Jan 062017
 
 January 6, 2017  Posted by at 4:52 pm Finance Tagged with: , , , , , , ,  4 Responses »
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Dorothea Lange Farm family fleeing OK drought for CA, car broken down, abandoned Aug 1936

 

Since the new year will bring yuuge and bigly changes to us all (I truly hope both the year and the changes will leave you happy), I thought I’d start off by ‘reduxing’ two articles that contain further ‘reduxes’, Russian doll style. I do this because the man the articles are about is set to play a large role in those changes, certainly where Europe is concerned. And since the changes in Europe will be weally weally bigly, they will impact the entire world.

That is to say, we must seriously doubt if the EU -or rather, what’s left of it post-Brexit-, will live to see January 1 2018 in one piece. This is hardly an exaggeration, as you may be inclined to think. As I said recently, in Europe it’s not and-and, it’s if-or: with elections in Germany, France, Holland and probably Italy coming up, they don’t all have to turn out ‘badly’ for the pro-EU camp, if just one of them goes against the EU, it may well be game over.

Therefore Beppe Grillo, leader of the Five Star movement, is a man to keep an eye on. And not just for that. The first item below, a 1998 video, is an addition to my original article from November 14 2014, and it makes clear, once more, that Beppe is no fool. Nor is he a right wing nut, or anything remotely like that. Beppe actually understands what money is, much much better than any of the politicians and economists that rule the old continent. That makes him a threat to them.

Below that video from 1998, my November 14 2014 article, which in turn cites a 2013 article. I know some things will look dated, but you’ll get it, I’m sure. I hope you also get why I repost it all: 2017 has begun.

 

Beppe Grillo: Whom does the money belong to? Who does its ownership belong to? To the State, fine, so to us, we are the State.

You know that the State doesn’t exist, it is only a legal entity. WE are the state, the money is ours.

Then tell me one thing: if the money belongs to us, why do they lend it to us?

 

 

 

From November 14 2014: That says quite something, that title. And it’s probably not entirely true, it’s just that I can’t think of any others. And also, I’m in Europe myself right now, and I still have a European passport too. So there’s two of us at least. Moreover, I visited Beppe Grillo three years ago, before his 5-Star Movement (M5S) became a solid force in Italian politics. So we have a connection too.

Just now, I noticed via the BBC and Zero Hedge that Beppe not only expects to gather far more signatures than he said he would recently (1 million before vs 4 million today) for his plan to hold a referendum on the euro, he also claims to have a 2/3 majority in the Italian parliament. Well done. But he can’t do it alone.

Martin Armstrong thinks the EU may have him murdered for this before they allow it to take place. Which is a very good reason for everyone, certainly Europeans, to come out in support for the only man in Europe who makes any sense. I know many Italians find Beppe too coarse, but they need to understand he’s their only way out of this mess.

The smear campaigns against him are endless. The easier ones put him at the same level as Nigel Farage and Marine Le Pen, the more insidious ones paint him off as a George Soros patsy. There’ll be a lot more of that. And given the success of this year’s anti-Putin campaign in Europe, and the ongoing pro-Euro one, it’s going to take a lot not to have people believe whatever they are told to.

Just take this to heart: since Italy joined the euro, its industrial production has fallen by 25%. How is that not a disaster? Meanwhile, the eurozone economy is in awful shape, and the longer that lasts, the more countries like Italy will be disproportionally affected and dragged down further. There’s a reason for that numbers such as that: it’s not like Germany and Holland lost 25% of their production.

The eurozone must end before it starts to do irreversible damage, and before it turns Europe into a warzone, a far more real and imminent risk than anyone dares suggest.

The first bit here is from Zero Hedge, and then after that I will repost a lengthy piece about Beppe that I first published on February 12, 2013.

Italy’s Grillo Rages “We Are Not At War With ISIS Or Russia, We Are At War With The ECB”

Next week, Italy’s Beppe Grillo – the leader of the Italian Five Star Movement – will start collecting signatures with the aim of getting a referendum in Italy on leaving the euro “as soon as possible,” just as was done in 1989. As Grillo tells The BBC in this brief but stunning clip, “we will leave the Euro and bring down this system of bankers, of scum.” With two-thirds of Parliament apparently behind the plan, Grillo exclaims “we are dying, we need a Plan B to this Europe that has become a nightmare – and we are implementing it,” raging that “we are not at war with ISIS or Russia! We are at war with the European Central Bank,” that has stripped us of our sovereignty.

Beppe Grillo also said today:

It is high time for me and for the Italian people, to do something that should have been done a long time ago: to put an end to your sitting in this place, you who have dishonoured and substituted the governments and the democracies without any right. Ye are a factious crew, and enemies to all good government; ye are a pack of mercenary wretches, and would like Esau sell your country for a mess of pottage, and like Judas betray your God for a few pieces of money. Is there a single virtue now remaining amongst you? A crumb of humanity? Is there one vice you do not possess? Gold and the “spread” are your gods. GDP is you golden calf.

We’ll send you packing at the same time as Italy leaves the Euro. It can be done! You well know that the M5S will collect the signatures for the popular initiative law – and then – thanks to our presence in parliament, we will set up an advisory referendum as happened for the entry into the Euro in 1989. It can be done! I know that you are terrified about this. You will collapse like a house of cards. You will smash into tiny fragments like a crystal vase.

Without Italy in the Euro, there’ll be an end to this expropriation of national sovereignty all over Europe. Sovereignty belongs to the people not to the ECB and nor does it belong to the Troika or the Bundesbank. National budgets and currencies have to be returned to State control. They should not be controlled by commercial banks. We will not allow our economy to be strangled and Italian workers to become slaves to pay exorbitant interest rates to European banks.

The Euro is destroying the Italian economy. Since 1997, when Italy adjusted the value of the lira to connect it to the ECU (a condition imposed on us so that we could come into the euro), Italian industrial production has gone down by 25%. Hundreds of Italian companies have been sold abroad. These are the companies that have made our history and the image of “Made in Italy”.

As Martin Armstrong asks rather pointedly…

Since the introduction of the euro, all economic parameters have deteriorated, the founder of the five-star movement in Italy is absolutely correct. The design or the Euro was a disaster. There is no fixing this any more. We have crossed the line of no return. Beppe is now calling for referendum on leaving euro. Will he be assassinated by Brussels? It is unlikely that the EU Commission will allow such a vote.

And then here’s my February 2013 article; it seems silly to try and rewrite it. There is nobody in Europe other than him who understands what is going on, and is willing to fight for it. Grillo is a very smart man, a trained accountant and an avid reader of anything he can get his hands on. The image of him as a populist loud mouthed good for little comedian is just plain false. It was Grillo who exposed the Parmalat scandal, and the Monte Dei Paschi one.

Never forget what political and behind the veil powers he’s up against in his country, and how they seek to define the image the world has of him. What Beppe Grillo does takes a lot of courage. Not a lot of people volunteer to be smeared and insulted this way, let alone run the risk of being murdered. Those who do deserve our support.

 

 

Beppe Grillo Wants To Give Italy Democracy

In the fall of 2011, The Automatic Earth was on another European lecture tour. Nicole Foss had done a series of talks in Italy the previous year, and there was demand for more. This was remarkable, really, since a knowledge of the English language sufficient to understand Nicole’s lectures is not obvious in Italy, so we had to work with translators. Certainly none of this would have happened if not for the limitless drive and energy of Transition Italy’s Ellen Bermann.

In the run-up to the tour I had asked if Ellen could perhaps set up a meeting with an Italian I found very intriguing ever since I read he had organized meetings which drew as many as a million people at a time for a new – political – movement. Other than that, I didn’t know much about him. We were to find out, however, that every single Italian did, and was in awe of the man. A few weeks before arriving, we got word that he was gracious enough to agree to a meeting; gracious, because he’d never heard of us either and his agenda was overloaded as it was.

So in late October we drove the crazy 100+ tunnel road from the French border to Genoa to meet with Beppe Grillo in what turned out to be his unbelievable villa in Genoa Nervi, high on the mountain ridge, overlooking – with a stunning view – the Mediterranean, and set in a lovely and comfortable sunny afternoon. I think the first thing we noticed was that Beppe is a wealthy man; it had been a long time since I had been in a home where the maids wear uniforms. The grand piano was stacked with piles of books on all sorts of weighty topics, politics, environment, energy, finance. The house said: I’m a man of wealth and taste.

 


Eugenio Belgeri, Raúl Ilargi Meijer, Beppe Grillo, Nicole Foss and Ellen Bermann in Genoa Nervi, October 2011

 

I don’t speak Italian, and Beppe doesn’t speak much English (or French, German, Dutch), so it was at times a bit difficult to communicate. Not that it mattered much, though; Beppe Grillo has been a super charged Duracell bunny of an entertainer and performer all his life, and he will be the center of any conversation and any gathering he’s a part of no matter what the setting. Moreover, our Italian friends who were with us – and couldn’t believe they were there – could do a bit of translating. And so we spent a wonderful afternoon in Genoa, and managed to find out a lot about our very entertaining host and his ideas and activities.

Beppe had set up his Five Star movement (MoVimento Cinque Stelle, M5S) a few years prior. He had been organizing V-day “happenings” since 2007, and they drew those huge crowds. The V stands for “Vaffanculo”, which can really only be translated as “F**k off” or “Go f**k yourself”: the driving idea was to get rid of the corruption so rampant in Italian politics, and for all sitting politicians to go “Vaffanculo”.

At the time we met, the movement was focusing on local elections – they have since won many seats, have become the biggest party on Sicily (after Beppe swam there across the Straits of Messina from the mainland) and got one of their own installed as mayor of the city of Parma.

Grillo explained that M5S is not a political party, and he himself doesn’t run for office. He wants young people to step forward, and he’s already in his sixties. Anyone can become a candidate for M5S, provided they have no ties to other parties, no criminal record (Beppe does have one through a 1980 traffic accident); they can’t serve more than two terms (no career politicians) and they have to give back 75% of what they get paid for a public function (you can’t get rich off of politics).

I found it surprising that our friends at Transition Italy and the general left were reluctant to endorse Grillo politically; many even wanted nothing to do with him, they seemed to find him too coarse, too loud and too angry. At the same time, they were in absolute awe of him, openly or not, since he had always been such a big star, a hugely popular comedian when they grew up. Grillo offered to appear through a video link at Nicole’s next talk near Milan, but the organizers refused. It was only the first sign of a lot of mistrust among Italians even if they all share the same discontent with corrupt politics. Which have made trust a major issue in Italy.

 

 

This may have to do with the fact that Grillo is a comedian in the vein of perhaps people like George Carlin or Richard Pryor in the US. On steroids, and with a much wider appeal. Rough language, no holds barred comedy turns a lot of people off. Still, I was thinking that they could all use the visibility and popularity of the man to get their ideas across; they preferred anonymity, however.

By the way, the Five Stars, perhaps somewhat loosely translated, stand for energy, information, economy, transport and health. What we found during our conversation is that Beppe Grillo’s views on several topics were a little naive and unrealistic. For instance, like so many others, he saw a transition to alternative energy sources as much easier than it would realistically be. That said, energy and environment issues are important for him and the movement, and in that regard his focus on decentralization could carry real benefits.

Still, I don’t see the present naive ideas as being all that bad. After all, there are limits to what people can do and learn in a given amount of time. And Beppe certainly has a lot to do, he’s leading a revolution, so it’s fine if the learning process takes some time. Ideally, he would take a crash Automatic Earth primer course, but language will be a barrier there. I hope he finds a way, he’s certainly smart and curious enough.

 

 

When his career took off in the late 70’s, early 80’s, Beppe Grillo was just a funny man, who even appeared on Silvio Berlusconi’s TV channels. Only later did he become more political; but then he did it with a vengeance.

Grillo was first banned from Italian TV as early as 1987, when he quipped about then Prime Minister Bettino Craxi and his Socialist Party that if all Chinese are indeed socialists, who do they steal from? The ban was later made permanent. In the early 90’s, Operation Clean Hands was supposed to have cleaned up corruption in politics. Just 15 years later, Beppe Grillo started the Five Star movement. That’s how deeply engrained corruption is in Italy, stretching across politics, business and media.

We are- almost – all of us living in non-functioning democracies, but in Italy it’s all far more rampant and obvious. There’s a long history of deep-seated corruption, through the mafia, through lodges like P5 and Opus Dei, through many successive governments, and through the collaboration between all of the above, so much so that many Italians just see it as a fact of life. And that’s what Beppe Grillo wants to fight.

Ironically, he himself gets called a neo-nazi and a fascist these days. To which he replies that perhaps he’s the only thing standing between Italy and a next bout of fascism. I’ve read a whole bunch of articles the past few days, the international press discovers the man in the wake of the general elections scheduled for February 24-25, and a lot of it is quite negative, starting with the all too obvious notion that a clown shouldn’t enter politics. I don’t know, but I think Berlusconi is much more of a clown in that regard than Grillo is. A whole lot more of a clown and a whole lot less funny.

Beppe is called a populist for rejecting both right and left wing parties, a neo-nazi for refusing to block members of a right wing group from M5S, a Jew hater in connection with the fact that his beautiful wife was born in Iran, and a dictator because he’s very strict in demanding potential M5S candidates adhere to the rules he has set. Oh, and there are the inevitable right wing people calling him a communist.

There are of course tons of details that I don’t know, backgrounds, I’m largely an outsider, willing to be informed and corrected. And this would always be much more about the ideas than about the man. Then again, I did talk to the man in his own home and I don’t have the impression that Grillo is a fraud, or part of the same system he purports to fight as some allege, that he is somehow just the existing system’s court jester. He strikes me as being too loud and too embarrassing for that. And too genuinely angry.

Moreover, I think Italy is a perfect place for a nasty smear campaign, and since they can’t very well murder the man – he’s too popular – what better option than to make him look bad?! If anything, it would be strange if nobody did try to paint him off as a demagogue, a nazi or a sad old clown.

 


Photo: AFP: Marcello Paternostro

 

After being banned from TV, Grillo went on the build one of the most visited blogs/websites in the world, and the number one in Europe. Ironically, he is now in some media labeled something of a coward for not appearing in televised election debates. But Beppe doesn’t do TV, or – domestic – newspapers. For more than one reason.

Because he was banned from TV, because of the success of the internet campaign, and because Silvio Berlusconi incessantly used “lewd” talk shows on his own TV channels to conduct politics, Beppe Grillo insists his councilors and candidates stay off TV too, and he has his own unique way of making clear why and how: When a female Five Star member recently ignored this and appeared on a talk show anyway, Grillo said “the lure of television is like the G-spot, which gives you an orgasm in talk-show studios. It is Andy Warhol’s 15 minutes of fame. At home, your friends and relations applaud emotionally as they share the excitement of a brief moment of celebrity.”. Of course Beppe was labeled a sexist for saying this.

The internet is central to Grillo’s ideas. Not only as a tool to reach out to people, but even more as a way to conduct direct democracy. Because that is what he seeks to create: a system where people can participate directly. Grillo wants to bring (back) democracy, the real thing, and he’s long since understood that the internet is a brilliant tool with which to achieve that goal. One of his spear points is free internet access for all Italians. Which can then be used to let people vote on any issue that can be voted on. Not elections once every four years or so, but votes on any topic anytime people demand to vote on it. Because we can.

Since we had our chat in that garden in Genua, Beppe Grillo and M5S have moved on to bigger pastures: they are now set to be a major force in the general elections that will establish a new parliament. Polls differ, but they can hope to gain 15-20% of the vote (Grillo thinks it could be even much more). The leader in the polls is the Socialist Party, and then, depending on which poll you choose to believe, M5S comes in either second or third (behind Berlusconi). What seems certain is that the movement will be a formidable force, carrying 100 seats or more, in the new parliament, and that they could have a lot of say in the formation of any new coalition government.

In the run-up the elections, Beppe has now traded his home for a campaign bus, going from town to town and from one jam-packed campaign event to the next on what he has labeled the Tsunami Tour, in which he, in his own words, brings class action to the people.

As was the case in the local elections, Beppe Grillo says he wants “normal” people (“a mother of three, a 23-year-old college graduate, an engineer [..] those are the people I want to see in parliament”) to be elected, not career politicians who enrich themselves off their status and influence, and who he labels “the walking dead”, and though he acknowledges his candidates have no political experience, he says: “I’d rather take a shot in the dark with these guys than commit assisted suicide with those others.” In the same vein, another one of his lines is:“The average age of our politicians is 70. They’re planning a future they’re never going to see”.

