Jun 082017
 
 June 8, 2017  Posted by at 9:37 am Finance Tagged with: , , , , , , , , , ,  


Roy Lichtenstein Femme d’Alger 1963

 

UK Press Gang Up On Jeremy Corbyn In Election Day Coverage (G.)
US Market Risk Is Highest Since Pre-2008 Crisis – Bill Gross (BBG)
Global Financial System More Leveraged Than 2008 – Paul Singer (BBG)
UK Housing Weakens Further as Market Emits ‘Ominous’ Signals (BBG)
The Cost of Getting It Wrong (Claire Connelly)
The UAE Needs Qatar’s Gas to Keep Dubai’s Lights On (BBG)
Oil Prices Drop More Than 4% On Surge In Stockpiles (CNBC)
China’s Top Property-Bubble Prophet Says Prices Set to Soar 50% (BBG)
Banco Popular Wipeout Leaves CoCo Bonds On The Drawing Board (BV)
A Reform Beyond Macron’s Grip: The Revolving Door of French Politics (BBG)
OECD Puts Greek Growth At Just 1.1% This Year (K.)
Athens To Seek Growth Package At Eurogroup Meeting (K.)
Greece Says Colombian Gangs Plundering Hospitals Europe-Wide (AP)
Greek Room Owners Threaten To Return Permits in Airbnb Challenge (K.)
Bid For EU States To Stop Migrants, Refugees ‘Asylum Shopping’ (K.)

 

 

The Daily Mail ran 13 pages yesterday on the theme of Corbyn and Labour being terrorist apologists. No shame, no morals. In the same vein, I tried to find an objective piece on the Comey testimony, but couldn’t find one. The UK press has no faith in its voters, the US press has none in its Senate: the press draws the conclusions before anyone else can. The media cares little about credibility, it’s all echo chambers all the way down.

UK Press Gang Up On Jeremy Corbyn In Election Day Coverage (G.)

The Sun has urged its readers not to “chuck Britain in the Cor-bin” on its final front page before the country votes in the general election. The tabloid, owned by Rupert Murdoch’s News Corp, published an editorial on its front page under the headline “Don’t Chuck Britain in the Cor-bin” alongside 10 bullet points that described the Labour leader Jeremy Corbyn as a “terrorists’ friend”, “useless on Brexit”, “puppet of unions” and “Marxist extremist”. The article said readers could “rescue Britain from the catastrophe of a takeover by Labour’s hard-left extremists”. The Daily Mail front page roared, “Let’s reignite British spirit” on the back of a Theresa May speech and also promoted a feature inside called “Your tactical voting guide to boost the Tories and Brexit”.

The Daily Mirror reiterated its support for the Labour party with a front page headline of “Lies, damned lies, and Theresa May”, while the Daily Telegraph ran a story headlined “Your Country Needs You” based on an editorial by the prime minister that urged “patriotic” Labour supporters to vote Conservative. The Daily Express front page said: “Vote for May Today”. Meanwhile, the Times reported that the Conservatives had a seven-point in the final opinion poll before the election, and the Guardian covered May and Corbyn’s late attempts to win support from voters. Thursday’s front pages come after the Daily Mail devoted 13 pages to attacking Labour, Jeremy Corbyn, Diane Abbott and John McDonnell on Wednesday under the headline: “Apologists for terror”. The tabloid urged readers to support the Conservatives in an editorial on its first and second pages, but concentrated its fire on Labour’s leadership, compiling hostile anecdotes dating back to the 1970s.

Read more …

“Instead of buying low and selling high, you’re buying high and crossing your fingers…”

US Market Risk Is Highest Since Pre-2008 Crisis – Bill Gross (BBG)

U.S. markets are at their highest risk levels since before the 2008 financial crisis because investors are paying a high price for the chances they’re taking, according to Bill Gross, manager of the $2 billion Janus Henderson Global Unconstrained Bond Fund. “Instead of buying low and selling high, you’re buying high and crossing your fingers,” Gross, 73, said Wednesday at the Bloomberg Invest New York summit. Central bank policies for low-and negative-interest rates are artificially driving up asset prices while creating little growth in the real economy and punishing individual savers, banks and insurance companies, according to Gross. The U.S. economy is expected to grow 2.2% this year and 2.3% in 2018, according to forecasts compiled by Bloomberg. Trump administration officials have said their policies will boost annual growth to 3%.

