G.G. Bain ‘Casino Theater playing musical ‘The Little Whopper’, NY 1920
What NIRP and ZIRP bring to the real economy. This is global.
A dark storm is brewing in the world of private pensions, and all hell could break loose when it finally hits. As the Washington Post reports, the Central States Pension Fund, which handles retirement benefits for current and former Teamster union truck drivers across various states including Texas, Michigan, Wisconsin, Missouri, New York, and Minnesota, and is one of the largest pension funds in the nation, has filed an application to cut participant benefits, which would be effective July 1 2016, as it “projects” it will become officially insolvent by 2025. In 2015, the fund returned -0.81%, underperforming the 0.37% return of its benchmark. Over a quarter of a million people depend on their pension being handled by the CSPF; for most it is their only source of fixed income.
Pension funds applying to lower promised benefits is a new development, albeit not unexpected (we warned of this mounting issue numerous times in the past). For many years there existed federal protections which shielded pensions from being cut, but that all changed in December 2014, when folded neatly into a $1.1 trillion government spending bill, was a proposal to allow multi employer pension plans to cut pension benefits so long as they are projected to run out of money in the next 10 to 20 years. Between rising benefit payouts as participants become eligible, the global financial crisis, and the current interest rate environment, it was certainly just a matter of time before these steps were taken to allow pension plans to cut benefits to stave off insolvency.
The Central States Pension Fund is currently paying out $3.46 in pension benefits for every $1 it receives from employers, which has resulted in the fund paying out $2 billion more in benefits than it receives in employer contributions each year. As a result, Thomas Nyhan, executive director of the Central States Pension Fund said that the fund could become insolvent by 2025 if nothing is done. The fund currently pays out $2.8 billion a year in benefits according to Nyhan, and if the plan becomes insolvent it would overwhelm the Pension Benefit Guaranty Corporation (designed by the government to absorb insolvent plans and continue paying benefits), who at the end of fiscal 2015 only had $1.9 billion in total assets itself. Incidentally as we also pointed out last month, the PBGC projects that they will also be insolvent by 2025 – it appears there is something very foreboding about that particular year.
“Nearly half of American adults are “financially fragile” and “living very close to the financial edge.”
Since 2013, the federal reserve board has conducted a survey to “monitor the financial and economic status of American consumers.” Most of the data in the latest survey, frankly, are less than earth-shattering: 49% of part-time workers would prefer to work more hours at their current wage; 29% of Americans expect to earn a higher income in the coming year; 43% of homeowners who have owned their home for at least a year believe its value has increased. But the answer to one question was astonishing. The Fed asked respondents how they would pay for a $400 emergency. The answer: 47% of respondents said that either they would cover the expense by borrowing or selling something, or they would not be able to come up with the $400 at all. Four hundred dollars! Who knew? Well, I knew. I knew because I am in that 47%.
I know what it is like to have to juggle creditors to make it through a week. I know what it is like to have to swallow my pride and constantly dun people to pay me so that I can pay others. I know what it is like to have liens slapped on me and to have my bank account levied by creditors. I know what it is like to be down to my last $5—literally—while I wait for a paycheck to arrive, and I know what it is like to subsist for days on a diet of eggs. I know what it is like to dread going to the mailbox, because there will always be new bills to pay but seldom a check with which to pay them. I know what it is like to have to tell my daughter that I didn’t know if I would be able to pay for her wedding; it all depended on whether something good happened. And I know what it is like to have to borrow money from my adult daughters because my wife and I ran out of heating oil.
You wouldn’t know any of that to look at me. I like to think I appear reasonably prosperous. Nor would you know it to look at my résumé. I have had a passably good career as a writer—five books, hundreds of articles published, a number of awards and fellowships, and a small (very small) but respectable reputation. You wouldn’t even know it to look at my tax return. I am nowhere near rich, but I have typically made a solid middle- or even, at times, upper-middle-class income, which is about all a writer can expect, even a writer who also teaches and lectures and writes television scripts, as I do.
