Mar 082015
 
 March 8, 2015  Posted by at 1:21 pm Finance Tagged with: , , , , , , , , ,  1 Response »


DPC Sternwheeler Falls City, the levee, Vicksburg, Mississippi 1900

Austria Is Fast Becoming Europe’s Latest Debt Nightmare (Telegraph)
Tsipras: ‘We Don’t Want to Go on Borrowing Forever’ (Spiegel)
Eurogroup To Consider Greek Reform Proposals Amid Scramble For Funding (Kath.)
The ECB’s Lunatic Full Monty Treatment (Tenebrarum)
7 Things To Know About The ECB’s QE Game Plan (MarketWatch)
30 Years Of A Polarised Economy Have Squeezed Out The Middle Class (Observer)
Foreign Banks Tighten Lending Rules For China State-Backed Firms (Reuters)
China’s February Exports Surge 48.3% (CNBC)
Azerbaijan Should Be Very Afraid of Victoria Nuland (GR)
EU Won’t Be Pushed Into Confrontation Over Ukraine – Foreign Policy Chief (RT)
Why Do Russians Still Support Vladimir Putin? (New Statesman)
The Dark Undercurrents Of The War In The Ukraine (Saker)
‘Give Peace A Chance, Decide Sanctions Later’: EU Rethinks Russia (RT)
Layoffs And Empty Streets As Australia’s Boom Towns Go Bust (Reuters)
Venezuela To Get South American Help For Food Crisis (BBC)
Why Fresh Water Shortages Will Cause The Next Great Global Crisis (Guardian)
The Francis Miracle: Inside The Transformation Of The Pope And The Church (TIME)

The hills are alive with the sound of too little money.

Austria Is Fast Becoming Europe’s Latest Debt Nightmare (Telegraph)

Ah Austria, land of schnitzel, lederhosen, Mozart, alpine meadows and beer drinking. Less widely appreciated is its special place in the history of catastrophic banking crises. It was the failure of Creditanstalt, a Viennese bank founded in 1855 by Anselm von Rothschild, that arguably sparked the Great Depression, setting off an unstoppable chain reaction of bankruptcies throughout Europe and America. No-one would think that what happened last week at Austria’s failed Hypo Alpe-Adria Bank International falls into quite the same category; we are meant to be in the recovery phase of the latest global banking crisis, so this is more about re-setting the system than again bringing it to its knees, right? Well, make up your own mind. I suspect neither financial markets nor policymakers have yet caught onto the full significance of the latest turn of events.

In a nutshell, the Austrian government has had enough of funding the bank’s losses, and announced plans to “bail-in” external creditors to the tune of €7.6bn instead. As such, this marks a test case of new European rules to make creditors pay for failing banks. About time too, you might say. What took them so long? Only in this case, the bonds are notionally guaranteed by the Austrian state of Carinthia, which now theoretically becomes liable for the bail-in. It’s an echo of the mess Ireland got itself into at the height of the banking crisis, when it foolishly attempted to stem the panic by underwriting all Irish banking liabilities; the move very nearly ended up bankrupting the entire country. Hypo will bankrupt Carinthia. Essentially, what the Austrian government is doing is cutting loose an entire region, rather in the way the federal authorities in the US allowed Detroit to go bust a number of years ago.

It’s a mini-Greece going off in the heartlands of Europe. In Hypo’s case, the bail-in also threatens knock-on consequences for public bodies elsewhere, including Bayern Landesbank, a big holder of Hypo bonds which is owned by the German state of Bavaria, and the Munich based FMSW, which is again publicly underwritten. All this is just the tip of the iceberg; Europe is awash with interlinked banking and public liabilities, many of which will never be repaid and basically need to be written off. Massive creditor losses are in prospect. The European authorities had us all half convinced that Europe’s debt crisis was over. In truth, it may have barely begun.

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Good interview. Read.

Tsipras: ‘We Don’t Want to Go on Borrowing Forever’ (Spiegel)

SPIEGEL: Mr. Prime Minister, most of your European partners are indignant. They accuse you of saying one thing in Brussels and then saying something completely different back home in Athens. Do you understand where such accusations come from?
Tsipras: We say the same things in Germany as we do in Greece. But sometimes, problems can be viewed differently, depending on the perspective. (He points to his water glass.) This glass here can be described as being half full or half empty. The reality is that it is a glass filled half-way with water.

SPIEGEL: In Brussels, you have given up your demands for a debt haircut. But back home in Athens, you continue talking about a haircut. What does that have to do with perspective?
Tsipras: At the summit meeting, I used the language of reality. I said: Prior to the bailout program, Greece had a sovereign debt that was 129% of its economic output. Now, it is 176%. No matter how you look at that, it’s not possible to service that debt. But there are different ways to solve this problem: via a debt cut, debt restructuring or bonds whose payback is tied to growth. The most important thing, though, is solving the true problem: the austerity which has driven debt way up.

SPIEGEL: Are you a linguist or a politician? You told the Greeks that you got rid of the troika and sold it as a victory. But the European Commission, the International Monetary Fund (IMF) and the European Central Bank (ECB) are still monitoring your reforms. Now, they are simply called “the institutions.”
Tsipras: No, it isn’t a question of terminology. It has to do with the core of the issue. Every country in Europe has to work together with these institutions. But that is something very different than a troika that is beholden to nobody. Its officials came to Greece to strictly monitor us. Now, we are again speaking directly with the institutions. Europe has become more democratic because of this change.

SPIEGEL: What change? You still have to submit your reform plans to three “institutions” for approval.
Tsipras: The reforms won’t be approved by the institutions. They have a say in the process and establish a framework that applies to all in Europe. Previously, the situation was such that the troika would send an email telling the Greek government what it had to do. Our planned reforms are necessary, but we are deciding on them ourselves. They aren’t being forced onto us by anyone. We want to stop large-scale tax evasion and tax fraud more than anybody. Thus far, it has only been the low earners and not the wealthy that paid. We also want to make the state more efficient.

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Lots of emptiness.

Eurogroup To Consider Greek Reform Proposals Amid Scramble For Funding (Kath.)

Greece faces another tough Eurogroup summit Monday when a slew of reform proposals from Athens are to come under the microscope in Brussels, with the two sides apparently far from a compromise even as state coffers in Athens are close to emptying. Finance Minister Yanis Varoufakis is expected to face a barrage of questions from his eurozone counterparts on a series of proposals set out in an 11-page letter he sent to Eurogroup President Jeroen Dijsselbloem, which include the creation of a so-called fiscal council to generate budget savings, the revision of licensing for gaming and lotteries and the hiring of non-professionals, including students and tourists, as tax agents to help a foundering crackdown on tax evasion.

Sources suggested over the weekend that the proposals had met with skepticism from eurozone officials. In comments on Saturday on the sidelines of a conference in Venice, Varoufakis said he had received a response from Dijsselbloem. He added that Greece was keen to move forward with reforms but that the two sides must agree on “the process by which the reforms will be made more specific, implemented and evaluated so that they can be reviewed by the Eurogroup.” Varoufakis added that Greece’s reform program would be “discussed by technical teams that will convene shortly in Brussels.” Some eurozone officials appeared to be running out of patience. ECB governing council member Luc Coene said in an interview on Saturday that Greece must realize “there is no other way than to reform,” noting that Greeks had been sold “false promises.”

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“Perhaps the cupboards of the monetary bureaucrats are short a few plates and in need of a little pharmacological fine-tuning. Just saying.”

The ECB’s Lunatic Full Monty Treatment (Tenebrarum)

The belief that the market economy requires “steering” by altruistic central bankers, who make decisions influencing the entire economy based on their personal epiphanies, has rarely been more pronounced than today. Most probably it has actually never been stronger. It is both highly amusing and disconcerting that so many economists who would probably almost to a man agree that it would be a very bad idea if the government were to e.g. take over the computer industry and begin designing PCs and smart phones by committee, think that government bureaucrats should determine the height of interest rates and the size of the money supply.

We know of course that central banks are the major income source for many of today’s macro-economists, so it is in their own interest not to make any impolitic noises about these central planning institutions and their activities. Besides, most Western economists have not exactly covered themselves with glory back when the old Soviet Union still existed. Even in the late 1980s, Über-Keynesian Alan Blinder for instance still remarked that the question was not whether we should follow its example and adopt socialism, but rather how much of it we should adopt. The recent ECB announcement detailing its new “QE” program once again confirms though that there is nothing even remotely “scientific” about what these planners are doing. Common sense doesn’t seem to play any discernible role either. [..]

Leaving for the moment aside how sensible it is for the bond yields of virtually insolvent governments mired in “debt trap” dynamics to trade at less than 1.3%, one must wonder: what can possibly be gained by pushing them even lower? Does this make any sense whatsoever? Meanwhile, the ECB let it be known that it wouldn’t buy any bonds with a negative yield-to-maturity exceeding 20 basis points – the level its negative deposit rate currently inhabits as well. What a relief! What makes just as little sense is that the economic outlook presented by Mr. Draghi on occasion of his press conference was actually quite upbeat. To summarize: yields are at record lows, with about €2 trillion in European government bonds sporting negative yields to maturity. The economic outlook is said to be good.

The current slightly negative HICP rate is held to be a transitory phenomenon (it very likely will be). Needless to say, the arbitrary 2% target for “price inflation” makes absolutely no sense anyway. Not a single iota of wealth can be created by pushing prices up. Last but certainly not least, year-on-year money supply growth in the euro area has soared into double digits recently. And the conclusion from all this is that the central bank needs to boost its balance sheet by €1 trillion with a massive debt monetization program? Are these people on drugs? If not, then they should perhaps see a shrink. Perhaps the cupboards of the monetary bureaucrats are short a few plates and in need of a little pharmacological fine-tuning. Just saying.

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It’s no longer useful to view this from an investor point of view.

7 Things To Know About The ECB’s QE Game Plan (MarketWatch)

After years of discussion, months of urgent calls and weeks of preparation, the European Central Bank is about to write history—on Monday it will kick of its €1.1 trillion-euro, quantitative-easing program. Unlike its U.S., U.K. and Japanese central-bank peers, the ECB never resorted to sovereign QE at the height of the global financial crisis. Instead, it’s attempted an array of other extraordinary policy measures, including a negative deposit rate, programs to provide cheap funding to eurozone banks, and a less-powerful bond-buying program, often called “private QE,” focused on purchasing asset-backed securities and covered bonds. Now, as investors prepare for the launch of full-blown QE on March 9, here’s what we know about the program so far.

What’s the aim of the QE? Under quantitative easing, a central bank creates money electronically, which it then uses to buy securities, such as government bonds, from banks and other institutions. It’s hoped that these institutions will then use the new bank reserves to buy other assets, lowering interest rates and encouraging spending. The ECB hopes QE will revive growth and inflation in the eurozone. Despite repeated attempts to spur an economic recovery, the currency bloc is still grappling with painfully high unemployment, slow growth and negative inflation among its members.

Will the ECB buy government bonds with negative yields?Yes, but nothing that carries a yield below the ECB’s own deposit rate, which currently stands at negative 0.2%. The limit means that bonds currently yielding more than the deposit rate have room to fall further. Even before the big QE bazooka has been fired, yields for most eurozone countries have tanked. For Germany, France, Austria, Belgium, Holland and Finland borrowing costs for shorter-dated debt are now negative, meaning that bondholders essentially agree to pay issuers to hold their debt.

What will QE do to bond yields? Initially, sovereign QE and lower bond yields should march together hand in hand. As the ECB buys large quantities of government debt, bond prices should go up, which will send yields lower. On Friday, borrowing costs for Italy, Spain and Portugal dropped to record lows in anticipation of QE takeoff. However, big moves in the bond markets show much of the impact may have already been priced in. Longer-term, as the QE liquidity injection begins to work on the eurozone economy, and likely boost inflation and growth, bond yields should start to rise to reflect the stronger economy. The latest eurozone data indicate that the region may be turning a corner, leaving room for higher borrowing costs.

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London is a wasteland. It may be rich, but it’s still a wasteland. No there there.

30 Years Of A Polarised Economy Have Squeezed Out The Middle Class (Observer)

London has always been a city of extremes but the extent to which it has become polarised between rich and poor is laid bare in research that reveals a 43% decrease in middle-income households between 1980 and 2010. England is increasingly divided between the rich and the poor, with a 60% increase in poor households and a 33% increase in wealthy households. This has come at a time – 1980 to 2010 – when the number of middle-income households went down by 27%. But the trend is most marked in London, according to an analysis of census data by Benjamin Hennig and Danny Dorling of the School of Geography and the Environment at the University of Oxford.

Over the three decades, the capital has seen an 80% increase in poor households, an 80% increase in wealthy households – and a 43% decrease in middle households. Around 36% of London households are now classified as poor (up from 20% in 1980), while 37% are middle income (down from 65%). The largest%age point fall in households in the middle has been in Westminster, which saw its middle reduce from nearly three-quarters of all households to just one-third. The largest%age-point increase in wealthy households has been in Richmond-upon-Thames, where more than half of households are now wealthy, compared with a fifth in 1980. In contrast, in Newham, almost one in two households is now poor.

The researchers have drawn up maps of England according to wealth, described by Dorling as “fancy pie charts”. The polarising of wealth has been exacerbated in recent years, with economic growth having been slower than had been hoped, and wages in the middle failing to rise in parallel with the recovery. The economic divide between the beneficiaries of the property bubble and non-homeowners also continues to widen in the country as a whole, with upward pressure on land values. Dorling said: “This analysis shows that England is becoming more polarised, with an increase in households that are poor and those that are wealthy. The number of households in poverty has jumped by 60% since 1980, meaning that now almost three in 10 are poor.

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So more PBOC QE too?

Foreign Banks Tighten Lending Rules For China State-Backed Firms (Reuters)

Some banks are adopting stricter lending criteria for China’s state-owned enterprises (SOEs), demanding collateral from some companies they used to deem as safe as government debt, as Beijing tries to reform its bloated firms and the economy slows. Singapore’s DBS Group, which recently suffered a loss on a bad loan to an SOE-related firm it had assessed as risk-free, plans to launch a “decision grid” to assess the creditworthiness of SOEs, according to draft internal risk guidelines reviewed by Reuters. A banker at Taiwan’s Chang Hwa Commercial Bank said that from the beginning of this year his bank would only lend to state-owned Chinese companies that provide collateral, in recognition that SOEs were no longer risk free.

Such changes in policy suggest some foreign banks are preparing for a rise in defaults in the world’s second-largest economy, which is growing at its slowest pace in a quarter of a century and where the government is trying to make the state sector more efficient.
DBS will now lend more conservatively to SOEs seen as receiving less government support, as China plans to prioritize SOEs in strategic sectors. The January-dated DBS document said: “Not all SOEs receive the same degree of government support. It is our further belief that the differentiation of such support will widen in the future as the government continues to pursue market economy.” DBS will now divide SOEs into tiers according to their likely level of government support, with subsidiaries considered more risky than top-level holding companies.

Group companies that are not consolidated into the parent SOE’s financial statements will be evaluated as an ordinary borrower, the decision grid shows. DBS effectively acknowledges that lenders can no longer take for granted implicit support from above. “Compared to ordinary corporates, implicit support obtained from the parents of SOEs are subject to higher risks because of the risk of policy and people changes,” the document said. A DBS spokeswoman said: “It is still business as usual for us in China. With slower regional economic growth, we continue to be disciplined and watchful of risks in all the markets we operate in..”

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C’mon, admit it, you were due for a good laugh.

China’s February Exports Surge 48.3% (CNBC)

China’s exports surged 48.3% on year in February, sharply above analysts’ forecasts, potentially signaling stronger economic growth for its trade partners. Imports fell 20.5% for the period, according to data from China’s customs department. A Reuters poll had forecast exports would rise 14.2% and imports would fall 10%. For January and February combined – a common metric to help smoothe distortions from the Lunar New Year holiday period – exports rose 15% from a year earlier, while imports declined 20.2%. “The demand from the advanced economies bodes well,” ANZ said in a note Sunday, citing data showing shipments to the U.S. and European Union rose 40.3% and 36.6% on-year respectively.

But the bank noted that the jump in exports could be due to a base effect. “The February 2014 figures were extremely low as Chinese authorities cracked down the round-tripping trade flows,” it said. “We still see strong headwinds facing China’s exports this year,” ANZ said, citing weak export order PMI data. ANZ attributed the decline in imports to weak commodity demand compounded by sharp drops in commodity prices, citing as an example the 45.4% on year drop in the value of iron-ore imports, although the iron-ore import volume only fell 0.9%. As well, “Chinese commercial banks have significantly tightened the trade financing facilities for commodity traders,” ANZ said.

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“..it is not likely that she came to Baku with positive intentions, or even with a positive image of the country in her mind.”

Azerbaijan Should Be Very Afraid of Victoria Nuland (GR)

The US’ Assistant Secretary of State for European and Eurasian Affairs, Victoria Nuland, visited Baku on 16 February as part of her trip to the Caucasus, which also saw her paying stops in Georgia and Armenia. While Azerbaijan has had positive relations with the US since independence, they’ve lately been complicated by Washington’s ‘pro-democracy’ rhetoric and subversive actions in the country. Nuland’s visit, despite her warm words of friendship, must be look at with maximum suspicion, since it’s not known what larger ulterior motives she represents on behalf of the US government. [..]

Given the ideological context in which Nuland likely sees eye-to-eye on with her husband, plus her experience in instigating the Color Revolution in Ukraine, it is not likely that she came to Baku with positive intentions, or even with a positive image of the country in her mind. This is all the more so due to the recent scandal over Radio Free Europe/Radio Liberty. The US-government-sponsored information agency was closed down at the end of December under accusations that it was operating as a foreign agent. While the US has harshly chided the Azeri government for this, at the end of the day, it remains the country’s sovereign decision and right to handle suspected foreign agents as it sees fit. Azerbaijan’s law is similar to Russia’s, in that entities receiving foreign funds must register as foreign agents, and interestingly enough, both of these laws parallel the US’ own 1938 Foreign Agents Registration Act (FARA).

So why does the US feel that it reserves the sole right to register foreign agents and entities, and if need be, identify and punish those that are acting in the country illegally, but Azerbaijan is deprived of this exercise of sovereignty? The reason is rather simple, actually – it’s the US that is the most likely to use these foreign agents to destabilize and potentially overthrow governments (as in Ukraine most recently), whereas Azeri agents in America, should they even exist, are nothing more than an administrative nuisance incapable of inflicting any real harm on the authorities. This double standard is at the core of the US’ relations with all countries in the world, not just Azerbaijan, but it’s a telling example of the power and leverage Washington attempts to hold over Baku, which is seen most visibly by the blistering criticism leveled on the government after Radio Free Europe/Radio Liberty’s closing in compliance with the law.

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Too little too late. Fait accompli.