Despite being concerned about high asset prices, Gross said he feels required to stay invested and sees value in some closed-end funds. Examples he gave are the Duff & Phelps Global Utility Income Fund and the Nuveen Preferred Income Opportunities Fund. He also said he has about 2% to 3% in exchange-traded funds to get yield and add diversification. “They’re appetizers, not entrees,” he said in an interview outside the conference. Gross’s fund has returned 3.1% in the year through June 6, outperforming 22% of its Bloomberg peers. It has posted a total return of 5.4% since Gross took over management in October 2014 after he was ousted from PIMCO. ”If there’s a common factor it’s the expansion of credit,” Gross said on Bloomberg TV Wednesday. “And the credit that’s being generated by central banks. Money is being pumped out into the system and money that is yielding less than nothing seeks a haven not only in bonds that are under-yielding but in stocks that are overpriced.”

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We know.

Global Financial System More Leveraged Than 2008 – Paul Singer (BBG)

Billionaire investor Paul Singer said “distorted” monetary and regulatory policies have increased risks for investors almost a decade after the financial crisis. “I am very concerned about where we are,” Singer said Wednesday at the Bloomberg Invest New York summit. “What we have today is a global financial system that’s just about as leveraged – and in many cases more leveraged – than before 2008, and I don’t think the financial system is more sound.” Years of low rates have eroded the effectiveness of central banks to contend with downturns, Singer said at the event in an interview with Carlyle Group co-founder David Rubenstein. “Suppressive” fiscal, regulatory and tax policies have also exacerbated income inequality and led to the rise of populist and fringe political movements, he added. Confidence “could be lost in a very abrupt fashion causing conceivably a ruckus in bond markets, stock markets and in financial institutions,” said Singer, founder of hedge fund Elliott Management, which is known for being an activist investor.

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Volatility is back.

UK Housing Weakens Further as Market Emits ‘Ominous’ Signals (BBG)

While the general election had an impact on activity in May, damping buyer demand and new sellers coming to the market, RICS used its latest monthly report to highlight broader, and more damaging, risks. That includes the dearth of homes for sale, which has pushed up values in recent years, cutting off many potential first-time buyers. RICS Chief Economist Simon Rubinsohn said the report shows the issue of affordability may even worsen further.“Perhaps the most ominous signal is that contributors still expect house prices to increase at a faster pace than wages over the medium term despite the difficulty many first-time buyers are clearly having,” he said. On the shortage, “it’s hard to see this as anything other a major obstacle to the efficient functioning of the housing market.”

In May, RICS’s monthly price index fell to 17 – the lowest since August – from 23 in April, indicating modest price gains. A gauge for London, where prime properties have been under pressure, remained below zero for a 14th month. Nationally, the supply-demand imbalance means it’s a sellers’ market and recent reports show that any uncertainty about the election had little effect on U.K. asking prices, which according to Rightmove jumped 1.2% to a record in May. For some, it’s reminiscent of the overheating seen before the financial crisis.“Prices are too expensive,” Josh Homans at surveyors Valunation said in the RICS report. “Excessive” valuations are increasing and “we are now in a 2007 situation,” he said.

Read more …

One of those must reads. Economics is all but dead, but not entirely yet.

The Cost of Getting It Wrong (Claire Connelly)

What most of us have long believed about how the economy works is based on a set of fundamental myths, supported by a series of inappropriate and misleading metaphors, from which it is difficult to escape. The emotional investment we have made in these myths has allowed for levels of unemployment, underemployment, inequality and relative poverty which would have seemed incredible a generation ago. Somehow we have convinced ourselves of the following:
– Governments need taxpayers’ money to pay for things.
– Governments, like households, need to at least balance their budgets.
– Deficits are bad and government surpluses are good.
– Deficits paid for by printing money causes inflation.
– Surpluses set aside savings which can be spent in the future.
– Lower wages promote full employment.