And you certainly wouldn’t know it to talk to me, because the last thing I would ever do—until now—is admit to financial insecurity or, as I think of it, “financial impotence,” because it has many of the characteristics of sexual impotence, not least of which is the desperate need to mask it and pretend everything is going swimmingly. In truth, it may be more embarrassing than sexual impotence. “You are more likely to hear from your buddy that he is on Viagra than that he has credit-card problems,” says Brad Klontz, a financial psychologist who teaches at Creighton University in Omaha, Nebraska, and ministers to individuals with financial issues. “Much more likely.”
“From a credit perspective, we’d be more comfortable with China slowing more than it is. We are getting less confident in the government’s commitment to structural reforms.”
Billionaire investor George Soros said China’s debt-fueled economy resembles the U.S. in 2007-08, before credit markets seized up and spurred a global recession. China’s March credit-growth figures should be viewed as a warning sign, Soros said at an Asia Society event in New York on Wednesday. The broadest measure of new credit in the world’s second-biggest economy was 2.34 trillion yuan ($362 billion) last month, far exceeding the median forecast of 1.4 trillion yuan in a Bloomberg survey and signaling the government is prioritizing growth over reining in debt. What’s happening in China “eerily resembles what happened during the financial crisis in the U.S. in 2007-08, which was similarly fueled by credit growth,” Soros said. “Most of money that banks are supplying is needed to keep bad debts and loss-making enterprises alive.”
Soros, who built a $24 billion fortune through savvy wagers on markets, has recently been involved in a war of words with the Chinese government. He said at the World Economic Forum in Davos that he’s been betting against Asian currencies because a hard landing in China is “practically unavoidable.” China’s state-run Xinhua news agency rebutted his assertion in an editorial, saying that he has made the same prediction several times in the past. China’s economy gathered pace in March as the surge in new credit helped the property sector rebound. Housing values in first-tier cities have soared, with new-home prices in Shenzhen rising 62 percent in a year. While China’s real estate is in a bubble, it may be able to feed itself for some time, similar to the U.S. in 2005 and 2006, Soros said.
China’s economy gathered pace in March as the surge in new credit helped the property sector rebound. Housing values in first-tier cities have soared, with new-home prices in Shenzhen rising 62 percent in a year. While China’s real estate is in a bubble, it may be able to feed itself for some time, similar to the U.S. in 2005 and 2006, Soros said. “Most of the damage occurred in later years,” Soros said. “It’s a parabolic cycle.” Andrew Colquhoun at Fitch Ratings, is also concerned about China’s resurgence in borrowing. Eventually, the very thing that has been driving the economic recovery could end up derailing it, because China is adding to a debt burden that’s already unsustainable, he said.
Fitch rates the nation’s sovereign debt at A+, the fifth-highest grade and a step lower than Standard & Poor’s and Moody’s Investors Service, which both cut their outlooks on China since March. “Whether we call it stabilization or not, I am not sure,” Colquhoun said in an interview in New York. “From a credit perspective, we’d be more comfortable with China slowing more than it is. We are getting less confident in the government’s commitment to structural reforms.”
The rest of the world’s steel producers may be pressuring Beijing to slash output and help reduce a global glut that is causing losses and costing jobs, but the opposite is happening in the steel towns of China. While the Chinese government points to reductions in steel making capacity it has engineered, a rapid rise in local prices this year has seen mills ramp up output. Even “zombie” mills, which stopped production but were not closed down, have been resurrected. Despite global overproduction, Chinese steel prices have risen by 77% this year from last year’s trough on some very specific local factors, including tighter supplies following plant shutdowns last year, restocking by consumers and a pick-up in seasonal demand following the Chinese New Year break.
Some mills also boosted output ahead of mandated cuts around a major horticultural show later this month in the Tangshan area. Local mills must at least halve their emissions on certain days during the exposition, due to run from April 29 to October. China, which accounts for half the world’s steel output and whose excess capacity is four times U.S. production levels, has said it has done more than enough to tackle overcapacity, and blames the glut on weak demand. But a survey by Chinese consultancy Custeel showed 68 blast furnaces with an estimated 50 million tonnes of capacity have resumed production. The capacity utilization rate among small Chinese mills has increased to 58% from 51% in January.