On his immensely popular website beppegrillo.it, which has quite a bit of English language content, Grillo has some nice stats and tools. There is a list of Italian parlimentarians and Italian members of the EU Parliament who have been convicted of crimes. At this moment there are 24; their number has come down, but still. There is also a great little thing named “Map of Power of the Italian Stock Exchange” that graphically shows the links various politicians have with various corporations. I remember when Grillo proudly showed it to us, that after clicking just 2-3 politicians and 2-3 businesses, the screen was so full of lines depicting connections it had become an unreadable blur.

In between all the other activities, Beppe was instrumental 10 years ago in exposing the stunning $10 billion accounting fraud at dairy and food giant Parmalat before it went bankrupt, as well as the recent scandal at the world’s oldest bank, Monte Dei Paschi Di Siena, which will cost a reported $23 billion. Corruption is everywhere in Italy, which has a large political class that is all too eager to share in the spoils. Mr. Grillo was trained as an accountant, and he understands what he’s talking about when it comes to dodgy numbers. What he needs is the power to act.

 

 

Apart from the strong stance that Grillo and M5S take against corruption and for direct representation, critics say they have few clear policy objectives, that they don’t even know what they want. Being a movement instead of a party doesn’t help. But then, these critics think inside the very old system that M5S wants to replace with one that is far more transparent and direct. It’s more than obvious that existing powers have no interest in incorporating the possibilities for improvement offered by new technologies, but it should also be obvious that people, wherever they live, could potentially benefit from a better functioning political system.

There will be many who say that no such thing can be achieved, but perhaps it not only can, but is inevitable. All it could take is for an example to show that it can work. One might argue that the only reason our current systems continue to exist in all their opaqueness is that those who stand to profit from them are the ones who get to vote on any changes that could be applied. What Beppe Grillo envisions is a system in which every one can vote directly on all relevant issues, including changes to the system itself. It’s about class action, about taking back power from corrupt existing politics. Italy looks like a good testing ground for that, since its systemic rot is so obvious for all to see. But in other western countries, just like in Italy, it could return the power where it belongs: in the hands of the people.

Radical ideas? Not really, because when you think about it, perhaps it’s the technology itself that’s radical, not the use of it. And maybe it’s the fact that we’re so stuck in our existing systems that keeps us from using our new technologies to their full potential. Just like it keeps us from restructuring our financial systems and our energy systems for that matter. We continue to have systems and institutions guide our lives long after they’ve ceased to be useful for our present day lives, as long as we’re snug and warm and well-fed. And we do so until a real bad crisis of some sort comes along and makes it absolutely untenable, often with a lot of misery and blood thrown into the equation.

Beppe Grillo wants to break that chain. And he’s got a recipe to do it. It may not be perfect or foolproof, but who cares when it’s replacing something that no longer functions at all, that just drags us down and threatens our children’s lives? Who cares? Well, the Monti’s and Berlusconi’s and Merkel’s and Obama’s and Exxon’s and BP’s and Monsanto’s of the world do, because it is the old system that gave them what they have, and they don’t want a new one that might take it away. Our so-called democracies exist to please our leaders and elites, not ourselves. And we’re unlikely to figure that one out until it’s way too late.

Unless the Italians do our work for us and vote for the Cinque Stelle in huge numbers.

 

 

Jul 192015
 
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Harris&Ewing “Congressional Union for Woman Suffrage” 1916

China’s $16.1 Trillion Corporate Debt Threat (Reuters)
Chinese Investors Flock To Sell Properties, Cancel Contracts (Nikkei)
Regulators Cannot Eliminate Volatility In China’s Stock Markets (Pettis)
Greece Should Turn To China To Break Debt Spiral – Economic Hit Man (ABC.au)
‘Plan B’ Needed As Euro One Recession Away From Implosion – David McWilliams (GC)
Deeper Eurozone Integration Would Be A ‘Huge Mistake’ (Telegraph)
Built To Foster Friendship, The Euro Is Manufacturing Misery (Economist)
Greece Is Being Taxed To Death (Politico)
Greece: Death Spiral Ahead (James K. Galbraith)
Greece Reforms ‘Will Fail’ – Varoufakis (BBC)
Dr Schäuble’s Plan for Europe: Do Europeans Approve? (Yanis Varoufakis)
Dublin, Lisbon And Madrid Beat The Bailout. It’s No Comfort To Athens (Guardian)
Alexis Tsipras Has Shown Greeks He Can Save Them (Spiegel)
Stiglitz Meets With Greek Government Officials (GR)
Greece’s Lesson For Russia – and China (Paul Craig Roberts)
Europe’s Best And Brightest Need To Head For Greece (Helene Rey)
Hillary Clinton and Glass-Steagall (Robert Reich)
Don Quixote Airport Cost €1bn – It Could Sell To China For €10,000 (Guardian)
Lunch with Beppe Grillo (FT)

China borrows itself into oblivion.

China’s $16.1 Trillion Corporate Debt Threat (Reuters)

Beijing may have averted a crisis in its stock markets with heavy-handed intervention, but the world’s biggest corporate debt pile – $16.1 trillion and rising – is a much greater threat to its slowing economy and will not be so easily managed. Corporate China’s debts, at 160% of GDP, are twice that of the United States, having sharply deteriorated in the past five years, a Thomson Reuters study of over 1,400 companies shows. And the debt mountain is set to climb 77% to $28.8 trillion over the next five years, credit rating agency Standard & Poor’s estimates. Beijing’s policy interventions affecting corporate credit have so far been mostly designed to address a different goal – supporting economic growth, which is set to fall to a 25-year low this year.

It has cut interest rates four times since November, reduced the level of reserves banks must hold and removed limits on how much of their deposits they can lend. Though it wants more of that credit going to smaller companies and innovative areas of the economy, such measures are blunt instruments. “When the credit taps are opened, risks rise that the money is going to ‘problematic’ companies or entities,” said Louis Kuijs, RBS chief economist for Greater China. China’s banks made 1.28 trillion yuan ($206 billion) in new loans in June, well up on May’s 900.8 billion yuan.

The effect of policy easing has been to reduce short-term interest costs, so lending for stock speculation has boomed, but there is little evidence loans are being used for profitable investment in the real economy, where long-term borrowing costs remain high, and banks are reluctant to take risks. Manufacturers’ debts are increasingly dwarfing their profits. The Thomson Reuters study found that in 2010, materials companies’ debts were 2.8 times their core profit. At end-2014 they were 5.3 times. For energy companies, indebtedness has risen from 1.1 to 4.4 times core profit. For industrials, from 2.5 to 4.2.

Read more …

It’s all just starting. The margin calls will come in fast and furious. From the shadow banking system. Will we see a ban on selling real estate too?

Chinese Investors Flock To Sell Properties, Cancel Contracts (Nikkei)

Turbulence on China’s equity market is starting to rock the country’s property market. Investors are quickly pulling their cash out of housing they purchased to cover losses incurred by stock investments. Some have begun offering discounts on property due to difficulties with finding buyers. Continued turmoil on the stock market looks as though it will have a heavy impact on the country’s real estate market. China’s stock market rally also helped drive up sales of domestic homes. The Shanghai Composite Index surged 60% from its low of around 3,200 in early March, rising to 5,166 logged on June 12. China Securities Depository and Clearing said that the number of accounts opened to trade yuan-denominated A-shares reached 980,000 in May in Shenzhen, where property prices are climbing faster than other areas.

The figure accounted for roughly 80% of the total 1170,000 accounts in Guangdong Province, where large numbers of such account holders reside. Many newbie investors, who have just jumped into the stock market, likely gave a fresh impetus to the property market. China’s share price upswing prompted investors to reach out for new investments, including houses and other properties. A property analyst at major Chinese brokerage Guotai Junan Securities said that sales of luxury properties worth over 10 million yuan ($1.61 million) each for the first half of the year topped annual sales last year in Shanghai and Beijing. After this, Chinese stocks began to crumble. In early July, the Shanghai Composite Index dropped more than 30%, after hitting a seven-year high in mid-June.

Investors who suffered big losses on the stock market were forced to sell property and cancel real estate purchase agreements. The Hong Kong Economic Times said that consumers are increasingly asking real estate firms for grace periods on down payments for mortgage loans, as they run out of cash because of weak stocks. Some canceled home purchase contracts, while others canceled mortgage loans, according to China’s largest property developer China Vanke, which has a strong foothold in Shenzhen. Local media reported that an official at China Vanke is concerned about massive numbers of cancellations in the future.

Read more …

“It’s not just that markets are about volatility. It is that volatility can never be eliminated.”

Regulators Cannot Eliminate Volatility In China’s Stock Markets (Pettis)

For now I think we can safely say the panic is finally over, but none of the fundamental questions have been resolved and I expect continued volatility. Because I also think the market remains overvalued, however, I have little doubt that we will see at least one more very nasty bear market. Either way the panic and the policy responses have opened up a ferocious debate on China’s economic reforms and Beijing’s ability to bear the costs of the economic adjustment. Among these costs are volatility. Rebalancing the economy and withdrawing state control over certain aspects of the economy, especially its financial system, will reduce Beijing’s ability to manage the economy smoothly over the short term but it may be necessary in order to prevent a very dangerous surge in volatility over the longer term. Sunday’s Financial Times included an article with the following:

Critics of the measures unleashed by Beijing last week argue that they point to a fundamental tension at the heart of China’s political economy that a free-floating renminbi would test even more severely. The ruling Chinese Communist party, they argue, is ultimately incapable of surrendering control of crucial facets of the country’s economic and financial system. As one person close to policymakers in Beijing puts it: “The problem with this system is that it cannot tolerate volatility and markets are all about volatility.”

It’s not just that markets are about volatility. It is that volatility can never be eliminated. Volatility in one variable can be suppressed, but only by increasing volatility in another variable or by suppressing it temporarily in exchange for a more disruptive adjustment at some point in the future. When it comes to monetary volatility, for example, whether it is exchange rate volatility or interest rate and money supply volatility, central banks can famously choose to control the former in exchange for greater volatility in the latter, or to control the latter in exchange for greater volatility in the former.

Regulators can never choose how much volatility they will permit, in other words. At best, they might choose the form of volatility they least prefer, and try to control it, but this is almost always a political choice and not an economic one. It is about deciding which economic group will bear the cost of volatility.

Read more …

China is two-faced being. Economic collapse at home, aid offers abraod.

Greece Should Turn To China To Break Debt Spiral – John Perkins (ABC.au)

A prominent economist says China’s banks are circling debt-stricken countries like Greece, offering an alternative to the brutal austerity measures proposed by the IMF and EU. Former adviser to the IMF and the World Bank, John Perkins, told the ABC’s The Business that China’s Asian Infrastructure Investment Bank (AIIB) and the BRICS bank were courting countries like Greece. Mr Perkins said he believed China had sent people to Greece to offer an alternative bailout deal. “If I were the finance minister running the system I would seriously be looking at that alternative. I think that the Chinese are presenting a competitive edge here,” he said.

Mr Perkins revealed in his international bestseller, Confessions of an Economic Hit Man, how international organisations like the IMF and the World Bank enslave countries like Greece by offering crippling and unsustainable loans which never deliver the economic growth they promise. He said he believed Greece and the other European countries in similar positions should turn to China as a means of breaking the debt spiral. “These austerity programs are not the right program, even the IMF said recently there has to be more debt forgiveness we have to readjust the debt and the Europeans don’t seem willing to do this,” he said. Mr Perkins was surprised by the IMF’s public criticism of the eurozone’s bailout deal this week and said it shows the growing influence of China’s banks.

“I think the motivation may have been the Chinese because the Chinese have stepped in before, in Ecuador and several other countries, and we now have these very powerful banks that the Chinese are heading up,” he said. Mr Perkins said the growing strength of the banks will result in a major shift of power away from the United States and European Union. He conceded that there is nothing to stop China from becoming another “economic hit man” but said the Chinese have a good record so far, particularly in South American countries like Ecuador. “I recently met with a minister of Ecuador – and he said ultimately that he has no idea what China will do but we do know that the IMF, the World Bank, the Europeans and the US have screwed us over,” he said. “They’ve put military bases around here and threatened us and China hasn’t done that, so right now we trust China more than the US.”

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“Countries that don’t play ball with Germany will see their banking system used against their democratically elected politicians.”

‘Plan B’ Needed As Euro One Recession Away From Implosion – David McWilliams (GC)

Europe’s next recession will “kill the euro” according to economist, writer and journalist David McWilliams. McWilliams, who is among the best economics commentators from the only Anglophone nation in the euro – Ireland, warns that we only have a few months to plan an alternative to the disastrous consequences on peripheral nations of what he sees as German hegemony. He describes the mismanagement of the euro currency as “both laughable and terrifying”. Marathon negotiation sessions are not conducive to clear headed, rational decision making on the future of a nation or the eurozone. Indeed, it smacks of coercion. He lambasts the suggestion offered that Greece could have a “temporary euro”, adding, “If the board and management of a public company dealt with problems like this, the share price would collapse. There is quite simply no corporate governance within the euro”.

David McWilliams believes that Germany is out control. France is no longer strong enough to offer a counterweight and Britain is happy to allow the circus to continue as they focus on potentially getting out of the EU. He describes last weekends negotiations in Brussels as a “teutonic kangaroo court”. Should Britain successfully navigate its way out of the EU, other countries will likely follow rather than exist as provinces of Germany. Norway and Switzerland have coped just as well from the outside as their EU neighbours. He makes the obvious, though seldom heard assertion that “when economic negotiations stop making economic sense, you should begin to question the motives of the EU”. Pointing to the plundering of Greek state assets to pay off creditors whilst forcing further austerity on the Greek people.

Each previous round of austerity has caused the economy to contract further – thus forcing Greece into a debt trap from which it cannot escape. We believe this is a crucial point. While Germany have played a major role it in the subjugation of Greece it is worth asking who truly benefits from economic negotiations that have stopped making economic sense. Could it be the large banks who, following a similar model imposed on countries in Latin America, Southeast Asia and Africa since the 1970’s, continue to extract wealth from the poorest people on earth? Has not almost every development in the EU in the past ten years served to consolidate the power of financial institutions at the expense of the citizenry?

McWilliams highlights the dramatic u-turn in policy where membership of the EU is now conditional. When Mario Draghi initiated the “whatever-it-takes” mass purchase of bonds of peripheral nations the message was clear – the euro is forever. Now, however, countries must bend to Germany’s demands which are the demands of politicians who want to keep their electorate happy if they are to be re-elected. “Countries that don’t play ball with Germany will see their banking system used against their democratically elected politicians. The banking system is the soft underbelly and the Germans are prepared to orchestrate bank runs in member states to get their way. This is not only new, it is outrageous.”

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Amen.

Deeper Eurozone Integration Would Be A ‘Huge Mistake’ (Telegraph)

Deeper fiscal integration in the eurozone is a “huge mistake” that could end up tearing the bloc apart, Sweden’s former finance minister has warned. Anders Borg said forcing countries to cede sovereignty could trigger a right-wing backlash across Europe, as he predicted that countries such as Sweden and Poland, which are obliged to join the euro, would not adopt the single currency for “decades”. “If you go for tighter co-operation that basically brings higher taxes to the north to subsidise the south, you build in a political divide that is not sustainable in the long term,” he said. Mr Borg, who stepped down in October 2014, said that while the current structure of the eurozone was problematic, the only way to secure a broad-based recovery across the bloc without creating a political rift was to focus on competitiveness.

“We’re not talking about good and bad outcomes here, we are talking about only very problematic alternatives. If you push for further fiscal integration, moving more decisions to Brussels, taxing northern European countries more heavily and subsidising countries with long-term competitive issues and deep problems in the south you would obviously have a strong Right-wing reaction that would undermine the political support for that direction and create a less open, less liberal and less dynamic Europe,” he said. “I think there are great risks in connection to the course that we now hear from political integration. There is no voter base for that and it’s not certain either that you’re dealing with the right focus.”

Mr Borg said the eurozone and the wider EU area, which includes the UK, should focus on policies such as “completing the single market, voting for free trade co-operation with the US and increasing infrastructure investment”. “[Countries] are under-spending on infrastructure. We are under-spending in education. Our labour markets are over-regulated and we have tax levels for investment and work that are too high, so we need to do fundamental tax reforms and we need to fix our expenditure so that we are concentrating on the areas where public expenditures have most return.” Mr Borg, who voted for Sweden to join the euro in 2003, said the country’s membership was unlikely for “decades”. “It’s very difficult to argue today to your population that it’s a well functioning system,” he said.