Wrong, wrong, all wrong. The federal government does not need taxpayers’ money. Actually, it is the other way around. The government issues the currency. We use it. Taxes help to control inflation and stop us spending too much. (It can also be used to control behaviour, as witnessed by taxes on cigarettes and alcohol). Professor Steve Keen says the government, and the public, have the most basic fundamentals of macroeconomics backwards. “Expenditure is what causes income,” he said. “Reducing expenditure also reduces income.” “Individuals can save (without a significant effect on national income), but if you extrapolate that to the whole economy, you are going to make a huge error.” Similarly, the economist says the idea that the government can save by paying down the national debt is misleading.

“Believing that government saving will increase employment or growth is like believing the Earth sits at the centre of the universe”, he says. All it does is destroy spending which would otherwise have created private sector incomes. “If you don’t understand where income comes from, then it means you don’t understand economics, or the economy.” “Individuals can save money by spending less than they earn but if everyone decides to do that, income falls by precisely as much as you try to save. If the government does the same thing, by saving money at a national level, you cause a recession.”

Read more …

As solid as the Saudi grip on OPEC cuts: “Abu Dhabi’s Petroleum Ports Authority removed the ban on Wednesday – just one day after announcing it.”

The UAE Needs Qatar’s Gas to Keep Dubai’s Lights On (BBG)

When it comes to natural gas shipments, the United Arab Emirates needs Qatar more than Qatar needs the U.A.E. The U.A.E. joined Saudi Arabia in cutting off air, sea and land links with Qatar on Monday, accusing the gas-rich sheikhdom of supporting extremist groups. But the U.A.E., which depends on imported gas to generate half its electricity, avoided shutting down the pipeline supplying it from Qatar, which has the world’s third-largest gas deposits. Without this energy artery, Dubai’s glittering skyscrapers would go dark for lack of power unless the emirate could replace Qatari fuel with more expensive liquefied natural gas. Qatari natural gas continues to flow normally to both the U.A.E. and Oman through a pipeline, with no indication that supplies will be cut, according to a person with knowledge of the matter who asked not to be identified because the information isn’t public.

Qatar sends about 2 billion cubic feet of gas a day through a 364-kilometer (226-mile) undersea pipeline. Dolphin Energy, the link’s operator, is a joint-venture between Mubadala Investment, which holds a 51% stake, and Occidental Petroleum and Total, each with a 24.5% share. Since 2007, the venture has been processing gas from Qatar’s North field and transporting it to the Taweelah terminal in Abu Dhabi, according to Mubadala’s website. Dolphin also distributes gas in Oman. Apart from preserving gas shipments from Qatar, the U.A.E. on Wednesday actually eased efforts to isolate its smaller neighbor. The oil-port authority in Abu Dhabi, the U.A.E. capital, lifted restrictions on international tankers that have sailed to Qatar or plan to do so. Abu Dhabi’s Petroleum Ports Authority removed the ban on Wednesday – just one day after announcing it.

Read more …

The Saudi-Qatar spat is growing and oil plunges? Huh?

Oil Prices Drop More Than 4% On Surge In Stockpiles (CNBC)

U.S. crude prices plunged toward $46 a barrel on Wednesday after weekly government data left the oil market with virtually nothing to cheer. West Texas Intermediate futures dropped more than 4% as stockpiles of oil in the US surged by 3.3 million barrels in the week ended June 2, according to the Energy Information Administration. That confounded analysts’ estimates for a 3.5 million-barrel decline. WTI prices fell as far as $45.92, a four-week low, following the report. The drop below $47 was a “big deal” said John Kilduff at energy hedge fund Again Capital. The next level to watch is the March low just below $44 a barrel, struck after oil prices fell through a number of key technical levels, culminating in a flash crash to $43.76. The bad news kept on coming below the headline figure. Gasoline stocks also jumped by 3.3 million barrels, more than five times the expected increase. Inventories of distillate fuels like diesel and heating oil rose by 4.4 million barrels, 15 times the anticipated rise.

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Author of “China’s Guaranteed Bubble”.