At large mills, it has risen to 87% from 84%, according to a separate survey by consultancy Mysteel. The rise in prices has thrown a lifeline to ‘zombie’ mills, like Shanxi Wenshui Haiwei Steel, which produces 3 million tonnes a year but which halted nearly all production in August. It now plans to resume production soon, a company official said. Another similar-sized company, Jiangsu Shente Steel, stopped production in December but then resumed in March as prices surged, a company official said. More than 40 million tonnes of capacity out of the 50-60 million tonnes that were shut last year are now back on, said Macquarie analyst Ian Roper. “Capacity cuts are off the cards given the price and margin rebound,” he said.
The fight over jurisdiction and fees will heat up. Just like the Arctic itself.
China will encourage ships flying its flag to take the Northwest Passage via the Arctic Ocean, a route opened up by global warming, to cut travel times between the Atlantic and Pacific oceans, a state-run newspaper said on Wednesday. China is increasingly active in the polar region, becoming one of the biggest mining investors in Greenland and agreeing to a free trade deal with Iceland. Shorter shipping routes across the Arctic Ocean would save Chinese companies time and money. For example, the journey from Shanghai to Hamburg via the Arctic route is 2,800 nautical miles shorter than going by the Suez Canal. China’s Maritime Safety Administration this month released a guide offering detailed route guidance from the northern coast of North America to the northern Pacific, the China Daily said.
“Once this route is commonly used, it will directly change global maritime transport and have a profound influence on international trade, the world economy, capital flow and resource exploitation,” ministry spokesman Liu Pengfei was quoted as saying. Chinese ships will sail through the Northwest Passage “in the future”, Liu added, without giving a time frame. Most of the Northwest Passage lies in waters that Canada claims as its own. Asked if China considered the passage an international waterway or Canadian waters, Chinese Foreign Ministry spokeswoman Hua Chunying said China noted Canada considered that the route crosses its waters, although some countries believed it was open to international navigation.
In Ottawa, a spokesman for Foreign Minister Stephane Dion said no automatic right of transit passage existed in the waterways of the Northwest Passage. “We welcome navigation that complies with our rules and regulations. Canada has an unfettered right to regulate internal waters,” Joseph Pickerill said by email.
Talk to the hand.
Europe’s central bank took the unorthodox step of cutting interest rates below zero in 2014. Japan followed suit earlier this year, and has become home to more negative-yielding debt than anywhere else, leading Germany, France, the Netherlands and Belgium.
Crazy free money, no strings: “Banks are encouraged to extend credit to the real economy but are not penalized for not meeting their benchmark lending targets..”
Economists and analysts have been swooning over a new series of ultra-cheap, ultra-long bank loans announced by the ECB last month, which they believe might just kickstart the region’s fragile economy. “It’s massively positive,” Erik Nielsen, global chief economist at UniCredit, told CNBC via email regarding the new breed of “credit-easing” tactics announced by ECB President Mario Draghi. These targeted long-term refinancing operations, or TLTRO IIs, advance on a previous model announced by the central bank in 2011 and effectively give free money to the banks to lend to the real economy. They’re a series of four loans – conducted between June 2016 and March 2017 – and will have a fixed maturity of four years.
The interest rate will start at nothing, but could become as low as the current deposit rate, which is currently -0.40%, if banks meet their loan targets. This means the banks will be receiving cash for borrowing from the central bank. Banks will need to post collateral at the ECB but there’s no penalty if they fail to meet their loan targets. All that will happen is that the loans will be priced at zero for four years. Frederik Ducrozet, a euro zone economist with private Swiss-bank Pictet, called it “unconditional liquidity to banks at 0% cost, against collateral.” He said in a note last month that he expects it to lower bank funding costs, mitigate the adverse consequences of negative rates, strengthen the ECB’s forward guidance and improve the transmission of monetary policy.