EU Won’t Be Pushed Into Confrontation Over Ukraine – Foreign Policy Chief (RT)

The EU is resisting calls from hotheads to supply arms to Ukraine, saying it won’t be pulled into a confrontation with Russia. Europeans cite the progress in implementing a ceasefire in eastern Ukraine between Kiev and local rebels. The idea of providing lethal aid to Kiev is popular among many NATO officials and American politicians. US House Speaker John Boehner and a bipartisan group of top lawmakers called on President Barack Obama to deliver the weapons. But Europeans are opposing the move, which would likely escalate tensions with Russia. “The European Union today is extremely realistic about developments in Russia. But we will never be trapped or forced or pushed or pulled into a confrontative [sic] attitude,” the EU’s Foreign Policy Chief Federica Mogherini told the media on Friday, following an informal meeting of EU foreign ministers in Riga, Latvia.

“We still believe that around our continent – not only in but around – cooperation is far better than confrontation. We still argue for that,” she added. Austrian Foreign Minister Sebastian Kurz said the EU’s goal in Ukraine is “a ceasefire, not an escalation.” Germany has been among the most vocal critics of sending arms to Ukraine and now German officials question the assessment of the situation in the country voiced by Kiev armament pundits. “The statements [on Ukraine] from our source do not fully coincide with the statements made by NATO and the US,” German FM Frank-Walter Steinmeier said after the conference. “We are interested in not allowing it to grow into a misunderstanding.” The German Spiegel magazine reported on Saturday that Chancellor Angela Merkel’s government suspects the US and NATO of trying to derail the EU’s mediation effort in Ukraine.

The Minsk ceasefire agreement between Kiev and rebels in eastern Ukraine was brokered last month by Germany, France and Russia. So far, it’s mostly holding, with both parties pulling some of their heavy weapons back from the front line, and OSCE monitors reporting a significant reduction in violence. The EU says it wants to increase the number of OSCE observers on the ground, doubling its current ceiling of 500. “The main point is obviously working to increase the number of selected and skilled people that can do the job,” Mogherini said. The more observers the tougher it would be to violate the conditions of the Minsk agreement with impunity. Kiev and its foreign backers, particularly in Washington, accuse Russia of propping up the rebel forces with weapons and troops. Moscow insists that it has no involvement in the armed conflict and has only delivered humanitarian aid to the ravaged areas.

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“86% of the respondents approve of Vladimir Putin as Russia’s president. When asked to name five or six politicians or government officials they trust, 59% responded: ”Putin”.”

Why Do Russians Still Support Vladimir Putin? (New Statesman)

The news of the assassination of Boris Nemtsov, a Russian opposition politician, dominated the news this weekend. It was possible to imagine – just for a day or two – that the charismatic Boris Nemtsov, who first entered the national political arena in Russia back in the Yeltsin days, had been a prominent figure without whom the opposition would struggle to have a say against Kremlin. Unfortunately, the truth is that Nemtsov was hardly a force to be reckoned with. However open his position on Putin was and however brave his last interview to the Moscow radio station Echo Moskvy was, just hours before his death, Boris Nemtsov was not important. Like any other opposition leader in Russia, he was a scribble on the margin of current affairs. The overwhelming majority of the Russian population supports the country’s president, Vladimir Putin.

A recent poll, conducted between 20-23 February 2015 among 1,600 Russians aged 18 or more in 46 different regions of Russia by an independent Russian not-for-profit market research agency Levada Centre for Echo Moskvy radio station, found that 54% of the population agreed that “[Russia] is moving in the right direction”. 86% of the respondents approve of Vladimir Putin as Russia’s president. When asked to name five or six politicians or government officials they trust, 59% responded: ”Putin”.

Let’s put aside the possibility of rigged polls because there is little to suggest Putin’s popularity is fake. Putin is respected, if not revered. He is referred to as batyushka, the holy father. Many Russians are particularly upset and angry about Nemtsov’s murder because western fingers are pointing at Putin. In their opinion, Nemtsov was most likely killed as a provocation to destabilise Russia and fuel hostility between Kremlin and the west. “With all due respect to the memory of Boris Nemtsov, in political terms he did not pose any threat to the current Russian leadership or Vladimir Putin, said presidential press secretary Dmitriy Peskov. “If we compare popularity levels, Putin’s and the government’s ratings and so on, in general Boris Nemtsov was just a little bit more than an average citizen.”

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Who’s “our son of a bitch“?

The Dark Undercurrents Of The War In The Ukraine (Saker)

The situation in the Ukraine is more or less calm right now, and this might be the time to step back from the flow of daily reports and look at the deeper, underlying currents. The question I want to raise today is one I will readily admit not having an answer to. What I want to ask is this: could it be that one of the key factors motivating the West’s apparently illogical and self-defeating desire to constantly confront Russia is simply revanchism for WWII? We are, of course, talking about perceptions here so it is hard to establish anything for sure, but I wonder if the Stalin’s victory against Hitler was really perceived as such by the western elites, or if it was perceived as a victory against somebody FDR could also have called “our son of a bitch“. After all, there is plenty of evidence that both the US and the UK were key backers of Hitler’s rise to power (read Starikov about that) and that most (continental) Europeans were rather sympathetic to Herr Hitler.

Then, of course and as it often happens, Hitler turned against his masters or, at least, his supporters, and they had to fight against him. But there is strictly nothing new about that. This is also what happened with Saddam, Noriega, Gaddafi, al-Qaeda and so many other “bad guy” who began their careers as the AngloZionists’ “good guys”. Is it that unreasonable to ask whether the western elites were truly happy when the USSR beat Nazi Germany, or if they were rather horrified by what Stalin had done to what was at that time the single most powerful western military – Germany’s? [..] for the western elites, [..] they must have known that their entire war effort was, at most, 20% of what it took to defeat Nazi Germany and that those who had shouldered 80%+ were of an ideology diametrically opposed to capitalism. Is there any evidence of that fear? I think there is and I already mentioned them in the past:

Plan Totality (1945): earmarked 20 Soviet cities for obliteration in a first strike: Moscow, Gorki, Kuybyshev, Sverdlovsk, Novosibirsk, Omsk, Saratov, Kazan, Leningrad, Baku, Tashkent, Chelyabinsk, Nizhny Tagil, Magnitogorsk, Molotov, Tbilisi, Stalinsk, Grozny, Irkutsk, and Yaroslavl.

Operation Unthinkable (1945) assumed a surprise attack by up to 47 British and American divisions in the area of Dresden, in the middle of Soviet lines.This represented almost a half of roughly 100 divisions (ca. 2.5 million men) available to the British, American and Canadian headquarters at that time. (…) The majority of any offensive operation would have been undertaken by American and British forces, as well as Polish forces and up to 100,000 German Wehrmacht soldiers.

Operation Dropshot (1949): included mission profiles that would have used 300 nuclear bombs and 29,000 high-explosive bombs on 200 targets in 100 cities and towns to wipe out 85% of the Soviet Union’s industrial potential at a single stroke. Between 75 and 100 of the 300 nuclear weapons were targeted to destroy Soviet combat aircraft on the ground.

But the biggest proof is, I think, the fact that none of these plans was executed, even though at the time the Anglosphere was safely hidden behind its monopoly on nuclear weapons (and have Hiroshima and Nagasaki not been destroyed in part to “scare the Russians”?). And is it not true that the Anglos did engage in secret negotiations with Hitler’s envoys on several occasions? (The notion of uniting forces against the “Soviet threat” was in fact contemplated by both Nazi and Anglo officials, but they did not find a way to make that happen.) So could it be that Hitler was, really, their “son of a bitch”?

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“We support sanctions that bring the other side to the negotiation table.. But we are against sanctions that are imposed simply because someone is angry.”

‘Give Peace A Chance, Decide Sanctions Later’: EU Rethinks Russia (RT)

The latest EU meeting has shown that many of its members are in no rush to extend the sanctions which were imposed on Russia last year following a US example, or to exert any more pressure on Moscow, as long as the Minsk ceasefire agreement is holding. Most foreign ministers at the EU two-day meeting in the Latvian capital expressed hopes that the latest Minsk agreement would be a success, and there would be no need to impose further sanctions on Russia. The meeting had a format of an informal discussion, where the ministers touched the topics of the Minsk agreements and the OSCE mission in Ukraine, as well as the possible stepping up of pressure on Russia to “promote peace.”

Scheduled ten days before an official summit in Brussels, the meeting has shown that the EU can’t yet agree even on the automatic extension of existing sanctions – a move that some of the hawkish states have been actively promoting. “In my opinion, we must not make any other steps, we have to give peace a chance. The extension could take place, but only if there is no improvement of the situation,” Spanish FM Jose Manuel Garcia-Margallo said, expressing his views after the meeting , according to Russian news agency RIA Novosti. The Spanish FM is heading to Moscow, during which he will not only discuss the Ukrainian crisis, but will also meet with the Russian Energy minister.

Meanwhile, Italian FM Paolo Gentiloni told reporters the he sees “encouraging signals” on the ground in eastern Ukraine, and so “at the moment we don’t need either new sanctions or automatic renewals.” Austrian Foreign Minister Sebastian Kurz shared the views of his Italian counterpart, saying that there is a “glimpse of hope” following the Minsk agreements: “We should do everything now to improve the situation and decide later whether that improvement really happened and we can reduce the sanctions, or, if we have to, extend them,” Kurz said. Greece has also spoke out against any new sanctions as long as Russia supports the Minsk agreements, with Greek Foreign Minister Nikos Kotzias saying the Greek experience suggests that “not every sanction is constructive” and can succeed. “We support sanctions that bring the other side to the negotiation table,” Kotzias told German ARD. “But we are against sanctions that are imposed simply because someone is angry.”

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Wait! Where have we heard this before? “Owner will throw in a brand new car..” “Just pick your favorite colour.”

Layoffs And Empty Streets As Australia’s Boom Towns Go Bust (Reuters)

When Probo Junio got a visa to work in Australia, he thought he had won a ticket to the good life. In 2013, the 45-year-old boilermaker left his hometown of Cebu in the Philippines, where he was getting paid about $10 a day, to work in Karratha in Western Australia for $30 an hour. Enough to support his relatives and build a new life Down Under. What Junio didn’t expect was that Australia’s booming resources industry would go bust less than two years later, taking his job, and leaving him just 60 days to find work or go home. “It’s very difficult because most of the companies don’t want 457 visa holders,” he said, referring to temporary permits for skilled workers.Across the country, people like Junio are falling victim to downsizing. Jobs, once plentiful and well paid, are scarce.

Real estate prices in boom towns are sinking and even the notoriously high coffee prices in mining capital Perth have levelled off at under $4. Prices of iron ore and coal, the country’s two biggest export earners, have plunged during the last two years amid falling demand from China, in the wake of its economic slowdown. Just a few years ago, foreign workers were flooding into Australia, lured by huge pay as the resources industry scrambled to fill positions. Truck driving and cooking jobs offering $100,000 a year made headlines abroad. But those workers, like Junio, are now hard-pressed to find work, especially if they are on temporary visas. Even permanent residents have to take lower pay. “There is reality coming into the marketplace about salaries,” said John Downing, who runs global resources recruiting firm Downing Teal, adding that salary expectations have fallen 10% to 25%.

“For Lease” signs are everywhere in West Perth, the headquarters of many mining, oil and gas companies. “You could shoot a cannon down those streets,” said resources analyst Peter Strachan. “There’s nobody there.”Commercial vacancy rates in the city are near a 20-year high of 15% as resources companies downsize or shut down, said Joe Lenzo, of the Property Council of Australia. The real estate market has also been hit in the coal country of Queensland, across the continent. “Owner will throw in a brand new car,” read advertisements for houses in the coal-mining town of Moranbah. “Just pick your favorite colour.”

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There’s something very positive about South America.

Venezuela To Get South American Help For Food Crisis (BBC)

Foreign ministers from 12 South American nations gathering in Caracas have promised to help Venezuela overcome an ongoing shortage of food, medicine and other products. The regional Unasur bloc agreed with President Nicolas Maduro to provide items that have gone missing from many Venezuelan supermarkets. The shortage of staples has contributed to popular discontent. Unasur highlighted the importance of safeguarding democratic stability. “The idea is to get all the countries to support the distribution of staples,” said Ernesto Samper, Secretary-General of Unasur (Union of South American Nations). “We will work together with the Venezuelan authorities to strengthen the distribution networks in our countries so they help Venezuela,” said Mr Samper.

He criticised recent anti-government protests in Venezuela that descended into violence. The opposition must “express its opinions in a democratic, peaceful and lawful manner,” said Mr Samper. The Unasur ministers will meet opposition leaders and government officials in the next few days to seek guarantees that Venezuela will be able to hold free and fair elections later this year. Opposition leader Henrique Capriles told the AFP news agency on Tuesday that Mr Maduro could cancel the vote, which is scheduled for the second half of this year. “The government had never had such a large deficit [in the polls] heading into an election. Now it does. How does it change that? It rigs the game,” said Mr Capriles. Mr Maduro said the elections would go ahead as planned.

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“For us, water is [now] more important than oil.”

Why Fresh Water Shortages Will Cause The Next Great Global Crisis (Guardian)

Water is the driving force of all nature, Leonardo da Vinci claimed. Unfortunately for our planet, supplies are now running dry – at an alarming rate. The world’s population continues to soar but that rise in numbers has not been matched by an accompanying increase in supplies of fresh water. The consequences are proving to be profound. Across the globe, reports reveal huge areas in crisis today as reservoirs and aquifers dry up. More than a billion individuals – one in seven people on the planet – now lack access to safe drinking water. Last week in the Brazilian city of São Paulo, home to 20 million people, and once known as the City of Drizzle, drought got so bad that residents began drilling through basement floors and car parks to try to reach groundwater.

City officials warned last week that rationing of supplies was likely soon. Citizens might have access to water for only two days a week, they added. In California, officials have revealed that the state has entered its fourth year of drought with January this year becoming the driest since meteorological records began. At the same time, per capita water use has continued to rise. In the Middle East, swaths of countryside have been reduced to desert because of overuse of water. Iran is one of the most severely affected. Heavy overconsumption, coupled with poor rainfall, have ravaged its water resources and devastated its agricultural output. Similarly, the United Arab Emirates is now investing in desalination plants and waste water treatment units because it lacks fresh water.

As crown prince General Sheikh Mohammed bin Zayed al-Nahyan admitted: “For us, water is [now] more important than oil.” The global nature of the crisis is underlined in similar reports from other regions. In south Asia, for example, there have been massive losses of groundwater, which has been pumped up with reckless lack of control over the past decade. About 600 million people live on the 2,000km area that extends from eastern Pakistan, across the hot dry plains of northern India and into Bangladesh, and the land is the most intensely irrigated in the world. Up to 75% of farmers rely on pumped groundwater to water their crops and water use is intensifying – at the same time that satellite images shows supplies are shrinking alarmingly.

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“I look at . . . so many forests, all cut, that have become land . . . that can [no] longer give life..”

The Francis Miracle: Inside The Transformation Of The Pope And The Church (TIME)

It was probably inevitable that the first pope named Francis—inspired by a saint who preached to birds and gave pet names to the sun and the moon—has turned out to be a strong environmentalist. In fact, Francis has said that concern for the environment is a defining Christian virtue. (The young Jorge Bergoglio trained as a chemist, so he has a foundation to appreciate the scientific issues involved.) This element of the social gospel bubbled to the surface as early as his inaugural mass, when Francis issued a plea to “let us be ‘protectors’ of creation, protectors of God’s plan inscribed in nature, protectors of one another and of the environment.” St. Francis’s imprint on this pope is clearly strong. In unscripted comments during a meeting with the president of Ecuador in April 2013, he said, “Take good care of creation. St. Francis wanted that.

People occasionally forgive, but nature never does. If we don’t take care of the environment, there’s no way of getting around it.” The two previous popes were also environmentalists. The mountain-climbing, kayaking John Paul II was a strong apostle for ecology, once issuing an almost apocalyptic warning that humans “must finally stop before the abyss” and take better care of nature. Benedict XVI’s ecological streak was so strong that he earned a reputation as “the Green Pope” because of his repeated calls for stronger environmental protection, as well as gestures such as installing solar panels atop a Vatican audience hall and signing an agreement to make the Vatican Europe’s first carbon-neutral state. Francis is carrying that tradition forward.

Among other things, he told French President François Hollande during a January 2014 meeting that he is working on an encyclical on the environment. (An encyclical is considered the most developed and authoritative form of papal teaching.) The Vatican has since confirmed that Francis indeed intends to deliver the first encyclical ever devoted entirely to environmental issues. In a July 2014 talk at the Italian university of Molise, Francis described harm to the environment as “one of the greatest challenges of our times.” It’s a challenge, he said, that’s theological as well as political in nature. “I look at . . . so many forests, all cut, that have become land . . . that can [no] longer give life,” the pope continued, citing South American woodlands in particular. “This is our sin, exploiting the Earth. . . . This is one of the greatest challenges of our time: to convert ourselves to a type of development that knows how to respect creation.”

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Mar 042015
 
 March 4, 2015  Posted by at 10:40 am Finance Tagged with: , , , , , , , , , ,  3 Responses »


NPC “.. the hearty cereal beverage with flavor and tang, Altemus-Hibble truck” 1920

Only Mass Default Will End The World’s Addiction To Debt (Telegraph)
Eurozone Faces First Regional Bankruptcy In Austria’s Carinthia (AEP)
Shelby Says Fed Should Be Held Accountable for Its Actions (Bloomberg)
Yellen Says Fed Seeks to Avert ‘Capture’ by Banks It Oversees (Bloomberg)
Draghi’s Rescue Plan Has Created a $103 Billion Problem (Bloomberg)
ECB Glimpse of Cyprus Debt Mountain Shows Limits of Bank Cleanup (Bloomberg)
$2 Trillion Euro Government Bonds Trading At Negative Yield (David Stockman)
Greece Taps Public Sector Cash To Help Cover March Needs (Reuters)
Can Greece Really Thrive Inside the Euro? (George Magnus)
ECB Will Need More Creative Accounting To Deal With Greece (MarketWatch)
Greece vs Europe: Who Blinked First In The Bail-out Battle? (Telegraph)
Athens Preparing Reform Proposals For Eurogroup (Kathimerini)
Oil at $95 a Barrel Discovered in SEC Rules on Reserves (Bloomberg)
The Latest Sign the Oil-Price Plunge Is Hitting the Job Market (Bloomberg)
Wall Street Has Its Eyes on Millennials’ $30 Trillion Inheritance (Bloomberg)
Japan Public Debt Keeps BNP Chief Credit Analyst Awake at Night (Bloomberg)
Ukraine Looks Ready To Default (MarketWatch)
Ukraine Raises Interest Rates To 30% (BBC)
Financial Collapse Leads To War (Dmitry Orlov)
NATO Rolls Out ‘Russian Threat’ In Budget Battle (RT)
Massive Swarms of Jellyfish Wreak Havoc on Fish Farms, Power Plants (Bloomberg)

“Finally, creditors are being made to pay for the consequences of their own folly.”