China’s Top Property-Bubble Prophet Says Prices Set to Soar 50% (BBG)

China’s home prices could rise by another 50% in the nation’s biggest cities, as the latest measures to rein them in are likely to be eased by policy makers seeking to support the broader economy. So says Zhu Ning, deputy director of the National Institute of Financial Research at Tsinghua University in Beijing and author of “China’s Guaranteed Bubble: How Implicit Government Support Has Propelled China’s Economy While Creating Systemic Risk.” As measures to curb housing prices drag on growth in the second half and early next year, he says, the government will resort to its old playbook of dialing them back again to shore up expansion. “We’re living through a bubble,” Zhu said. “If we don’t engage in more meaningful reform, which we haven’t, we’re very likely to have a financial crisis or a burst of the bubble. It’s a matter of sooner or later.”

Real estate prices in major cities will surge again “by another 50% or so” after measures to rein them in are eased, said Zhu, without specifying a time. Because policy makers have previously imposed curbs only to ease them again, people see them as a bluff, he said. Last year 45% of new loans went to mortgages. Local authorities have boosted down-payment requirements, restricted purchases by non-residents, and capped the number of dwellings that a household can own. Since March, at least 26 cities have imposed resale lock-up periods, with Hebei’s Baoding city slapping a decade-long ban on some homes, according to Shanghai-based Tospur Real Estate Consulting.

Zhu said he arrived at the 50 percent estimate based on the average price appreciation after past curbs were lifted, an ever-stronger belief among buyers that housing prices will rise, China’s humongous supply of credit, and tighter controls on capital outflows. Over the past year, however, Zhu, who earned his doctorate in finance at Yale, said he’s had more doubts over whether the thinking of western-trained economists applies to a nation that’s proven naysayers wrong “with its might and its determination” for three decades. “Over the past 12 months my confidence has really been shaken,” he said, adding that a crisis remains probable. “Could China be the black swan that we’ve never seen before?”

Read more …

Where would the EU be without creative accounting?

Banco Popular Wipeout Leaves CoCo Bonds On The Drawing Board (BV)

Banco Popular’s wipeout has left CoCo bonds on the drawing board. The Spanish lender’s failure and rescue by rival Santander did not provide the expected test for bonds which convert into equity under stress: the securities were wiped out before they could be triggered. It’s still not clear whether the bonds work as intended. The collapse of Spain’s sixth-largest bank by assets marked the first big loss for investors in so-called contingent convertible bonds. The securities were created after the 2008 financial crisis to provide an extra buffer when banks are struggling. They permit lenders to preserve capital by suspending dividends, and convert into ordinary shares when capital ratios run low.

The Popular trauma has eased one fear: that investors would panic when a CoCo bond went down, creating a spiral of contagion to other lenders. Similar securities issued by other Spanish banks actually rose in value on June 7, suggesting that investors see Popular as an isolated case. Yet in another way, Popular’s bonds fell short. The securities are supposed to provide extra capital before a bank fails, allowing it to absorb losses over time without failing or requiring a government bailout. But regulators deemed Popular non-viable before any of the triggers in its bonds could blow. The CoCo bonds suffered the same fate as other, more senior bonds that only suffer losses when a bank goes bust.

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Civil servants and jobs for life. It’s like talking about dinosaurs.

A Reform Beyond Macron’s Grip: The Revolving Door of French Politics (BBG)

French President Emmanuel Macron has promised to change how politics is done in France, starting with the parliament to be elected beginning Sunday. Half of the 500-plus candidates for his young party are women. Half have never held office. They all had to apply online. But he isn’t taking the biggest step: requiring that anyone running for parliament resign from his or her government job. Unlike many other other developed countries, France allows bureaucrats to hold political office—multiple offices, in fact—without having to quit the civil service. And they have a guaranteed right to return. Should the bureaucrat-candidate lose an election, there’s a job for life waiting back at the Agriculture Ministry or the Ministry for Overseas Territories. And a pension at retirement.

Having lawmakers remain part of the civil service creates conflicts of interest, said Dominique Reynie, head of Fondapol, a political research institute. “You have lawmakers making funding decisions about institutions such as universities and hospitals where they are still officially employed,” he said. “We have a parliament that’s inbred.” Among the many beneficiaries of the system: Macron’s prime minister, Edouard Philippe, several others in the cabinet and fully 55% of the parliament that just finished its five-year term. Macron himself, though he’s never been in parliament, kept bureaucrat status through several government and private jobs until he resigned last year to start his political party.