Abhishek Singhania, a strategist at Deutsche Bank, added that the new LTROs “reduce the stigma” attached to their use compared to the previous model. “Banks are encouraged to extend credit to the real economy but are not penalized for not meeting their benchmark lending targets,” he said in a note last month.
Ambrose muses on Europe: “The EU is a strategic relic of a post-War order that no longer exists, and a clutter of vested interests that caused Europe to miss the IT revolution.”
[..] The Justice Secretary is right to dismiss Project Fear as craven and defeatist. A vote to leave the dysfunctional EU half-way house might well be a “galvanising, liberating, empowering moment of patriotic renewal”. The EU is a strategic relic of a post-War order that no longer exists, and a clutter of vested interests that caused Europe to miss the IT revolution. “We will have rejected the depressing and pessimistic vision that Britain is too small and weak, and the British people too hapless and pathetic, to manage their own affairs,” he said. The special pleading of the City should be viewed with a jaundiced eye. This is the same City that sought to stop the country upholding its treaty obligations to Belgium in 1914, and that funded the Nazi war machine even after Anschluss in 1938, lobbying for appeasement to protect its loans. It is morally disqualified from any opinion on statecraft or higher matters of sovereign self-government.
Mr Gove is right that the European Court has become a law unto itself, asserting a supremacy that does not exist in treaty law, and operating under a Roman jurisprudence at odds with the philosophy and practices of English Common Law. It has seized on the Charter of Fundamental Rights to extend its jurisdiction into anything it pleases. Do I laugh or cry as I think back to the drizzling Biarritz summit of October 2000 when the Europe minister of the day told this newspaper that the charter would have no more legal standing than “the Beano or the Sun”? What Mr Gove cannot claim with authority is that Britain will skip painlessly into a “free trade zone stretching from Iceland to Turkey that all European nations have access to, regardless of whether they are in or out of the euro or the EU”.
Nobody knows exactly how the EU will respond to Brexit, or how long it would take to slot in the Norwegian or Swiss arrangements, or under what terms. Nor do we know how quickly the US, China, India would reply to our pleas for bi-lateral deals. Over 100 trade agreements would have to be negotiated, and the world has other priorities. Brexit might set off an EU earthquake as Mr Gove says – akin to the collapse of the Berlin Wall in the words of France’s Marine Le Pen – but it would not resemble his children’s fairy tale. The more plausible outcome is a 1930s landscape of simmering nationalist movements with hard-nosed reflexes, and a further lurch toward authoritarian polities from Poland to Hungary and arguably Slovakia, and down to Romania where the Securitate never entirely lost its grip and Nicolae Ceausescu is back in fashion.
Pocket Putins will have a field day knowing that they can push the EU around. The real Vladimir Putin will be waiting for his moment of maximum mayhem to try his luck with “little green men” in Estonia or Latvia, calculating that nothing can stop him restoring the western borders of the Tsarist empire if he can test and subvert NATO’s Article 5 – the solidarity clause, one-for-all and all-for-one. A case can be made that the EU has gone so irretrievably wrong that Britain must withdraw to save its legal fabric and parliamentary tradition. If so, let us at least be honest about what we face. One might equally quote another British prime minster, with poetic licence: ‘I have nothing to offer but blood, toil, tears, and sweat’.
Greece is mor elikely to leave in the wake of a new refugee disaster.
Greece could crash out of the eurozone as early as this summer if Britons vote to leave the European Union in the upcoming referendum, economists have predicted. The uncertainty following a ‘yes’ vote to Britain leaving the EU would put unsustainable pressure on Greece’s cash-strapped economy at a time when it is also struggling to cope with an influx of migrants escaping turmoil in the Middle East and Africa, according to a report from the Economist Intelligence Unit. The authors of the report say it is highly likely that Greece will be forced to leave the eurozone at some point within the next five years, but that if the UK votes to leave the EU in June, it could happen much sooner. Greece is already under a huge amount of pressure and a so-called Brexit could tip it over the edge.