Only Mass Default Will End The World’s Addiction To Debt (Telegraph)

In a valedictory speech at the weekend of characteristically Latin American duration – a mind-numbing three hours – the Argentine president, Cristina Fernandez de Kirchner, claimed that her country was the only one in the world to have reduced its national debt over recent years. I doubt she is right about being alone in this “achievement” – there must surely be others – but even if she is, I’m not sure that reduction in the national debt via the mechanism of default is anything to boast of. Only Kirchner could think this a matter of national pride. Nonetheless, where Argentina treads, others will surely soon be following. The world is sinking under a sea of debt, private as well as public, and it is increasingly hard to see how this might end, except in some form of mass default. Greece we already know about, but the coming much wider outbreak of debt repudiation will not be confined to sovereign nations.

Last week, there was another foretaste of what’s to come in developments at Austria’s failed Hypo Alpe-Adria-Bank International. Taxpayers have had enough of paying for the country’s increasingly crisis-ridden banking sector, and have determined to bail in private creditors to the remnants of this financial road crash instead – to the tune of $8.5bn in the specific case of Hypo Alpe-Adria. Finally, creditors are being made to pay for the consequences of their own folly. You might have thought that a financial crisis as serious as that of the past seven years would have ended the world economy’s addiction to debt once and for all. It has not. If anything, the position has grown even worse since the collapse of Lehman Brothers. According to recent analysis by McKinsey, global debt has increased to the tune of $57 trillion, or 17pc, since 2007, with little sign of a slowdown in sight.

Much of this growth has been in emerging markets, which were comparatively unaffected by the financial crisis. Yet even in the developed West, private sector deleveraging has been limited and, in any case, more than outweighed by growing public indebtedness. The combined public sector debt of the G7 economies has grown by 40pc to around 120pc of GDP since the crisis began. There has been no overall deleveraging to speak of. Where the West left off, Asia has taken up the pace, with a credit-induced real estate bubble that makes its pre-crisis Western counterpart look tame by comparison, much of it fuelled, as in Western economies, by growth in the shadow banking sector. China’s total indebtedness has quadrupled since 2007 to $28 trillion, according to estimates by McKinsey. At 282pc of GDP, the debt burden is now bigger, relative to output, that the US.

Attempts to rein in this growth have so far proved problematic. The Chinese property market has slowed markedly, which in turn has knocked the stuffing out of the all-important construction sector and its feeder industries. Starved of its regular fix of debt, the Chinese economy seems as incapable of generating decent levels of growth as the mature economies of the West. The addiction to credit has gone global.

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“While Austria remains a rich and successful country, it is slithering towards the bottom of the reform league. France looks less sluggish by comparison, and Greece looks almost Thatcherite.”

Eurozone Faces First Regional Bankruptcy In Austria’s Carinthia (AEP)

The Alpine region of Carinthia faces probable bankruptcy after Austria’s central government refused to vouch for debts left by a disastrous banking expansion in eastern Europe and the Balkans. It would be the first sub-sovereign default in Europe since the Lehman Brothers crisis, comparable in some respects to the bankruptcy of California’s Orange County in 1994 or the city of Detroit in 2013. Austria’s finance minister, Jörg Schelling, said Vienna would not cover €10.2bn (£7.4bn) in bond guarantees issued by the Carinthian authorities for the failed lender Hypo Alpe Adria, or for the “Heta” resolution fund that succeeded it. This leaves the 550,000-strong province on the Slovene border to fend for itself as losses spin out of control. “The government won’t waste another euro of taxpayer money on Heta,” he said, insisting that there must be an end to moral hazard.

The Hypo affair has alredy cost taxpayers €5.5bn. The Austrian state has said it will cover €1bn of its own guarantees “on the nail” but nothing more. Sources in Vienna suggested that even senior bondholders are likely to face a 50pc writedown, becoming the first victims of the eurozone’s tough new “bail-in” rules for creditors. These rules are already in force in Germany and Austria, and will be mandatory everywhere next year. “We are at a very delicate phase when Europe’s banking system switches from a bail-out regime into a much tougher bail-in regime, and Austria has just thrown this into sharp relief,” said sovereign bond strategist Nicholas Spiro. The biggest bondholders are Deutsche Bank’s DWS Investment, Pimco, Kepler-Fonds and BlackRock. The World Bank also owns €150bn of Hypo debt.

Austria’s banking regulators surprised markets by intervening over the weekend to wind down Heta and suspend debt payments until 2016 after discovering a further shortfall in capital of €7.6bn. The surge in the Swiss franc in January after the collapse of Switzerland’s currency floor against the euro appears to have been the last straw, setting off another wave of likely losses from eastern European mortgages denominated in francs. “This is getting bigger and bigger,” said Marc Ostwald from Monument. “They kept kicking the can down the road but it is finally catching up with them, and Heta won’t be the last. There is a whiff of the Irish situation in this story. Carinthia stood as guarantor for debts that it could not possibly cover,” he said. There are many regions that could slide into difficulties, including Belgium’s Wallonia, or the Italian region of Sicily.

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Of course it should. Everyone should.

Shelby Says Fed Should Be Held Accountable for Its Actions (Bloomberg)

Richard Shelby, the Alabama Republican who heads the Senate Banking Committee, said lawmakers should consider ways to overhaul the Federal Reserve’s structure and tighten oversight by Congress. “We will further explore options to improve the oversight and structure of the Fed,” Shelby said Tuesday in prepared remarks at a hearing. Arguing the Fed has failed to explain the impact of its extraordinary monetary policies, he said it should “be held accountable for its actions.” Sherrod Brown of Ohio, the committee’s senior Democrat, said the group should focus on the Fed’s governance, not monetary policy. “Rather than attempting to interfere in, or even dictate, monetary policy, Congress should focus on whether the Federal Reserve is protecting consumers, ensuring safety and soundness, and strengthening the financial stability of our economy,” he said.

The Fed is under pressure from both parties in Congress to be more transparent and accountable. Republicans are unhappy with its aggressive monetary policy and some of the regulatory powers it has gained since the financial crisis. Democrats have criticized the New York Fed for being too close to the big Wall Street banks that it oversees. “Federal Reserve officials have stressed the importance of the Fed’s independence,” Shelby said in prepared remarks. “But, such independence does not mean that it is immune from congressional oversight.” Shelby said last week at Bloomberg TV that he’s looking “very strongly” at a proposal from Dallas Fed President Richard Fisher to strip the New York Fed of its permanent vote on the Federal Open Market Committee in favor of an equal vote rotation among all 12 regional reserve banks.

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Sure.

Yellen Says Fed Seeks to Avert ‘Capture’ by Banks It Oversees (Bloomberg)

Fed Chair Janet Yellen, countering criticism from members of Congress, said the central bank is trying to avoid being too cozy with the Wall Street firms it supervises and wants to ensure that regulators aren’t afraid to confront the financial industry. “The risk of regulatory capture is something the Federal Reserve takes very seriously and works very hard to prevent,” Yellen said in remarks prepared for a speech in New York on Tuesday night. “It is important that anyone serving the Fed feel safe speaking up when they have concerns about bias toward industry, and that those concerns be addressed.” The Fed has been criticized by Democratic lawmakers, including Senator Elizabeth Warren, who say it’s deferential to large banks. The issue was the subject of a Senate hearing in November following allegations by Carmen Segarra, a former examiner at the Fed of New York, who said her colleagues had been too soft on Goldman Sachs.

At the hearing, Warren told New York Fed President William C. Dudley that he needs to fix a “cultural problem” or “we need to get someone who will.” The Fed has also come under fire from Republicans, including Richard Shelby of Alabama, the Senate Banking Committee chairman, who called for more Fed transparency and greater congressional oversight at a hearing Tuesday. Yellen, in her speech to the Citizens Budget Commission, also took aim at ethical lapses at large banks supervised by the Fed. “We expect the firms we oversee to follow the law and to operate in an ethical manner,” she said. “Too often in recent years, bankers at large institutions have not done so, sometimes brazenly.” Such incidents “raise legitimate questions of whether there may be pervasive shortcomings in the values of large financial firms that might undermine their safety and soundness,” she said.

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Pensions and low rates. A poisonous combination.

Draghi’s Rescue Plan Has Created a $103 Billion Problem (Bloomberg)

There’s a corner of the pension world that needs to brace itself for Mario Draghi. His ECB’s €1.1 trillion bond-buying plan might have already blown a €92 billion hole in defined-benefit pension plans by depressing bond yields, Standard & Poor’s said Feb. 26. And if the actual start of QE pushes yields further, for longer, companies may have to take drastic measures to make ends meet, and could face a hit to their credit ratings. The ECB is expected to announce further details of its asset-purchase program after it meets in Cyprus Thursday. S&P estimates that the anticipation of quantitative easing in Europe squashed bond yields so much that the liabilities of defined-benefit pension plans rose by up to 18% last year.

Its analysis looked at the top 50 European companies it rates that have defined-benefit pension plans and are “materially underfunded,” meaning, the plans have deficits of more than 10% of adjusted debt, and that debt is more than 1 billion euros. In 2013, liabilities outstripped obligations for that group by more than 30% on average. “The challenge for companies in coming years will be how to rein in plan deficits in the new post-QE low interest-rate environment in Europe,” Paul Watters, credit analyst at S&P, said in a statement. “This will become a more material credit consideration where defined-benefit plan deficits are significant.”

Among the measures S&P says companies may have to take to adjust to this new low-yield world are freezes on pensionable salaries, raising the retirement age, and closing plans to new or even to existing members.vAnd that’s not the end of it. A potential cocktail of low bond yields, sluggish growth and faster inflation, which could result if QE fails to kickstart activity, could push those deficits out a further 10-15%. “The risk remains that QE achieves nothing more than promoting stagflation in the euro area,” Watters said. “A combination of weak growth, inducing the ECB to continue with its aggressive monetary-policy stance, and rising inflation would be a treacherous combination for DB-pension schemes already struggling to contain their plan deficits.”

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” I realized I could afford to pay my children’s university expenses or my loan. I chose my kids and no one can blame me.”

ECB Glimpse of Cyprus Debt Mountain Shows Limits of Bank Cleanup (Bloomberg)

There was a time when a Cypriot on a moderate income could take a gamble on foreign real-estate worth more than his life savings. One banking crash, three and a half years of recession and an international bailout later, 58-year-old Stelios Charalambous is among the Mediterranean island nation’s many debtors who realize that time has passed. “I took a €70,000 loan six years ago from a cooperative bank in the days when no one asked you many questions, and I bought six plots of land in Romania,” the Nicosia-based chiropractor said in an interview. “Now I’m earning half what I was and no one wants to buy my Romanian land. I realized I could afford to pay my children’s university expenses or my loan. I chose my kids and no one can blame me.”

The ECB, which holds a policy meeting in the euro area’s easternmost capital on Thursday, cares about such cases as they add up to almost €900 billion of soured credit in the region and hobble lenders’ ability to serve the economy. Yet Cyprus, where non-performing exposures account for more than half the country’s loan-book, also shows how politics can get in the way of a cleanup. The nation made euro-era history in March 2013 when it imposed capital controls for the first, and so far only, time in the single currency’s existence. The measures came alongside a €10 billion rescue led by the euro area, the merger of the country’s two largest lenders, and the seizure of almost half the savings of some 21,000 customers.

The crisis gave birth to a new class of individuals and small businesses that could not, or would not, service their debt, turning Cyprus into the country with the highest bad-debt ratio in the currency bloc. That meant banks had to tie up large chunks of their capital in loss provisions instead of making fresh loans to companies and households. To relieve the blockage, a new foreclosure law enabling banks to seize property from defaulters was introduced in 2014, only to be held up repeatedly by opposition politicians nervous of the impact on businesses and families. Implementation – and the disbursement of further bailout funding which is contingent on the law – is still pending. The economic slump and legal uncertainty created a “perfect storm” for the banks, Euan Hamilton at Bank of Cyprus said.

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“Never before have speculators been gifted with such stupendous, easily harvested windfalls. And these adjectives are not excessive.”

$2 Trillion Euro Government Bonds Trading At Negative Yield (David Stockman)

That investors anywhere in this age of fiscal profligacy would pay to own the notes and bonds of sovereign states is a testament to the financial deformations of modern central banking. But the fact that nearly $2 trillion of debt issued by European governments is currently trading at negative yields——now that’s a flat-out derangement. After all, the aging, sclerotic economies of the EU have been making a bee line toward fiscal insolvency for most of the last decade. So it goes without saying that this giant agglomeration of pay-to-own government debt is not reflective of an outbreak of fiscal rectitude or any other rational economic development.

It’s purely an artificial trading result stemming from central bank destruction of every semblance of honest price discovery. In this case, the impending ECB purchase of $70 billion of government debt and other securities per month for the next two years has transformed the financial casinos of Europe and elsewhere into a front runner’s paradise. As today’s Bloomberg piece tracking Europe’s $2 trillion of exuberant irrationality makes clear, sovereign bond prices are soaring because traders are accumulating, not selling, in anticipation of the ECB’s big fat bid hitting the market in the weeks ahead:

“It is something that many would not have pictured a year ago,” said Jan von Gerich at Nordea Bank in Helsinki. “It sounds very awkward in a sense, but if you look at it more, the central bank has a deposit rate in negative territory, and there’s a huge bond-buying program coming. People are holding on to these bonds and so you don’t have many willing sellers.”

Needless to say, this is the opposite of at-risk price discovery; it amounts to shooting fish in a barrel. Never before have speculators been gifted with such stupendous, easily harvested windfalls. And these adjectives are not excessive. The hedge fund buyers who came to the game early after Draghi’s “anything it takes”ukase have enjoyed massive price appreciation, but have needed to post only tiny slivers of their own capital, financing the balance at essentially zero cost in the repo and other wholesale funding venues. Indeed, the more risk, the bigger the windfall. German yields have now been driven below the zero bound on all maturities through seven years, emboldening speculators to move out on the risk curve. So doing, they have gorged on peripheral nation debt and have been generously rewarded. In the case of the 10-year bond of Ireland – a state which was on the edge of bankruptcy only a few years ago – leveraged speculator gains are now deep into three figures.

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“March is sorted.”

Greece Taps Public Sector Cash To Help Cover March Needs (Reuters)

Greece is tapping into the cash reserves of pension funds and public sector entities through repo transactions as it scrambles to cover its funding needs this month, debt officials told Reuters on Tuesday. Shut out of debt markets and with aid from lenders frozen, Athens is in danger of running out of cash in the coming weeks as it faces a €1.5 billion loan repayment to the IMF this month. The government has sought to calm fears and says it will be able to make the IMF payment and others, but not said how. At least part of the state’s cash needs for the month will be met by repo transactions in which pension funds and other state entities sitting on cash lend the money to the country’s debt agency through a short-term repurchase agreement for up to 15 days, debt agency officials told Reuters. However, one government official said they could not be used to repay the IMF unless Athens was able to repay the state entities the cash it borrowed from them.

Debt officials sought to play the repos as advantageous for both sides, arguing that the funds get a better return on their cash than what is available in the interbank market. “It is not something new, it’s a tactic that started more than a year ago and is a win-win solution. It’s a proposal, we are not twisting anyone’s arm,” one official said. In such repo transactions, a pension fund or government entity parks cash it does not immediately need at an account at the Bank of Greece, which becomes the counterparty in the deal with the debt agency. The money is lent to the debt agency for one to 15 days against collateral – mostly Greek treasury paper held in its portfolio – and is paid back with interest at expiry. The lender can always opt to roll over the repurchase agreement and continue to earn a higher return than what is available in the interbank market.

One source familiar with the matter has previously said Athens could raise up to €3 billion through such repos, but that it was not clear how much of that had already been used up by the government. “There is a sum that has already been raised this way,” the debt official said without disclosing specific numbers. Athens – which has monthly needs of about €4.5 billion including a wage and pension bill of €1.5 billion – is running out of options to fund itself despite striking a deal with the euro zone to extend its bailout by four months. Faced with a steep fall in revenues, it is expected to run out of cash by the end of March, possibly sooner, though the government is trying to assure creditors it will not default. “We are confident that the repayments will be made in full, particularly to the IMF, and there will be liquidity to get us through the end of the four-month period,” Finance Minister Yanis Varoufakis said on Greek TV on Monday. “March is sorted.”

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Of course not. Only the north can, at the cost of the south.

Can Greece Really Thrive Inside the Euro? (George Magnus)

After a lot of hubbub, in the end the Greek government submitted a list of policy proposals that elicited a positive response from Brussels, judging them to be “sufficiently comprehensive” to permit the four-month extension of the existing loan arrangements until June. The responses from the IMF and the ECB were rather more circumspect, indicating strongly that the next four months of negotiations to determine Greece’s relationship with the Eurosystem will be tough and most probably tense. The IMF noted that the Greek government’s “policy parameters” didn’t go far or weren’t detailed enough, especially about VAT and pension reforms, privatizations and policies to open up closed sectors, including the labor market. The ECB urged the Greek authorities to act swiftly to “stabilize the payments culture and refrain from any unilateral action to the contrary.”

This is believed to refer to matters such as Greek regulations on mortgage foreclosures and to tax and payments arrears in public policy. The “deal” between Greece and its Eurogroup partners has been widely welcomed, and spun according to what people thought would or should happen. I think that the current “deal” is just Act I in a play with an unpredictable, but very likely bad, ending — where “bad” equals Euro system fragmentation, or Grexit, if you prefer. (Or the even tonier “Grexident.”) I think it’s fair to say that however people judge the deal and what they think is good or positive about it from Greece’s point of view is really about one thing only: relief that the integrity of the Eurosystem has been preserved. That is some achievement, given that it looked as though it might not happen. Now, the hope (rather than conviction) prevails that the upcoming negotiations will see a realignment of interests and trust between Greece and its creditors.

Well, who wouldn’t wish for such an outcome? The problem though, as I see it, is that the economic and social policy agenda on which Syriza scored such a stunning electoral victory is entirely appropriate for Greece, but wholly incompatible with a Eurosystem that I call colloquially, Teutonia. While Teutonia normally refers to the geography of Germany or parts of Northern Europe, I use it to connote a German culture in economics and finance. In Teutonia, Germany doesn’t always win all the arguments, nor does it or can it impose a policy agenda by diktat. But in the absence of political and fiscal union – of which none of the major countries is in favor – the terms of the (narrow) monetary union will always reflect largely the interests of Germany and a relatively orthodox financial establishment viscerally opposed to the establishment of a genuine transfer, joint liability union.

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“Given the overriding political resolve to keep Greece in the eurozone, above all because the precarious geopolitics of southeast Europe, some form of compromise is likely here, too.”