Mr Borg, who predicted in 2012 that Greece would leave the euro, welcomed the news that the eurozone had opened the door to a third Greek bail-out package to begin. He said he was in “full agreement” with the IMF that creditors needed to write off some of the country’s debt “substantially”. “There is a need to establish a credible long-term programme for financing Greece. There is serious rethinking that has to be done on the Greek side but also on the creditors’ side. I would hope that people are ready to do this because the alternative is catastrophic for Greece. It’s clear that we’re not out of the woods yet,” he said.

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Shouldn’t have left it in the hands of sociopaths.

Built To Foster Friendship, The Euro Is Manufacturing Misery (Economist)

Unravelling the tangled logic of Greece’s bail-out talks, Charlemagne has learned, is a little like trying to explain the rules of cricket to an American. How to make sense of a process in which Greek voters loudly spurn a euro-zone bail-out offer in a referendum, only to watch Alexis Tsipras, their prime minister, immediately seek a worse deal that is flatly rejected by the euro zone, which in turn presses a yet more stringent proposal to which Mr Tsipras humbly assents? Better, perhaps, not to try. After six months of this nonsense, little wonder everyone is depressed. The immediate danger of Grexit has at least been averted, after Mr Tsipras and his fellow euro-zone heads of government pulled a brutal all-nighter in Brussels this week.

But it comes at the price of a vast taxpayer-funded bail-out for Greece, worth up to €86 billion over three years, and a humiliating capitulation by Mr Tsipras. Greece’s economy is in tatters, its creditors are fuming and Europe’s institutions are in despair. Much to Britain’s disgust even non-euro countries have been sucked into the nightmare: a bridge loan designed to keep Greece afloat while the bail-out talks proceed looks set to tap a fund to which all EU countries have contributed. But wasn’t this week’s agreement a triumph for the shock troops of austerity? Hardly. Finland’s coalition, formed only two months ago, tottered at the prospect of funding a third Greek bail-out. The Dutch prime minister, Mark Rutte, has admitted that it would violate an election pledge he made in 2012.

One euro-zone diplomat says that 99% of her compatriots would say “no” to the bail-out if offered a Greece-style referendum. Even Angela Merkel, Germany’s chancellor and Mr Tsipras’s chief tormentor, is damaged. The deal, crafted largely by Mrs Merkel, Mr Tsipras and François Hollande, France’s president, has exposed the German chancellor to competing charges: of cruelty abroad and of leniency at home, notably among Germany’s increasingly irritable parliamentarians, who must vote twice on the Greek package. Europe’s single currency, designed to foster unity and ease trade between its members, has thus become a ruthless generator of misery for almost all of them.

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“Looked at separately, each of these suffocating tax rates might appear almost reasonable. Looked at together, they are totally unreasonable.”

Greece Is Being Taxed To Death (Politico)

More than five years have passed since May 2010, when Greece was enticed to borrow €73 billion from the IMF, EC and ECB with painful strings attached. That 2010 program, said the IMF, “had two broad aims: to make fiscal policy and the fiscal and debt position sustainable, and to improve competitiveness.” There was no emphasis on improving domestic economic growth or employment — just “competitiveness” in trade. The IMF speculated that “restoring confidence” would “lead to a growth recovery” in 2012. When that didn’t happen, another €154 billion in loans was provided. And the IMF blamed the bad “investment climate” on a “lack of confidence,” rather than any lack of after-tax income.

Prominent U.S. economists blame the seven-year depression in Greece on savage cutbacks in government spending. “The contraction in government spending has been predictably devastating,” wrote Joseph Stiglitz in February. And Paul Krugman later criticized the period “from 2009 to 2013, the last year of major spending cuts” in Southern Europe. In reality, however, Greek government spending rose from 44.9% of GDP in 2006 to 53.7% from 2009 to 2012 and to 60.1% in 2013. That 2009-2013 “fiscal stimulus” was precisely when the economy contracted — by 4.4% in 2009, 5.4% in 2010, 8.9% in 2011, 6.6% in 2012 and 3.9% in 2013. By contrast, the economy grew slightly in 2014 when government spending was “only” half of GDP.

That is, the economy fell when government’s share rose, and the economy rose when government’s share fell. What is rarely or never mentioned in the typically one-sided misperception of spending “austerity” is the other side of the budget — namely, taxes. The latest Greek efforts to appease creditors would raise corporate tax again to 28%, raise the 5% “solidarity surcharge” on personal incomes, and discourage tourism by raising the VAT on restaurants and island shopping. Looked at separately, each of these suffocating tax rates might appear almost reasonable. Looked at together, they are totally unreasonable.

To offer a Greek employee an extra €100 requires that €42 be first subtracted for Social Security tax, and then up to €46 more subtracted for income tax. Out of the original €100 of marginal labor cost, the remaining €14 of after-tax income going to a skilled worker could only buy about €10 worth of goods after value-added tax is paid. The tax wedge between what employers pay for labor and what workers have left to spend, after taxes, is 43.4% for a Greek family of four with average earnings — the highest in the OECD and more than double the comparable U.S. wedge of 20.6%. This demoralizing tax wedge, which grows even larger at higher incomes, clearly depresses hiring and working in the formal economy. It also helps explain why a third of the Greek labor force is self-employed (making tax avoidance easier).

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“..an economic death spiral — contraction leading to banking failure, banking failure leading to contraction — first in Greece and, later on, elsewhere in Europe.”

Greece: Death Spiral Ahead (James K. Galbraith)

The Greek parliament has now voted to surrender control of the Greek state to platoons of bureaucrats from Brussels, Frankfurt and Berlin, who will now re-impose the full policy regime against which Greeks rebelled in January 2015 — and which they again rejected, by overwhelming majority, in the referendum of July 5. The orders from Brussels will impose strict new rules on the Greek people in the interest of paying down Greece’s debt. In return, the Europeans and the IMF will put up enough new money so that they themselves can appear to be repaid on schedule — thus increasing Greece’s debt — and the ECB will continue to prop up the Greek banking system. A hitch has already appeared in the plan: the IMF, whose approval is required, has pointed out — correctly — that the Greek debt cannot be paid, and so the Fund cannot participate unless the debt is restructured.

Now Germany, Greece’s main creditor, faces a new decision: either grant debt relief, or force Greece into formal default, which would cause the ECB to collapse Greece’s banks and force the Greeks out of the Euro. There are many ways to rewrite debt, and let’s suppose the Germans find one they can live with. The question arises: What then? An end to the immediate crisis is likely to have some good near-term effect. The Greek banks will “reopen,” likely on Monday, and the European Central Bank will raise the ceiling on the liquidity assistance on which they rely for survival. The ATMs will be filled, although limits on cash withdrawals and on electronic transfers out of the country will likely remain. There will be some talk of new public investment, funded by the EU; perhaps some stalled road projects will restart.

With these measures, it is not impossible that the weeks ahead will see a small uptick of economic life, and certainly, any such will make big news. It’s also possible that even without good news, Greece may limp along in stagnation, within the euro. ut if you walk through the requirements of Greece’s new program, there is another possibility. That possibility is an economic death spiral — contraction leading to banking failure, banking failure leading to contraction — first in Greece and, later on, elsewhere in Europe.

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“This programme is going to fail whoever undertakes its implementation.” Asked how long that would take, he replied: “It has failed already.”

Greece Reforms ‘Will Fail’ – Varoufakis (BBC)

Former Greek Finance Minister Yanis Varoufakis has told the BBC that economic reforms imposed on his country by creditors are “going to fail”, ahead of talks on a huge bailout. Mr Varoufakis said Greece was subject to a programme that will “go down in history as the greatest disaster of macroeconomic management ever”. The German parliament approved the opening of negotiations on Friday. The bailout could total €86bn in exchange for austerity measures. In a damning assessment, Mr Varoufakis told the BBC’s Mark Lobel: “This programme is going to fail whoever undertakes its implementation.” Asked how long that would take, he replied: “It has failed already.”

Mr Varoufakis resigned earlier this month, in what was widely seen as a conciliatory gesture towards the eurozone finance ministers with whom he had clashed frequently. He said Greek Prime Minister Alexis Tsipras, who has admitted that he does not believe in the bailout, had little option but to sign. “We were given a choice between being executed and capitulating. And he decided that capitulation was the optimal strategy.” Mr Tsipras has announced a cabinet reshuffle, sacking several ministers who voted against the reforms in parliament this week. But he opted not to bring in technocrats or opposition politicians as replacements. As a result, our correspondent says, Mr Tsipras will preside over ministers who, like himself, harbour serious doubts about the reform programme.

Greece must pass further reforms on Wednesday next week to secure the bailout. Germany was the last of the eurozone countries needing parliamentary approval to begin the talks. But the head of the group of eurozone finance ministers, Jeroen Dijsselbloem, has warned that the process will not be easy, saying he expected the negotiations to take four weeks. On Saturday, the Greek government ordered banks to open on Monday following three weeks of closures. Separately, the European Council approved the €7bn bridging loan for Greece from an EU-wide emergency fund. The loan was approved in principle by eurozone ministers on Thursday and now has the go-ahead from all non-euro states. It means Greece will now be able to repay debts to two of its creditors, the ECB and IMF, due on Monday.

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Another very transparent essay from Yanis.

Dr Schäuble’s Plan for Europe: Do Europeans Approve? (Yanis Varoufakis)

The avalanche of toxic bailouts that followed the Eurozone’s first financial crisis offers ample proof that the non-credible ‘no bailout clause’ was a terrible substitute for political union. Wolfgang Schäuble knows this and has made clear his plan to forge a closer union. “Ideally, Europe would be a political union”, he wrote in a joint article with Karl Lamers, the CDU’s former foreign affairs chief (Financial Times, 1st September 2014). Dr Schäuble is right to advocate institutional changes that might provide the Eurozone with its missing political mechanisms. Not only because it is impossible otherwise to address the Eurozone’s current crisis but also for the purpose of preparing our monetary union for the next crisis. The question is: Is his specific plan a good one? Is it one that Europeans should want?

How do its authors propose that it be implemented? The Schäuble-Lamers Plan rests on two ideas: “Why not have a European budget commissioner” asked Schäuble and Lamers “with powers to reject national budgets if they do not correspond to the rules we jointly agreed?” “We also favour”, they added “a ‘Eurozone parliament’ comprising the MEPs of Eurozone countries to strengthen the democratic legitimacy of decisions affecting the single currency bloc.” The first point to raise about the Schäuble-Lamers Plan is that it is at odds with any notion of democratic federalism. A federal democracy, like Germany, the United States or Australia, is founded on the sovereignty of its citizens as reflected in the positive power of their representatives to legislate what must be done on the sovereign people’s behalf.

In sharp contrast, the Schäuble-Lamers Plan envisages only negative powers: A Eurozonal budget overlord (possibly a glorified version of the Eurogroup’s President) equipped solely with negative, or veto, powers over national Parliaments. The problem with this is twofold. First, it would not help sufficiently to safeguard the Eurozone’s macro-economy. Secondly, it would violate basic principles of Western liberal democracy. Consider events both prior to the eruption of the euro crisis, in 2010, and afterwards. Before the crisis, had Dr Schäuble’s fiscal overlord existed, she or he might have been able to veto the Greek government’s profligacy but would be in no position to do anything regarding the tsunami of loans flowing from the private banks of Frankfurt and Paris to the Periphery’s private banks.

Those capital outflows underpinned unsustainable debt that, unavoidably, got transferred back onto the public’s shoulders the moment financial markets imploded. Post-crisis, Dr Schäuble’s budget Leviathan would also be powerless, in the face of potential insolvency of several states caused by their bailing out (directly or indirectly) the private banks. In short, the new high office envisioned by the Schäuble-Lamers Plan would have been impotent to prevent the causes of the crisis and to deal with its repercussions. Moreover, every time it did act, by vetoing a national budget, the new high office would be annulling the sovereignty of a European people without having replaced it by a higher-order sovereignty at a federal or supra-national level.

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Ireland: “30% of people live in deprivation conditions – 40% of children..”

Dublin, Lisbon And Madrid Beat The Bailout. It’s No Comfort To Athens (Guardian)

They used to be pejoratively labelled the “Pigs”: Portugal, Ireland, Greece and Spain, the “peripheral” countries carried into the eurozone on a wave of prosperity that were all forced to go cap in hand to their neighbours – and the IMF – when the financial crash came. Yet while Greece’s plight has only worsened over the five years since it was first rescued, the other three bailed-out countries have managed to return to growth, and send the inspectors from the International Monetary Fund back to Washington. Ireland graduated from its bailout programme in 2013. Spain – which never had a full-blown rescue, but received aid to prop up its ailing banks – did so in January last year; Portugal followed suit shortly afterwards.

As Greece attempts to rebuild its shattered economy with the aid of last week’s controversial bailout, it will be encouraged to take heart, and learn the lessons, from these success stories. Yet these countries have taken their own, tough paths back to economic growth – and the pain is still being felt. Ireland, which experienced an extraordinary property boom in the runup to the crisis and a deep downturn when the reckoning came, is expected to see GDP growth of around 5% this year. But its economic output is artificially boosted by the enthusiasm of multinationals for the country’s rock bottom 12.5% corporation tax rate — part of a long-term industrial strategy.

Ireland was also in a very different position to Greece when entering the crisis: until the country’s politicians chose to bail out its fragile banks, the public finances were in a relatively healthy state, with government debt at around 40% of GDP. Nevertheless, Michael Taft of the Unite trade union in Ireland says the deep spending cuts imposed as part of the post-crisis settlement have left long-term scars. “30% of people live in deprivation conditions – 40% of children,” he says. He adds that the fact that parties on both sides of the political divide shared a commitment to spending cuts meant it was hard for a Syriza-style, anti-austerity narrative to take hold: “The debate has been like the sound of one hand clapping.” However, more recently there was a noisy public revolt when the government considered imposing charges for water.

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The view from Germany.

Alexis Tsipras Has Shown Greeks He Can Save Them (Spiegel)

At the moment it appears that Tsipras the pragmatist has knocked out Tsipras the ideologue. “He’s finally putting his country before his party,” one opposition politician said on Wednesday, expressing relief. But Tsipras didn’t have any other choice. If Tsipras hadn’t reached an agreement in Brussels, Greece would have collapsed. The banks would have collapsed; even more businesses would have gone under. And Tsipras would have been the one responsible for it all. But with his U-turn, he also showed that he is ultimately a politician and not a gambler. The latest summit in Brussels lasted 17 hours, during which Tsipras abandoned one position after the other. He repeatedly left the room, where he was negotiating with Angela Merkel, François Hollande and EC President Donald Tusk.

Outside, he telephoned with his people back in Athens. In the end, he did succeed in keeping the fund for privatizing state-owned assets — that was to be based in Luxembourg and used as collateral for the loans — under Athens’ control. The fact that the fund is unlikely to ever bring in the €50 billion expected hardly mattered. Tsipras needed the victory. It is virtually a certainty that this won’t be the only element in the new bailout deal that will not get implemented. Tsipras knows that and so do Greece’s international creditors. Greece will never be able to pay back its debts — the InMF isn’t the only party to have come to this conclusion.

Despite all the broken promises, despite the “no” vote on the austerity diktat that Tsipras would transform into a “yes” vote only a few days later, like some magician pulling a rabbit out of the hat, surveys showed 70% of Greeks supporting the deal, which they consider to be “necessary and without alternative.” 68% say they would vote for Tsipras again if there were new elections. Polls also suggest he would be able to govern without a coalition partner. Those are astonishing figures for a prime minister under whose watch the banks had to be shuttered because they were threatened with collapse. Under whom capital controls had to be introduced, limiting daily withdrawals by Greeks to €60.

Furthermore, the Greek economy hasn’t been in this bad a shape at any other point since the start of the crisis five years ago. After one and a half years of consolidation, the economy has fallen back into recession and is shrinking rapidly. The fact that he isn’t being loudly criticized and that he managed to get 61% of Greeks to back him in the July 5 referendum is Tsipras’ political masterpiece. He had pitted “democracy against the Troika” as he often stated. It was a demonstration of power and at the same time a slap in the face of the Europeans. It’s possible they underestimated Tsipras because he had always come across as being so polite and reserved. But Tsipras also tested the limits and had no qualms about crossing the line.