The country has large debt payments due in mid-2016, while structural reforms recommended in Greece’s bail-out programme are “slow burners” and unlikely to deliver any significant growth in the short term. Greece’s true GDP contracted by 0.3pc last year, while unemployment stands at 24pc. The country’s overall debt-to-GDP ratio has hit 171pc. “While the region could probably handle a Brexit, Grexit or an escalation of the migrant crisis individually, it would be unlikely to navigate successfully a situation in which several of those crises came to a head simultaneously,” the report, entitled ‘Europe stretched to the limit’, said. “It is not impossible that this could happen as early as mid-2016, when the UK votes on whether or not to remain in the EU.”
If they have to offer a similar deal in Europe, that’s curtains.
Volkswagen and U.S. officials have reached a framework deal under which the automaker would offer to buy back almost 500,000 diesel cars that used sophisticated software to evade U.S. emission rules, two people briefed on the matter said on Wednesday. The German automaker is expected to tell a federal judge in San Francisco Thursday that it has agreed to offer to buy back up to 500,000 2.0-liter diesel vehicles sold in the United States that exceeded legally allowable emission levels, the people said. That would include versions of the Jetta sedan, the Golf compact and the Audi A3 sold since 2009. The buyback offer does not apply to the bigger, 80,000 3.0-liter diesel vehicles also found to have exceeded U.S. pollution limits, including Audi and Porsche SUV models, the people said.
U.S.-listed shares of Volkswagen rose nearly 6% to $30.95 following the news. VW in September admitted cheating on emissions tests for 11 million vehicles worldwide since 2009, damaging the automaker’s global image. As part of the settlement with U.S. authorities including the Environmental Protection Agency, Volkswagen has also agreed to a compensation fund for owners, a third person briefed on the terms said. The compensation fund is expected to represent more than $1 billion on top of the cost of buying back the vehicles, but it is not clear how much each owner might receive, the person said. Volkswagen may also offer to repair polluting diesel vehicles if U.S. regulators approve the proposed fix, the sources said.
It’ll be increasingly hard to push through in Europe. And in America too unless Hillary’s elected.
Support for the transatlantic trade deal known as TTIP has fallen sharply in Germany and the United States, a survey showed on Thursday, days before Chancellor Angela Merkel and President Barack Obama meet to try to breathe new life into the pact. The survey, conducted by YouGov for the Bertelsmann Foundation, showed that only 17% of Germans believe the Transatlantic Trade and Investment Partnership is a good thing, down from 55% two years ago. In the United States, only 18% support the deal compared to 53% in 2014. Nearly half of U.S. respondents said they did not know enough about the agreement to voice an opinion. TTIP is expected to be at the top of the agenda when Merkel hosts Obama at a trade show in Hanover on Sunday and Monday.
Ahead of that meeting, German officials said they remained optimistic that a broad “political agreement” between Brussels and Washington could be clinched before Obama leaves office in January. The hope is that TTIP could then be finalised with Obama’s successor. But there have been abundant signs in recent weeks that European countries are growing impatient with the slow pace of the talks, which are due to resume in New York next week. On Wednesday, German Economy Minister Sigmar Gabriel described the negotiations as “frozen up” and questioned whether Washington really wanted a deal.
The day before, France’s trade minister threatened to halt the talks, citing a lack of progress. Deep public scepticism in Germany, Europe’s largest economy, has clouded the negotiations from the start. The Bertelsmann survey showed that many Germans fear the deal will lower standards for products, consumer protection and the labor market. It also pointed to a dramatic shift in how Germans view free trade in general. Only 56% see it positively, compared to 88% two years ago. “Support for trade agreements is fading in a country that views itself as the global export champion,” said Aart de Geus, chairman and chief executive of the Bertelsmann Foundation.
Bottom line: “..non-performing debt [..] stands at €360bn, according to the Bank of Italy. So is Atlante — with about €5bn of equity — really enough to keep the heavens in place?”
