boost inflation and revive economic growth. Hearing that Yellen won’t be riding to the rescue soon with another rate hike will come as bad news to them. But it’s excellent news for Asia’s smaller markets, since investors hunting for higher yields can no longer count on getting more bang for the buck out of Yellen.
Indonesia’s rupiah, which has risen 6% already this year, gained another 0.8% after the Fed’s announcement. Malaysia’s ringgit – what corruption scandal? – rose 1% and South Korea’s won soared by 2.5%. Don’t get too excited. While a more reluctant Fed extends the risk-on rally for Asian assets, it does not bode well for investors looking for fundamental value or an upturn in corporate profitability. For starters, the Fed is once again behind the market. Even as they’ve kicked and screamed after the Fed ended a 10-year, zero interest-rate policy by raising rates last December, sending Asian stocks down roughly 15% by mid-February, investors are starting to adjust to the reality that the U.S. economy is not sinking into recession. Jobs and inflation are improving and markets that early this year were predicting no rate hike until 2017 were yesterday betting on another hike as early as July. Yellen has surrendered after achieving victory.
Will exporters force Beijing to devalue?
The yuan’s swings are becoming a headache for the Chinese companies that should have been the biggest beneficiaries of last year’s devaluation. In rare overt comments, exporters including Midea and TCL are expressing apprehension about the nation’s exchange-rate policy. Two said the increased volatility has made it difficult to manage costs because customers are choosing to place only short-term orders, while a third said the yuan was allowed to strengthen far too much in the past few years. “Overseas clients are taking into account losses that can be caused by exchange-rate swings and are placing shorter-term orders with smaller volumes, which creates difficulty for our operations,” said Yuan Liqun, VP at Midea, China’s biggest maker of household appliances by market share.
“The fluctuations last year were relatively significant. Companies can accept a market-based yuan that moves within a reasonable range.” Exports slumped 25% in February from a year earlier and a gauge of overseas orders contracted for the 17th month in a row, while the currency’s volatility held near the highest levels since August’s shock devaluation. This illustrates the challenge facing Premier Li Keqiang as he balances the need to nudge the exchange rate lower to help an economy growing at the slowest pace in 25 years, while trying to avoid a run that would create financial instability. The currency, which has plunged 4.8% since last year’s devaluation, climbed in September and October, and dropped in the following three months before rebounding in February. It has strengthened 0.5% in March so far, almost wiping out this year’s losses. The wild swings contributed to an estimated $1 trillion in capital outflows last year.
The yuan, which Royal Bank of Canada says is currently overvalued, will face renewed selling pressure once the Federal Reserve decides to raise borrowing costs again. The median forecast in a Bloomberg survey of economists is for a drop of 4.1% by the end of the year. Its decline against the dollar in 2015 – the most in 21 years – masked a sixth straight annual gain against the exchange rates of China’s main trading partners, according to a BIS index. This shows that there is more room for depreciation, according to Fuyao Glass Industry, which makes automobile windows and whose clients include BMW and Volkswagen. “The yuan is strong, so Chinese companies can’t go abroad and most exporters are making losses,” Cho Tak Wong, chairman of Fuqing, Fujian-based Fuyao, said in an interview over the weekend. “China should allow the yuan to weaken. If the currency doesn’t depreciate, exports will be negatively influenced and export-focused firms will suffer.”
“There were around 23.5 trillion yuan ($3.60 trillion) worth of WMPs outstanding at the end of 2015, up from around 15 trillion yuan a year earlier..”
Chinese banks are starting to create a web of risk through their wealth management products (WMPs), raising concerns about the health of the financial system just as China’s economic growth has slowed to its weakest pace in 25 years. Retail investors are the majority of buyers of WMPs, which offer higher interest rates than a bank deposit. But it isn’t always clear what assets the funds are buying to finance those payouts. The industry publishes aggregated data on where WMPs tend to invest, but the disclosures of individual products can be vague. Overall, WMPs tend to invest in the industrial sector as well as industries related to local government and real estate, according to Fitch. All of these are segments of the economy suffering from overcapacity.
Most WMPs – as many as 74% – don’t carry the issuing bank’s guarantee that investors will be made whole at the end of the product’s term, which is usually less than six months, Fitch said. But even if the products fail to meet performance expectations, banks may choose to repay investors anyway to avoid the spectacle of mom and pop protesters in front of its branches – something that occurred outside a Hua Xia Bank branch near Shanghai in 2012, according to a Reuters report. When the WMP’s performance isn’t up to snuff, it can become a risk for more than just the issuing bank. “The fear is that investments are in industries that might not be generating cash so when they come due, the cash to repay investors might not be there.