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No, Stiglitz is not a scientist. Economics is NOT a science. See Popper and falsifiability.

Stiglitz Meets With Greek Government Officials (GR)

Former World Bank chief economist and Nobel Prize winner Joseph Stiglitz expressed his serious concerns over the economic rationale behind Greece’s rescue agreement during his meetings with Greek government officials in Athens on Friday. He reassured, however, that both he and a large number of eminent scientists from Europe and America are willing to assist the Greek government in any way possible during its agonizing efforts to end the harsh austerity tantalizing the country and its people. The American economist has been opposed to the tactics of the IMF and the structure of the current financial system, defending Greece and the attempts of Greek Prime Minister Alexis Tsipras during his country’s negotiations with creditors, exerting harsh criticism toward Germany. “Germany has shown no common sense regarding the European economy, nor compassion,” he stressed, disapproving the measures imposed to Greece by European forces, and suggested a “brave” haircut to the Greek debt.

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“It is testimony to the insouciance of our time that the stark inconsistency of globalism with American unilateralism has passed unnoticed..”

Greece’s Lesson For Russia – and China (Paul Craig Roberts)

The termination of Greece’s fiscal sovereignty is what is in store for Italy, Spain, and Portugal, and eventually for France and Germany. As Jean-Claude Trichet, the former head of the European Central Bank said, the sovereign debt crisis signaled that it is time to bring Europe beyond a “strict concept of nationhood.” The next step in the centralization of Europe is political centralization. The Greek debt crisis is being used to establish the principle that being a member of the EU means that the country has lost its sovereignty. The notion, prevalent in the Western financial media, that a solution has been imposed on the Greeks is nonsense. Nothing has been solved. The conditions to which the Greek government submitted make the debt even less payable. In a short time the issue will again be before us.

As John Maynard Keynes made clear in 1936 and as every economist knows, driving down consumer incomes by cutting pensions, employment, wages, and social services, reduces consumer and investment demand, and thereby GDP, and results in large budget deficits that have to be covered by borrowing. Selling pubic assets to foreigners transfers the revenue flows out of the Greek economy into foreign hands. Unregulated naked capitalism, has proven in the 21st century to be unable to produce economic growth anywhere in the West. Consequently, median family incomes are declining. Governments cover up the decline by underestimating inflation and by not counting as unemployed discouraged workers who, unable to find jobs, have ceased looking.

By not counting discouraged workers the US is able to report a 5.2% rate of unemployment. Including discouraged workers brings the unemployment rate to 23.1%. A 23% rate of unemployment has nothing in common with economic recovery. Even the language used in the West is deceptive. The Greek “bailout” does not bail out Greece. The bailout bails out the holders of Greek debt. Many of these holders are not Greece’s original creditors. What the “bailout” does is to make the New York hedge funds’ bet on the Greek debt pay off for the hedge funds. The bailout money goes not to Greece but to those who speculated on the debt being paid. According to news reports, Quantitative Easing by the ECB has been used to purchase Greek debt from the troubled banks that made the loans, so the debt issue is no longer a creditor issue.

China seems unaware of the risk of investing in the US. China’s new rich are buying up residential communities in California, forgetting the experience of Japanese-Americans who were herded into detention camps during Washington’s war with Japan. Chinese companies are buying US companies and ore deposits in the US. These acquisitions make China susceptible to blackmail over foreign policy differences. The “globalism” that is hyped in the West is inconsistent with Washington’s unilateralism. No country with assets inside the Western system can afford to have policy differences with Washington. The French bank paid the $9 billion fine for disobeying Washington’s dictate of its lending practices, because the alternative was the close down of its operations in the United States. The French government was unable to protect the French bank from being looted by Washington.

It is testimony to the insouciance of our time that the stark inconsistency of globalism with American unilateralism has passed unnoticed.

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Oh good god, she means tax collectors… Greece “needs” German tax collectors…. What, to revive biblical times?

Europe’s Best And Brightest Need To Head For Greece (Helene Rey)

Last weekend’s negotiations were painful, but the Greeks were not entirely without friends. Amid the conflict and antagonism, France helped Athens draft its proposals and François Hollande, the French president, battled to avoid Grexit while keeping Germany and others on board. European solidarity looked exhausted. But contrary to some reports, it was not dead. The deal to keep Athens in the single currency, despite all its undesirable aspects, remains vastly preferable to Grexit. Now that the tricky business of implementation is about to begin, it is time that Greece received a little more help from its European friends. Admittedly, generosity was not Mr Hollande’s only motive. Grexit would have spelt still more hardship for Greek people and risked creditors losing all their money.

But it would also have imperilled the European project itself. It would have bolstered the likes of the Nationl Front’s Marine Le Pen in France, who is keen to see the euro disintegrate, and Vladimir Putin, Russian president, who has made clear his desire for European fragmentation. Mr Hollande’s actions were also well received by the ruling Socialist party’s disaffected leftwingers, who harbour sympathy for Greece’s Syriza-led government. But this is not enough of an effort, either on Greece’s part or that of its partners. The agreement comes in the wake of massive austerity in Greece, amid deteriorating economic and fiscal conditions and in an environment where elementary pro-growth reforms have yet to be made. The danger is that the deal, and what should be a healing process in Europe, will be derailed.

One huge issue is implementation: the Greek government needs to improve the judicial system, write a new civil code, fight cartels in product markets and reform public administration very quickly. Such reforms should improve the country’s wellbeing, but enacting them speedily would be a tall order for even the best-organised administration. And it is here that the rest of Europe can and should help out. The fabled École nationale d’administration might offer a few tips, but this is not a question of énarques — as its graduates are known — parachuting into Athens, or of more European overlords appearing in Greece. It is instead one of using European know-how to provide technical assistance in areas where Greece needs it and where Syriza, like its predecessor governments, has failed to deliver.

Goals such as more efficient tax collection (particularly from the rich) and fighting clientelism are part of the agreement and are vital. But they come bundled with other measures, such as value added tax increases, that will stifle any recovery. Hence the need for more solidarity to help the Greeks move fast.

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Reich is right, of course. But why did he stay on in Bill Clinton’s cabinet when he disagreed so much on the repeal?

Hillary Clinton and Glass-Steagall (Robert Reich)

For more than six decades after 1933, Glass-Steagall worked exactly as it was intended to. During that long interval few banks failed and no financial panic endangered the banking system. But the big Wall Street banks weren’t content. They wanted bigger profits. They thought they could make far more money by gambling with commercial deposits. So they set out to whittle down Glass-Steagall. Finally, in 1999, President Bill Clinton struck a deal with Republican Senator Phil Gramm to do exactly what Wall Street wanted, and repeal Glass-Steagall altogether. What happened next? An almost exact replay of the Roaring Twenties. Once again, banks originated fraudulent loans and sold them to their customers in the form of securities. Once again, there was a huge conflict of interest that finally resulted in a banking crisis.

This time the banks were bailed out, but millions of Americans lost their savings, their jobs, even their homes. [..] To this day some Wall Street apologists argue Glass-Steagall wouldn’t have prevented the 2008 crisis because the real culprits were nonbanks like Lehman Brothers and Bear Stearns. Baloney. These nonbanks got their funding from the big banks in the form of lines of credit, mortgages, and repurchase agreements. If the big banks hadn’t provided them the money, the nonbanks wouldn’t have got into trouble. And why were the banks able to give them easy credit on bad collateral? Because Glass-Steagall was gone. Other apologists for the Street blame the crisis on unscrupulous mortgage brokers. Surely mortgage brokers do share some of the responsibility. But here again, the big banks were accessories and enablers.

The mortgage brokers couldn’t have funded the mortgage loans if the banks hadn’t bought them. And the big banks couldn’t have bought them if Glass-Steagall were still in place. I’ve also heard bank executives claim there’s no reason to resurrect Glass-Steagall because none of the big banks actually failed. This is like arguing lifeguards are no longer necessary at beaches where no one has drowned. It ignores the fact that the big banks were bailed out. If the government hadn’t thrown them lifelines, many would have gone under. Remember? Their balance sheets were full of junky paper, non-performing loans, and worthless derivatives. They were bailed out because they were too big to fail. And the reason for resurrecting Glass-Steagall is we don’t want to go through that ever again.

As George Santayana famously quipped, those who cannot remember the past are condemned to repeat it. In the roaring 2000’s, just as in the Roaring Twenties, America’s big banks used insured deposits to underwrite their gambling in private securities, and then dump the securities on their customers. It ended badly. This is precisely what the Glass-Steagall Act was designed to prevent – and did prevent for more than six decades. Hillary Clinton, of all people, should remember.

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All borrowed money anyway. Can someone please hold Brussels accountable?

Don Quixote Airport Cost €1bn – It Could Sell To China For €10,000 (Guardian)

It cost €1bn (£694m) to build and was on sale for a knockdown price of €40m, but now looks set to be sold for just €10,000. Ciudad Real airport, one of the most notorious emblems of Spain’s economic crash, has found a buyer. A Chinese-led consortium has emerged as the only bidder for the deserted site 100 miles south of Madrid, for an apparent bargain price after no one met the much reduced valuation. Its facilities include a runway long enough to land an Airbus A380, the world’s largest passenger plane, along with a passenger terminal that could handle 10m travellers per year. It is also in pristine condition because it has barely been used, having opened to international flights in 2010 as the eurozone crisis raged, only to shut two years later.

Appropriately for such a vainglorious project, the La Mancha airport was previously named after the region’s most famous, and deluded, literary export: Don Quixote. But Tzaneen International, a Chinese company set up in March with just €4,000 in capital, believes it can succeed where others have failed. Its bid – the only offer – succeeded at a public auction. Its initial €10,000 outlay buys all the land and most of the buildings, including the runway and control tower. Tzaneen says it also wants to acquire the terminal building and the car parks and is prepared to invest up to €100m in the project because “there are several Chinese companies that want to make the airport the European point of entry for cargo”.

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“I am sure that if they take back the drachma, they’ll have a year of trouble but then they will become paradise on earth with 10m people.“

Lunch with Beppe Grillo (FT)

[..] when I ask him directly what he thinks of the deal, he seems more discouraged than angry. “I don’t know, it’s always the same story. Every nation has lost its sovereignty.” This leads into the first of many tangents. “We’ve delegated politics to bankers. The ECB is inside Deutsche Bank and Deutsche Bank is inside the Bundesbank,” he says before moving on to mention Japanese “just-in-time” manufacturing and Britain’s zero-hour labour contracts. “They trick all the statistics because, if you work one hour, it means you’re employed.” As we nibble on pane carasau, a traditional Sardinian flatbread, I try to reel him back to the main question. A week earlier, Grillo had showed his support for Greece by making the trip to Athens’ Syntagma Square, after Tsipras had unexpectedly called a referendum on earlier bailout terms proposed by Brussels. The “No” vote — backed by Tsipras — won a resounding victory that night.

Now that plebiscite of defiance seems to have been pointless. Greece still needed funds to avoid default, and Tsipras had been forced to cave on many points to get it. So was it worth it, I ask? Grillo, who has been vocal about his desire for Italy to hold its own referendum on the euro, hesitates. “I think it helped clear up the notion that these decisions should be taken by the people, not others,” he says. As for Tsipras, he says: “If he sells out the country, that’s exactly what the Greeks don’t want.” The food arrives and the best of my antipasto is the seared tuna with peach, and the marinated salmon. Grillo loads his salad up with salt and that seems to rev him up a notch. He starts attacking “those people” who have a stranglehold on Europe’s economy.

“They have a kind of illness, it’s called alexithymia, which means difficulty recognising the emotions of others: pain, pleasure, joy,” he says. Does he mean people like Merkel and Jean-Claude Juncker, president of the European Commission? “Yes,” he responds. “They don’t care if they have to put tens of millions of people into hunger to balance an account, it’s collateral damage. We’ve entrusted our lives to people who know nothing about life,” he adds. I suggest that a referendum on euro membership might not appeal to Italians, given the scenes of economic distress they have witnessed in Athens in the past few weeks. But Grillo tells me I’m wrong because Italy’s experience with the single currency has been awful.

The Italian economy has only just started growing again — by 0.3% in the first quarter of this year, after a bruising triple-dip recession. Unemployment remains high — at 12.4% — and for the country’s youth that figure is more than 40%. “We entered monetary union from one day to the next, and they said it was for our own good,” he says. “Since then, all our economic, social and financial indicators have got worse.” The chaos in Athens has, he says, been wildly overstated. “I went there with bread, cheese and nylon socks, to help. I thought there would be people on the ground, screaming, ‘Aaaaaah!’ Instead, I found a splendid city, the restaurants were full. There were many tourists. You ate well — with €18 or €20. It was clean. I am sure that if they take back the drachma, they’ll have a year of trouble but then they will become paradise on earth with 10m people.”

Read more …

Jun 252015
 
 June 25, 2015  Posted by at 7:38 am Finance Tagged with: , , , , , , ,  1 Response »
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NPC KKK parade on Pennsylvania Avenue, Washington DC 1925

Today I fly to Athens, and boy, does time seem to fly along with me. I’ll be arriving in Athens apparently just in time for a big demo in Syntagma square (got a mail minutes ago saying people are on their way there as early as 9 AM local time). Something tells me there’ll be quite a few more of those during my stay. And I don’t think there’s any guarantee of all of them being peaceful as time goes on.

The negotiations, if they still warrant that title, are going nowhere, and even if they would, they’d be going nowhere good. So during my -provisional- 3 week stay, I wouldn’t be surprised to see capital controls, closed banks, empty ATMs, and quite a bit more.

But I am lucky enough to have a strong contingent of Automatic Earth readers in the city, who’ve been kind enough to not only offer me accommodation, but to also introduce me to a plethora of organizations and individuals, so much so that I’m going to have to be careful about claiming the time it takes to do the daily Automatic Earth posts.

If there’s a day or two when I can’t do a Debt Rattle or essay, please know that it won’t be for a lack of trying, but for an overabundance of gracious yet impoverished Greeks. Hey, in times of hardship people remember how to be people again. Most Americans and Germans are long overdue for a taste of that.

There’s that Seneca quote I used somewhere before, which captures it to a T:

We become wiser by adversity; prosperity destroys our appreciation of the right.

I’ve been feeling smothered here in Holland, and in Australia and New Zealand earlier this year, and in all the European countries save for Italy and the Czech Republic that we’ve visited over the past five years and change, smothered by the denial and techno-happy thinking that seems to be everywhere you go. People don’t seem to do wealth well. It blunts their senses: “prosperity destroys our appreciation of the right”.

Italy gets it. Maybe not in the major cities, but when we visited Beppe Grillo in late 2011, it was obvious that Italians saw the writing on the wall. Slovakia was in the eurozone and was just starting to receive all those big EU loans that are now haunting the PIIGS, who got them years earlier.

On the other hand, the Czech Republic, which had split from Bratislava only a few years before, but decided to keep the koruna, seemed fine, though with less new black top and fewer flashy government buildings. The big difference was that the euro had lifted prices in Slovakia much higher than those in Prague etc. Today, if you look behind the numbers, the Czech Republic is in a much better spot than Slovakia.

Anyway, different parts of Europe have had a different view of life for years. And of course Greece had been going down with a vengeance for a long time. I’m just trying to say that Europe is not one big happy entity with Greece as a black sheep.

But they’re all still, or seem to be, ganging up on Athens. That’s all just the effects of propaganda, and everyone should learn to see through that thin veil. But it’s so tempting, isn’t it, to think you’re superior to someone else, to ignore that you’re the same.

And that it’s beyond brainless to drive your brand new Beamer on the Autobahn at 200 miles an hour blabbing about them Greeks who deserve to be flogged for refusing to pay you back what they stole from you.

This cannot and will not ever be repaired. Europe is not a union. Which is fine, as long as no-one tries to make it one. The very moment anyone tries, you end up with where Greece is today.

Long story short, let’s talk about that Fund For Athens I innocently started recently. Last time I mentioned it, on June 19, it was already at an amazing $2217, much more than I ever could have dreamed.

Well, you guys are something else. Because the fund now stands at $5534.47. Can you believe it? I sure can’t. Seeing the amount go up has been, and hopefully will continue to be, very humbling, your generosity has made me feel small. Who am I to trigger this kind of kindness?