Atlante, a new private initiative backed by the Italian government, is designed to stop the sky falling in. The fund, which takes its name from the mythological titan who held up the heavens, will buy shares in Italian lenders in a bid to edge the sector away from a fully-fledged crisis. Last week’s announcement of the fund, which can also buy non-performing loans, led to a welcome boost for Italian banks. An index for the sector gained 10% over the week — its best performance since the summer of 2012, though it remains heavily down on the year. But Italian banks have made €200bn of loans to borrowers now deemed insolvent, of which €85bn has not been written down on their balance sheets. A broader measure of non-performing debt, which includes loans unlikely to be repaid in full, stands at €360bn, according to the Bank of Italy.
So is Atlante — with about €5bn of equity — really enough to keep the heavens in place? The Italian government has been placed in a highly unusual position. It has become much harder to directly bail out its financial institutions, as other European countries did during the crisis. Meanwhile, a new European-wide approach to bank failure, which involves imposing losses on bondholders, is politically fraught in Italy, where large numbers of bonds have been sold to retail customers. The new fund also comes in the context of an extremely weak start to the year for global markets. “In this market it is impossible for anyone to raise any capital,” says Sebastiano Pirro, an analyst at Algebris, adding that, since November last year, “the markets have been shut for Italian banks”.
The government has been forced into an array of subtle interventions to provide support. Earlier this year, details emerged of a scheme for non-performing loans to be securitised — a process where assets are packaged together and sold as bond-like products of different levels, or tranches, of risk. The government planned to offer a guarantee on the most senior tranches — those with a triple B, or “investment grade” rating.
Support for dying empires will come at a price. The Nobel Peace Prize came free of charge.
Six years ago, Saudi and American officials agreed on a record $60 billion arms deal. The United States would sell scores of F-15 fighters, Apache attack helicopters and other advanced weaponry to the oil-rich kingdom. The arms, both sides hoped, would fortify the Saudis against their aggressive arch-rival in the region, Iran. But as President Barack Obama makes his final visit to Riyadh this week, Saudi Arabia’s military capabilities remain a work in progress – and the gap in perceptions between Washington and Riyadh has widened dramatically. The biggest stumble has come in Yemen. Frustrated by Obama’s nuclear deal with Iran and the U.S. pullback from the region, Riyadh launched an Arab military intervention last year to confront perceived Iranian expansionism in its southern neighbour.
The conflict pits a coalition of Arab and Muslim nations led by the Saudis against Houthi rebels allied to Iran and forces loyal to a former Yemeni president. A tentative ceasefire is holding as the United Nations prepares for peace talks in Kuwait, proof, the Saudis say, of the intervention’s success. But while Saudi Arabia has the third-largest defence budget in the world behind the United States and China, its military performance in Yemen has been mixed, current and former U.S. officials said. The kingdom’s armed forces have often appeared unprepared and prone to mistakes. U.N. investigators say that air strikes by the Saudi-led coalition are responsible for two thirds of the 3,200 civilians who have died in Yemen, or approximately 2,000 deaths. They said that Saudi forces have killed twice as many civilians as other forces in Yemen.
On the ground, Saudi-led forces have often struggled to achieve their goals, making slow headway in areas where support for Iran-allied Houthi rebels runs strong. And along the Saudi border, the Houthis and allied forces loyal to former Yemeni president Ali Abdullah Saleh have attacked almost daily since July, killing hundreds of Saudi troops. Instead of being the centrepiece of a more assertive Saudi regional strategy, the Yemen intervention has called into question Riyadh’s military influence, said one former senior Obama administration official. “There’s a long way to go. Efforts to create an effective pan-Arab military force have been disappointing.”
Behind the scenes, the West has been enmeshed in the conflict. Between 50 and 60 U.S. military personnel have provided coordination and support to the Saudi-led coalition, a U.S. official told Reuters. And six to 10 Americans have worked directly inside the Saudi air operations centre in Riyadh. Britain and France, Riyadh’s other main defence suppliers, have also provided military assistance. Last year, the Obama administration had the U.S. military send precision-guided munitions from its own stocks to replenish dwindling Saudi-led coalition supplies, a source close to the Saudi government said. Administration officials argued that even more Yemeni civilians would die if the Saudis had to use bombs with less precise guidance systems.