ECB Will Need More Creative Accounting To Deal With Greece (MarketWatch)

The ECB faces pressure to carry out a new feat of creative accounting to meet Greek Finance Minister Yanis Varoufakis’s request for renegotiation of €6.7 billion in ECB bonds due to mature in July and August. In a round of interviews, Varoufakis has pledged that his country will make repaying its debts to the IMF its main priority. About €2 billion needs to be repaid to the Fund this month. But the Greek minister has drawn a strong distinction with the ECB, making it likely that the central bank may have to bring in further conditionality into its traditional insistence that it should always be treated as a preferred creditor on a par with the IMF.

Leading European politicians have long claimed that the ECB will have to show flexibility in rolling over some of the total of €30 billion in Greek bonds it still holds in its portfolio, resulting from its efforts started in 2010 to prop up weaker members of the euro. Further bruising tussles between Greece and its creditor look inevitable in view of the deliberate ambiguity the Greek government built into the provisional agreement with creditors clinched last month after several finance minister sessions in Brussels. Speaking in Berlin on Monday, German Chancellor Angela Merkel said Greece would have to make its reform proposals more specific and agree to the program with the “three institutions” (formerly called “the troika”) of the European Commission, the ECB and the IMF.

Similarly, Jeroen Dijsselbloem, the Dutch finance minister who heads the euro finance ministers’ group, says Greece must immediately start adopting the creditors’ list of reforms, as a condition for gaining access to emergency funds needed to meet March cash deadlines. There is little doubt that, provided Europe’s main capitals give political backing to the still-ambivalent Greek reform approach, the ECB will bend to the politicians’ will — even though it will face further charges of a watering down of its constitutional independence. The Greek government is calling for concessions such as the lifting of a €15 billion ceiling on the issue of short-term treasury bills. Given the overriding political resolve to keep Greece in the eurozone, above all because the precarious geopolitics of southeast Europe, some form of compromise is likely here, too.

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“Greece’s economy minister vowed to cancel the Piraeus deal and pursue sweeping changes to the terms of already completed sales. Defending his government’s stance, Yanis Varoufakis claims there is enough “creative ambiguity” in the text submitted to Brussels to provide enough wiggle room for Syriza to re-open the question of the sale of Piraeus and Greece’s airports..”

Greece vs Europe: Who Blinked First In The Bail-out Battle? (Telegraph)

The Greek parliament will not be voting on the country’s bail-out extension. Following internal turmoil among the ruling Syriza party over the terms of the reprieve, the Greek legislature will only be given the chance to “debate”, rather than officially ratify, the four-month extension. In an ironic twist of the EU’s democratic procedures, Greece’s 18 fellow eurozone parliaments will still need to rubber-stamp the deal. The move has prompted some to ask whether this represents Syriza’s “worst capitulation” in an already protracted and strained series of negotiations with its international creditors. Last week, Athens drew up a series of reforms in return for the remaining €7.2bn it needs to complete its bail-out programme.

At the time, finance minister Yanis Varoufakis insisted the country had become the “co-author of its own destiny” rather than the subject of EU diktats. But dissent among Syriza’s more Leftist elements started bubbling from the onset. Syriza MP and London-based academic Costas Lapavitsas has dismissed the deal as one agreed under “economic duress”. The nascent anti-austerity government now faces a four-week race to draft legislation and pass the laws that will see it come good on its promises. Only then will Greece’s creditors decide whether or not to disburse the vital cash the country needs to say afloat until June. But what exactly has Athens signed up for and could domestic political wranglings now put a brake on the country’s bid to avert bankruptcy?

One of the cornerstones of Syriza’s plans to end Greece’s “ritual humiliation” has been an increase in the country’s minimum wage. In a vociferous speech to his parliament last month, Prime Minister Alexis Tsipras repeated his promise to raise the minimum wage by around 10pc to €750-a-month. Of the 22 EU member states with a national minimum wage, Greece is the only country that has seen its fall since the financial crisis. The country’s nominal gross wage is now 14pc lower compared to 2008, as Greece has undergone a progressive reduction in its labour costs in a bid to restore competitiveness in the stricken economy. The current €684-a-month puts Greece between its Iberian counterparts, both of whom have seen a steady rise in their mandated wage floors over the last seven years: Spain’s minimum wage has risen 8pc, while Portugal’s has gone up by 19pc.

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If they refuse the proposals, Syriza may throw the towel.

Athens Preparing Reform Proposals For Eurogroup (Kathimerini)

A collection of reform proposals are being put together by the government so Finance Minister Yanis Varoufakis can present them at Monday’s Eurogroup, with Athens hoping that this will help it secure part of the remaining €7.2 billion in bailout installments. Government sources said on Tuesday night that the six proposals Varoufakis is due to present will be measures to tackle the humanitarian crisis, administrative reform, a new scheme to settle overdue debts to the state, changes to tax collection, the creation of a fiscal council (a nonpartisan body to monitor and advise on fiscal policy) and the setting up of a new body for targeted tax inspections. The measures are due to be put forward at the Euro Working Group on Wednesday or Thursday but the Greek government is hoping that eurozone finance ministers will deem the proposals enough to pave the way for the release of some funding to Athens within March.

Varoufakis is also likely to be prepared to discuss with his counterparts what privatizations the government is willing to carry out. The finance minister said in an interview on Star TV on Monday night that he is in favor of further private investment at Piraeus port and in the Greek railway network. State Minister Alekos Flambouraris said on Tuesday that the coalition would not consider selling the country’s water or electricity firms. The preparation for Monday’s Eurogroup has led to the government making changes to some of the legislation it had planned. For instance, the provision for giving debtors a haircut on the principal they owe to the state has been removed from the legislation introducing a new payment plan for overdue taxes and social security contributions.

There is even a possibility that the dreaded ENFIA property tax will remain for another year, albeit reduced by 15 to 20%. The government wants to replace it with a levy on large property but will need to ensure it can raise revenues of €2.6 billion to do so. A new formula has not been found yet. The coalition has, however, finalized the legislation aimed at tackling the social impact of the crisis. The bill foresees households in “extreme poverty” receiving free electricity for a year. This is estimated to affect 150,000 families. The draft law also provides a rent subsidy of between €70 and €220 per month for up to 30,000 households. Furthermore, food coupons will be provided to up to 170,000 families. The total cost of these interventions is estimated at €200 million.

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This is going to hurt. A lot.

Oil at $95 a Barrel Discovered in SEC Rules on Reserves (Bloomberg)

There’s one place in the world where oil is still $95 a barrel. On paper. The US Securities and Exchange Commission requires drillers to calculate the value of their oil reserves every year using average prices from the first trading days in each of the previous 12 months. Because oil didn’t start its freefall to about $45 till after the OPEC meeting in late November, companies in their latest regulatory filings used $95 a barrel to figure out how much oil they could profitably produce and what it’s worth. Of the 12 days that went into the fourth-quarter average, crude was above $90 a barrel on 10 of them. So Continental Resources reported last month that the present value of its oil and gas operations increased 13% last year to $22.8 billion. For Devon, a pioneer of hydraulic fracturing, it jumped 31% to $27.9 billion.

This year tells a different story. The average price on the first trading days of January, February and March was $51.28 a barrel. That means a lot of pain – and writedowns – are in store when drillers’ first-quarter numbers are announced in April and May. “It has postponed the reckoning,” said Julie Hilt Hannink at New York-based CFRA, an accounting adviser. Companies use the first-trading-day-of-every-month calculation to estimate future cash flow and to tally how much crude can be profitably pumped out of the ground. The SEC introduced the formula in 2009 as part of wider changes in how the regulator required drillers to report reserves. Prior to the shift, the value of the reserves was measured based on the oil price on the last day of the year, which also caused distortions. There are no current plans to revisit or modify SEC reporting rules, Erin Stattel, an SEC spokeswoman, said.

Most shale drillers are reporting increases in what’s known as proved reserves. The SEC requires oil producers to submit an annual tally, along with an estimate of the present value of the future cash flow from those properties. The estimates are limited to what the firm is reasonably certain it can extract from existing wells and prospects scheduled to be drilled within five years. The reports are based on factors such as geology, engineering, historical production – and price. To count as proved, the resources must be economic to develop given existing market conditions. “What the SEC requires isn’t thorough enough to get to the numbers investors really want,” said Mike Kelly with Global Hunter Securities. “What is the true cost of producing a barrel of oil? And what is the real value of the assets?” A similar pricing formula helps determine whether some companies need to write off their oil and gas properties.

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Keep going.

The Latest Sign the Oil-Price Plunge Is Hitting the Job Market (Bloomberg)

As investors prepare for the release of the February U.S. employment data on Friday, we’re getting more inklings of how the shakeout in the oil industry will impact the jobs market, and it doesn’t look great: Demand for workers in energy-related occupations is plunging. Online help-wanted ads for jobs involved in the extraction of oil and gas – derrick operators, wellhead pumpers, roustabouts and the like – declined 42% in the two months through January as oil prices cratered, according to data compiled by the Conference Board and Wanted Technologies.

Occupations in the industry that have higher education requirements, such as petroleum engineers, geoscientists and technicians, also saw demand for their services collapse, with ads dropping 38%, Gad Levanon and his fellow researchers at the Conference Board wrote on their blog this week. The downbeat message from the online ad postings echoes that of a report last month by global outplacement firm Challenger, Gray & Christmas, which showed that 38% of announced job cuts in January were in the energy industry. As we noted last month, employment in oil and gas extraction and related supply industries doubled over the last decade, reaching some 523,500 workers. If the Conference Board and Challenger data are anything to go by, that trend is likely to reverse big-time this year.

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Nice graphics.

Wall Street Has Its Eyes on Millennials’ $30 Trillion Inheritance (Bloomberg)

There have been any number of pieces written about how the millennial generation is consciously refusing to do things that preceding generations thought were perfectly reasonable, such as playing golf or investing in the stock market or even doing a SINGLE NICE THING for someone else! This seems to have caused some consternation on Wall Street, where the powers-that-be would obviously like to see millennials do at least one nice thing for them: hand over all their money. But have no fear, because Wall Street is ON IT! Financial firms are working hard to solve the Rubik’s Cube (err, sorry the 2048) that is the Gen Y zeitgeist, if recent reports from Federated Investors and Goldman Sachs are any indication. Based on the research, here are the highlights of what you need to know about this enigmatic generation: They like skinny ties and skinny jeans and, based on the way these firms are presenting these findings, they seem to only be reachable through cartoon-like graphics and animation.

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“If Japan can’t get its finances under control, people are going to start questioning what exactly the difference between Japan and Greece is.”

Japan Public Debt Keeps BNP Chief Credit Analyst Awake at Night (Bloomberg)

For most of her career, Mana Nakazora has taken a pre-dawn train to work regardless of whether she arrived home just hours earlier. Her colleagues describe BNP Paribas’s Tokyo head of investment research as a powerhouse, and she was Japan’s No. 1 bond picker from 2010 to 2012 and No. 2 for the last two years in Nikkei Veritas newspaper polls. Making it to the top in an industry whose corporate bond sales exceeded $70 billion last year can be tough. “I usually get home on average at about midnight, sometimes it can be 2 a.m.,” Nakazora said in an interview at BNP’s Tokyo offices on the 42nd floor overlooking the nation’s parliament and Imperial Palace. “I get up at 5 a.m., so I don’t sleep much. It has been like that forever.”

One thing keeping her up – analysis of Japan’s public debt, which is expected to climb to 1.06 quadrillion yen ($8.85 trillion) at the end of March. With a population that’s been shrinking for the past six years and annual debt servicing costs that are bigger than New Zealand’s gross domestic product, the world’s third-largest economy is quite simply running out of people who can pick up the tab. “Maybe there’s no point in throwing stones at this huge rock, but if you keep hurling just maybe you can open up a crack,” said Nakazora, who also sits on two government panels including the finance ministry’s fiscal system council that advises on budgetary rectitude. “If Japan can’t get its finances under control, people are going to start questioning what exactly the difference between Japan and Greece is.”

With unprecedented central bank stimulus compressing debt yields, Nakazora said she likes SoftBank’s bonds, which offer investors more than five times the average spread Japanese notes pay. She also recommends the debt of TEPCO, operator of the tsunami-hit Fukushima power plant, but is no longer a fan of Sony debentures because the jury’s still out on whether the electronics maker can revive its fortunes. Nakazora also doesn’t favor the delay in Japan’s sales tax increase. Prime Minister Shinzo Abe in November postponed raising the levy to 10% by 18 months after an increase to 8% from 5% in April plunged the economy into a recession. Japan’s debt will rise to the equivalent of 246% of GDP this year, one of the highest ratios in the world, the IMF forecasts.

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That’s what the US is waiting for.

Ukraine Looks Ready To Default (MarketWatch)

The conflict in the Ukraine is relevant to global investors as it directly affects security in Europe, which is the home of an economy the size of the U.S. The trade bans due to conflict-driven sanctions involve many countries and add to the European deflation at present. Those trade bans might get wider should the conflict intensify based on the realization that a political solution would not give the rebels and their Russian backers what they want — enough autonomy to keep Ukraine out of the EU and NATO. I do not follow this conflict to determine who is right or wrong but to gauge how it affects financial markets.

Most of my conclusions may seem relevant only to institutional investors that deal in currencies, sovereign bonds, credit-default swaps (CDSs), and the energy markets, but I do believe those geopolitical developments affect quite a few individual investors, even those in the U.S. Last week the Ukrainian truce barely took hold when fighting over the strategic Ukrainian town of Debaltseve, which controls rail lines linking Luhansk and Donetsk, threatened to unravel the ceasefire agreement. The rebels decided to take the town “no matter what,” as a prolonged truce made it necessary for them to control logistics in their territory. It has been clear for a long time that Ukraine is a divided country where half the population supports the rebels and the other half supports the government in Kiev — as demonstrated by this map of the 2010 election, which brought Yanukovych to power.

This map also suggests this conflict can quickly carry all the way to Odessa, which Russian ruler Catherine the Great (1729-1796) turned into a key trading hub for the Russian Empire. There is also an unhappy minority of Russians in a strip of Moldova adjacent to Ukraine, where Russian peacekeepers have been stationed for years. It is entirely possible they see this conflict as the opportunity to resolve their situation once and for all. Perhaps because of all of the above considerations, Ukrainian government bonds are at all-time lows. When such a bear market in credit gets to prices like 44 cents on the dollar, this is the bond market saying that Ukraine will likely default.

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Done deal.

Ukraine Raises Interest Rates To 30% (BBC)

Ukraine’s central bank has sharply raised interest rates from 19.5% to 30% in an effort to curb inflation and prop up its beleaguered currency. The new benchmark refinancing rate takes effect on Wednesday. It comes as the government in Kiev is seeking a $17.5bn assistance programme from the IMF. Inflation is expected to hit at least 26% this year and the hryvnia has tumbled against the dollar. The currency has lost 80% of its value since last April, when pro-Russian separatists took up arms in the country’s eastern Donetsk and Luhansk regions, a month after Russia annexed Ukraine’s southern Crimea peninsula. Last week, the hryvnia hit a record low of 33.75 to the dollar before recovering some ground.

The conflict has taken its toll on Ukraine’s economy, which is forecast to shrink by 5.5% in 2015. The interest rate increase is the second in two months, after the central bank raised the rate from 14% in February. On Monday night, Ukraine’s parliament approved a package of reforms that could determine whether it will avoid economic meltdown in the coming weeks. They include changes to the tax and energy laws and the government’s budget. The passing of the reform package was a condition for the IMF rescue package. The IMF’s executive board will meet on 11 March, when it will make its decision. If it says yes, the first tranche of some $5bn will become available within days.

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Not a single doubt.

Financial Collapse Leads To War (Dmitry Orlov)

Scanning the headlines in the western mainstream press, and then peering behind the one-way mirror to compare that to the actual goings-on, one can’t but get the impression that America’s propagandists, and all those who follow in their wake, are struggling with all their might to concoct rationales for military action of one sort or another, be it supplying weapons to the largely defunct Ukrainian military, or staging parades of US military hardware and troops in the almost completely Russian town of Narva, in Estonia, a few hundred meters away from the Russian border, or putting US “advisers” in harm’s way in parts of Iraq mostly controlled by Islamic militants. The strenuous efforts to whip up Cold War-like hysteria in the face of an otherwise preoccupied and essentially passive Russia seems out of all proportion to the actual military threat Russia poses. (Yes, volunteers and ammo do filter into Ukraine across the Russian border, but that’s about it.)

Further south, the efforts to topple the government of Syria by aiding and arming Islamist radicals seem to be backfiring nicely. But that’s the pattern, isn’t it? What US military involvement in recent memory hasn’t resulted in a fiasco? Maybe failure is not just an option, but more of a requirement? Let’s review. Afghanistan, after the longest military campaign in US history, is being handed back to the Taliban. Iraq no longer exists as a sovereign nation, but has fractured into three pieces, one of them controlled by radical Islamists. Egypt has been democratically reformed into a military dictatorship. Libya is a defunct state in the middle of a civil war. The Ukraine will soon be in a similar state; it has been reduced to pauper status in record time—less than a year. A recent government overthrow has caused Yemen to stop being US-friendly.

Closer to home, things are going so well in the US-dominated Central American countries of Guatemala, Honduras and El Salvador that they have produced a flood of refugees, all trying to get into the US in the hopes of finding any sort of sanctuary. Looking at this broad landscape of failure, there are two ways to interpret it. One is that the US officialdom is the most incompetent one imaginable, and can’t ever get anything right. But another is that they do not succeed for a distinctly different reason: they don’t succeed because results don’t matter. You see, if failure were a problem, then there would be some sort of pressure coming from somewhere or other within the establishment, and that pressure to succeed might sporadically give rise to improved performance, leading to at least a few instances of success.

But if in fact failure is no problem at all, and if instead there was some sort of pressure to fail, then we would see exactly what we do see. In fact, a point can be made that it is the limited scope of failure that is the problem. This would explain the recent saber-rattling in the direction of Russia, accusing it of imperial ambitions (Russia is not interested in territorial gains), demonizing Vladimir Putin (who is effective and popular) and behaving provocatively along Russia’s various borders (leaving Russia vaguely insulted but generally unconcerned).

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The level of absurdity is stunning.

NATO Rolls Out ‘Russian Threat’ In Budget Battle (RT)

NATO member-states unwilling or unable to help boost the military spending are being accused of ignoring the “Russian threat,” that has re-emerged as the core of the alliance’s agenda to boost arms sales. A report saying one of major NATO funding contributors, the UK, could fail to fulfil the commitment to spend 2% of its GDP on the alliance in 2015 came as a bombshell for some of the West’s military elite. The head of the US army, General Raymond Odierno, told the Telegraph he was “very concerned” about Britain’s possible defense cuts. “[Odierno] warned that, while the US was willing to provide leadership in tackling future threats, such as Russia and ISIL [the Islamic State, aka IS or ISIS], it was essential that allies such as Britain played their part,” the British daily wrote.