Please, please, keep the donations coming, and I’ll make sure, along with the TAE readers in Athens, that we get the money where it is needed most. Solid promise.

For the how and why, please refer to The Automatic Earth Moves To Athens and Update: Automatic Earth for Athens Fund.

I’m thinking the Greeks need all the help they can get, more than ever, more every single day. I find it deeply concerning to read just now that both ex-PM Samaras and To Potami leader Theodorakis were spotted talking to the troika yesterday. That reeks of regime change. Not surprising given the EU MO, but at the same time: not good.

Feb 212015
 
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Russell Lee “Yreka, California. Magazine stand” 1942

German-Led Bloc Willing to Let Greece Leave Euro: Malta (Bloomberg)
A Lawyer’s Mindset Where An Economist’s Is Needed? (Steve Keen)
Greece Should Not Give In to Germany’s Bullying (Legrain – Foreign Policy)
Tentative Deal For Extension Agreed At Eurogroup (Kathimerini)
The Euro’s Up In Smoke (Beppe Grillo)
Eurozone Chiefs Strike Deal To Extend Greek Bailout For Four Months (Guardian)
Greece Bends To Eurozone Will To Find Short-term Agreement (Open Europe)
Greece’s Debt Deal Isn’t The End Of Eurozone Drama (MarketWatch)
ECB’s Draghi Wants To Buy Bonds, But Who Will Sell? (Reuters)
It’s Up To Germany To End The Game Of Chicken With Greece (Guardian)
Is Greek PM Alexis Tsipras Going To Be Russia’s ‘Trojan Donkey’? (NewsCorp)
Has Greece’s ‘Lehman Moment’ Finally Arrived? (CNBC)
Expectations And Reality: What Maidan Gave Ukraine’s Economy (RT)
US Units of Deutsche Bank, Santander Likely to Fail Fed Stress Test (WSJ)
The US Government’s Stupid Tax War On Expatriates (MarketWatch)
NYC Could See 6-Foot Sea Rise By 2100 (NewsMaine)

“We are perfectly prepared to refrain from any moves that would jeopardize financial stability or Greek competitiveness..”

German-Led Bloc Willing to Let Greece Leave Euro: Malta (Bloomberg)

Germany and its allies are ready to let Greece leave the euro unless Prime Minister Alexis Tsipras accepts the conditions required to extend his country’s financial support, according to Malta’s finance minister, Edward Scicluna. Greece’s creditors are cranking up the pressure on Tsipras as he seeks a deal to prevent his country defaulting on its obligations as early as next month. By bowing to German demands, the premier risks a domestic backlash from voters and party members whom he’s promised an end to austerity. “Germany, the Netherlands and others will be hard and they will insist that Greece repays back the solidarity shown by the member states by respecting the conditions,” Scicluna said in an interview. “They’ve now reached a point where they will tell Greece ‘if you really want to leave, leave.’”

Talks between euro-region finance ministers in Brussels Friday aimed at agreeing an extension of Greece’s aid program were pushed back by an hour and a half, the group’s chairman, Dutch Finance Minister Jeroen Dijsselbloem, said on Twitter. The meeting will begin at 4:30 p.m. Brussels time and Dijsselbloem will make a statement at 3 p.m.nIn a formal request on Thursday to extend Greece’s euro-area backed rescue beyond its end-of-February expiry for another six months, Greek Finance Minister Yanis Varoufakis said he would accept the financial and procedural conditions of the Germany’s Finance Ministry almost immediately rebuffed the latest Greek formula, saying the country needs to make a firmer commitment to austerity. A “positive” conversation between Tsipras and German Chancellor Angela Merkel later on Thursday sparked investor optimism for a deal.

“We are perfectly prepared to refrain from any moves that would jeopardize financial stability or Greek competitiveness,” Varoufakis said in an interview Friday with The Telegraph. “But what we cannot accept is that the fiscal adjustment, agreed by the last government, be carried through just because the rules say so.” Investors are pricing in a positive outcome to the Eurogroup meeting with Greek bonds and stocks rising for a third day.

Read more …

“..is there a way to frame the Greek case in a way that a lawyer might understand?”

A Lawyer’s Mindset Where An Economist’s Is Needed? (Steve Keen)

A Twitter correspondent pointed out a simple fact that makes Schäuble’s inflexibility in negotiations with Varoufakis explicable: though he is a Minister of Finance, his PhD is in law. So is he implicitly approaching these negotiations as a lawyer would? Because from that point of view, what the Greeks are trying to do is to renege on a contract. And for a lawyer, changing the terms of a contract after you have signed it is a no deal. It’s either carry out the contract, or I’ll sue. Varoufakis, of course, is approaching the negotiations as an economist. From his point of view, the terms of the Troika’s package are a set of economic policies that have failed. And if policies have failed, the sensible economist tries different ones.

So did Greece sign a legal document, whose principles have to be adhered to, even if they have consequences the Greeks didn’t foresee when they signed? Or did Greece accept a set of economic policies, whose continuance should depend on whether those policies are achieving their intended objectives? There’s no doubt that the latter is the case. But if Schäuble is treating it as a legal treaty, then the fact that this is actually a set of failed economic policies, and not a legally binding treaty, won’t matter. He will refuse to “renegotiate the terms of the contract”. The negotiations will be such in name only.

So is there a way to frame the Greek case in a way that a lawyer might understand? Any contract involves consideration by each party to the other. In a contract of sale, the object being sold is the consideration from the seller; the money for the sale is the consideration from the buyer. So what is the consideration in this case? It is a combination of two things: the loans that were extended to the Greeks, and the Greeks carrying out an economic program which promised a set of economic outcomes—the key components of which are shown in Figure 1. These included that real economic growth would commence in 2012, and that unemployment would peak at 15.3% in 2012, and fall to 14.6% by 2014. [..]

Schäuble could then find himself repeating the whole process all over again, but this time with an opposite party who will delight in breaking agreements. He clearly hasn’t enjoyed negotiating with a leftwing academic economist who wears a leather jacket and wears his shirt outside his trousers. How, I wonder, will he enjoy negotiating with someone who prefers to wear jackboots?

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“Greece must be bled dry to service its foreign creditors in the name of European solidarity..”

Greece Should Not Give In to Germany’s Bullying (Legrain – Foreign Policy)

Ever since the initial bargain in the 1950s between post-Nazi West Germany and its wartime victims, European integration has been built on compromise. So there is huge pressure on Greece’s new Syriza government to be “good Europeans” and compromise on their demands for debt justice from their European partners – also known as creditors. But sometimes compromise is the wrong course of action. Sometimes you need to take a stand. Let’s face it: no advanced economies in living memory have been as catastrophically mismanaged as the eurozone has been in recent years, as I document at length in my book, European Spring.

Seven years into the crisis, the eurozone economy is doing much worse than the United States, worse than Japan during its lost decade in the 1990s and worse even than Europe in the 1930s: GDP is still 2% lower than seven years ago and the unemployment rate is in double digits. The policy stance set by Angela Merkel’s government in Berlin, implemented by the European Commission in Brussels, and sometimes tempered – but more often enforced – by the ECB in Frankfurt, remains disastrous. Continuing with current policies — austerity and wage cuts, forbearance for banks, no debt restructuring or adjustment to Germany’s mercantilism — is leading Europe into the ditch; the launch of quantitative easing is unlikely to change that. So settling for a “compromise” that shifts Merkel’s line by a millimeter would be a mistake; it must be challenged and dismantled.

While Greece alone may not be able to change the entire monetary union, it could act as a catalyst for the growing political backlash against the eurozone’s stagnation policies. For the first time in years, there is hope that the dead hand of Merkelism can be unclasped, not just fear of the consequences and nationalist loathing. More immediately, Greece can save itself. Left in the clutches of its EU creditors, it is not destined for the sunlit uplands of recovery, but for the enduring misery of debt bondage. So the four-point plan put forward by its dashing new finance minister, Yanis Varoufakis, is eminently sensible.

This involves running a smaller primary surplus – that is a budget surplus, excluding interest payments – of 1.5% of GDP a year, instead of 3% this year and 4.5% thereafter. Some of the spare funds would be used to alleviate Greece’s humanitarian emergency. The crushing debts of more than 175% of GDP would be relieved by swapping the loans from eurozone governments for less burdensome obligations with payments tied to Greece’s GDP growth. Last but not least, Syriza wants to genuinely reform the economy, with the help of the Organization for Economic Cooperation and Development (OECD), notably by tackling the corrupt, clientelist political system, cracking down on tax evasion, and breaking the power of the oligarchs who have a stranglehold over the Greek economy.

Had the Varoufakis plan been put forward by an investment banker, it would have been perceived as perfectly reasonable. Yet in the parallel universe inhabited by Germany’s Finance Minister Wolfgang Schäuble, such demands are seen as “irresponsible”: Greece must be bled dry to service its foreign creditors in the name of European solidarity.

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“Only approval of the conclusion of the review of the extended arrangement by the institutions in turn will allow for any disbursement of the outstanding tranche of the current EFSF program..”

Tentative Deal For Extension Agreed At Eurogroup (Kathimerini)

Greece and the Eurogroup agreed on Friday a deal to extend the country’s loan agreement for another four months, pending on lenders approving reform proposals due to be submitted by the Greek side on Monday. The terms of the agreement reached after many hours of talks in Brussels Friday means that the country’s lenders – the European Central Bank, the European Commission and the International Monetary Fund – must approve the reforms proposed by Greece on Monday. “The Greek authorities will present a first list of reform measures, based on the current arrangement, by the end of Monday, February 23,” the statement said. “The institutions will provide a first view whether this is sufficiently comprehensive to be a valid starting point for a successful conclusion of the review. This list will be further specified and then agreed with the institutions by the end of April.”

Greece has yet to receive €7.2 billion in bailout installments that the previous government failed to secure. But the country’s creditors will only disburse these funds once the implementation of the measures has taken place by the end of April. “Only approval of the conclusion of the review of the extended arrangement by the institutions in turn will allow for any disbursement of the outstanding tranche of the current EFSF program and the transfer of the 2014 SMP profits,“ said the statement. Greek Finance Minister Yanis Varoufakis stressed the importance of Greece being able to submit its own reforms and vowed to “work night and day between now and Monday” to produce a “fresh list of reforms.”

“The Greek authorities have expressed their strong commitment to a broader and deeper structural reform process aimed at durably improving growth and employment prospects, ensuring stability and resilience of the financial sector and enhancing social fairness,” said the Eurogroup statement. “The authorities commit to implementing long overdue reforms to tackle corruption and tax evasion, and improving the efficiency of the public sector. In this context, the Greek authorities undertake to make best use of the continued provision of technical assistance.” In the meantime, though, some €11 billion left in Greece’s bank recapitalization fund, the HFSF, will return to the European Financial Stability Facility (EFSF) but will be available for use should banks require it.

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“..to sell and lend to the countries on the periphery of Europe was always Germany’s preferred economic activity..”

The Euro’s Up In Smoke (Beppe Grillo)

“The Eurozone chess game has entered its third and final stage. Germany wins in three moves – Euro, deflation and purchase of public debt by the ECB (QE) – and in the last few years it has found a way to maximise its profits and reduce to zero its risks as Europe’s creditor.

Germany’s risks Let’s try analysing the problems of the Eurozone as they really are: problems of conflicting interests of creditors and debtors regulated by demand and supply. If you agree to make a loan to your neighbour, you open yourself up to three risks:
• that he’ll pay you back in a different currency that has perhaps been devalued unless you had a prior agreement about the repayment currency (currency risk);
• that with the amount you get back, you can buy fewer goods or property (inflation risk);
• that you don’t even have either of the first two problems because your neighbour simply goes bust and thus you lose everything (capital risk).

How Germany gains Germany is the Eurozone’s only big creditor with about €600 billion loaned to various countries, most of which are on the periphery of the Eurozone, including Italy. The Euro has given it this enviable status. If you produce lots and you consume and invest very little and you keep domestic wages and prices low, then you’ll always have cheap unconsumed goods to sell to your neighbours. And you might also be able to make money by providing credit that they will probably ask you for so that they can buy your goods that are so cheap and so good. This is Germany’s situation. It has always had this approach to the market economy in European affairs ever since 1870 with its roots in Calvinism. Thus to sell and lend to the countries on the periphery of Europe was always Germany’s preferred economic activity when everything was going well, before the crisis in 2008. Since then its only objective has been to get that credit returned and to protect its purchasing power.

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“We are going to write our own script on the reforms that need to be enacted..”

Eurozone Chiefs Strike Deal To Extend Greek Bailout For Four Months (Guardian)

Greece has stepped back from the prospect of a disorderly eurozone exit after reaching a last-ditch deal to resolve the impasse over its €240bn bailout. The outline agreement between Athens and its creditors in the single currency bloc to extend Greece’s rescue loans should help ease concerns that it was heading for the exit door from the euro. In return, the country’s leftwing government has pledged not to roll back austerity measures attached to the rescue, and must submit, before the end of Monday, a list of reforms that it plans to make. The chairman of the eurozone finance chiefs’ group, Jeroen Dijsselbloem, said Athens had given its “unequivocal commitment to honour their financial obligations” to creditors.

He said that the agreement was a “first step in this process of rebuilding trust” between Greece and its eurozone partners which would provide a strategy to get the country back on track. A senior Greek government official welcomed the agreement, saying it gave Athens time to negotiate a new deal. “Greece has turned a page,” the official added. Greece’s finance minister, Yanis Varoufakis, claimed victory, insisting there was “no substantive difference” between the deal and a Greek compromise text that had been dismissed by Germany’s finance ministry as a Trojan horse for Athens to throw off austerity. “We are going to write our own script on the reforms that need to be enacted,” he said

But the Greek prime minister, Alexis Tsipras, will almost certainly face fierce reaction over the deal, both from hardliners in his radical left Syriza party and from the populist right-wing Anel – his junior partner in the governing coalition – for agreeing to continue with austerity measures as part of the deal, given that he was elected on an anti-austerity programme. “Very heavy concessions have been made, politically poisonous concessions for the government,” Pavlos Tzimas, the veteran political commentator, told SKAI news.

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“The Greek authorities commit to refrain from any rollback of measures and unilateral changes to the policies and structural reforms that would negatively impact fiscal targets, economic recovery or financial stability, as assessed by the institutions.”

Greece Bends To Eurozone Will To Find Short-term Agreement (Open Europe)

Immediately after SYRIZA’s election victory in Greece, we predicted that:” While a compromise could still be possible, it will be quite painful to reach and will imply someone taking big steps back from their previous stance.” Tonight that looks to have been proven true – at least in the short term.

What does this agreement do and why? Tonight’s deal extends the current Master Financial Assistance Facility Agreement (MFAFA) by four months in order to allow Greece to fund itself in the short term and to allow time for negotiations over what happens afterwards.+ The purpose of the extension is the successful completion of the review on the basis of the conditions in the current arrangement, making best use of the given flexibility which will be considered jointly with the Greek authorities and the institutions (European Commission, ECB and IMF – formerly known as ‘the Troika’).+ Tonight’s agreement seems to essentially extend the existing agreement and the tied-in conditionality of the current Memorandum of Understanding.

What points has Greece capitulated on? Completion of the current review – Greece has basically agreed to conclude the current bailout. Any funding is conditional on such a process: “Only approval of the conclusion of the review of the extended arrangement by the institutions in turn will allow for any disbursement of the outstanding tranche of the current EFSF programme and the transfer of the 2014 SMP profits. Both are again subject to approval by the Eurogroup.” This is a clear capitulation for Greek Prime Minister Alexis Tsipras, who said the previous bailout was “dead” and the EU/IMF/ECB Troika is “over”.

Remaining bank recapitalisation funds – Greece wanted this money to be held by the Hellenic Financial Stabilisation Fund (HFSF) over the extension period, and possibly be open for use outside the banking sector. However, this has been denied and the bonds will return to the EFSF, although they will remain available for any bank recapitalisation needs. Role of the IMF – The Eurogroup statement says, “We also agreed that the IMF would continue to play its role”. Again, Greece has given in on this point and the Troika continues to exist and be strongly involved in all but name.