There’s always pressure to roll them over,” Jack Yuan, associate director for financial institutions at Fitch, said last week. Additionally, some banks are investing in other banks’ WMPs – those investments are usually on banks’ balance sheets in a category called “investments classified as receivables,” Yuan noted. “There are a lot of interlinkages in the banking sector in terms of banks investing in other banks’ WMPs and calling on the interbank market for funding if they do go bad,” he said. “It’s going to be more and more difficult to resolve these if they do go bad.” There were around 23.5 trillion yuan ($3.60 trillion) worth of WMPs outstanding at the end of 2015, up from around 15 trillion yuan a year earlier, Fitch noted, with around 3,500 new ones offered each week.
“Peabody’s share price has fallen to under $2.50 from more than $1,300 in 2008.”
Peabody Energy, the U.S.’s biggest coal miner, Wednesday posted a going-concern notice in a regulatory filing, warning of possible bankruptcy. A chapter 11 filing by Peabody, which operates 26 mines in the U.S. and Australia, would be the latest in a wave of bankruptcies to hit top American coal producers, including Arch Coal, Alpha Natural Resources, Patriot Coal and Walter Energy, as they wrestle with low energy prices, new regulations, and the conversion of coal-fired power plants to natural gas. Punctuating Peabody’s woes, the Energy Information Administration Wednesday said that 2016 “will be the first year that natural gas-fired generation exceeds coal generation.”
The EIA said Americans would get 33% of their electricity from gas in 2016, and 32% from coal. As recently as 2008, coal fed half of U.S. electricity consumption. The weakening demand is hurting markets. Coal prices have fallen 62% since 2011, and 18% in the past year, according to the EIA. That drop is crushing companies like Peabody. The company has now lost money in nine straight quarters, and in 2015 posted a $2 billion deficit. As of Dec. 31, it had $6.3 billion in debt and $261.3 million in cash. Peabody, whose biggest mining operations are in Wyoming, has also been weighed down by its ill-timed acquisition of Australia’s Macarthur Coal for $5.1 billion in 2011. Prices have been declining ever since. Company shares, which have already lost more than 95% of their value in the past 12 months, fell 44% in midday trading.
Peabody’s share price has fallen to under $2.50 from more than $1,300 in 2008. On Wednesday, Peabody pointed to uncertainty around global coal fundamentals, economic growth concerns of some major coal-importing nations and the potential for additional regulatory requirements on coal producers as reasons for its notice. Because of operating problems and other financial problems, “we may not have sufficient liquidity to sustain operations and to continue as a going concern,” the St. Louis-based miner said in a filing with the SEC. “We may need to voluntarily seek protection under chapter 11 of the U.S. bankruptcy code.” Peabody said it had delayed an interest-rate payment on two loans, triggering a 30-day grace period. If the payments aren’t made within 30 days, an event of default would be declared.
Energy-sector bond defaults – and for some producers, bankruptcy risks – are piling up and coal liabilities aren’t the only culprit. Oil-and-gas producers, suffering with low crude prices after a shale revolution made the U.S. a viable energy producer, are smothered under their own junk bonds. Small- and medium-sized U.S.-based producers, especially those that expanded with the shale boom, are most vulnerable; any small blip in oil prices may not be high enough or fast enough to protect all producers. And just this week at least two more have warned about their near-term future. It’s a climate that’s driven some of this sector’s high-yield paper to trade at 30 cents on the dollar or less.
Peabody Energy said Wednesday it filed a “going concern” notice with regulators. Peabody has opted to exercise the 30-day grace period with respect to a $21.1 million interest payment due March 16 on its 6.50% notes due in September 2020, as well as a $50 million interest payment due March 16 on its 10% senior secured second lien notes due in March 2022. Costs and lost business to tougher coal regulation were cited. But Linn Energy – which on Tuesday filed its own “going concern” after missed interest payments now in a grace period — is primarily an oil-and-gas producer with shale interests in western U.S. states. If it files for bankruptcy protection, its $10 billion in debt would make it the largest U.S. oil company to do so since oil prices began their sharp decline in 2014.
In all, about 40 oil and gas producers have filed for bankruptcy protection globally since 2014, according to a February report from Deloitte. Crude traded to 12-year lows, below $30 a barrel, in February before a recent, mild rebound. Energy consulting firm Rystad Energy says smaller players typically need a minimum $50-a-barrel oil price to make a profit. Last week, Fitch said it’s raising its 2016 forecast for U.S. high-yield bond defaults to 6% from 4.5%, and said it expects energy and materials issuers to default on $70 billion of debt this year, including $40 billion for energy alone. The new rate of default is the highest that Fitch has ever forecast during a non-recessionary period, beating the 5.1% it forecast for 2000.