[..] “France is one of the rare countries in Europe where a civil servant can serve an elected mandate without resigning, and with the certainty of going back to their job in case of failure,” said Luc Rouban, a professor at Sciences Po in Lille who has compiled a database of all 2,857 French members of parliament back to 1958. “The absence of professional risk encourages employees from the public sector to run for office.”

Read more …

And that will make any agreements with the Troika impossible. All growth assumptions are wrong.

OECD Puts Greek Growth At Just 1.1% This Year (K.)

The OECD has further doused hopes regarding Greek growth this year, forecasting an expansion of 1.1%, and stresses the need to implement reforms and for the national debt to be lightened. The Organization for Economic Cooperation and Development wrote in its annual report on the global economy published on Wednesday that “delays in reform implementation and reaching an agreement on debt relief would weigh on confidence, hampering investment,” while adjusting its Greek GDP forecast. The 1.1% growth it expects contrasts with the 2.7% growth the budget provides for, the recent European Commission estimate for 2.1% and even the 1.8% forecast included in the midterm fiscal plan the government voted for last month.

Still, the OECD says in its Global Economic Outlook that the economy will expand by 2.5%. It anticipates the primary budget surplus to slide from last year’s 3.8% of GDP, but no lower than 2.5% of GDP for the next few years. The report notes that the Greek economy is beginning to recover although uncertainty remains over the country’s growth prospects. Further progress in reforms is necessary for productivity and exports to grow, the OECD argues. It makes special reference to the reforms in the products markets and in the reduction of nonperforming loans, which could lead to more exports and investments. It also warns that “the expansion of exports depends largely on the pace of world trade growth. Geopolitical tensions among Greece’s neighbors and a renewed large influx of refugees would pose additional risks.”

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Who does any of the parties involved think they’re fooling? A serious question.

Athens To Seek Growth Package At Eurogroup Meeting (K.)

Ahead of yet another crucial Eurogroup on June 15, the government has its mind set on seeking a package of growth-inducing measures which it hopes may, finally, pry open the door that will ultimately put Greece on the road to recovery. Athens believes that securing such a package could work to bridge the difference between the country’s EUpartners, and lead to an agreement which could pave the way for Greece to access international markets. Speaking to reporters on Wednesday, government spokesman Dimitris Tzanakopoulos outlined three basic principles that should govern any proposal that comes Greece’s way at the meeting of the eurozone finance ministers. Firstly, he insisted that the proposal must specify, in the clearest possible way, what midterm debt relief measures Greece should expect.

Secondly, these measures should also allow all the institutions, including the ECB, to proceed with positive sustainability studies of the Greek debt. Finally, he said, a proposal must include specific measures that will boost growth. The government reckons that a growth-oriented agreement will prompt the IMF to positively revise its projections on the Greek economy, reduce its demands with regard to the Greek program, and open the way for an agreement. Athens believes the formula that is being promoted to get the Fund to join the Greek bailout will stipulate that it will not have to provide immediate funding. Instead, the IMF’s contribution will be placed in a fund of sorts, which will be made available at a later date, on the condition that the midterm debt relief measures are implemented.

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Why have none of the other countries involved ever said a word?

Greece Says Colombian Gangs Plundering Hospitals Europe-Wide (AP)

Greek authorities say Colombian organized crime rings were behind a string of heists targeting costly medical diagnostic equipment from hospitals in Greece and another 11 European countries. Police say three Colombian suspects have been identified in connection with last month’s four thefts in Greece. Four out of about a dozen stolen pieces of equipment, worth more than half a million euros, have been recovered in Colombia. There were similar thefts in the past four years in France, Germany, Italy, Austria, the Netherlands, Spain, Poland, Lithuania, Luxembourg, Croatia and the Czech Republic, Major-General Christos Papazafeiris said. Papazafeiris, head of security police for the greater Athens region, said Wednesday the stolen equipment had been mailed to Colombia, and was seized in cooperation with local authorities.