No unilateral action – According to the statement, “The Greek authorities commit to refrain from any rollback of measures and unilateral changes to the policies and structural reforms that would negatively impact fiscal targets, economic recovery or financial stability, as assessed by the institutions.” In light of this, a large number of promises that SYRIZA made in its election campaign will now be hard to fulfil. In the press conference given by Eurogroup Chairman Jeroen Dijsselbloem and EU Economics Commissioner Pierre Moscovici, it was suggested that this pledge also applied to the measures which were announced by Tsipras in his speech to the Greek parliament earlier this week – when he announced plans to roll back some labour market reforms passed by the previous Greek government.

Read more …

“You’ll get to go through it again in four months..”

Greece’s Debt Deal Isn’t The End Of Eurozone Drama (MarketWatch)

Rejoicing over the tentative resolution of the latest round of eurozone debt drama? Good for you. You’ll get to go through it again in four months. That is assuming Greece’s weekend exercise in picking its own austerity poison somehow proves mortifying enough to appease the “institutions” (don’t call them the troika anymore) overseeing the country’s bailouts while not enraging Greek voters who elected the new government on the promise it would stop Berlin and Brussels from imposing unrelenting austerity. That could prove to be a tall order. Failure on the latter front could mean new elections. Greek voters in January supported Greek Prime Minister Alexis Tsipras and his Syriza party on the idea that Greece didn’t want to leave the euro, but could no longer abide harsh austerity measures dictated by the dreaded troika..

Greek Finance Minister Yannis Varoufakis says Greece won a victory in that it will now be a “co-author” of its reforms, rather than having measures imposed by fiat by its creditors. Meanwhile, German Finance Minister Wolfgang Schaeuble was attempting to soothe German taxpayers. He emphasized to reporters that Athens won’t see any aid until it completes a satisfactory proposal, Reuters reported. And perhaps just to rub it in a little, he offered that the Greeks “certainly will have a difficult time to explain the deal to their voters, “ the report said. If Greek voters feel they got a raw deal, another election could be in the offing. If so, it would likely turn not on the question of austerity, but on a so-called Grexit.

So now Greece must submit a list of reforms to the institutions by the end of the day Monday. The institutions will review pore over it. There is scope for the process to break down between now and then. Varoufakis said Athens will craft its proposals in consultation with its partners, albeit at “arms length.” But even if everything goes smoothly, the question of what happens next for Greece, which will likely require a third bailout, will need to be answered in four months time.

Read more …

“If we were to sell bonds, we would make huge capital gains, but we will then have to reinvest that money at a yield of 0.5%, set against liabilities at 3.50-3.75 (percent),”

ECB’s Draghi Wants To Buy Bonds, But Who Will Sell? (Reuters)

At the height of the euro zone debt crisis in 2012, ECB President Mario Draghi’s problem was how to convince investors to hold on to European bonds. Now he faces a struggle to make them sell. Weeks before the European Central Bank begins a program to buy about 1 trillion euros of euro zone government bonds, banks, pension funds and insurers across the continent are hoarding them for regulatory or accounting reasons. That may complicate implementation of the quantitative easing program, aimed at reviving growth and inflation in the euro zone. The ECB might have to pay way above market prices, or take additional measures to encourage investors to sell. “We prefer to hold on to them,” said Antoine Lissowski at French insurer CNP Assurances. “The ECB’s policy … is reaching its limits now.”

Banks, which buy mainly short-term bonds, use government debt as a liquidity buffer. Selling would force them to invest in other assets, for which – unlike government bonds – regulators ask banks to set cash aside as a precaution. Alternatively, they can deposit money with the ECB, at a discouraging interest rate of minus 0.20%. Insurers and pension funds typically buy long-term debt. They could make hefty profits selling to the ECB. But the money would have to be re-invested in other bonds whose yields would be much lower than their long-term commitments to clients – a regulatory no-no. In 2012, many euro zone bonds offered double-digit yields. Today, Greece aside, the bloc’s highest yielding debt is a 30-year Portuguese bond offering 3.30%.

Between a quarter and a third of the market carries negative yields, meaning investors pay governments to park their money in debt. In Belgium, a country whose rates are taken as indicative of the euro zone average, benchmark 10-year bonds BE10YT=TWEB yield 0.7%, just above record lows around 0.5%. “If we were to sell bonds, we would make huge capital gains, but we will then have to reinvest that money at a yield of 0.5%, set against liabilities at 3.50-3.75 (percent),” said Bart de Smet, the CEO of Belgian insurer Ageas. Dutch banks ING and Rabobank, Spain’s Bankinter and rescued lender Bankia and France’s BNP Paribas said they were unlikely to sell when the ECB comes knocking. “The volume of sovereign bonds we own at the moment is not linked to monetary policy,” BNP Paribas deputy CEO Philippe Bordenave said. “It’s linked to the regulation.”

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“It is hard to imagine how Ireland, Portugal, Spain or even Italy could have stayed in the euro area in 2011-2012 had there been a worked-out exit route.”

It’s Up To Germany To End The Game Of Chicken With Greece (Guardian)

At the heart of the rift that runs through Europe at the moment lies a technocratic debate drowned in emotion. Germany has rejected Greece’s bailout request on the basis of the semantic difference between a programme extension (acceptable) and a loan extension (unacceptable). True, words are substance. But when the German finance minister, Wolfgang Schäuble, or his allies take the floor to explain their critical stance, the underlying reasons become evident: they quickly shift to moral and emotional grounds, invoking trust, values and cultural differences. The Greek side of the debate is not better. Opening the negotiations with a ridiculous request for war reparations, tolerating for several days caricatures of Schäuble as a Nazi in government-friendly newspapers, and comparing Eurogroup methods with waterboarding, the new Greek government went for a strategy of emotional alienation, rather than trust-building.

In a game of chicken, stubbornness leads to catastrophe. And stubbornness based on pride and prejudice is hard to abandon. This is why I have started to get seriously worried about where these negotiations are heading. We urgently need to bring back in some simple economic and political considerations to show that a compromise is not only a good solution; it’s the only solution. First, we need to make it absolutely clear that Grexit would be devastating for Greece, for Europe and for Germany. For Greece, because it would cause the banking system to collapse, import prices to skyrocket and growth prospects to disappear for several years, with horrifying prospects for the Greek population. For Europe because the euro area would be turned from an “irrevocable” currency union into some kind of fixed-exchange rate regime where countries can leave as soon as they come under market pressure.

It is hard to imagine how Ireland, Portugal, Spain or even Italy could have stayed in the euro area in 2011-2012 had there been a worked-out exit route. Finally, it would be devastating for Germany, not only because it would lose billions of euros from a Greek devaluation but even more so because it would put at risk Germany’s recent prosperity: a currency union is to the benefit of the largest export nation in Europe. Secondly, we need to remember that some of the Greek requests are economically reasonable. The country urgently needs to shift from a contractionary to a more neutral fiscal stance. Structural reforms were necessary but put additional pressure on domestic demand. The bailout money hasn’t benefitted the Greek population, but in its largest parts has gone straight from European bank accounts, through Athens, and back to the ECB or the IMF.

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“These are uncharted waters and founding fathers never envisaged or made provision for a nation leaving the euro.”

Is Greek PM Alexis Tsipras Going To Be Russia’s ‘Trojan Donkey’? (NewsCorp)

As newly elected Greek leader Alexis Tsipras earlier this month made a much heralded visit to mainland Europe to shore up support to end austerity measures in his country, he made a largely unreported transit stop in Cyprus. The stopover lasted only a few hours but in that time he received first-hand briefings of not only the dire financial precipice upon which the island also stood but equally the potentially huge oil and gas reserves waiting to be explored off its turquoise coastline. Symbolically the Leftist prime minister met not only with Greek Cyprus counterparts but also leading members of the Turkish Cypriot community, to declare his desire for reunification of the island, split in two between Greece and Turkey for more than 40 years but now largely divided over rights to those offshore hydrocarbon reserves.

Turk Cypriots applauded the significant move. It was the first time a Greek leader had visited the island and met them but for eurozone leaders the trip bore two other less obvious outcomes — Greece was prepared to break from tradition in a bid to find friends in the face of its financial crisis and more crucially was perhaps seeking those friendships to forge new ties with others like Russia. And there lies the issue at hand this week. Greece’s almost inevitable exit from the EU has less to do with its own economic predicament and the effect its collapse or exit or both would have on the broader 19 nation euro-using money markets, but its where and to whom it would then turn in a post Europe landscape.

There are other issues too including if Greece did finally leave the bloc, where would it leave the likes of Spain, Ireland and Portugal that all have upcoming national elections with governments wading through their respective austerity quagmires against huge domestic oppositions. It is conceivable they too may like or be forced to abandon their multi-billion dollar loans. Greece had a $270 billion bailout in 2010 and 2012 that it has sought to renegotiate to remove pegging the payback to austerity measures. The current bailout expires on February 28 hence the urgency to find a solution now. These are uncharted waters and founding fathers never envisaged or made provision for a nation leaving the euro.

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Nobody has a clue. They’re just pretending.

Has Greece’s ‘Lehman Moment’ Finally Arrived? (CNBC)

A key week for Greece’s economic future drew to a close on Friday with the country facing the very real threat that it’s running out of money and key analysts warming to the idea that it could be on its way out of the euro zone. Euro zone finance ministers are set to meet Friday to discuss Greece’s latest proposals to extend its loan agreement. But with Germany already rejecting the plan, there is very little hope that an agreement will be announced. Another meeting in Brussels for next week was already being touted before Friday’s meeting even began. The main problem for the fiscally disciplined countries like Germany is that, despite the ground Greece has given up in the last week, it is still asking for the bailout loan without all of the strict austerity conditions that come with the money.

Greek economist Elena Panaritis, former member of the Greek Parliament and the World Bank, drew comparisons with the collapse of the Lehman Brothers in 2008. As with the fall of the big U.S. bank, market-watchers feel euro zone policymakers want to show the world they will only be pushed so far — with the result being Greece would be allowed to exit the euro zone. Panaritis thought there was a “political statement as well as economic statement” being made during the negotiations. Randy Kroszner, a former U.S. Federal Reserve governor and the professor of economics at the University of Chicago Booth School of Business, agreed that there were comparisons between the two events.

“I think there a parallel, but the tools exist if the European Union wants to keep Greece in and if Greece is willing to stay in,” he told CNBC Friday. “Even though it may be quite ugly, the likelihood of complete chaos is much lower. So that gives policymakers more willingness to say ‘Hey, we’ll take that risk’.”

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Damning.

Expectations And Reality: What Maidan Gave Ukraine’s Economy (RT)

The major expectation of the Maidan protest a year ago was replacing the burden of corruption and mismanagement of the economy with the benefits of EU integration. The reality brought collapse and a debt trap. The protests that ousted President Viktor Yanukovich in February 2014 started after his government postponed the signing of a key EU integration treaty. The EU Association Agreement opens the Ukrainian market to European goods and required that its industries adopt European standards. Both would take a heavy toll on the already ailing economy due to the cost of modernization and the loss of Russian markets. Moscow also warned it would protect its home market from European goods by revoking the tax-free trade deal with Ukraine.

Critics of Yanukovich, most notably Arseny Yatsenyuk, then-leader of a major opposition party, dismissed such concerns. Speaking on political talk shows and from the Maidan stage, Yatsenyuk gave vivid descriptions of how Prime Minister Nikolay Azarov was hurting Ukraine with his policies and how he would do a better job. He promised visa-free travel to Europe for Ukrainian tourists and guest workers, rising wages and social benefits, reining in national debt, lowering utility prices, bringing in billions of dollars of foreign investments, and many other things. Azarov went with Yanukovich and was replaced with Yatsenyuk, but the reality under the new cabinet is nothing like the picture presented a year ago. The Ukrainian economy experienced a deep plunge in 2014.

Its GDP dropped 6.5% last year, according to IMF figures, the only two countries worse were South Sudan and Libya. The unemployment rate reached 9.3% in the third quarter of 2014, as compared to 7.7% in 2013. The figure is expected to rise sharply in 2015. Ukrainian job search websites report a 30 to 50% drop in the number of employment offers over a year. “The country is at war that they cannot afford to fight. There is no economy any longer. When you look at where the industrial base of Ukraine is and the conflict going on in the east there is absolutely no doubt as to why it is happening,” Gerald Celente told RT. “That $160 billion loss of trade with Russia has destroyed the economy when it was already in a severe recession. It went from very bad to worse than depression levels.”

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“Both Deutsche Bank and Santander passed ECB stress tests in October.”

US Units of Deutsche Bank, Santander Likely to Fail Fed Stress Test (WSJ)

Large European banks including Deutsche Bank and Banco Santander are likely to fail the U.S. Federal Reserve’s stress test over shortcomings in how they measure and predict potential losses and risks, according to people familiar with the matter. The expected rebuke would mark the second year large foreign banks, which were drawn into the Fed’s stress test regime in 2014, failed to meet the U.S. regulator’s expectations for risk management. As banks have bulked up their capital cushions to ensure they can withstand losses in periods of turmoil, the Fed has increasingly focused on more “qualitative” issues in its stress tests, including whether banks accurately measure potential losses in credit portfolios, collect risk exposure data accurately and have strong internal controls.

Failing the stress tests would likely subject the U.S. units of Deutsche Bank and Banco Santander to restrictions on paying dividends to their European parent companies or other shareholders. Santander is already under such a restriction after failing its first stress test run last year. Deutsche Bank is undergoing the U.S. stress test process for the first time this year. Both Deutsche Bank and Santander passed ECB stress tests in October. Those tests focused on whether the banks had enough capital to withstand a two-year recession but didn’t assess such things as governance, risk management, and other more subjective factors like the Fed’s test.

The Fed’s Board of Governors in Washington will disclose partial results of the test on March 5 and full results on March 11, including any capital restrictions. Last year, the board met just ahead of releasing the results to vote on whether banks should fail the tests for “qualitative” reasons. It ultimately rejected Citigroup Inc. as well as U.S. units of Santander, HSBC and RBS on such grounds. It cited the foreign banks for “significant deficiencies” in their capital planning process. It hasn’t disclosed such a board meeting yet this year. The Fed declined to comment on specific banks.

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Who wants a US passport these days?

The US Government’s Stupid Tax War On Expatriates (MarketWatch)

The U.S. government’s stupid, hateful and dishonest war on Americans living abroad claimed its latest scalp this week. London Mayor Boris Johnson, a dual British and American national, says he will join the growing lines of Americans overseas who are now being driven to renounce their U.S. citizenship by the federal government for no good reason. Johnson, a possible future British prime minister, was born to British parents in New York. His case is not important individually, but it is illustrative. A record number of Americans abroad renounced their citizenship last year, and the numbers are escalating fast. That’s in response to a growing set of U.S. financial laws that make it nearly impossible for them to keep two passports. Most people don’t understand the government’s war on U.S. expats and dual nationals, so they buy the official spin that it is just “cracking down” on “rich tax cheats.”

It is doing no such thing, and it knows that it is doing no such thing. Indeed some of its most onerous financial rules, while “cracking down” on overseas grandmas with a $30,000 retirement account, specifically and deliberately exempt billionaires with money in hedge funds and private-equity funds. Even National Taxpayer Advocate Nina Olson has pointed out in her official reports to Congress that the war on expats often punishes ordinary middle-class and even poor Americans abroad far more severely than it does the rich. Olson is appointed to her role by the Congress, but she says that when she called up the Treasury to discuss some of the problems, they didn’t bother to respond. Talk to the hand, honey. Oh, and doesn’t it say a bundle that while the U.S. Treasury was “cracking down” on Grandma Moses, it was waiving all penalties on U.S. Treasury Secretary Tim Geithner for failing to pay tens of thousands of dollars in taxes?

What is going on? To put a complicated issue in a nutshell, the federal government is currently ramping up a wide set of bizarre and impossible regulations on all Americans living abroad — and threatening them with the financial equivalent of the death penalty if they don’t comply. As an American expat, you can be arrested, thrown in jail and bankrupted by Uncle Sam for failing to disclose a $15,000 checking account on which you have paid all the taxes owed. You are liable to double taxation, required to spend thousands of dollars a year on professional advice simply to survive — oh yes, and you are effectively barred from investing in either U.S. or non-U.S. based mutual funds. Ha ha! You lose!