Former MI6 chief, Sir John Sawers, called for a rise in defense spending, also mentioning the “threat” coming out of Russia “not necessarily directly to the UK, but to countries around its periphery.” “The level of threat posed by Moscow has increased and we have to be prepared to take the defensive measures necessary to defend ourselves, defend our allies – which now extend as far as the Baltic States and Central Europe,” Sawers said, according to the Guardian. In turn, Moscow said it will take all “necessary measures” including military, technical and political to neutralize a possible threat from NATO presence in Eastern Europe, Russia’s ambassador to NATO, Aleksandr Grushko, told the Rossiya 24 TV channel on Monday. He added NATO’s actions “significantly impair regional and European security, and pose risks to our security.”

Grushko said NATO has intensified its military drills in Eastern Europe, with about 200 exercises in its eastern member states, mostly in the Baltic and Black seas, Poland and Baltic states. Russia’s Defense Ministry has consistently denied all reports of its personnel or hardware being involved in the conflict in eastern Ukraine, calling NATO’s allegations “groundless.” Among “proof” of the “Russian aggression” there have been fake photos of the Russian tanks, which eventually turned out to have been taken in a different place at a different time, a supposed Russian airplane in British airspace, that turned out to be Latvian, and mysterious “Russian submarines” in Swedish waters – which never were found. “Demonizing” Russia plays well into the hands of the military, believes former NATO intelligence analyst, Lt Cdr Martin Packard.

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On their way to your dinner plate.

Massive Swarms of Jellyfish Wreak Havoc on Fish Farms, Power Plants (Bloomberg)

As the oceans get warmer, jellyfish are causing pain beyond their sting. The marine animals have shut power plants from Sweden to the U.S. while killing thousands of farmed fish in pens held off the U.K. coast. GPS devices normally used to track the behavior of house cats were attached to 18 barrel-jellyfish off the coast of northern France. The study upended previous assumptions about their movement. Climate change may be one reason more jellyfish are congregating in large numbers known as blooms, which can encompass millions of the creatures over tens of kilometers.

Researchers are seeking to develop a system, akin to weather forecasting, to help predict their movement and prevent fish deaths, such as the loss of 300,000 salmon off Scotland last year, or power outages that shut a Swedish nuclear plant in 2013. “Jellyfish blooms may be increasing as a result of climate change and overfishing,” Graeme Hays, the leader of the group from Deakin University in Australia and Swansea University in the U.K. that did the research, said by phone Jan. 28. “They have a lot of negative impacts – clogging power station intakes, stinging people and killing fish in farms.” The study was conducted in 2011 with results published online in January by the journal Current Biology.

Hays plans to replicate the work in Tasmania, Australia, where salmon farming is an industry valued at about A$550 million ($430 million) a year. Combined land and ocean surface temperatures have warmed 0.85 of a degree Celsius since 1880, according to the IPCC. Global warming is “unequivocal” and many observed changes since the 1950s are “unprecedented over decades to millennia,” it said in a 2014 report. “Warmer water is a dream come true for jellyfish,” Lisa-ann Gershwin, a marine scientist who has studied the creatures for about 25 years and author of Stung!: On Jellyfish Blooms and the Future of the Ocean, said by phone Feb. 4. “It amps up their metabolism so they grow faster, eat more, breed more and live longer.”

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Mar 032015
 
 March 3, 2015  Posted by at 10:53 am Finance Tagged with: , , , , , , , , , , ,  2 Responses »


William Henry Jackson Saltair Pavilion, Great Salt Lake 1900

Heta Senior Bonds Plunge as Austria Cuts Off Aid to Bad Bank (Bloomberg)
The Great Global Monetary Easing of 2015 May Be Done by Midyear (Bloomberg)
Fed Ushers In A New Era Of Uncertainty On Rates (Hilsenrath at FT)
To Beat Austerity Greece Must Break Free From The Euro (Costas Lapavitsas)
Greece Eyes Last Central Bank Funds To Avert IMF Default (AEP)
Mixed Messages On Third Greek Bailout Talks (Reuters)
Greeks in the Crisis: ‘We Need To Explain Ourselves’ (Spiegel)
Investor Survey Shows 38% Chance Of Eurozone Break-Up In 12 Months (Reuters)
French Factory Decline Even Worse Than Greece (Telegraph)
Spain To Split? Snap Vote On Catalan Independence (CNBC)
Portugal’s Successful Turnaround? A Fairy Tale (The Globalist)
Tough Talk On Greece Alone Won’t Boost Ireland, Spain At Home (Reuters)
European Union Showing ‘Signs Of Strain’ (BBC)
China Will End Up Like Japan, Says Observer Who Called It In 1990 (Bloomberg)
Gaddafi’s Cousin Warns Of A ‘9/11 In Europe Within Two Years’ (Independent)
US to Deploy Six National Guard Companies to Ukraine This Week (Sputnik)
Heroes and Villains (Jim Kunstler)
Syrian Conflict Is The World’s First ‘Climate Change War’ (Independent)

Timebomb: who’s going to want to buy anything EU anymore? “..the first test of the EU’s Bank Recovery and Resolution Directive, which takes full effect across the bloc next year..”

Heta Senior Bonds Plunge as Austria Cuts Off Aid to Bad Bank (Bloomberg)

Senior bonds of Heta Asset Resolution tumbled to record lows after Austria said it won’t pump more money into the “bad bank,” the first test of European legislation designed to ensure investors pay for bank failures. Austria’s decision to cut funding to the vehicle that’s winding down assets of the failed Hypo Alpe-Adria-Bank International AG is the first test of the EU’s Bank Recovery and Resolution Directive, which takes full effect across the bloc next year. The rules, which Austria implemented earlier than most EU member states, give regulators the power to impose losses on both shareholders and creditors in the event of a bank collapse. The EU enacted the bank-resolution law last year in a bid to end taxpayer bailouts that prevailed in the financial crisis.

The bloc granted €661 billion for recapitalization and asset-relief measures from 2008 to 2013, according to European Commission data. Member states had to transpose the directive into national law by the end of 2014 and have until Jan. 1, 2016 to apply all rules. Heta’s €2 billion of 4.375% notes maturing in January 2017 plunged 19 cents on the euro to 46 cents, according to data compiled by Bloomberg. The company’s €450 million of floating-rate notes due March 6 slumped 37 cents to 46 cents on the euro, the data show. Austria cut support for Heta, which has already cost taxpayers about €5.5 billion in aid, after it notified the government it had a capital shortfall of as much as €7.6 billion, the Austrian Finance Ministry said in a statement on Sunday.

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No more steam.

The Great Global Monetary Easing of 2015 May Be Done by Midyear (Bloomberg)

The rush began in Tashkent, capital of Uzbekistan, on Jan. 1. The former Soviet state enacted the first interest-rate reduction of 2015. Since then, the cuts have come thick and fast, with the People’s Bank of China on Saturday becoming the 17th central bank of 57 monitored by Bloomberg News to pare its benchmark. By the end of this week, the list will probably include Poland. Some economists also forecast Australia and Canada will act for the second time this year. Norway, Hungary and Thailand will all join the party this month, followed by South Korea in April, according to JPMorgan economists led by Bruce Kasman.

Out of room on rates, the European Central Bank is set to begin its €1.1 trillion bond-buying program. And that may be that. For all the fireworks, the rate cutting may be over by the middle of the year as deflation worries ebb. Oil appears to be finding a bottom around $60 a barrel and global growth is firming. In the developed world, a measure of inflation expectations based on bond yields rose in January and February to 1.28% on Feb. 27, ending an eight-month slump, data compiled by Bank of America show. That backdrop has JPMorgan predicting the Federal Reserve will raise interest rates in June for the first time since 2006 and, in doing so, end the international easing cycle.

On the other hand, Goldman Sachs. and Morgan Stanley predict docile inflation will persuade the Fed to hold off. New-York based JPMorgan sees the average interest rate for the world bottoming at 2.46% this month before rising to 2.59% by the end of the year. The measure for developed economies will more than double to 0.58% from 0.22%, led by the Fed. “A deflationary wave is about to break,” Kasman wrote last week. So, what began in Uzbekistan may end in the U.S.

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You’ve been warned.

Fed Ushers In A New Era Of Uncertainty On Rates (Hilsenrath at FT)

Investors these days are obsessing over when the Federal Reserve will start raising short-term interest rates. Drawing less scrutiny is where rates will end up in the long run and how they’ll get there. But it’s time to start paying attention. Fed officials have made clear they expect to begin raising short-term interest rates from near-zero this year, though not before midyear. After that, there is great uncertainty at the central bank and in the markets about the future path of interest rates. The long-run outlook for rates has consequences for everyone. For households, it will determine payments on mortgages and car loans; for businesses, on corporate bonds; and for the government, on the $13 trillion in debt held by the public. A disconnect between the Fed and the market over the long-run rate outlook also could be a source of market turbulence in the months ahead.

Central-bank policy makers on average see rates going nearly twice as high as futures markets indicate in coming years, for a variety of reasons. If the Fed is wrong, it might make a mistake on interest rates that jars the economy. If the market is wrong, it might be setting itself up for a tumble if rates go higher than expected. The Fed’s latest forecasts show that nine of 17 policy makers see the central bank’s benchmark interest rate—the federal funds rate—at 1.13% or higher by year-end. The median estimates—meaning half are above and half below—reach 2.5% for the end of 2016 and 3.63% for the end of 2017. On the other hand, in fed funds futures markets, where traders buy and sell contracts based on expected rates, the expected fed funds rate is 0.50% on average in December 2015, 1.35% in December 2016 and 1.84% in December 2017.

One reason for the disparity: Futures prices reflect investors’ calculations that there is some probability rates will return to near-zero after a few increases and stay there. This happened in Sweden after its central bank raised rates in 2010 and in Japan after 2006. In both cases, the central banks had to reverse course and cut rates after economic shocks and deflation pressures crippled their economies. A survey by the New York Fed of Wall Street bond dealers in January showed they attached a 20% probability to U.S. short-term rates returning to zero within two years after liftoff. A return to zero isn’t the Fed’s expected outcome, so it doesn’t show up in its rate forecasts.

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From a Syriza MP. Good cop bad cop.

To Beat Austerity Greece Must Break Free From The Euro (Costas Lapavitsas)

The agreement signed between Greece and the EU after three weeks of lively negotiations is a compromise reached under economic duress. Its only merit for Greece is that it has kept the Syriza government alive and able to fight another day. That day is not far off. Greece will have to negotiate a long-term financing agreement in June, and has substantial debt repayments to make in July and August. In the coming four months the government will have to get its act together to negotiate those hurdles and implement its radical programme. The European left has a stake in Greek success, if it is to beat back the forces of austerity that are currently strangling the continent. In February the Greek negotiating team fell into a trap of two parts.

The first was the reliance of Greek banks on the European Central Bank for liquidity, without which they would stop functioning. Mario Draghi, president of the European Central Bank, ratcheted up the pressure by tightening the terms of liquidity provision. Worried by developments, depositors withdrew funds; towards the end of negotiations Greek banks were losing a billion euros of liquidity a day. The second was the Greek state’s need for finance to service debts and pay wages. As negotiations proceeded, funds became tighter. The EU, led by Germany, cynically waited until the pressure on Greek banks had reached fever pitch. By the evening of Friday 20 February the Syriza government had to accept a deal or face chaotic financial conditions the following week, for which it was not prepared at all.

The resulting deal has extended the loan agreement, giving Greece four months of guaranteed finance, subject to regular review by the “institutions”, ie the European Commission, the ECB and the IMF. The country was forced to declare that it will meet all obligations to its creditors “fully and timely”. Furthermore, it will aim to achieve “appropriate” primary surpluses; desist from unilateral actions that would “negatively impact fiscal targets”; and undertake “reforms” that run counter to Syriza pledges to lower taxes, raise the minimum wage, reverse privatisations, and relieve the humanitarian crisis.

In short, the Syriza government has paid a high price to remain alive. Things will be made even harder by the parlous state of the Greek economy. Growth in 2014 was a measly 0.7%, while GDP actually contracted during the last quarter. Industrial output fell by a further 3.8% in December, and even retail sales declined by 3.7%, despite Christmas. The most worrying indication, however, is the fall in prices by 2.8% in January. This is an economy in a deflationary spiral with little or no drive left to it. Against this background, insisting on austerity and primary balances is vindictive madness.

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Bluff and bluster.

Greece Eyes Last Central Bank Funds To Avert IMF Default (AEP)

Greece is preparing to tap its final pension reserves at the country’s central bank if needed to avert a devastating default to the IMF and keep the government going over the next two weeks. The Greeks must pay the IMF €1.5bn in a series of deadlines this month, starting with €300m as soon as Friday. No developed country has ever defaulted to the IMF in the history of the Bretton Woods financial system. Such a move would shatter confidence and reduce Greece to a financial pariah in motley company with Zimbabwe. George Stathakis, the economy minister, said the government still has hidden reserves to keep operations going for a few more weeks, brushing aside warnings that the state could run out of cash within 10 days. “These stories are exaggerated. We have various buffers, including €3bn or €4bn at the Bank of Greece,” he told The Telegraph.

It is understood that the central bank deposits are mostly part of Greece’s social security and pension system. Analysts say it is far from clear whether the government can legitimately tap this money without breaching other fiduciary obligations. “We think the funds are already down to €1.8bn. If they draw on this, how are they going to meet their pension bills next month?” said one banker. A senior Greek official opened the door last week to a possible “delay” in repayments to the IMF, perhaps for a month or two, setting off alarm bells among investors and bank depositors. It was taken as an admission that the country is now desperate as capital flight runs at €800m a day. Yanis Varoufakis, the finance minister, sought to silence such talk over the weekend, telling AP that a default to the IMF was out of the question, even if a halt in payments to the EU institutions remains a serious threat.

“We are not going to be the first country not to meet our obligations to the IMF. We shall squeeze blood out of stone if we need to do this on our own, and we shall do it,” he said. The IMF deadlines are not rock hard. The Fund usually allows some grace period. There is a procedure for arrears if a country genuinely wishes to pay. “The clock starts ticking. It is another matter if they start saying they won’t pay for six months,” said one expert. Syriza officials are aware that the IMF will be their last safeguard if Greece is ultimately blown out of the euro, although it is far from clear what would happen in such circumstances. Greece has already exhausted its IMF borrowing quota in earlier EU-IMF Troika bailouts, and patience is wearing thin among the Asian and Latin American representatives on the IMF board.

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Futile.

Mixed Messages On Third Greek Bailout Talks (Reuters)

Eurozone countries are discussing a third bailout for Greece worth €30 billion to €50 billion, Spain’s economy minister said on Monday, but EU officials said there were no such talks. Speaking at an event in Pamplona, northern Spain, Economy Minister Luis de Guindos said the new rescue plan would set more flexible conditions for Greece, which had no alternative other than European support. But the spokeswoman for Jeroen Dijsselbloem, who chairs the euro zone finance ministers’ group, said there was no discussion of a third bailout and senior euro zone officials concurred. “Euro zone finance ministers are not discussing a third bailout,” spokeswoman Simone Boitelle said. Greek leftist Prime Minister Alexis Tsipras used a televised address on Friday to deny his country would need another international program.

Greece has acute and immediate funding problems to overcome, despite the four-month extension to its existing bailout it negotiated with the euro zone last month. To win that, Tsipras had to give up on key pledges made during his election campaign. The extension averted a banking meltdown. But Greece still faces a steep decline in revenues and is expected to run out of cash by the end of March, possibly sooner. The new government in Athens sought to assure it can cover its funding needs this month, including repaying a €1.5 billion loan to the IMF. “The Greek government has been exploring solutions … to ensure there won’t be a single problem with repaying the IMF loan, or its funding obligations in March,” government spokesman Gabriel Sakellaridis told Greek radio.

Most of Greece’s options appear to have been shut off, for now at least. A request for €1.9 billion in profits the ECB made on buying Greek bonds will not be granted until Greece has completed promised reforms. Athens has also sought permission to issue more short-term treasury bills, having reached a cap of €15 billion set by its lenders. The euro zone has made clear it does not want to see that limit lifted. Dutch Finance Minister Dijsselbloem offered a potential escape route. He told the Financial Times that Greece’s international creditors could pay part of the €7.2 billion remaining in its bailout pot as early as this month if Athens started enacting necessary reforms. “There are elements that you can start doing today. If you do that, then somewhere in March, maybe there can be a first disbursement. But that would require progress and not just intentions..”

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“Europe has transformed into a giant bank and its people are divided into lenders or borrowers..”

Greeks in the Crisis: ‘We Need To Explain Ourselves’ (Spiegel)

With tensions between Greece and Berlin having been significant in recent weeks, SPIEGEL decided to invite six prominent Greeks to a roundtable discussion at Katzourbos tavern in Athens’ Pankrati neighborhood. The state minister is the first to arrive, 10 minutes early. Alekos Flambouraris, 72, wears a black suit, no tie and the kind of open-collared shirt made fashionable by the governing Syriza party in recent weeks. Flambouraris is a close confidant of Prime Minister Alexis Tsipras. “We need to keep up our contacts with the Germans. We want to explain ourselves,” he says. Athens’ politically independent mayor, Georgios Kaminis, 60, arrives shortly thereafter on foot — an inconspicuous man wearing a corduroy suitcoat.

The others are: Natassa Bofiliou, 31, a famous Greek pop star who has been threatened by supporters of Golden Dawn because of her vocal opposition to the party; Christos Ikonomou, 44, whose book “Just Wait, Something’s Happening,” is a compilation of short stories about everyday life in Greece during the crisis; entrepreneur Aggeliki Papageorgiou, 50, the owner of a small ice cream spoon factory that is on the verge of shutting down; and journalist Xenia Kounalaki, 44, who writes for the center-right newspaper Kathimerini and has been disappointed thus far by Syriza’s behavior in Europe. The guests conduct their discussion in Greek and the event is moderated by SPIEGEL editors Manfred Ertel and Katrin Kuntz as well as co-moderator Angelos Kovaios, a journalist with the weekly newspaper To Vima. They spent three hours discussing developments in the country over Greek wine and Cretan cuisine.

SPIEGEL: What are we drinking to here – Syriza’s election victory, the compromise reached in Brussels or German-Greek relations?
The Minister: I’m drinking to the welfare of all people in Europe. Our negotiations and the compromise in Brussels also shows that this isn’t just a problem for the Greeks. Democracy is also at stake, with the standard of living declining in many countries. I’m drinking to better days.

SPIEGEL: That sounds rather florid. The debt crisis is about hard figures. It’s our impression that the governments and the finance ministers in the euro zone haven’t yet found a common language.
The Minister: With the compromise, we have established a foundation we can build on – and also common language. Still, the media and government in German also has a duty to properly inform the German people about our country. [..]