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Airbnb is huge in Athens. Must cost the government a fortune in taxes. Why then liberalize laws even more?

Greek Room Owners Threaten To Return Permits in Airbnb Challenge (K.)

Owners of rooms for rent are threatening to return their operating licenses to the state unless the government withdraws legal clauses that fully liberalize the short-term urban lease market where accommodation is advertised through platforms such as Airbnb and Homeaway. According to a statement by the Confederation of Greek Tourism Accommodation Entrepreneurs (SETKE), if the room owners do hand in their licenses they will be able to enjoy the special privileges of the short-term rental market, which, it argues, has created unfair competition at the expense of legal accommodation. In its statement it claims this will lead to the elimination of the tourism accommodation sector’s 30,000 small entrepreneurs. “Instead of withdrawing the semi-liberal status of the short-term urban lease market under the 2016 law, the government is fully liberalizing it with a 2017 law abolishing the quantitative and qualitative limitations and permitting the rental for tourism purposes of all properties of all owners year round without any income limits,” SETKE says.

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The EU keeps thinking reality is whatever it wants it to be. The European Parliament President says: “The rules have to be the same for everybody.”. They’re not. They’re obviously different for Greece, and that’s not Greece’s doing.

Bid For EU States To Stop Migrants, Refugees ‘Asylum Shopping’ (K.)

As Greece continues to struggle to host thousands of migrants, European Parliament President Antonio Tajani on Wednesday called for a common agreement from all European Union member-states on the implementation of asylum procedures aimed at stopping migrants traveling from one country to another “shopping for asylum status.” “At the moment the rules are not properly harmonized,” Tajani told reporters. “The rules have to be the same for everybody. Otherwise we will end up with people shopping for asylum status, which undermines our credibility.” He noted that many refugees who have been accepted in European countries as part of an EU relocation program have continued their journeys to more prosperous nations such as Germany or Sweden.

Latvia welcomed 380 refugees as part of the relocation program but most of those – 313 – have already moved on to Sweden or Germany, according to Agnese Lace from Latvia’s Center for Public Policy. She said low salaries, a lack of jobs and language barriers meant asylum seekers had little incentive to remain in the country. Meanwhile Andras Kovats of the Hungarian Association for Migrants said Hungary’s failure to support integration was pushing new arrivals abroad. In a related development, Nils Muiznieks, the Council of Europe’s commissioner for human rights, expressed concern at reports of collective expulsions of asylum seekers from Greece to Turkey. “I urge the Greek authorities to cease immediately the pushback operations and uphold their human rights obligation to ensure that all people reaching Greece can effectively seek and enjoy asylum,” Muiznieks said in a statement.

Read more …

Feb 112016
 
 February 11, 2016  Posted by at 9:56 am Finance Tagged with: , , , , , , , ,  


Harris&Ewing National Capital digs out after storm Jan 14 1939

Europe Stocks Head for Worst Drop Since August as SocGen Plunges (BBG)
Hong Kong Stocks Fall 4% in Worst Start to Lunar New Year Since ’94 (BBG)
Yellen: Not Sure We Can -Legally- Do Negative Rate (CNBC)
How Low Can Central Banks Go? JPMorgan Reckons Way, Way Lower (BBG)
Kyle Bass Says China Bank Losses May Top 400% of Subprime Crisis (BBG)
Bass: China Banks May Lose 5 Times US Banks’ Subprime Losses (CNBC)
Germany’s DAX Is One Of The World’s Worst-Performing Stock Markets (BBG)
It’s A Bad Time To Be A Bank (Ind.)
European Banks Face More Energy Problems (CNBC)
Energy Debt Fuels Broader Malaise (BBG)
Is The Market In European Coco Bonds About To Pop? (Ind.)
Some Hedge Funds Want to Make Subprime Auto Loans Next Big Short (BBG)
The Mining Industry Makes Oil Giants Look Great (BBG)
Why Does the US Government Pursue Student Debtors in Prison? (BBG)
Notes from the Locked Ward (Jim Kunstler)
When Will the Rest of Europe Want Its Own ‘Brexit’? (BBG)
Will Greece Become a Refugee Bottleneck? (Spiegel)

I’d just written down as a comment on one of the other articles: “Beware French banks, and Santander et al. It’s far too quiet on that front.” And then I see this flash by at the last minute.