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That’s a whole extra full size guy…

NYC Could See 6-Foot Sea Rise By 2100 (NewsMaine)

A new study, published by the New York Panel on Climate Change, has revealed that many regions of New York could be under water by 2100 if the sea level continues to rise due to global warming. The researchers have predicted that the city could experience sea level rise as much as 6 feet in the future. They said that in the next 40 years, the sea level could reach 11 to 12 inches and have demonstrated that New York City’s Central Park’s mean annual precipitation has increased at a rate of approximately 0.8 inches in every 10 years over 1900 to 2013. This has raised the mean annual precipitation to 8 inches over this past decade. During this time period, Central Park has shown an increase in mean annual temperature at a rate of 0.3°F per decade. The researchers have said that this trend has varied ‘considerably’ over shorter periods of time.

The data has suggested that both the precipitation and the New York City’s temperature have shown an increase. It has further disclosed that NYC will face heat waves at a rate 3 times as much as the city does now by the 2080s, decreasing the’ extreme cold events’.The study has called the sea level rise in New York City as a significant hazard and the main risk will be on the ‘coastal communities, infrastructure, and ecosystems’. The new climate change report given by New York City Panel on Climate Change (NPCC) has revealed that New York City might be looking at high sea level rise in the future. According to NBC, the 2015 report has found that the flood damage in the future might exceed that of Hurricane Sandy. In a press release, NYC Mayor Bill de Blasio said, “NPCC’s findings underscore the urgency of not only mitigating our contributions to climate change, but adapting our city to its risks”.

Read more …

Nov 152014
 
 November 15, 2014  Posted by at 9:16 pm Finance Tagged with: , , , , , , ,  3 Responses »
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Harris & Ewing Gettysburg reunion: G.A.R. & U.C.V. veterans at the encampment July 1913

Because it’s Saturday, and because I‘ve been asked to provide more info on the man, but most of all because I think Beppe Grillo could well hold in his hands the dividing line between a Europe torn to bits and a Europe that may ride the waves of crisis in a more or less civilized way, by all means, let’s do some more, after yesterday’s The Only Man In Europe Who Makes Any Sense.

As you may know by now, I want for the eurozone and the EU to blow up ASAP, because Brussels is a cabal that may have started out from benevolent ideals but has gone completely off the tracks since, and is now inhabited by exactly the sort of people you wouldn’t want to buy a second hand car or home from, nor take care of your grandma, let alone your pre-teen kids. The EU, like NATO, IMF etc, are entities that attract the very wrong kind of people in ‘leading positions’, and that’s no accident.

They’re the sort of positions that have very little in the way of democratic accountability. Democracy in Brussels is like your third cousin twice removed. Not exactly a big deal. Sorry for you non-native English speakers, I know you guys have no idea what ‘third cousin twice removed’ even means. Let’s just say it’s not anything important. But that doesn’t mean it’s not a serious issue. And Beppe Grillo is acutely aware of this. After all, he grew up in the land where organized crime grew up too, Which is why he said in March 2014 in an interview with TIME magazine:

If we fail, [Italy] is headed for violence in the streets. But if we crumble, then they come. Everything started in Italy. Fascism was born here. The banks were born here. We invented debt. The mafia, us too. Everything started here. If violence doesn’t start here, it’s because of the movement. If we fail, we’re headed for violence in the street. Half the population can’t take it anymore.

He wasn’t kidding, and he still isn’t. A few days ago, the Gazzetta Del Sud ran this:

Grillo Says If M5S Fails, ‘The Nazis Are Coming’

Beppe Grillo, leader of the 5-Star Movement (M5S) said his party has brought about a “revolution” in Italy but if his party falls, “the Nazis are coming”. The head of the anti-establishment M5S was in Brussels to drum up support for a public referendum on the single currency euro.

“If we fall, the Nazis are coming,” said Grillo. “Some say that we are the Nazis, but I say ‘remember who they were’?” We have already made a revolution, the (political) parties have disappeared thanks to us”. He also complained that the leadership of multinational companies were no better than criminals, calling them the “sons of mafiosi” in the way they control the world.

“Now we have the sons of mobsters, those with a master’s degree and the multinational companies, these hold the real power in the world,” said Grillo. He also repeated his call for the impeachment of Italian President Giorgio Napolitano, blaming the 89-year-old for Italy’s loss of “economic and social dignity”.

Look, Portugal’s being sold to the Chinese, as Tyler Durden pointed out again – belatedly – today, Greece has tons of islands for sale because the troika told them to, before you know it the US will be up for grabs at wholesale prices to the Chinese whose only advantage is they print virtual money at faster rates than us, and the trained accountant Grillo says selling off your nations’ treasures, including its real esate, is a really stupid idea.

Anybody not in Washington or Brussels want to call him on that? Southern Europe has been squeezed by the north ever since they entered the euro, and the squeeze can only get worse, now they can’t devaluate their currencies anymore. Ergo: Japan and the US and China and any other money printing nation gets to buy up Italy’s treasures and Italy’s just supposed to let that happen? Get a life, says Beppe.

Here’s what I wrote one month after the February 2013 piece I quoted yesterday. For all those who want to get to know Beppe. Who may be Europe’s only hope, the only barrier between slavery and freedom, between kow-towing and being your own boss. And no, I ain’t kidding there. Europe as it is in in huge danger, and Italy would be much better off alone, as would most other nations.

But the rest of those guys are just politicians. Nigel Farage is a nincompoop (I like that word), and Tsipras in Greece is doing talks in Brussels already just in case he gets elected. They won’t blow up the EU, not if they get a cushy seat somewhere. Beppe already has a cushy seat, and he’s not running for office to begin with.

Here goes me, March 11 2013:

What’s More Important To You, Italy or the Dow?

During the Italian election weekend two weeks ago, I watched all three Godfather films on a local station. Very convenient, since they can teach you quite a bit about Italy, even if you’ve seen them a dozen times already in the past. The abdication of the pope sort of rounded off the history lesson, and I was thinking: OK, now I’m good to go.

After the results came in and Beppe Grillo and the Five Star movement (M5S) became the single biggest “party”, I was going to simply repost my February 10 article Beppe Grillo Wants To Give Italy Democracy, in which I wrote about my meeting with Beppe and the ideas we talked about which I took away from that. He had won big, but it was clear that most people still had no idea who he is.

But after reading through the lazy sloppy “journalism” in the international press in the days following the elections, it was obvious that wouldn’t have been sufficient anymore. Hardly anyone seems to know who Beppe Grillo is, and more importantly, they don’t seem to care. In their minds, because everybody else does it, they are fine calling him a clown, a dictator and (Italian paper Gazzetta Del Sud) a “foul-mouthed rabble rouser”. Much easier, because it doesn’t require any research.

At the very least, whether you work for a major international news organization or a national paper, if you want to stay on the safe side, since deep down you know you haven’t done your homework, “populist” looks like an acceptable sort of name-calling. Now, one of the definitions of populist is someone who opposes elites, which certainly applies to Grillo, but these days you can’t use the term without implying someone who appeals to the base instincts of the IQ challenged part of the population. And that definitely does not apply. If only because in Italy, Berlusconi’s got that demographic covered.

The name of the game seems to be that Grillo is bad news because he “unnerves” markets and investors. For one thing, he himself would be only too happy with that. Not because he wants mayhem, but because he thinks that what there is now is not working. Grillo’s first and main objective is to rid Italy of the corruption it has been suffering from for ages (which is why the Godfather series is enlightening), so if you want to understand or perhaps even judge him you will first need to look at that whole chapter. And yes, it’s true, he sees the entire political system in Rome as an integral part of that corruption, and so it will have to go. As he put it:

“Who makes up a criminal conspiracy? If you go and look, [you’ll find] they are made up of bankers, politicians, judges and, just perhaps, once in a while, a criminal.”

What is happening in Italy as a consequence of its relationship with the EU and the Eurozone is in Grillo’s eyes also the result of the corrupt system (since it’s all been agreed to by the career politicians who sit in parliament, for all sides of the spectrum). Therefore, he questions the benefits for the Italian people of the existing situation. That’s all. And that’s enough for both Brussels and Rome to vilify him. Nobody is supposed to question the glory of Europe and the Euro, and hardly anyone does, certainly not the press, presumably because nobody wants to unnerve the markets. But if you ask me, if anything needs to be questioned, it’s that one-dimensional religion that says the Euro is the only way to achieve fulfillment.

Grillo, who’s been given the anti-Euro label by the press, puts it this way in a Time Magazine interview:

Do you think Italy should leave the euro?

I’ve never said I want to be in or out of the euro. I said I want correct information. I want a Plan B for survival for the next 10 years. And then, with a referendum we decide. The costs and benefits, let’s know what are they are. But first you need to inform.

If you just hint that you want to leave the euro, you’re crazy. There’s no dialogue. Just hint, and you’re a demagogue, you’re crazy, you want to drag Italy to default, you’re irresponsible. Just because you say, let’s think about this, what would really happen?

For the Europhiles, the Merkel Monti Draghi Van Rompuy clan, there is no Plan B. Or perhaps I should say it’s the plan whose name shall not be mentioned. And that’s untenable; you can do that sort of thing as long as you throw enough bling at people, but when you start taking it away from them, they’ll come looking for answers and explanations. There simply comes a point when unnerving the people will trump unnerving the markets.

First, let’s get up to date with Italy’s economy, to get a better idea of the backdrop against which the Five Stars have risen. On Friday, Fitch downgraded Italian debt. President Napolitano has until March 15, the new parliament, to start pressuring for a new government. Since he’s about to resign, he can’t call new elections. Beppe Grillo has called for his long term supporter, Nobel literature laureate Dario Fo, to be appointed the new president.

Grillo has rejected calls to close a deal with Bersani’s existing left wing coalition, as he always said he would. Napolitano could try to get a new technocrat government in place (Corrado Passera, Monti’s industry minister is named as a new PM), or he could call on Bersani and Berlusconi to work together. Ironically, the main reason for Italy to have a government would be to make sure the Troika austerity demands keep being met, and if that doesn’t work, to file for a new bailout. Whichever choice Napolitano makes, it appears certain it will be short-lived.

“Italy is a nation of tricksters. Yesterday I was in Rome. I got on a bus and stamped my ticket: ‘Click. Clack.’ The driver turned round and said: ‘What the fuck’s that noise?!'”

The Italian economy contracted 2.4% in 2012, almost twice as much as Spain. Italy’s public debt is €2 trillion, or $2.6 trillion, predicted to rise to 130% of GDP this year, the highest level in 100 years. Also in 2012, more than 360,000 Italian businesses folded as a result of what business lobbying group Confindustria labeled a “credit crunch”: on the one hand banks refuse loans, on the other Monti’s tax increases and spending cuts squeeze like a vice. Italy’s official unemployment rate hit a 11.7% record in January, the government said last week, with youth unemployment rising to 38.7%. And that’s just the macro numbers; the real story lies beneath the surface. Like here:

More than 65% of Italian families struggling

More than 65% of Italian families cannot make it to the end of the month with their current salaries, a report by the Bank of Italy said on Tuesday. The alarm launched by the country’s central bank said that those hardest hit are young families and renters whose monthly income is not sufficient to cover living expenses.

Also, in Italy a huge number of young adults live with their parents, like for instance over 70% of men and 50% of women between 25 and 29 years old, and more than half between 18 and 34, lived “at home” in 2010. While part of that is due to stronger family bonds than in other countries, it’s much more importantly an indication of just how poorly the economy is doing. In comparison, in France just 10% of the same age group live with their parents.

Of course you can glaze over these numbers, they’re just more of the same. Where it gets interesting is when you try to see what’s comings next. The Italian economy is bad and getting worse, and the only answer the troika has ever had is double or nothing, in other words: more austerity, more cuts and higher taxes. And that will have to stop somewhere; it should certainly not come as a surprise that Italians vote for someone who says it can be done differently.

It seems clear that no matter what government is tinkered together, Italy will have new elections relatively soon, perhaps late this year. But even before then, Beppe Grillo will demand changes. He will demand a clean-up of parliament, prosecution of the corrupt part of society, and a clean and clear vote of the people in issues like the Euro.

More ominously for the Italian and European status quo, he will launch a nationwide discussion about what to do with the 130% of GDP, $2.6 trillion debt. He’s made clear that in his (accountant) mind, restructuring and default should be on the agenda, in correlation with large scale nationalization of the banking industry. That is the time bomb that has started ticking in Europe when the election results came in. The idea is simply what I’ve said earlier about Greece: if you know you’re going to be miserable whatever you do, you might as well make sure it’s your own misery, and under your own control.

At this point it’s hard to say what’s more likely, Grillo being murdered and renditioned or more Grillo’s raising their heads in other European countries. The more time he gets, the more he will get done. And others will see that and try to copy it. And he’s right, the internet does open a whole new set of democratic opportunities. That may be perceived as more urgent in Italy’s corruption-rotten state, but why would Spain, Greece and Portugal not follow? Because they have no angry comedians?

The EU meanwhile needs to deal with Cyprus, a hard nut to crack, since Dutch, German and Finnish taxpayers must be forced to bail out Russian oligarchs who have billions in funds stashed in bankrupt Cypriot banks. What’s been below the surface thus far is that Brussels has a next case to contend with: Slovenia’s government fell last week over economic issues, and it’s a – small – Eurozone country. Bulgaria’s government is also gone, but they’re “only” EU, not Eurozone.

Nothing like a perfect storm to unnerve financial markets. Which brings me to the Dow. Which is setting records. And I find that peculiar: while pundits try to make us believe these records stem from an economic recovery stateside, when I look at this graph, part of a presentation by Jim Boswell, I just don’t see it:

As is obvious from this graph, trading volume on the NYSE is so low it feels like some kind of singularity is upon us. It’s down at least 50% from the average of the preceding years, and last year doesn’t even have a temporary peak anymore. But prices set records? Really? What other assets are there for which prices go up as trade goes down? Well, yeah, scarcity can do that perhaps, but that’s not the case here. It all looks very volatile to me. It’s easier to prop up prices at low volumes, but they can fall much faster too when whoever it is that still remains in the market goes away. Because he’s found out to hold mainly zombie money, for instance.

So to answer the question what’s more important to you: I sure wouldn’t pick the Dow. That records thing could be over tomorrow. Beppe Grillo’s new democracy, though, has a long way to go. The more the owning class tries to squeeze, the more the debt slaves will demand a vote. They don’t even need to gather in streets and squares anymore, they have representation in parliament. From that same Time interview:

Are you afraid that if you don’t succeed, the same energy that pushed you up could push up darker forces?

If we fail, [Italy] is headed for violence in the streets. But if we crumble, then they come. Everything started in Italy. Fascism was born here. The banks were born here. We invented debt. The mafia, us too. Everything started here. If violence doesn’t start here, it’s because of the movement. If we fail, we’re headed for violence in the street. Half the population can’t take it anymore.

I think he may just be right. That movements like this are the only remaining chance at solving this peacefully. That alone should be worth a lot more than keeping a contraption like the Eurozone together. The problem is, it’s not the ruling religion. Anyone know any German comedians? Do they even have any?

Life has become a show at which we are the audience – and have to buy a ticket.
Beppe Grillo


Nov 142014
 
 November 14, 2014  Posted by at 9:06 pm Finance Tagged with: , , , , ,  3 Responses »
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Dorothea Lange Farm family fleeing OK drought for CA, car broken down, abandoned Aug 1936

That says quite something, that title. And it’s probably not entirely true, it’s just that I can’t think of any others. And also, I’m in Europe myself right now, and I still have a European passport too. So there’s two of us at least. Moreover, I visited Beppe Grillo three years ago, before his 5-Star Movement (M5S) became a solid force in Italian politics. So we have a connection too.

Just now, I noticed via the BBC and Zero Hedge that Beppe not only expects to gather far more signatures than he said he would recently (1 million before vs 4 million today) for his plan to hold a referendum on the euro, he also claims to have a 2/3 majority in the Italian parliament. Well done. But he can’t do it alone.

Martin Armstrong thinks the EU may have him murdered for this before they allow it to take place. Which is a very good reason for everyone, certainly Europeans, to come out in support for the only man in Europe who makes any sense. I know many Italians find Beppe too coarse, but they need to understand he’s their only way out of this mess.

The smear campaigns against him are endless. The easier ones put him at the same level as Nigel Farage and Marine Le Pen, the more insidious ones paint him off as a George Soros patsy. There’ll be a lot more of that. And given the success of this year’s anti-Putin campaign in Europe, and the ongoing pro-Euro one, it’s going to take a lot not to have people believe whatever they are told to.

Just take this to heart: since Italy joined the euro, its industrial production has fallen by 25%. How is that not a disaster? Meanwhile, the eurozone economy is in awful shape, and the longer that lasts, the more countries like Italy will be disproportionally affected and dragged down further. There’s a reason for that numbers such as that: it’s not like Germany and Holland lost 25% of their production.