SPIEGEL: How bad do you think Greek-German relations really are?
The Entrepreneur: I have the feeling that the Germans view us with distrust, but there’s no reason for it. We work hard and we have a clear conscience.
The Author: We can’t view the Greek-German relationship isolation. I’m worried about developments in Europe. It appears to me that Europe has transformed into a giant bank and its people are divided into lenders or borrowers. The Irish, the Finns and the Belgians say: The Greeks owe us money and it can’t be allowed to disappear. This is a bad development. Germany is the leader of this policy and it has always viewed Europe as the garden behind its own house. I don’t think that is going to change in the future. The agreement in Brussels means that we Greeks can relax a little bit more, but we will be having the same discussion again come June. [..] I am dismayed that Europe is being equated with the euro today. It’s purely about money, debts, bonds and loans. We are viewed as an economic unit, not as people. That’s disappointing and it’s taking away my hope of a European future.

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Low ballin’.

Investor Survey Shows 38% Chance Of Eurozone Break-Up In 12 Months (Reuters)

Investor expectations of the euro zone breaking apart have risen to their highest level in two years, a survey showed on Tuesday, even after Greece agreed a financial lifeline with its euro zone partners. The sentix Euro Break-up Index (EBI) gave its highest reading since March 2013, with 38% of respondents expecting the bloc to break-up in the next 12 months, up from 24.3% in January. The current poll was conducted between Feb. 26-28, 2015, and surveyed 980 mainly German-based individual and institutional investors. Greece won approval for a four-month extension to its bailout on Feb. 24, after tense negotiations between Athens and its international creditors.

“The new aid program for the country does not seem to be convincing, rather a ‘grexit’ is now bound to be a constant topic among investors for the months to come,» said Sebastian Wanke, a senior analyst at sentix. Expectations of Greece leaving the euro in the next year rose to 37.1% from 22.5%, the survey said. A Reuters poll of economists in mid-February gave a one-in-four chance of Greece leaving the currency area in 2015. The EBI hit a high of 73% in July 2012, and touched its low at 7.6% in July 2014. The last time the reading was this high came after inconclusive elections in Italy and a banking crisis in Cyprus which saw the country become the fourth member state to be bailed out.

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Next domino.

French Factory Decline Even Worse Than Greece (Telegraph)

The economic divide between Europe’s largest economies widened in February, as a closely-watched survey showed manufacturing output in France contracted at a faster rate than Greece, despite the weakening euro. Output at French factories fell for a ninth consecutive month in February, as new orders dried up and overseas demand fell. This led to a further fall in employment, Markit said, as it described general demand in France as “lacklustre”. By contrast, a stronger rise in new business helped output at German manufacturers expand for the 22nd consecutive month in February. Markit described the latest rise as “broad-based”, but said growth was “weak by historical standards”. Despite an 8pc decline in the euro against the dollar since the start of the year, Markit’s French manufacturing PMI fell to 47.6 in February, from 49.2 in January. This was well below the 50 level that divides growth from contraction, and also worse than economists’ expectations of a decline to 47.7.

This also means output in France contracted at a faster rate than in Greece last month, where the decline steadied to 48.4. Germany’s PMI rose to 51.1 in February, up marginally from January’s reading of 50.9. Jack Kennedy, senior economist at Markit, said French manufacturing was in a “funk”. Chris Williamson, Markit’s chief economist, added: “France, Greece and Austria are the slow lane stragglers [in Europe], with all three seeing their manufacturing economies contract again in February. France is the most worrying, not just because it trails behind all other countries, but it is also the only country seeing a steepening downturn.” Ireland was the eurozone’s bright spot last month, as the country recorded the joint-fastest rate of job creation on record. Output rose to the highest level in 15 years, which helped to keep overall eurozone manufacturing output steady in February. The eurozone manufacturing PMI was unchanged, at 51.

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“Catalonia would probably be comparable to Denmark. Denmark has more or less the same population, and Austria too.”

Spain To Split? Snap Vote On Catalan Independence (CNBC)

The president of the Spanish region of Catalonia in Spain looks set to strain further relations with the country’s political establishment by calling a snap vote on independence as a general election approaches in September. Artur Mas, the president of Catalonia, told CNBC Monday that a referendum was needed to see if the majority of Catalonians still wanted independence. The region has long pushed for independence from the rest of Spain and, despite being dealt a blow when Scotland chose to remain a part of the U.K. last year, Mas is still confident an independent Catalonia would prosper. “Catalonia would probably be comparable to Denmark. Denmark has more or less the same population, and Austria too.

Both those countries are outstanding from the economic point of view and Catalonia could be at the same level,” Mas told CNBC. “It could have an open economy, a foreign-market oriented economy (and a) cutting edge research and innovation system”, he said, speaking to CNBC on the sidelines of the Mobile World Congress (MWC) in Barcelona, the “capital” of Catalonia. Mas and other separatist movement has tried to negotiate with the Spanish government to allow it to hold a referendum on the matter but has been refused. It has also been blocked by the Constitutional Court to hold “non-binding” consultations on the matter, Mas said, meaning that there was only one way forward: elections.

“So now we have only one way: elections. Snap elections. So that’s what I’m going to do. (I’m going ) to call snap elections in Catalonia in September this year to know the opinion of Catalan people about the independence process.” Holding a referendum in an election year is bound to go down badly with the Spanish government led by Prime Minister Mariano Rajoy, embattled as it already is by the rise of the popular anti-austerity party Podemos. There are concerns that the drive for independence is creating more political uncertainty in Spain ahead of the general election, which in turn could damage the economy , which is only just starting to recover from a housing market and banking collapse during the financial crisis.

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Rinse and repeat.

Portugal’s Successful Turnaround? A Fairy Tale (The Globalist)

Even a brief glance at the facts suffices. Portugal is no less bankrupt than Greece. The country’s government debt, at 124% of GDP, might be lower than in Greece. However, government debt is just one – even though important – part of the full debt picture. On an aggregate level, Portugal’s overall debt level – at 381% of GDP when also including private households and non-financial corporations — is well above Greece’s total debt level (286% of GDP). So while Greece’s problems mainly manifest themselves via government debt, Portugal suffers from too much debt in all three sectors of the economy. At the same time, debt continues to grow much faster than the Portuguese economy. Between 2008 and 2013, aggregate debt grew by 69 percentage points.

In order to stop the debt growing faster than the country’s economy, the government sector alone would have to improve its fiscal position by 3.6% of GDP. Given the overall status of the Portuguese economy and the debt problems of the private sector, that improvement is an impossible task. Trying to achieve it would push the economy into outright depression. Given all these facts, it is all the more astonishing that the German Bundestag voted unanimously in favor of Portugal’s proposal to pay back loans from the IMF earlier. Bundestag members did so with great pleasure. Why? Amidst the fraught negotiations in Brussels with the new Greek government about the extension of the Greek program, it was a welcome opportunity to claim that the European approach to the crisis with austerity and reform was indeed working.

For Portugal, it was a good deal, because it could replace relatively costly money from the IMF carrying interest around 4% with cheaper loans from the capital market. But Portugal’s refinancing itself in the markets is not really a sign of the success of the policy mix in Europe. Given that the country’s creditors are mainly foreigners, Portugal cannot inflate the debt away. It is also in no position to grow out of its debt problem. Assuming a current account surplus of 0.9% (as achieved in 2013), it would take 128 years just to pay back all foreign debt. Debt aside, Portugal faces other quite extraordinary challenges: It has the lowest birth rate in the Eurozone, has to contend with an exodus of the young people to other countries, the lowest overall level of qualifications of its population in Europe, as well as low productivity levels.

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All dead in the water.

Tough Talk On Greece Alone Won’t Boost Ireland, Spain At Home (Reuters)

Europe’s tough treatment of Greece’s new government has eased some immediate anti-austerity pressure in Ireland and Spain, but it may take a lot more than that to put Dublin and Madrid’s ruling parties’ re-election prospects back on track. Elected months apart in 2011 as financial crises enveloped their own countries, the two centre-right led governments’ hopes of winning a second term risk being upset by anti-austerity opponents aligned to Greece’s Syriza, among other challenges. They both toed the line with Germany in demanding that Greece stick to its bailout commitments – a blow to Athens, which had hoped for some support from countries that also suffered badly in the debt crisis. That was underlined on Saturday when Greek Prime Minister Alexis Tsipras accused Spain and Portugal of leading a conservative conspiracy to topple his government because they feared the rise of anti-austerity forces in their own countries. Madrid and Lisbon complained about the accusation to the European Commission.

Ireland avoided Alexis Tsipras’ ire, but it has taken one of the hardest lines with Greece. Unlike Portugal, it faces an anti-austerity challenge similar to Syriza in Greece and Spain’s anti-establishment Podemos party. It comes from left-wing Sinn Fein. After the new Greek government was unable to end the EU/IMF bailout it was elected to dismantle and was instead forced into a climbdown, Ireland, fresh from its own bailout, was among the first to exploit the retreat. “In 2016, the people will have a clear choice: between stable and coherent government; or chaos and instability,” Irish Prime Minister Enda Kenny told his Fine Gael party’s annual conference last month, a shot at its closest poll rivals Sinn Fein. Kenny awoke the next day to a Sunday Times editorial that proclaimed ‘Sinn Fein’s Greek tragedy is a win for Fine Gael’.

After wielding painful austerity measures, the Spanish and Irish governments’ election hopes rely largely on voters feeling the benefits of recovering economies. Ireland’s is forecast to be the fastest growing in Europe again this year at almost 4% with Spain’s, six times as big, close by on 2.4%. For now, the Greek parallel has served to underscore early campaign messages by Spanish Prime Minister Mariano Rajoy, who took veiled swipes at Podemos, the anti-establishment movement that has painted itself as Syriza’s sister party. But the tough rhetoric could equally backfire for the two governments, some analysts say. Neither can afford to push Greece over the edge for fear of the economic impact. Setbacks for Syriza – while limiting the risk of emboldening Sinn Fein and Podemos – may also not necessarily translate into a boost for Fine Gael or Rajoy’s People’s Party (PP). Elections are due in Spain around November and, at most, five months later in Ireland.

Both the PP and Fine Gael still face big challenges at home. Nearly one in four Spaniards is out of work while frustration over Ireland’s uneven recovery last year spilled into the first major street protests in years. That has left many voters keen for political renewal, most acutely in Spain, as they blame local leaders for their woes, even if like Greece the two countries took international bailouts, in the case of Spain for its ailing banks. “The anger is more with the two big parties (in Spain) than with Germany,” said Jose Ignacio Torreblanca, senior fellow at the European Council on Foreign relations, referring to the PP and opposition Socialists being overtaken by Podemos in polls. Another new party, centre-right Ciudadanos, is also starting to gain traction, eating into the PP’s own turf.

Meanwhile, a wretched 2014 has left Kenny open to charges that little had changed in Irish politics since the crisis and has propelled independent candidates into first place in most opinion polls. But the status quo shake up may not be as deep in Ireland where the ruling coalition is making a tentative recovery. “There was a lot of anger in 2011 but we got the same old, same old. I don’t think we’ll see a massive change,” said David Farrell, professor of politics at University College Dublin “The conservative Irish voter is just a phenomenon that we have to recognise.”

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Nice article, but that’s what I’m working on as I saw this. Well, better of course… 😉

European Union Showing ‘Signs Of Strain’ (BBC)

In 1998 Austria held the rotating presidency of the European Union for the first time since becoming a member of the club and I was a fresh-faced reporter for Austrian radio’s English-language service. “Our aim is to bring Europe closer to its people,” announced Wolfgang Schuessel, then Foreign Minister of Austria. And he meant business, using that press conference to wave aloft a pair of limited edition running shoes. They had been commissioned in the national colours to demonstrate the government’s intent to get out and about, addressing all issues pertinent to European voters. The shoes didn’t get very muddy in the end, but they sprang to mind as I sat down to write my first blog post as Europe editor. Over the years, I’ve heard the same promise made over and over again in EU circles. But far from getting closer to people and appearing ever more relevant to them, the European project is showing signs of strain.

Back in 1998 the EU had 15 member states. Now there are 28. The European Parliament is one of the biggest in the world. It represents around half a billion people. But a record number of them chose to vote for populist, eurosceptic politicians in parliamentary elections last year. Many in Europe don’t want the EU to get any closer. They feel EU bureaucracy already invades their personal – and national sovereign – space too much. Those in favour of the EU argue just as vociferously that in our globalised world, acting as a bloc in terms of trade, commerce, security and more is imperative. The debate is a heated one and nowhere more so than in the UK which, depending on general election results this May, looks likely to organise an in/out referendum on EU membership.

Nobody can argue Europe is at a pivotal moment in its history. There are a number of front-page issues blazing concurrently across the continent. Political and economic problems are present in terms of the EU and the eurozone. But there is also a humanitarian crisis and an immigration debate, sparked by record numbers of people desperate enough to flee war and oppression at home, often in the Middle East, to attempt the perilous journey to European shores. Europe’s southern seas, traditionally associated with summer fun in the sun, are increasingly becoming horrific watery graves. The continent faces a stark security threat too, the greatest in more than a decade. As many as 5,000 Europeans have joined fighting in Syria, posing a risk to their homelands. The Charlie Hebdo attacks have left people across Europe wondering whether their city might be next.

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Typical Bloomberg ‘reporting’, but the gist of it is, I think, very accurate.

China Will End Up Like Japan, Says Observer Who Called It In 1990 (Bloomberg)

Forecasts for China to surpass the U.S. as the world’s main economic power are misplaced. So says an observer who foresaw Japan’s eventual demise a year before its land-price bubble began to burst. “The vulnerabilities in China today are very similar to the vulnerabilities in Japan,” said Roy Smith, 76, who was a Goldman Sachs partner when he wrote a column saying Japan’s rise as a financial hegemon was done. “Nobody agrees with me. But they didn’t agree with me in 1990, so at least I have one right.” Among the risks: bad loans, overpriced stocks and a frothy property market are flashing danger for China’s economy and putting pressure on a fragile financial system – similar to conditions that triggered Japan’s fall, said Smith, a finance professor at New York University’s Stern School of Business.

A further parallel is the burden of an aging population, with mounting pension and health-care costs, he says. While China probably will avoid prolonged Japan-style stagnation, a major crisis could expose weaknesses that aren’t apparent now, according to Smith. “Most people today are talking about China displacing the United States as the great power of the 21st century,” he said in a telephone interview last week. “My view is that it is more likely to end up like Japan — that is, the status of a former would-be superpower that isn’t.” China surpassed Japan as the world’s No. 2 economy by gross domestic product in 2010 after three decades of rapid growth, fueled by the largest urbanization in history. It is tipped by many forecasters eventually to overtake the U.S. in output. By other measures, such as GDP per person, China is further behind the U.S.

On a per-capita basis, China’s GDP in 2013 was still just half of where Japan was in 1960, according to World Bank data. That leaves plenty of scope to catch up to rich-world peers, more optimistic observers say. “The key difference I see between China now and Japan in 1990 is that China is at a much lower stage of development,” said Louis Kuijs at RBS in Hong Kong. Even so, China’s progress has confronted mounting challenges in recent years. In 2014, the economy expanded at the slowest full-year pace in almost a quarter century. The slowdown has thrown a spotlight on a mounting debt pile that includes souring loans to local government financing vehicles, or LGFVs, which funded a boom in construction. Doubts about the creditworthiness of LGFV debt deepened last year. China’s total debt pile, including borrowing by households, banks, governments and companies, ballooned to 282% of national output in mid-2014 from 121% in 2000, according to an estimate by McKinsey.

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Better take him serious.

Gaddafi’s Cousin Warns Of A ‘9/11 In Europe Within Two Years’ (Independent)

Colonel Gaddafi’s cousin has warned of a “9/11 in Europe within two years”, as fighters from the Islamic State join the tens of thousands of migrants crossing the Mediterranean to European shores. Ahmed Gaddafi al-Dam, one of the late dictator’s most trusted security officers, predicted at least half a million migrants would set sail from Libya to Europe this year as Isis gained a stronger foothold in the country. “There are many terrorists among them, between 10 and 50 in every thousand,” he told MailOnline. “They are going all throughout Europe. Within one year, two years, you will have another September 11.”

While alarmist, his warning will chime inside the chambers of some Western governments. After January’s murder of 21 Coptic Christians by Isis militants in Sirte, there is growing recognition of the threat an unstable Libya is posing the West in the fight against Isis. Militants loyal to the extremist group have made gains in Libya in recent weeks, and are thought to be in control of three towns including Sirte. Mr Gaddaf al-Dam also claims that militias loyal to ISIS in Libya are likely to be in possession of more than 6,000 barrels of uranium that were previously under the guard of the government’s army in the desert outside the south-western town of Sabha.

“The uranium I think they already have it, ISIS, because they control this territory,” he said. “They are not stupid anymore. They know how to make money. They will try and sell it.” The Gaddafi family has kept a low profile since the 2011 uprising in which the leader was killed, ending 42 years of one-man rule. Rival armed groups have since battled for power, pushing the internationally-recognised government from the capital and raising fears of a full-scale civil war.= The former security official was speaking from Cairo where he has since fled.

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War party parties on.

US to Deploy Six National Guard Companies to Ukraine This Week (Sputnik)

The United States will deploy personnel by the end of this week to train the Ukrainian national guard, US 173rd Airborne Brigade Commander Colonel Michael Foster said at the Center for Strategic and International Studies in Washington, DC on Monday. “Before this week is up, we’ll be deploying a battalion minus… to the Ukraine to train Ukrainian forces for the fight that’s taking place,” Foster stated. “What we’ve got laid out is six United States companies that will be training six Ukrainian companies throughout the summer.” The training will take place at the level of US and Ukrainian national guard companies, Foster explained, adding that “we have nothing above battalion staff level” engaged in the military training. The Ukrainian nationalist Aidar battalion was officially disbanded and reorganized as the 24th Separate Assault Battalion of the Ukrainian Ground Forces.

The current plan is for US forces to stay six months, he said, and noted there have been discussions about how to increase the duration and the scope of the training mission. The current channels for military training set up between Ukraine and the United States would not be used for transferring defensive lethal aid if the United States decided to provide arms to Ukraine, Foster told Sputnik on Monday. “It would go through something separate… We would not funnel the lethal aid or arms through that [training] event, we would use a secondary method for that,” Foster said, adding that a completely separate process is preferable. The United States and NATO have been engaged in military training exercises with Ukraine since the fall of 2014, according to NATO press releases. UK Prime Minister David Cameron announced last week that the UK will also be sending military advisors to Ukraine.

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Snowden and Putin. And a bunch of empty suits.

Heroes and Villains (Jim Kunstler)

The more interesting hero to me is Snowden. The purity of his name alone kind of says it all. The documentary movie about his brush with history, Citizen Four (by Laura Poitras, also a hero), is now showing on cable TV. It follows Snowden during the days of spring 2013 when he went rogue on the National Security Agency and revealed to the public the extent to which the American government was prying and worming its way into everybody’s electronic life — ignoring the pain-in-the-ass constitutional limits on such mischief, and setting the USA up to be a police state beyond the frontiers of anything George Orwell dreamed about in his darkest nights of the soul. It is more than ironic that Snowden was also Mr. Ed, because if you take his comportment on film at face value, never was there such an exemplary and seemingly normal American young man.