Europe Stocks Head for Worst Drop Since August as SocGen Plunges (BBG)

The relief rally of Wednesday stopped short, with European stocks falling for the eighth time in nine days, heading for their lowest levels since September 2013. Financial results missing projections at Societe Generale, Rio Tinto and Zurich Insurance are adding to growing concerns that the global economy is slowing down. Energy producers deepened their slide as oil fell further. The Stoxx Europe 600 Index lost 3.9% at 9:26 a.m. in London, with more than 580 of its shares slumping. Federal Reserve Chair Janet Yellen yesterday said the turbulence had “significantly” tightened financial conditions and that the central bank might delay planned interest-rate increases. That failed to halt a slide in U.S. stocks, which by the end of the day had erased all of their gains.

European shares have dropped 17% this year and reached their lowest levels since October 2013 on Feb. 9, before rebounding on Wednesday 1.9%. This week alone, the Stoxx 600 is heading for a 6.9% plunge, its worst since August 2011. With a valuation of 13.4 times estimated profits, the gauge is near a more than one-year low relative to the Standard & Poor’s 500 Index. At least four of the 10 worst-performing equity gauges among the 93 that Bloomberg tracks are from western Europe, with Germany’s DAX Index down 19% in 2016 and Italy’s FTSE MIB Index sinking 26%. While all industry groups have been suffering, banks have borne the brunt of the selloff – they’ve plunged 28% this year amid disappointing earnings results and worries over bad loans and creditworthiness. They extended their losses on Thursday, plunging 6% as a group.

European lenders are heading for their lowest levels since the beginning of August 2012 – right when they started to rally after European Central Bank President Mario Draghi pledged to save the euro. Now even speculation that he’ll step up support as soon as next month is doing little to calm the market. A measure of volatility expectations for the region’s stocks jumped 17% on Thursday, heading for its highest level since August. Societe Generale tumbled 12%, the most since 2011, after reporting that quarterly profit missed estimates as earnings at the investment bank fell and it set aside provisions for potential legal costs. While Italian and Greek lenders tumbled the most, Deutsche Bank, Credit Suisse and Standard Chartered were among the biggest decliners, down more than 6.5% each. They’re trading at their lowest prices since at least 1998.

Read more …

Beijing will need to move before the Monday Shanghai opening.

Hong Kong Stocks Fall 4% in Worst Start to Lunar New Year Since ’94 (BBG)

Hong Kong stocks headed for their worst start to a lunar new year since 1994 as a global equity rout deepened amid concern over the strength of the world economy. The Hang Seng Index slumped 3.9% as of 1:13 p.m. in Hong Kong as markets reopened following a three-day trading closure, during which the MSCI All-Country World Index dropped 2.1%. The last time the gauge fell so much on the first day of the lunar new year, investors were worried about the health of former Chinese leader Deng Xiaoping. Lenovo and energy producers led declines after crude slumped 11% during the holidays, while jeweler Chow Sang Sang slid after riots in the Mong Kok district. Hong Kong’s benchmark equity gauge tumbled 12% this year through Friday amid concern that capital outflows, a slumping property market and China’s economic slowdown will hurt earnings.

Tuesday’s violence in the shopping district of Mong Kok threatens to deter mainland visitors and worsen a drop in retail sales, according to UOB Kay Hian. “You can’t avoid a drop because everywhere has come down so much during this time and the same concerns are still there – oil price, global recession,” said Steven Leung at UOB Kay Hian. “The image of Hong Kong as a metropolitan city has been hurt quite seriously” by the rioting, he said. PetroChina tumbled 5.7%, while Cnooc, China’s largest offshore oil company, dropped 6.4%. HSBC slid 5.2%, heading for a six-year low. The Hang Seng China Enterprises Index retreated 4.8%, poised for its biggest loss since August. Mainland financial markets remain closed for holidays until Monday. Plunges in crude and concerns over the perceived creditworthiness of European banks has fueled uncertainty over the strength of the world economy this week. Oil fell below $27 a barrel in New York, compared with $31.72 a barrel at the close on Feb. 4.