The eurozone must end before it starts to do irreversible damage, and before it turns Europe into a warzone, a far more real and imminent risk than anyone dares suggest.

The first bit here is from Zero Hedge, and then after that I will repost a lengthy piece about Beppe that I first published on February 12, 2013.

Italy’s Grillo Rages “We Are Not At War With ISIS Or Russia, We Are At War With The ECB”

Next week, Italy’s Beppe Grillo – the leader of the Italian Five Star Movement – will start collecting signatures with the aim of getting a referendum in Italy on leaving the euro “as soon as possible,” just as was done in 1989. As Grillo tells The BBC in this brief but stunning clip, “we will leave the Euro and bring down this system of bankers, of scum.” With two-thirds of Parliament apparently behind the plan, Grillo exclaims “we are dying, we need a Plan B to this Europe that has become a nightmare – and we are implementing it,” raging that “we are not at war with ISIS or Russia! We are at war with the European Central Bank,” that has stripped us of our sovereignty.

Beppe Grillo also said today:

It is high time for me and for the Italian people, to do something that should have been done a long time ago: to put an end to your sitting in this place, you who have dishonoured and substituted the governments and the democracies without any right. Ye are a factious crew, and enemies to all good government; ye are a pack of mercenary wretches, and would like Esau sell your country for a mess of pottage, and like Judas betray your God for a few pieces of money. Is there a single virtue now remaining amongst you? A crumb of humanity? Is there one vice you do not possess? Gold and the “spread” are your gods. GDP is you golden calf.

We’ll send you packing at the same time as Italy leaves the Euro. It can be done! You well know that the M5S will collect the signatures for the popular initiative law – and then – thanks to our presence in parliament, we will set up an advisory referendum as happened for the entry into the Euro in 1989. It can be done! I know that you are terrified about this. You will collapse like a house of cards. You will smash into tiny fragments like a crystal vase.

Without Italy in the Euro, there’ll be an end to this expropriation of national sovereignty all over Europe. Sovereignty belongs to the people not to the ECB and nor does it belong to the Troika or the Bundesbank. National budgets and currencies have to be returned to State control. They should not be controlled by commercial banks. We will not allow our economy to be strangled and Italian workers to become slaves to pay exorbitant interest rates to European banks.

The Euro is destroying the Italian economy. Since 1997, when Italy adjusted the value of the lira to connect it to the ECU (a condition imposed on us so that we could come into the euro), Italian industrial production has gone down by 25%. Hundreds of Italian companies have been sold abroad. These are the companies that have made our history and the image of “Made in Italy”.

As Martin Armstrong asks rather pointedly…

Since the introduction of the euro, all economic parameters have deteriorated, the founder of the five-star movement in Italy is absolutely correct. The design or the Euro was a disaster. There is no fixing this any more. We have crossed the line of no return. Beppe is now calling for referendum on leaving euro. Will he be assassinated by Brussels? It is unlikely that the EU Commission will allow such a vote.

And then here’s my February 2013 article; it seems silly to try and rewrite it. There is nobody in Europe other than him who understands what is going on, and is willing to fight for it. Grillo is a very smart man, a trained accountant and an avid reader of anything he can get his hands on. The image of him as a populist loud mouthed good for little comedian is just plain false. It was Grillo who exposed the Parmalat scandal,and the Monte Dei Paschi

Never forget what political and behind the veil powers he’s up against in his country, and how they seek to define the image the world has of him. What Beppe Grillo does takes a lot of courage. Not a lot of people volunteer to be smeared and insulted this way, let alone run the risk of being murdered. Those who do deserve our support.

Beppe Grillo Wants To Give Italy Democracy

In the fall of 2011, The Automatic Earth was on another European lecture tour. Nicole Foss had done a series of talks in Italy the previous year, and there was demand for more. This was remarkable, really, since a knowledge of the English language sufficient to understand Nicole’s lectures is not obvious in Italy, so we had to work with translators. Certainly none of this would have happened if not for the limitless drive and energy of Transition Italy’s Ellen Bermann.

In the run-up to the tour I had asked if Ellen could perhaps set up a meeting with an Italian I found very intriguing ever since I read he had organized meetings which drew as many as a million people at a time for a new – political – movement. Other than that, I didn’t know much about him. We were to find out, however, that every single Italian did, and was in awe of the man. A few weeks before arriving, we got word that he was gracious enough to agree to a meeting; gracious, because he’d never heard of us either and his agenda was overloaded as it was.

So in late October we drove the crazy 100+ tunnel road from the French border to Genoa to meet with Beppe Grillo in what turned out to be his unbelievable villa in Genoa Nervi, high on the mountain ridge, overlooking – with a stunning view – the Mediterranean, and set in a lovely and comfortable sunny afternoon. I think the first thing we noticed was that Beppe is a wealthy man; it had been a long time since I had been in a home where the maids wear uniforms. The grand piano was stacked with piles of books on all sorts of weighty topics, politics, environment, energy, finance. The house said: I’m a man of wealth and taste.


Eugenio Belgeri, Raúl Ilargi Meijer, Beppe Grillo, Nicole Foss and Ellen Bermann in Genoa Nervi, October 2011

I don’t speak Italian, and Beppe doesn’t speak much English (or French, German, Dutch), so it was at times a bit difficult to communicate. Not that it mattered much, though; Beppe Grillo has been a super charged Duracell bunny of an entertainer and performer all his life, and he will be the center of any conversation and any gathering he’s a part of no matter what the setting. Moreover, our Italian friends who were with us – and couldn’t believe they were there – could do a bit of translating. And so we spent a wonderful afternoon in Genoa, and managed to find out a lot about our very entertaining host and his ideas and activities.

Beppe had set up his Five Star movement (MoVimento Cinque Stelle, M5S) a few years prior. He had been organizing V-day “happenings” since 2007, and they drew those huge crowds. The V stands for “Vaffanculo”, which can really only be translated as “F**k off” or “Go f**k yourself”: the driving idea was to get rid of the corruption so rampant in Italian politics, and for all sitting politicians to go “Vaffanculo”.

At the time we met, the movement was focusing on local elections – they have since won many seats, have become the biggest party on Sicily (after Beppe swam there across the Straits of Messina from the mainland) and got one of their own installed as mayor of the city of Parma.

Grillo explained that M5S is not a political party, and he himself doesn’t run for office. He wants young people to step forward, and he’s already in his sixties. Anyone can become a candidate for M5S, provided they have no ties to other parties, no criminal record (Beppe does have one through a 1980 traffic accident); they can’t serve more than two terms (no career politicians) and they have to give back 75% of what they get paid for a public function (you can’t get rich off of politics).

I found it surprising that our friends at Transition Italy and the general left were reluctant to endorse Grillo politically; many even wanted nothing to do with him, they seemed to find him too coarse, too loud and too angry. At the same time, they were in absolute awe of him, openly or not, since he had always been such a big star, a hugely popular comedian when they grew up. Grillo offered to appear through a video link at Nicole’s next talk near Milan, but the organizers refused. It was only the first sign of a lot of mistrust among Italians even if they all share the same discontent with corrupt politics. Which have made trust a major issue in Italy.

This may have to do with the fact that Grillo is a comedian in the vein of perhaps people like George Carlin or Richard Pryor in the US. On steroids, and with a much wider appeal. Rough language, no holds barred comedy turns a lot of people off. Still, I was thinking that they could all use the visibility and popularity of the man to get their ideas across; they preferred anonymity, however.

By the way, the Five Stars, perhaps somewhat loosely translated, stand for energy, information, economy, transport and health. What we found during our conversation is that Beppe Grillo’s views on several topics were a little naive and unrealistic. For instance, like so many others, he saw a transition to alternative energy sources as much easier than it would realistically be. That said, energy and environment issues are important for him and the movement, and in that regard his focus on decentralization could carry real benefits.

Still, I don’t see the present naive ideas as being all that bad. After all, there are limits to what people can do and learn in a given amount of time. And Beppe certainly has a lot to do, he’s leading a revolution, so it’s fine if the learning process takes some time. Ideally, he would take a crash Automatic Earth primer course, but language will be a barrier there. I hope he finds a way, he’s certainly smart and curious enough.

When his career took off in the late 70’s, early 80’s, Beppe Grillo was just a funny man, who even appeared on Silvio Berlusconi’s TV channels. Only later did he become more political; but then he did it with a vengeance.

Grillo was first banned from Italian TV as early as 1987, when he quipped about then Prime Minister Bettino Craxi and his Socialist Party that if all Chinese are indeed socialists, who do they steal from? The ban was later made permanent. In the early 90’s, Operation Clean Hands was supposed to have cleaned up corruption in politics. Just 15 years later, Beppe Grillo started the Five Star movement. That’s how deeply engrained corruption is in Italy, stretching across politics, business and media.

We are- almost – all of us living in non-functioning democracies, but in Italy it’s all far more rampant and obvious. There’s a long history of deep-seated corruption, through the mafia, through lodges like P5 and Opus Dei, through many successive governments, and through the collaboration between all of the above, so much so that many Italians just see it as a fact of life. And that’s what Beppe Grillo wants to fight.

Ironically, he himself gets called a neo-nazi and a fascist these days. To which he replies that perhaps he’s the only thing standing between Italy and a next bout of fascism. I’ve read a whole bunch of articles the past few days, the international press discovers the man in the wake of the general elections scheduled for February 24-25, and a lot of it is quite negative, starting with the all too obvious notion that a clown shouldn’t enter politics. I don’t know, but I think Berlusconi is much more of a clown in that regard than Grillo is. A whole lot more of a clown and a whole lot less funny.

Beppe is called a populist for rejecting both right and left wing parties, a neo-nazi for refusing to block members of a right wing group from M5S, a Jew hater in connection with the fact that his beautiful wife was born in Iran, and a dictator because he’s very strict in demanding potential M5S candidates adhere to the rules he has set. Oh, and there are the inevitable right wing people calling him a communist.

There are of course tons of details that I don’t know, backgrounds, I’m largely an outsider, willing to be informed and corrected. And this would always be much more about the ideas than about the man. Then again, I did talk to the man in his own home and I don’t have the impression that Grillo is a fraud, or part of the same system he purports to fight as some allege, that he is somehow just the existing system’s court jester. He strikes me as being too loud and too embarrassing for that. And too genuinely angry.

Moreover, I think Italy is a perfect place for a nasty smear campaign, and since they can’t very well murder the man – he’s too popular – what better option than to make him look bad?! If anything, it would be strange if nobody did try to paint him off as a demagogue, a nazi or a sad old clown.


Photo: AFP: Marcello Paternostro

After being banned from TV, Grillo went on the build one of the most visited blogs/websites in the world, and the number one in Europe. Ironically, he is now in some media labeled something of a coward for not appearing in televised election debates. But Beppe doesn’t do TV, or – domestic – newspapers. For more than one reason.

Because he was banned from TV, because of the success of the internet campaign, and because Silvio Berlusconi incessantly used “lewd” talk shows on his own TV channels to conduct politics, Beppe Grillo insists his councilors and candidates stay off TV too, and he has his own unique way of making clear why and how: When a female Five Star member recently ignored this and appeared on a talk show anyway, Grillo said “the lure of television is like the G-spot, which gives you an orgasm in talk-show studios. It is Andy Warhol’s 15 minutes of fame. At home, your friends and relations applaud emotionally as they share the excitement of a brief moment of celebrity.”. Of course Beppe was labeled a sexist for saying this.

The internet is central to Grillo’s ideas. Not only as a tool to reach out to people, but even more as a way to conduct direct democracy. Because that is what he seeks to create: a system where people can participate directly. Grillo wants to bring (back) democracy, the real thing, and he’s long since understood that the internet is a brilliant tool with which to achieve that goal. One of his spear points is free internet access for all Italians. Which can then be used to let people vote on any issue that can be voted on. Not elections once every four years or so, but votes on any topic anytime people demand to vote on it. Because we can.

Since we had our chat in that garden in Genua, Beppe Grillo and M5S have moved on to bigger pastures: they are now set to be a major force in the general elections that will establish a new parliament. Polls differ, but they can hope to gain 15-20% of the vote (Grillo thinks it could be even much more). The leader in the polls is the Socialist Party, and then, depending on which poll you choose to believe, M5S comes in either second or third (behind Berlusconi). What seems certain is that the movement will be a formidable force, carrying 100 seats or more, in the new parliament, and that they could have a lot of say in the formation of any new coalition government.

In the run-up the elections, Beppe has now traded his home for a campaign bus, going from town to town and from one jam-packed campaign event to the next on what he has labeled the Tsunami Tour, in which he, in his own words, brings class action to the people.

As was the case in the local elections, Beppe Grillo says he wants “normal” people (“a mother of three, a 23-year-old college graduate, an engineer [..] those are the people I want to see in parliament”) to be elected, not career politicians who enrich themselves off their status and influence, and who he labels “the walking dead”, and though he acknowledges his candidates have no political experience, he says: “I’d rather take a shot in the dark with these guys than commit assisted suicide with those others.” In the same vein, another one of his lines is:“The average age of our politicians is 70. They’re planning a future they’re never going to see”.

On his immensely popular website beppegrillo.it, which has quite a bit of English language content, Grillo has some nice stats and tools. There is a list of Italian parlimentarians and Italian members of the EU Parliament who have been convicted of crimes. At this moment there are 24; their number has come down, but still. There is also a great little thing named “Map of Power of the Italian Stock Exchange” that graphically shows the links various politicians have with various corporations. I remember when Grillo proudly showed it to us, that after clicking just 2-3 politicians and 2-3 businesses, the screen was so full of lines depicting connections it had become an unreadable blur.

In between all the other activities, Beppe was instrumental 10 years ago in exposing the stunning $10 billion accounting fraud at dairy and food giant Parmalat before it went bankrupt, as well as the recent scandal at the world’s oldest bank, Monte Dei Paschi Di Siena, which will cost a reported $23 billion. Corruption is everywhere in Italy, which has a large political class that is all too eager to share in the spoils. Mr. Grillo was trained as an accountant, and he understands what he’s talking about when it comes to dodgy numbers. What he needs is the power to act.

Apart from the strong stance that Grillo and M5S take against corruption and for direct representation, critics say they have few clear policy objectives, that they don’t even know what they want. Being a movement instead of a party doesn’t help. But then, these critics think inside the very old system that M5S wants to replace with one that is far more transparent and direct. It’s more than obvious that existing powers have no interest in incorporating the possibilities for improvement offered by new technologies, but it should also be obvious that people, wherever they live, could potentially benefit from a better functioning political system.

There will be many who say that no such thing can be achieved, but perhaps it not only can, but is inevitable. All it could take is for an example to show that it can work. One might argue that the only reason our current systems continue to exist in all their opaqueness is that those who stand to profit from them are the ones who get to vote on any changes that could be applied. What Beppe Grillo envisions is a system in which every one can vote directly on all relevant issues, including changes to the system itself. It’s about class action, about taking back power from corrupt existing politics. Italy looks like a good testing ground for that, since its systemic rot is so obvious for all to see. But in other western countries, just like in Italy, it could return the power where it belongs: in the hands of the people.

Radical ideas? Not really, because when you think about it, perhaps it’s the technology itself that’s radical, not the use of it. And maybe it’s the fact that we’re so stuck in our existing systems that keeps us from using our new technologies to their full potential. Just like it keeps us from restructuring our financial systems and our energy systems for that matter. We continue to have systems and institutions guide our lives long after they’ve ceased to be useful for our present day lives, as long as we’re snug and warm and well-fed. And we do so until a real bad crisis of some sort comes along and makes it absolutely untenable, often with a lot of misery and blood thrown into the equation.

Beppe Grillo wants to break that chain. And he’s got a recipe to do it. It may not be perfect or foolproof, but who cares when it’s replacing something that no longer functions at all, that just drags us down and threatens our children’s lives? Who cares? Well, the Monti’s and Berlusconi’s and Merkel’s and Obama’s and Exxon’s and BP’s and Monsanto’s of the world do, because it is the old system that gave them what they have, and they don’t want a new one that might take it away. Our so-called democracies exist to please our leaders and elites, not ourselves. And we’re unlikely to figure that one out until it’s way too late.

Unless the Italians do our work for us and vote for the Cinque Stelle in huge numbers.