His heroism resided largely in his amazing composure under the strain of events. He spoke English clearly and calmly, and reacted to the weighty events he set in motion with startling equanimity. He appeared to know exactly what he was doing, and with quiet, unshakable moral commitment. And then he disappeared down the gullet of America’s modern times nemesis, Russia, where he continues to taunt with his very existence, the NSA gameboys, lizard-lawyers and puppet-masters who cordially invite him back home to face, ho-ho, our vaunted justice system. Of course any six-year-old understands that they would love to jam Snowden down some federal supermax memory hole as an example to any other waffling NSA code-jockey having second thoughts about reading your grandpa’s phone records.

And then, strangest of all to relate, there is Putin. Our guys are moving heaven and earth to jam him into a red-hot Satan suit but it’s not working. The pitchfork they want him to brandish looks strangely like a sword of justice. Even Americans of modest intelligence, when not locked into the Kardashian trance, can detect something false in all our official handwringing over Ukraine — the made-in-the-USA failed state now eating itself alive on Russia’s border.

Before February 2014, Ukraine was just a struggling, marginal demi-nation still economically dependent on Russia, of which it had effectively been a province for centuries. Mr. Obama and his haircut-in-search-of-a-brain Secretary of State, Mr. Kerry, thought it would be a good idea to make Ukraine our client state instead. They couldn’t have botched the operation more completely. I have to say, Vlad Putin’s composure in the face of this perfidious idiocy is really something to behold, regardless of the roughness of the polity he rules. Our guys, in contrast, look like something less than sheer clueless rogues. They look like empty suits.

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We have a winner!

Syrian Conflict Is The World’s First ‘Climate Change War’ (Independent)

Climate change was a key driver of the Syrian uprising, according to research which warns that global warming is likely to unleash more wars in the coming decades, with Eastern Mediterranean countries such as Jordan and Lebanon particularly at risk. Experts have long predicted that climate change will be a major source of conflict as drought and rising temperatures hurt agriculture, putting a further strain on resources in already unstable regimes. But the Syria conflict is the first war that scientists have explicitly linked to climate change. Researchers say that global warming intensified the region’s worst-ever drought, pushing the country into civil war by destroying agriculture and forcing an exodus to cities already straining from poverty, an influx of refugees from war-torn Iraq next door and poor government, the report finds.

“Added to all the other stressors, climate change helped kick things over the threshold into open conflict,” said report co-author Richard Seager, of Columbia University in New York. “I think this is scary and it’s only just beginning. It’s going to continue through the current century as part of the general drying of the Eastern Mediterranean – I don’t see how things are going to survive there,” Professor Seager added. Turkey, Lebananon, Israel, Jordan, Iraq and Afghanistan are among those most at risk from drought because of the intensity of the drying and the history of conflict in the region, he says. Israel is much better equipped to withstand climate change than its neighbours because it is wealthy, politically stable and imports much of its food. Drought-ravaged East African countries such as Somalia and Sudan are also vulnerable along with parts of Central America – especially Mexico, which is afflicted by crime, is politically unstable, short of water and reliant on agriculture, Prof Seager said.

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Mar 022015
 
 March 2, 2015  Posted by at 10:01 am Finance Tagged with: , , , , , , , , , ,  4 Responses »


Christopher Helin Flint auto, Ghirardelli Square, San Francisco 1924

Austria On Track to Bail in Heta Creditors After Aid Stop (Bloomberg)
‘What Is Desirable For The Eurozone May Not Be Feasible’ (Reuters)
David Stockman Warns ‘It’s One Of The Scariest Moments In History’ (Zero Hedge)
Are Central Banks Creating Deflation? (Zero Hedge)
Negative Yields: What Could Go Wrong? (CNBC)
Greek Debt Becoming Less Sustainable (Kathimerini)
German Finance Chief Schaeuble Softens Tough Tone Against Greece (Telegraph)
Greece Is Being Forced Into Purgatory To Save The Euro (Telegraph)
How Jeroen Dijsselbloem Did The Deal To Extend The Greece Bailout (FT)
Alexis Tsipras Comes Under Fire From Spanish Prime Minister (Guardian)
Catalonia Prepares To Set Up Own Foreign Missions, Tax System (RT)
ECB Braces For QE As Others Shift Rates (Reuters)
Merkel’s Bavarian Allies Criticise EU Exception For French Deficit (Reuters)
Bells Toll For Europe’s Largest Gas Field (Reuters)
Ukrainian Economy Starts to Buckle Behind Cloak of Calm in Kiev (Bloomberg)
Ex-Guerrilla, Champion Of The Poor: Uruguay President Steps Down (RT)
Documentary on Air Pollution Grips Over 30 Million Chinese in 1 Day (NY Times)

Once this gets started, it’ll be hard to stop it from spreading.

Austria On Track to Bail in Heta Creditors After Aid Stop (Bloomberg)

Austria won’t give fresh capital to Heta Asset Resolution making the “bad bank” of failed Hypo Alpe-Adria-Bank the first case under new European Union rules imposing losses on bank bondholders. Austria cut off support for Heta, which has already cost Austrian taxpayers about €5.5 billion in aid, after Heta notified the government it may need as much as €7.6 billion euros on top of that, the Finance Ministry said in a statement on Sunday. The Finanzmarktaufsicht regulator put Heta into resolution and ordered an immediate debt moratorium. “The decision was triggered by information from Heta’s management about the first results of an asset review,” the ministry said.

“Because of that dramatic change of the asset evaluation, the ministry together with the entire government decided not to invest any more tax money into Heta.” Heta’s predecessor Hypo Alpe was nationalized in 2009 after it was close to collapse because of bad loans in the western Balkans and shareholders led by Bayerische Landesbank walked away from the bank. Its rescue and wind-down has been complicated by a string of court cases and by the fact that a large part of its debt is guaranteed by the Carinthia province, a former owner of the bank. The FMA is taking over the wind-down of Heta, which kept around €18 billion of Hypo’s assets when it was set up last year.

While it works out a resolution plan it won’t repay Heta’s liabilities under an Austrian law that came into force Jan. 1 to implement the EU Bank Recovery and Resolution Directive, the authority said in a statement. The immediate debt moratorium means €950 million of bonds due March 6 and March 20 won’t be repaid. It affects €9.8 billion in outstanding bonds, supplementary capital and Schuldschein loans, €1.24 billion debt to Pfandbriefbank, a bank that handles bond issues for Austrian provinvial banks, as well as loans from BayernLB, according to the FMA’s decree published on its website.

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“Austerity has fueled radical forces of political protest and may be running out of democratic road..”

‘What Is Desirable For The Eurozone May Not Be Feasible’ (Reuters)

The latest episode of Greece’s debt crisis has revived doubts about the long-term survival of the euro, nowhere more so than in London, Europe’s main financial center and a hotbed of Euroskepticism. The heightened risk of a Greek default and/or exit comes just as there are signs that the euro zone is turning the corner after seven years of financial and economic crisis and that its perilous internal imbalances may be starting to diminish. To skeptics, the election of a radical leftist-led government in Athens committed to tearing up Greece’s bailout looks like the start of an unraveling of the 19-nation currency area, with southern countries rebelling against austerity while EU paymaster Germany rebels against further aid.

A last-ditch deal to extend Greece’s bailout for four months after much kicking and screaming between Athens and Berlin did little to ease fears that the euro zone’s weakest link may end up defaulting on its official European creditors. U.S. economist Milton Friedman’s aphorism – “What is unsustainable will not be sustained” – is cited frequently by those who believe market forces will eventually overwhelm the political will that holds the euro together. Countries that share a single currency cannot devalue when their economies lose competitiveness, as occurred in southern Europe in the first decade of the euro’s existence. There is no mechanism for large fiscal transfers between member states.

So the only option has been a wrenching “internal devaluation” by countries on the periphery of the euro area, involving real wage, pension and public spending cuts and mass unemployment that has caused deep social distress. Austerity has fueled radical forces of political protest and may be running out of democratic road – not just in Greece – but none of the alternative ways out of the euro zone’s economic divergence dilemma looks remotely plausible. “The history of the gold standard tells us that an asymmetric adjustment process involving internal devaluation in debtor countries, with no corresponding inflation in the core, is unlikely to be economically or politically sustainable,” economic historians Kevin O’Rourke and Alan Taylor wrote in the Journal of Economic Perspectives in 2013. “What is desirable for the euro zone may not be feasible.”

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Can’t say it enough: “Zero interest rates for 70 months have basically destroyed the pricing function in the financial markets.”

David Stockman Warns ‘It’s One Of The Scariest Moments In History’ (Zero Hedge)

“The Fed is out of control,” exclaims David Stockman – perhaps best known for architecting Reagan’s economic turnaround known as ‘Morning in America’ – adding that “people don’t want to hear the reality and the truth that we’re facing.” The following discussion, with Harry Dent, outlines their perspectives on the looming collapse of free market prosperity and the desctruction of American wealth as policymakers “take our economy in a direction that is dangerous, that is not sustainable, and is likely to fully undermine everything that’s been built up and created by the American people over decades and decades.” The Fed, Stockman concludes, “is a rogue institution,” and their actions have led us to “one of the scariest moments in our history… it’s a festering time-bomb and we’re not sure when it will explode.”[..]

David Stockman: People don’t want to hear the reality and the truth that we’re facing. But I think there is an enormous appetite out in the country to get a different perspective than what you have from the media day in and day out, so I say the fed is out of control. Its balance sheet is exploded. It’s printing money like never before. Zero interest rates for 70 months have basically destroyed the pricing function in the financial markets. I said that as a result of this, Wall Street has become a huge casino which basically rewards gamblers, but it is not functioning as a capital raising, capital allocating instrument, which really is what the financial markets should do in a free market system. I warned about the size of the federal debt.

I’m an old budget director from the Reagan days. We had a trillion dollar national debt, a 3 trillion economy when I started. Today, it’s 18 trillion. Eighteen fold gain in the last 35 years versus maybe a fourfold gain in the economy. So all of these trends are taking our economy in a direction that is dangerous, that is not sustainable, and is likely to fully undermine everything that’s been built up and created by the American people over decades and decades. So people don’t want to hear the warning. They don’t want to hear the truth in the establishment, in Wall Street, in Washington, but I think out in the country they must.

(Click link for video)

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That would be a yes: “David Stockman: … massive money printing by central banks on a worldwide basis is inherently deflationary..”

Are Central Banks Creating Deflation? (Zero Hedge)

Last week we noted that with the start of Q€ just around the corner, the ECB finds itself in a rather absurd situation. In what we called the ultimate easy money paradox (or the ultimate Keynesian boondoggle), Mario Draghi and crew are doomed to trip over their own policies as they (literally) attempt to monetize twice the net supply of eurozone fixed income this year. The problem is two-fold: 1) the central bank’s adventures in NIRP-dom mean anyone willing to sell their EGBs would face the truly silly prospect of sending the proceeds right back where they came from, except at a cost of 20 bps (negative deposit facility rate), and 2) because the central bank’s easy money policies have compressed credit spreads, sellers who wanted to reinvest the cash they would theoretically receive for their EGBs would have to do so at ridiculously low rates, a scenario that would compound QE’s already negative effect on NIM for banks and would be absolutely untenable for insurers.

So what we have “is one deflation-fighting policy stymying another [and] the central bank’s previous efforts to drive down rates thwarting its current plans to … drive down rates.” Now, courtesy of Citi’s Matt King, it’s our distinct pleasure to present yet another wonderfully ridiculous paradox inadvertently created by central banks who apparently aren’t capable of understanding when they’re just pushing on a string: manufactured deflation or, more poignantly, just what the doctor did not order. Here’s Citi:

It’s that linkage between investment (or the lack of it) and all the stimulus which we find so disturbing. If the first $5tn of global QE, which saw corporate bond yields in both $ and € fall to all-time lows, didn’t prompt a wave of investment, what do we think a sixth trillion is going to do? Another client put it more strongly still. “By lowering the cost of borrowing, QE has lowered the risk of default. This has led to overcapacity (see highly leveraged shale companies). Overcapacity leads to deflation. With QE, are central banks manufacturing what they are trying to defeat?”

Ultimately, the question is whether the ceaseless printing of money is actually creating any demand, and for King, the answer is pretty clearly “no”: “QE, and stimulus generally, is supposed to create new demand, improving capacity utilization, not reducing it. But … it feels ever more as though central bank easing is just shifting demand from one place to another, not augmenting it.”

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A lot.

Negative Yields: What Could Go Wrong? (CNBC)

Some central banks have cut interest rates into negative territory in an effort to eke out some economic growth, but the step could spur unintended, counterproductive outcomes. “Negative rates could backfire,” Francesco Garzarelli, co-head of macro markets research at Goldman Sachs, said in a note Friday. “At least some segments of the population could feel poorer, and less secure,” he said. “Rather than lifting consumption and borrowing, ultra-loose monetary policy could perversely lead to an increase in precautionary savings and a slower economic recovery.” In an effort to ward off potential deflation and bolster nearly flat-lined economic growth, some central banks – including the ECB, the Swiss National Bank and central banks in Sweden and Denmark – have cut rates into negative territory.

A big chunk of the government bond market has gone negative: JPMorgan estimated that in January, around $3.6 trillion worth of developed market government bonds—or 16% of its Global Bond Index—was at a negative yield. That’s something that can spur new problems, Goldman said, noting concerns that pension funds and insurance companies may struggle to meet guaranteed payouts. “Today’s very low or even negative fixed income yields often are not large enough to match future liabilities,” Goldman said, noting insurance companies are generally assuming forward rates will be positive and above current rates. If low or negative yields persist, making guaranteed products work will become increasingly difficult, it said. In addition, if banks’ profitability takes a hit from negative rates, it could actually discourage bank lending, hurting efforts to revive economic activity, Goldman said.

There’s also the risk of asset bubbles forming, Garzarelli said, adding the risk is especially high for “high duration” assets such as technology stocks and high-dividend-paying stocks, which already have “eye-watering” valuations. Others also believe ZYNY, or zero-yield to negative-yield, may not follow the theoretical playbook in the real economy. “Traditional economic theory suggests that low interest rates will encourage households to borrow more, both to acquire housing and also to favor present consumption over future consumption,” Michala Marcussen at SocGen said in a note dated Sunday. But in practice, it may not work as households are already relatively highly indebted, labor markets remain fragile and regulations have become more demanding, she said. “Indeed, households may even opt to save more to compensate for low yields, and all the more so in ageing populations,” Marcussen said.

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Ironically, Ukrainians are spending like crazy just so they have things, and not a rapidly falling currency, in their hands. The Greeks do the opposite: they spend even less.

Greek Debt Becoming Less Sustainable (Kathimerini)

The agreement between the Greek government and its lenders, which was sanctioned by the Eurogroup last Tuesday, appears to be more of a respite and less of a sea change in the relationship between the two sides. The apparent confidence gap is bound to aggravate economic conditions and undermine talks on debt relief unless it is bridged fast. Refraining from adversarial statements is the least they can do at this point, especially some ministers. According to the latest revision of gross domestic product data, based on seasonally adjusted figures, the Greek economy shrank by a revised 0.4% in the last quarter of 2014 compared to the previous quarter as opposed to a 0.2% drop in the flash estimate. This brought the real GDP growth rate to 0.75% for the whole year, still better than earlier forecasts, ranging between 0.4 and 0.6%.

Political uncertainty appears to have taken its toll as households and businesses cut back on spending. Unfortunately, businessmen and others think this trend has continued in the first months of 2015. If they are right, real GDP will dip again in the first quarter of this year, compared to the last one in 2014. This will make it unlikely to reach the budget goal of 2.9% annual growth in 2015. Moreover, international investment banks and others are downgrading this year’s economic growth forecasts, ranging between 0.6 and 2%. With the consumer price index continuing to decline, the prospects for an end to deflation do not look promising at this point. In the 12-month period from February 2014 to January 2015, average prices as measured by the CPI decreased by 1.4% year-on-year.

Even if deflation settles closer to a 1% average decline, nominal GDP is likely to be little changed and may even shrink, assuming real economic activity disappoints. This is not a good omen for the sustainability of the Greek public debt, bankers and others point out. This is even more the case if one thinks the country’s official creditors will accept the government’s arguments and economic reality, lowering the target of the primary budget surplus to 1.5% of GDP for 2015. Readers are reminded that the surplus target has been set at 3% of GDP in the program for this year and 4.5% next year. The country is projected to pay about 6 billion euros, or more than 3% of GDP, in interest payments to its creditors in 2015. In other words, interest payments will exceed the likely primary budget surplus, adding to the public debt stock.

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Merkel told him to.

German Finance Chief Schaeuble Softens Tough Tone Against Greece (Telegraph)

German finance minister Wolfgang Schaeuble has softened his hard-line attitude towards Greece, saying its new Left-wing Syriza government needs “a bit of time” but appears to be able to work towards resolving its debt crisis. “The new Greek government has strong public support,” Mr Schaeuble told German newspaper Bild am Sonntag. “I am confident that it will put in place the necessary measures, set up a more efficient tax system and in the end honour its commitments. You have to give a little bit of time to a newly elected government,” he told the Sunday paper. “To govern is to face reality.” Mr Schaeuble added that his Greek counterpart, Yanis Varoufakis, despite their policy clashes, had “behaved most properly with me” and had “the right to as much respect as everyone else”.

It was an abrupt change in tone for Mr Schaeuble, who has repeatedly exchanged jibes with Mr Varoufakis since the Greek election in January brought in an anti-austerity government. Ahead of Friday’s crucial parliamentary vote in Germany, where MPs voted overwhelmingly to extend Greece’s existing financial aid programme until June, Mr Schaeuble had warned that Greece would not receive “a single euro” until it meets the pledges of its existing €240bn bail-out programme. “If the Greeks violate the agreements, then they have become obsolete,” a visibly angry Mr Schaeuble said at a meeting on Friday to persuade German MPs to support the deal ahead of the parliamentary vote. “Mr Varoufakis had not done anything to make our lives easier,” he added. After German MPs voted for the four-month bail-out extension, which Mr Schaeuble insisted was not a new finance deal for the troubled country, Greece pledged to implement reforms and savings.

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Nothing can save the euro.

Greece Is Being Forced Into Purgatory To Save The Euro (Telegraph)

The nickname for the IMF in the markets is “It’s mostly fiscal”, reflecting the IMF’s view that when a country gets into trouble, the manifestation is a huge government budget deficit. And the cure involves spending cuts and higher taxes. That is exactly what happened in Greece. But there was a difference. In most cases, the traditional IMF medicine counter-balances fiscal tightening with a devaluation of the exchange rate. The idea is that as the fiscal tightening squeezes domestic demand and threatens to cause higher unemployment, then a more competitive currency encourages net exports. Essentially, exports fill the hole left by the retreating government But this was not possible in the Greek case because the country does not have its own currency – because it joined the euro.