Half of Europe too, no doubt. And China. And larger cities everywhere.
More than half of the US population lives amid potentially dangerous air pollution, with national efforts to improve air quality at risk of being reversed, a new report has warned. A total of 166 million Americans live in areas that have unhealthy levels of of either ozone or particle pollution, according to the American Lung Association, raising their risk of lung cancer, asthma attacks, heart disease, reproductive problems and other ailments. The association’s 17th annual “state of the air” report found that there has been a gradual improvement in air quality in recent years but warned progress has been too slow and could even be reversed by efforts in Congress to water down the Clean Air Act. Climate change is also a looming air pollution challenge, with the report charting an increase in short-term spikes in particle pollution.
Many of these day-long jumps in soot and smoke have come from a worsening wildfire situation across the US, especially in areas experiencing prolonged dry conditions. Six of the 10 worst US cities for short-term pollution are in California, which has been in the grip of an historic drought. Bakersfield, California, was named the most polluted city for both short-term and year-round particle pollution, while Los Angeles-Long Beach was the worst for ozone pollution. Small particles that escape from the burning of coal and from vehicle tail pipes can bury themselves deep in people’s lungs, causing various health problems. Ozone and other harmful gases can also be expelled from these sources, triggering asthma attacks and even premature death.
Can Brussels survive such failure? More urgently, can Greece survive the fallout? Because it’s Greece that will suffer first, and most, if the EU pact with the devil falls through.
European diplomats are agonising over their politically perilous promise to grant visa-free travel to 80m Turks, amid strong warnings from Ankara that the EU migration deal will fold without a positive visa decision by June. The EU’s month-old deal to return migrants from Greece to Turkey has dramatically cut flows across the Aegean, easing what had been an acute migration crisis. But the pact rests on sweeteners for Ankara that the EU is struggling to deliver – above all, giving Turkish citizens short-term travel rights to Europe’s Schengen area. Germany, France and other countries nervous of a political backlash over Muslim migration have started exploring options to make the concession more politically palatable, including through safeguard clauses, extra conditions or watered-down terms.
The political calculations are further complicated by looming EU visa decisions for Ukraine, Georgia and Kosovo. Several senior European diplomats say ideas considered include a broad emergency brake, allowing the EU to suspend the visa deal under certain circumstances; limiting the visa privileges to Turkish executives and students; or opting for an unconventional visa-waiver treaty with Turkey, which would allow more rigorous, US-style checks on visitors. Selim Yenel, Turkey’s ambassador to the EU, called the efforts to water down the terms “totally unacceptable”, saying: “They cannot and should not change the rules of the game.” One senior EU official said the search for alternatives reflected “growing panic” in Berlin and Paris over the looming need to deliver the pledge.
The various options, the official added, were “a political smokescreen” to muster support in the Bundestag and European Parliament, which must also vote on the measures. The Turkish visa issue has even flared in Britain’s EU referendum campaign, forcing David Cameron, the prime minister, to clarify on Wednesday that Turks could not automatically come to the UK if they were granted visa rights to the 26-member Schengen area. The matter could come to a head within weeks. Brussels says Turkey is making good progress in fulfilling 72 required “benchmarks” to win the visa concessions and will issue a report on May 4. This is expected to say that Turkey is on course to meet the criteria by early June, passing the political dilemma to the EU member states and European Parliament.
One ambassador in Brussels said it looked ever more likely that several states would try to block visas for Turkey – a possibility that Mr Yenel also appears to anticipate. “They are probably getting cold feet since we are fulfilling the benchmarks,” he told the Financial Times. “We expect them to stick to what was agreed, otherwise how can we continue to trust the EU? We delivered on our side of the bargain. Now it is their turn.” Signs of Brussels backtracking have already prompted angry Turkish responses. “The EU needs Turkey more than Turkey needs the EU,” President Recep Tayyip Erdogan said recently. Meanwhile, Ahmet Davutoglu, Turkey’s prime minister, has warned that “no one can expect Turkey to adhere to its commitments” if the June deadline was not respected.