Might as well sell then, right?
The check is not in the mail. Bludgeoned by falling energy prices, at least a dozen oil and natural gas companies have opted to cut dividends this year to preserve cash, cannibalizing payouts considered sacrosanct by many investors. The cost to shareholders: more than $7.4 billion in lost income, compared to what they would have received this year if the payouts remained the same. It’s another painful measure – along with tens of thousands of layoffs and more than $100 billion in canceled investments – of the toll taken on the industry by the worst oil and gas price slump in decades. The quarterly payments, prized by conservative shareholders as a source of steady income, are unlikely to be restored any time soon. “It really reinforces the necessity of having a margin of safety if you are buying a stock primarily for its dividend,” said Josh Peters, editor of Morningstar’s DividendInvestor newsletter.
“What we have found for some of the energy companies is that the margin of safety was either slim or nonexistent.” Kinder Morgan’s 75% dividend cut was the biggest, amounting to a $3.44 billion loss for shareholders over the course of 2016. The announcement from North America’s largest pipeline operator “came as a shock to some people and obviously was deplored by some people,” founder and Executive Chairman Richard Kinder told analysts at a Jan. 27 meeting. The move was necessary to help the Houston-based company keep its investment-grade credit rating while ensuring it has enough money to pay debts and grow, Kinder said. Since the Dec. 8 announcement, shares have risen about 20%, compared with a 3% gain for the Alerian MLP stock index, which tracks energy infrastructure companies.
It’s a miracle Pemex still exists.
Pemex, Mexico’s state-owned oil giant, cannot seem to get a break these days. It notched up 13 straight quarters of rising losses. It now owes over $80 billion to international investors and banks. It needs to raise $23 billion this year to stay afloat. The cost of servicing that gargantuan debt mountain continues to rise. So it tries desperately to rein in its spending, without tackling — or even discussing — its endemic culture of corruption. In recent days, Pemex received a 15 billion peso ($840 million) lifeline from three of Mexico’s homegrown development banks, Banobras, Bancomext and Nafinsa, to help the firm pay back some of its smallest providers, consisting mainly of domestic SMEs. The loan was part of an arrangement cobbled together between the banks and the Mexican government.
By today’s standards the amount involved is pretty meager, but the operation was about more than just raising funds: it was meant to restore confidence among both investors and suppliers in the firm’s ability to repay its debts. “This sends a sign of stability and confidence to the sector, which has been very nervous” payments would not be made, explained Erik Legorreta, President of the Mexican Oil Industry Association, which represents around 3,000 service providers. “Members of the industry now have the confidence and certainty that the payments will be honored.” Not everyone agrees. Last week the U.S. credit rating agency Moody’s flagged concerns that the loan will significantly increase the three banks’ combined exposure to Pemex’s debt, calculated to grow from 44% to 62%.
“The three lenders now have high concentration risks with their 20 biggest creditors,” cautioned Moody’s, which already downgraded Pemex’s debt in November to Baa1, with a negative outlook. In its report last week, the agency piled on the pressure by warning that there’s “a high likelihood” that it will downgrade Pemex’s rating another notch in the coming weeks. What this all means is that rather than restoring investor confidence in Pemex, the loan operation has merely served to reinforce investors’ fears that lending to the debt-laden oil giant is fast becoming a very dangerous risk.
We’ll see more of this.
Munich Re is resorting to the corporate equivalent of stuffing notes under the mattress as the world’s second-biggest reinsurer seeks to avoid paying banks to hold its cash. The German company will store at least €10 million in two currencies so it won’t have to pay for the right to access the money at short notice, Chief Executive Officer Nikolaus von Bomhardsaid at a press conference in Munich on Wednesday. “We will also observe what others are doing to avoid paying negative interest rates,” he said. Institutional investors including insurers, savings banks and pension funds are debating whether to store cash in vaults as overnight deposit rates fall deeper below zero and negative yields dent investment returns. The costs associated with insurance and logistics may outweigh the benefits of taking this step.
Munich Re’s move comes after the ECB last week cut the rate on the deposit facility, which banks use to park excess funds, to minus 0.4%. Munich Re’s strategy, if followed by others, could undermine the ECB’s policy of imposing a sub-zero deposit rate to push down market credit costs and spur lending. Cash hoarding threatens to disrupt the transmission of that policy to the real economy. Munich Re wants to test how practical it would be to store banknotes having already kept some of its gold in vaults, von Bomhard said. This comes at a time when consumers are increasingly using credit cards and electronic banking to pay for transactions. Deutsche Bank CEO John Cryan in January predicted the disappearance of physical cash within a decade. Munich Re also said on Wednesday that it expects its profit to decline this year as falling prices for its products and low interest rates weigh on investment earnings.