The only way of compensating for this absence was to allow domestic deflation of prices to produce an “internal devaluation”. What a laugh! We learned in the 1930s that this does not work. Deflation is extremely slow and painful and, even if it succeeded in improving competitiveness, it would worsen the debt ratio because it reduces the money value of GDP (the denominator of the ratio). The result is that Greece is on the road to misery, with no obvious escape. Why don’t the Germans understand the logic of this argument? They tend to look at matters with regard to debt – and economic policy more generally – moralistically. The Greek public sector has been wasteful in the extreme and Greek taxpayers have treated paying tax as near-voluntary. Accordingly, they have had it coming to them.

When they reform themselves, then the economy will bounce back. I am speechless at this attitude. Yes, the Greek public sector has been appallingly wasteful and making it less so is an important part of boosting Greece’s sustainable growth rate. But the current priority is not that, but boosting Greece’s actual growth rate now – and that is all about demand. There is no such thing as a free spending cut. Even tax evaders and under-employed public servants go shopping. Why do the IMF and the other lenders persevere with this destructive path? The answer is IMP: “It’s mostly political.” That is to say, it is driven by the overriding will to keep the euro on the road. By now you should know my answer. Greece should come out of the euro and allow its new currency to depreciate sharply, perhaps by 30pc to 40pc.

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Curious how several parts of the ‘EU’ act independently from each other.

How Jeroen Dijsselbloem Did The Deal To Extend The Greece Bailout (FT)

A first eurogroup meeting to start the process broke up in acrimony. Mr Dijsselbloem tried again five days later but the ensuing bust-up proved even more spectacular: Mr Varoufakis marched out of the session accusing the Dutchman of reneging on a deal Athens had struck with Pierre Moscovici, the European Commission s economic chief. Mr Dijsselbloem blames the commission, which has typically been more lenient towards Greece than its other creditors, saying its intervention had short-circuited proper procedure and that he had been kept in the dark. The Greeks then thought they had an agreement, Mr Dijsselbloem said. I was not involved in that, and that s not very smart.

If you want to get an agreement with the eurogoup, it would help to inform me of what you re trying to do. Instead, Mr Dijsselbloem issued his own, far tougher proposal, which quickly leaked to the press. He put his head in his hands to mimic his reaction upon learning of the leak, presumably orchestrated by Mr Varoufakis. I know in politics it’s all about the frame and who gets to frame first, he said. But if you’re in such a delicate process, trying to rebuild trust, trying to get a process going, to then .. walk into the press room and say: Oh, these guys can’t be trusted, look what they re trying to push down our throats. That was just not very helpful.

A third and final eurogroup session was held the day after Athens finally sent its request for an extension, and Mr Dijsselbloem changed strategy. The key players in the debate were all present: the three institutions that monitor Greece s bailout (the commission, the European Central Bank and the International Monetary Fund) along with the Greeks and the Germans, to put it quite bluntly , Mr Dijsselbloem said. Each was brought in for pre-meeting negotiations. But instead of dealing with Mr Varoufakis, Mr Dijsselbloem spoke only to Mr Tsipras over the phone. I didn’t see Varoufakis at all that morning, he said. I didn’t speak to him. I said to Tsipras, this had to be it. And I think after 15 minutes he called me back, and there was one more word we managed to change. And that was it.

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Nice scuffle…

Alexis Tsipras Comes Under Fire From Spanish Prime Minister (Guardian)

Greece’s anti-austerity government has denied that it sees Europe through the prism of “hostile and friendly countries” as the Spanish prime minister Mariano Rajoy hit back at accusations that Spain and Portugal had deliberately tried to topple the new leftist-led administration. The war of words erupted when Greek premier Alexis Tsipras attacked the sabotage tactics that had, he said, been employed by Lisbon and Madrid in an effort to scupper the chances of a successful end to the negotiations over the eurozone’s extension of the Greek bailout programme. He accused the Iberian partners of deliberately taking a hard line in the talks because they feared the rise of radical forces in their own countries.

“We found opposing us an axis of powers … led by the governments of Spain and Portugal which, for obvious political reasons, attempted to lead the entire negotiations to the brink,” Tsipras told party members on Saturday. “Their plan was, and is, to wear down, topple or bring our government to unconditional surrender before our work begins to bear fruit and before the Greek example affects other countries… And mainly before the elections in Spain.” Rajoy responded angrily on Sunday, saying that Spain had stood by Greece in solidarity by contributing to the debt-stricken country’s €240bn bailout. “We are not responsible for the frustration generated by the radical Greek left that promised the Greeks something it couldn’t deliver on,” he said.

Aides close to Tsipras insisted that Athens had little desire to “seek enemies abroad,” but the leftist leader had a duty to disclose the details of last month’s dramatic negotiations with creditors to keep the bankrupt country afloat. “Prime minister Alexis Tsipras was obliged to relate in detail to the Greek people the hard negotiations at the crucial eurogroup that led to the agreement,” said the insiders. “The attitude [shown by] governments towards the deal isn’t a secret – after all such views had become publicly known from the first moment, which is only right.”

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More threats for Rajoy. Beware, the Spanish army stands ready to occupy Barcelona.

Catalonia Prepares To Set Up Own Foreign Missions, Tax System (RT)

Catalonia is preparing its own tax system, and creating a network of foreign missions as it prepares for a snap regional vote on independence. Recently Spain’s top court ruled that the region’s symbolic referendum vote in November was unconstitutional. Nationalist leaders in the northeastern region have urged a snap local vote on the issue of independence on September 27, AFP reported. Catalan president Artur Mas and his government are reportedly working on tax, diplomacy, and social security restructuring in case Catalonia becomes an independent state. The focus is on taxation as the Catalan authorities now collect only 5% of the taxes raised in the region.

Last November, Catalan president Artur Mas organized a symbolic vote on independence, with 80% voting in favor. However, the turnout was only 40%. Catalonia has 7.5 million residents (16% of Spain’s population), and represents some 20% of the country’s GDP. Alone, the region could collect €100 billion in taxes yearly, much more than Catalonia would need if it becomes independent, said Joan Iglesias, a former Spanish tax inspector, who is now behind the Catalan tax reform. “Everyone knows that Catalonia would be viable economically. It is the most economically productive territory in Spain,” Iglesias told AFP. Apart from the tax reform, Catalonia would need to establish its own central bank, upgrade computer systems and employ more civil servants.

Also, the region says it needs to open more foreign offices. Currently, Catalonia is represented in the UK, France, Germany, the US, Belgium and has recently set up missions in Austria and Italy. In February, Mas set up a commission responsible for carrying out the tasks essential for an independent state. Plus, he ordered a study into the steps Catalonia needs to take to make sure the services like telecommunications would function in case of secession. However, “work is advancing too slowly,” Catalan lawmaker with the separatist Esquerra Republicana de Catalunya (ERC) party, Lluis Salvador, told AFP. “We need to streamline our efforts so we arrive at the elections in September at a much more advanced state.”

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The ECB QE will be the worst central bank failure in a long time.

ECB Braces For QE As Others Shift Rates (Reuters)

Greek funding and quantitative easing in Europe, an expected rate cut in Australia and the buoyant U.S. labor market are set to be the focus of an economic week dominated by a host of central bank meetings. Greece may have secured an extension of its bailout last week, but it remains reliant on emergency funding.The European Central Bank’s Governing Council convenes in Cyprus on Thursday and may take a decision on whether to accept Greek government bonds as collateral for its direct ECB funding, which it stopped doing at the start of February.If the ECB does not – and it most likely will not – it could be forced to prolong the provision of Emergency Liquidity Assistance (ELA) to the Greek central bank.

“The Greek question will be a hot topic,” said ING Chief Eurozone Economist Peter Vanden Houte. “(Greek Finance Minister Yanis) Varoufakis has been saying the country is counting on the ECB for finances over the next few months.”ECB President Mario Draghi is also expected to provide further details on the bank’s €1 trillion government bond buying program, which begins in March. He may face questions about the program’s ability to reach its target, such as how the ECB intends to convince domestic banks to sell their government debt, with the prospect of then parking the money with the ECB at a negative interest rate. The ECB will also release new economic forecasts. Chief Economist Peter Praet said last week that it was likely to revise upward its expectations for growth in the euro zone, with low oil prices and a weak euro helping.

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Yeah! Let’s go after France.

Merkel’s Bavarian Allies Criticise EU Exception For French Deficit (Reuters)

A leading member of German Chancellor Angela Merkel’s conservative allies in Bavaria has criticised the European Commission’s decision to give France two extra years to cut its deficit, a letter seen by Reuters shows. On Wednesday Brussels said it would give France until 2017 to bring its deficit below the EU limit of 3% of GDP, sparing Paris a fine and giving it a new grace period after it missed a second deadline to put its finances in order. The decision has been condemned by some euro zone policymakers, who said it undermines the credibility of EU budget rules which were tightened in recent years to prevent overspending and a future sovereign debt crisis. Gerda Hasselfeldt, head of the Christian Social Union (CSU) parliamentary group, wrote to European Commission President Jean-Claude Juncker in a letter dated Feb. 27 to say that the timing of Brussels’ decision left a “bad aftertaste”.

Hasselfeldt wrote: “Right now, at a time when we’re facing big challenges in our responsibility for the European Union and the euro zone and when we’re working on the principle of solidarity in return for solidity, it’s extremely important not to allow any exceptions.” She said the euro zone was vehemently urging Athens to stick to rules set by the Eurogroup of euro zone finance ministers despite significant domestic resistance, and that while she did not want to compare Greece with France, “stringent action” was the only way to ensure Europe and the euro zone remain credible. “We should not create the dangerous impression that we want to apply double standards,” Hasselfeldt said, adding that the same rules needed to apply to all countries whatever their size.

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Scary story. Since I spent the better part of the past two years in Holland, I’ve heard a lot about it.

Bells Toll For Europe’s Largest Gas Field (Reuters)

Dutch church bells that for centuries have tolled to warn of floods across the low-lying countryside are sounding the alarm for a new threat: earthquakes linked to Europe’s largest natural gas field. “Money can buy a lot of things, but a building like this cannot be replaced,” said Jur Bekooy, a civil engineer with the Groningen Old Churches Association, pointing to cracks in the ceiling and walls of the 13th-century Maria Church in the village of Westerwijtwerd. Long ignored, voices like Bekooy’s are being heard as elections loom this month and following a damning report from the independent Dutch Safety Board. It accused the government and the field’s operators, Shell and Exxon Mobil, of ignoring the threat of earthquakes linked to the massive Groningen gas field for years.

There are now questions about the future exploitation of the field that lies under the northern province of Groningen, with implications that reach well beyond its significance for Dutch state coffers. Lessons from Groningen, which lies far from any natural fault line, feed into a debate over the threat posed by hydraulic fracturing in the United States, China, Britain and elsewhere. The world’s 10th largest gas field, Groningen is expected to supply the bulk of the Netherlands’ annual gas needs of 20-30 billion cubic meters (bcm) until the mid-2020s. The Dutch also have contracts to sell 40-60 bcm annually to buyers in Germany, Britain, Italy, Belgium and France. In all, Groningen and a few smaller Dutch fields supply 15% of Europe’s gas consumption, providing one alternative to Russian supply. When Economic Affairs Minister Henk Kamp recently ordered production at Groningen cut by 16%, gas prices jumped across Western Europe.

Groningen has been in continuous production since 1963. As far back as 1993 small quakes were definitively linked to its output. But in the late 2000s, they suddenly became more frequent and stronger. With government finances under pressure from the 2008 financial crisis, production at Groningen had been ramped up from around 30 bcm in 2007 to more than 50 bcm by 2010. The money generated helped the Dutch cushion the blow of austerity policies championed by the Cabinet. As Prime Minister Mark Rutte publicly pressed southern European governments to bring their spending under control, Dutch government gas revenues of €15 billion by 2013 were about the size of the national deficit.

Without gas, the deficit that year would have doubled from 2.5% to 5%, violating eurozone budget rules. But on Aug. 16, 2012, an earthquake with its epicenter under the town of Huizinge marked the beginning of the end for aggressive output from Groningen. It registered 3.6 on the Richter scale, larger than any predicted by engineers at NAM, the joint venture field operator between Shell and Exxon. “Until the Huizinge earthquake, we had 1,100 damage claims in 20 years,” said NAM spokesman Sander van Rootselaar. “After the quake we had more than 30,000.” Earthquakes caused by gas production are usually small, unless they happen near a fault line and can trigger a larger natural quake. But in Groningen they occur close to the surface, damaging stone and brick buildings never designed to withstand shaking. Of the 50 churches located above the field, some 40 have been affected, said Bekooy.

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Getting worse fast.

Ukrainian Economy Starts to Buckle Behind Cloak of Calm in Kiev (Bloomberg)

Ukrainians are seeing signs the economy is cracking under the weight of war and the risk of default. While restaurants and cafes are bustling and shelves are full in Kiev, a city of 3 million, a recession stretching into a second year is igniting angst about the return of the disarray unleashed by the Soviet Union’s collapse in 1991. Especially outside the capital, that era of food shortages, hyperinflation and mass unemployment doesn’t seem so far away.= “My business is about to close and there are many more like it,” said Valentyna Lozova, a 65-year-old accountant in Kiev. “Salaries aren’t rising, inflation is galloping and the hryvnia’s in freefall. I’m afraid of the future.”

It’s becoming harder for Ukrainians, mindful of the thousands who’ve died in a 11-month insurgency near the nation’s border with Russia, to put a brave face on their economic woes. With much of the country’s industrial base in ruins and a looming debt restructuring, the effect may be felt for years. The economy is set to plunge 12% in 2014-15 and the inflation rate jumped to 28.5% in January, the world’s second-highest behind Venezuela. As the economy deteriorated, the hryvnia has sunk 70% in the past year, the most in the world, sparking panic in some towns. “I see people every day in supermarkets buying sacks of flour and cereals as prices grow,” said Iryna Lebiga, a 31-year-old mother of three who’s struggling to find a buyer for her unprofitable sheep farm in Poltava, a 350-kilometer (220-mile) drive east of Kiev. “People don’t have money. Someone approached us last year but my husband thought he offered too little. Now, nobody offers even half of that.”

Even in Kiev, some people were spooked into stocking up on staples after the central bank banned foreign-currency trading for one day last week and the hryvnia’s street price plunged. The Silpo supermarket chain rearranged delivery to its outlets to keep up with growing demand, its press office said in an e-mail. While the recession isn’t yet as deep as the last one in 2009, this contraction is longer-lasting and Ukraine entered it after two years of almost zero-growth. The scale of the malaise risks triggering disquiet among some Ukrainians who helped unseat their Russian-backed leader last year with the hope of rebuilding the nation, according to Citibank in Moscow.

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More on this great man.

Ex-Guerrilla, Champion Of The Poor: Uruguay President Steps Down (RT)

Uruguay’s president, Jose “Pepe” Mujica, a former guerrilla who lives on a farm and gives most of his salary to charity, is stepping down after five years in office, ending his term as one of the world’s most popular leaders ever. Mujica, 79, is leaving office with a 65% approval rating. He is constitutionally prohibited from serving consecutive terms. “I became president filled with idealism, but then reality hit,” Mujica said in an interview with a local newspaper earlier this week, according to AFP. Some call him “the world’s poorest president.” Others the “president every other country would like to have.” But Mujica says “there’s still so much to do” and hopes that the next government, led by Tabare Vazquez (who was elected president for a second time last November) will be “better than mine and will have greater success.”

Mujica said he succeeded in putting Uruguay on the world map. He managed to turn the cattle-ranching country, home to 3,4 million people, into an energy-exporting nation, Brazil being Uruguay’s top export market (followed by China, Argentina, Venezuela and the US.) Uruguay’s $55 billion economy has grown an average 5.7% annually since 2005, according to the World Bank. Uruguay has maintained its decreasing trend in public debt-to-GDP ratio – from 100% in 2003 to 60% by 2014. It has also managed to decrease the cost of its debt, and reduce dollarization – from 80% in 2002 to 50% in 2014. “We’ve had positive years for equality. Ten years ago, about 39% of Uruguayans lived below the poverty line; we’ve brought that down to under 11% and we’ve reduced extreme poverty from 5% to only 0.5%,” Mujica told the Guardian in November.

After Latin America’s anti-drug war proved a failure, the South American country became the first in the world to fully legalize marijuana, with Mujica arguing that drug trafficking is in fact more dangerous than marijuana itself. One of the most progressive leaders in Latin America. Muijica also legalized abortion and same-sex marriage and agreed to take in detainees once held at the notorious Guantanamo Bay. Six former US detainees, who were never charged with a crime, came to Uruguay in December as refugees. The six included four Syrians, a Palestinian and a Tunisian. Although they were cleared for release back in 2009, the US was not able to discharge them until the Uruguayan President offered to receive them. Mujica, a former leftist Tupamaro guerrilla leader, spent 13 years in jail during the years of Uruguay’s military dictatorship. He survived torture and endless months of solitary confinement. Majica said he never regretted his time in jail, which he believes helped shape his character.

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“But when you carry a life in you, what she breathes, eats and drinks are all your responsibility, and then you feel the fear.”

Documentary on Air Pollution Grips Over 30 Million Chinese in 1 Day (NY Times)

Millions of Chinese, riveted and outraged, watched a 104-minute documentary video over the weekend that begins with a slight woman in jeans and a white blouse walking on to a stage dimly lit in blue. As an audience looks on somberly, the woman, Chai Jing, displays a graph of brown-red peaks with occasional troughs. “This was the PM 2.5 curve for Beijing in January 2013, when there were 25 days of smog in that one month,” explains Ms. Chai, a former Chinese television reporter, referring to a widely used gauge of air pollution. Back then, she says, she paid little attention to the smog engulfing much of China and affecting 600 million people, even as her work took her to places where the air was acrid with fumes and dust.

“But,” Ms. Chai says with a pause, “when I returned to Beijing, I learned that I was pregnant.” She has said her concerns about what the filthy air would mean for her infant daughter’s health prompted her to produce the documentary, “Under the Dome.” It was published online Saturday, and swiftly inspired an unusually passionate eruption of public and mass media discussion. The newly appointed minister of environmental protection even likened the documentary to “Silent Spring,” Rachel Carson’s landmark exposé of chemical pollution. “I’d never felt afraid of pollution before, and never wore a mask no matter where,” Ms. Chai, 39, says in the video. “But when you carry a life in you, what she breathes, eats and drinks are all your responsibility, and then you feel the fear.”

By early Monday morning, “Under the Dome” had been played more than 20 million times on Youku, a popular video-sharing site, and it was also being viewed widely on other sites. Tens of thousands of viewers posted comments about the video, many of them parents who identified with Ms. Chai’s concern for her daughter. Some praised her for forthrightly condemning the industrial interests, energy conglomerates and bureaucratic hurdles that she says have obstructed stronger action against pollution. Others lamented that she was able to do so only after leaving her job with the state-run China Central Television.

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