How is this any different from Europe’s long lamented bloody past?
The much-derided Schengen Area is on the brink of collapse after furious Hungary launched a rebellion against open borders. The country’s prime minister Viktor Orban is also angry at mandatory migrant quotas enforced by the European Union. He is now touring Europe’s capital cities, where he is rallying support for a new plan with greater protection for individual states, dubbed “Schengen 2.0.” Currently, EU countries are forced to comply with orders from Brussels to accept and settle a specified number of migrants. Orban has described these quotas as “wrong-headed” and is now leading a group of other countries determined to re-take control of their borders. “The EU cannot create a system in which it lets in migrants and then prescribes mandatory resettlement quotas for every member state.”
Orban also promised a referendum in Hungary on whether the country should accept these orders, warning that some of the settled migrants were unlikely to integrate, leading to social friction. He said: “If we do not stop Brussels with a referendum, they will indeed impose on us masses of people, with whom we do not wish to live together.” Other countries may follow suit in opposing these plans and hold their own referendums, taking the power from Brussels and putting it back in the hands of their residents. Slovakia and the Czech Republic have both threatened to take legal action against the EU’s orders to take in migrants. Czech Prime Minister Bohuslav Sobotka said on Sunday: “I expect the line of opposition will be wider. Let us talk about legal action against the proposal when it is necessary.”
The action plan, which will be shared with the Czech Republic, Slovakia and Poland as well as the prime ministers of several other unspecified countries, is just the latest nail in the Schengen coffin. Last week, 2,000 soldiers in Switzerland’s tank battalion were told to postpone their summer holidays in order to be ready to rush to the border with Italy to block migrants making their way from Sicily. Austria has also begun sealing off its southern border, introducing checks on the vital Brenner Cross motorway and pledging the implementation of €1m worth of border patrols and security improvements. Brussel’s most senior bureaucrat admitted yesterday that confidence in the EU was dropping rapidly across the continent. In an astonishing confession of failure, European Commission President Jean-Claude Juncker said: “We are no longer respected in our countries when we emphasise the need to give priority to the EU.”
A team of our Automatic Earth-sponsored friends at the Social Kitchen prepares 1000s of meals for refugees daily at Elliniko. Your contributions are still as welcome as they are necessary.
Five mayors of Athens’s coastal suburbs warned Wednesday of the “enormous” health risks posed by a nearby camp housing over 4,000 migrants and refugees. “The conditions are out of control and present enormous risks to the public health,” the mayors complained in a letter to Prime Minister Alexis Tsipras, in reference to the camp at Elliniko, the site of Athens’s old airport. A total of 4,153 people, including many families, have been held there for the last month in miserable conditions. “The number of people is much higher than the capacity of the place and there are serious hygiene problems,” local mayor Dionyssis Hatzidakis told AFP.
He and his four fellow mayors from the area cited a document from Greece’s disease prevention center KEELPNO warning of the “the danger of disease contagion due to unacceptable housing conditions” at the site which they say has no more than 40 chemical toilets. Since the migrants’ favored route through the Balkans to the rest of Europe was shut down in February, numbers have been building up in Greece, with 46,000 Syrians and other nationalities now stuck in the country. Thousands of these have been transferred from the islands they arrived at to temporary centers such as the one at Elliniko, until more suitable reception centers can be set up.
The five mayors also voiced their disquiet at the “tensions and daily violent incidents between the refugees or migrants,” calling on the interior minister to boost police numbers in the area. “We are launching an appeal for help to protect the public health and security of both the refugees and the local population,” they said in their letter. Their intervention came the day after 17-year-old Afghan woman living in Elliniko with her parents died after six days in an Athens hospital. Her death was linked to a pre-existing heart condition exacerbated by the difficult journey to Greece, the doctor who treated her was quoted as saying in the Ethnos daily. Greek island officials on Tuesday began letting migrants leave detention centers where they have been held, as Human Rights Watch heaped criticism on a wave of EU-sanctioned expulsions to ease the crisis.