The Dutch parliament has voted to ban arms exports to Saudi Arabia in protest against the kingdom’s humanitarian and rights violations. It sees the Netherlands become the first EU country to put in practice a motion by the European Parliament in February urging a bloc-wide Saudi arms embargo. The bill, voted through by Dutch MPs on Tuesday, quoted UN figures which suggest almost 6,000 people – half of them civilians – have been killed since Saudi-led troops entered the conflict in Yemen. It also cited the mass execution of 47 people, largely political dissidents, ordered by the Saudi judiciary on 2 January this year.
According to Reuters, the Dutch bill asks the government to implement a strict weapons embargo that includes dual-use exports which could potentially be used to violate human rights. The vote adds to the growing pressure on Britain, one of the main arms suppliers to Riyadh, to reconsider its stance. According to Campaign Against Arms Trade figures from the start of the year, the UK has sold more than £5.6 billion worth of weapons to the Saudi government under David Cameron. France is the other major European supplier of arms to the Saudi kingdom. Germany’s exports amounted to almost £140 million in the first six months of 2015, while figures for the Netherlands itself were not available.
Has this changed their policy yet?
Austria’s asylum cap to 37,500 refugees has been declared unlawful by the country’s Constitutional Court on Tuesday, March 15. While Chancellor Werner Faymann is calling on Germany to introduce its own cap, the president of Austria’s Constitutional Court, Gerhart Holzinger, stated that Austria is obliged to grand asylum to everyone that meets the legal requirements. Vienna allows 80 asylum seekers per day and allows 3,200 to transit to Germany. Meanwhile, the Austrian Defense Minister, Peter Doskozil, suggested on Tuesday that the EU should help the Former Yugoslav Republic of Macedonia (FYROM) – an EU candidate state – to secure its borders with Greece, an EU member state. Doskozil praised the government in Skopje for the work it has done “for the whole of the EU.” Austria’s Vice-President, Reinhold Mitterlehner, reiterated that “the Balkan route must stay closed.”
How the EU sees this: “We have a week to build a Greek state..” Insane, but true. It smells like the efficiency goal of German camps 70 years ago. If you don’t put people first, you’re going to get it wrong.
On paper the EU’s latest migration plan promises a straightforward solution to a crisis that has vexed European leaders for months. But in practice, it is anything but simple. By returning thousands of migrants to Turkey, Brussels and Berlin are hoping that others will become convinced the route is now impassable and join a formalised system instead. But its implementation poses an enormous administrative test, with little time to prepare. One of the EU’s weakest states, Greece, will be asked to play a central role. “We have a week to build a Greek state,” joked one senior EU official intimately involved with the planning. Frans Timmermans, the European Commission vice-president, acknowledged: “You don’t need to tell me that this is going to be very complicated in legal and logistical terms.” Here are five Herculean tasks ahead:
Preparing the ground — legally and literally Europe’s return plan violates Greek law. To address this, Greece must overhaul its asylum laws in a matter of days to enshrine Turkey as a “safe third country” to receive asylum seekers. The next step is harder: clearing the backlog. There are around 8,000 migrants on Greek islands, such as Lesbos and Chios. Officials say they ideally need to be moved before the so-called “X Day” -as early as Friday- when the returns policy officially begins. Yet Greek facilities are strained. Shelter is lacking on the mainland, where almost 40,000 migrants are already stranded. Mixing the groups — those who are trapped in Greece, awaiting relocation to Europe, and those who will be sent straight back to Turkey – could get ugly.
Creating a functioning asylum system in Greece “Unacceptable”, “degrading” and “unsanitary” were a few of the words used to describe Greece’s asylum system when the European Court of Human Rights banned other EU members from sending asylum seekers there in 2011. Yet the Greek system will now be the fulcrum of the EU’s deal with Turkey. Greece is the place where thousands of asylum seekers will land, be processed, housed and then returned to Turkey. This will require more manpower, particularly on the Aegean Islands. Everyone from judges -estimates range from 50 to 200- to a small army of Arabic or Pashto translators are required. “We’re far away from having the people, let alone trained people,” said one European official involved in preparations.
An asylum seeker’s claim is supposed to take a week to process, according to the EU plan. But the legal hoops are multiplying as Brussels attempts to guard against court challenges. This requires an assessment of each individual case and an interview. Applications must be dealt with fast – but not too fast. (In October, the European Commission criticised Budapest for rejecting applications in under an hour.) Most difficult is the appeals procedure, which must be heard by a judge. If Greece fails to jump through any of these legal hoops then judges in Greece, Luxembourg or Strasbourg could strike down the agreement. “That would bring the whole system to a halt,” said one senior EU official.
Managing unco-operative migrants So-called “hotspots” in Greece were first promised in September, yet these registration and sorting centres are only now taking shape. They can accommodate around 8,050 arrivals, according to the European Commission. Yet their role is about to change drastically. For a returns policy to work efficiently, hotspots must not simply register migrants but detain them. The centres will become containment facilities, according to EU plans, from which migrants who are about to be returned cannot escape. That requires more fences, more overnight shelter and more security guards. This is a horrible challenge. The UNHCR survey of Syrian refugees in February found almost half to be children. Some detainees will be desperate and angry at the prospect of return, having just risked their lives on a sea journey that possibly cost their life savings. The risk of disorder is high.
Isn’t that a crazy headline, given that less than 1000 of 160,000 have actually been resettled?!
The EU is preparing to scale back the number of Syrian refugees offered resettlement in Europe, as part of a controversial pact being drawn up with Turkey. The bloc’s 28 leaders will hold a summit in Brussels on Thursday, before a meeting the Turkish prime minister, Ahmet Davutoglu on Friday, to hammer out the final details of a plan aimed at stemming the flow of refugees and migrants coming to Europe. The EU has pledged to resettle Syrian refugees currently in Turkey, but figures that emerged on Wednesday suggested only 72,000 places would be available, with uncertainty about the bloc’s commitment beyond this number. As the UNHCR stepped up calls for a coordinated approach to manage the number of people, European diplomats were scrambling to finalise a deal with Turkey.
Under a proposed “one-for-one” scheme, for every Syrian refugee in Turkey who is resettled in Europe, a Syrian in Greece would be sent back across the Aegean. The vast majority of refugees and migrants in Greece can also expect to be sent back to Turkey. When these broad principles were agreed at an EU-Turkey summit 10 days ago, the numbers were vague but details are now emerging. Of the 72,000 places identified by the Commission for Syrian refugees, 18,000 places would be available under a voluntary resettlement scheme agreed last year. A further 54,000 places may be available “if needed” under a separate scheme designed to spread asylum seekers more evenly around the bloc, although this would require a change to EU law.
Frans Timmermans, vice-president of the European commission, said the EU would continue to help after these places were used up. It pointed to “a coalition of the willing”, made up of EU member states including Germany and Austria, who have pledged to resettle Syrians once irregular arrivals had stopped. “When we succeed in breaking the pattern of irregular arrivals one-for-one will not become none-for-none,” Timmermans said. But the various EU schemes to rehouse refugees are painfully slow. A plan to find homes for 160,000 refugees has led to only 937 being resettled, according to the latest data. Several countries are concerned that the Turkey deal could mean large-scale resettlement of Syrians in Europe.
A senior EU official said there “cannot be an open-ended commitment on the EU side”. The numbers discussed indicate that the EU wants to scale back help in Europe offered to refugees. Syrians in Greece will go to the back of the queue for resettlement in Europe once they are returned to Turkey. “Priority will be given to Syrians who have not previously entered the EU irregularly,” states an unpublished draft. The commission argues the plan will kill the business model of people smugglers, as potential migrants will have no incentive to come to Europe if they think they will be turned away. But the UN’s human rights chief has warned that the EU risks compromising its human rights values if it cuts corners on asylum standards.
As the Balkan borders close, refugees will use new routes and old ones. At an even higher risk.
More than 2,400 migrants and three corpses have been recovered from people smugglers’ boats off Libya since Tuesday, Italy’s coastguard said Wednesday. After several quiet weeks, the figures represent a pick-up in the flow of migrants attempting to reach Italy via Libya, a route through which around 330,000 people have made it to Europe since the start of 2014. Prior to the latest rescues, the UN refugee agency (UNHCR) had reported 9,500 people landing at Italian ports since the start of the year. This compares with more than 143,000 who have reached Greek islands by crossing the Aegean Sea since January 1.
With efforts underway to close the entry route through Greece, Italian authorities are wary of a surge in the number of migrants attempting to come through Libya. So far there has been no indication of that happening. Numbers arriving from Libya have always fluctuated in line with weather conditions in the Mediterranean and other factors. Arrivals were slightly down in 2015 compared with 2014 – a trend that may be related to the political chaos in Libya which might have deterred some migrants and has made it harder for those that do make the journey to find work there while awaiting boats to Italy.
Merry St. Paddy’s