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Hollow: “..we certainly recognize that global market developments bear close watching,..

Yellen: Not Sure We Can -Legally- Do Negative Rate (CNBC)

As whispers mount that the Fed could implement negative interest rates as a way to goose economic activity, Chair Janet Yellen said Wednesday the central bank has not completely researched whether that would be legal. During her semiannual congressional testimony, Yellen said the Federal Open Market Committee discussed charging banks to hold excess reserves at the Fed but never fully researched the issue. “We didn’t fully look at the legal issues around that,” she said. “I would say that remains a question that we still would need to investigate more thoroughly.” Asked whether she foresees the Fed cutting rates after just hiking its interest rate target in December, Yellen said she did not expect that to happen anytime soon as she considers the risk of recession low.

“There would seem to be increased fears of recession risks that is resulting in rising in risk premia. We’ve not yet seen a sharp drop-off in growth, either globally or in the United States, but we certainly recognize that global market developments bear close watching,” she told the House Financial Services Committee. Her testimony comes as speculation grows that the Fed might consider implementing negative rates on what it pays on excess reserves. That would be one option the Fed would have should the current bout of economic softness intensify. “I do not expect the FOMC is going to be soon in the situation where it’s necessary to cut rates,” she said. “Let’s not forget, the labor market is continuing to perform well, to improve. I continue to think many of the factors holding down inflation are transitory. … We want to be careful not to jump to a premature conclusion about what’s in store for the U.S. economy.”

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No, this is no new normal, it’s still beyond crazy.

How Low Can Central Banks Go? JPMorgan Reckons Way, Way Lower (BBG)

There are “no limits” to how far central banks can ease monetary policy. That’s a recent declaration of both ECB President Mario Draghi and Bank of Japan Governor Haruhiko Kuroda, who have joined their counterparts in Denmark, Sweden and Switzerland in embracing interest rates of less than zero. In September 2014, when the ECB’s deposit rate was minus 0.2%, Draghi was saying “now we are at the lower bound.” As recently as December, Kuroda said “we don’t think we should institute” negative rates. The rethink is global, even in places where rates are still positive.

Bank of England Governor Mark Carney conceded in November that his benchmark could fall below the current 0.5% if needed, while Federal Reserve Vice Chair Stanley Fischer said last week that negative rates were “working more than I can say that I expected in 2012.” Citigroup Inc. economist Willem Buiter says even China could shift below zero next year. The worry had been that probing below zero risked hurting the profitability of lenders, forcing them to pass on the cost to borrowers. Other fears included bank and currency runs, the hoarding of cash or gridlocked money markets. Rather than spurring lending and spending as intended, subzero rates would become more a problem than solution. Such a concern could still flare up anew given the recent selloff in global bank stocks and fretting over financial titans such as Deutsche Bank.

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As I’ve repeatedly said: “The nation’s expanding shadow banking system [..] is where the first credit problems are emerging.”

Kyle Bass Says China Bank Losses May Top 400% of Subprime Crisis (BBG)

Kyle Bass, the hedge fund manager who successfully bet against mortgages during the subprime crisis, said China’s banking system may see losses of more than four times those suffered by U.S. banks during the last crisis. Should the Chinese banking system lose 10% of its assets because of nonperforming loans, the nation’s banks will see about $3.5 trillion in equity vanish, Bass, the founder of Hayman Capital Management, wrote in a letter to investors obtained by Bloomberg. The world’s second-biggest economy may end up having to print more than $10 trillion of yuan to recapitalize banks, pressuring the currency to devalue in excess of 30% against the dollar, according to Bass. Bass, 46, scored big after betting against mortgages in 2007, racking up gains as the world’s largest banks wrote off more than $80 billion in subprime losses.

All his calls haven’t been as prescient. He revealed wagering on a collapse in Japan’s government-bond market in 2010, a short position that Bass later acknowledged that other bond investors had nicknamed “the widow maker.” “What we are witnessing is the resetting of the largest macro imbalance the world has ever seen,” he wrote in the letter. “Credit in China has reached its near-term limit, and the Chinese banking system will experience a loss cycle that will have profound implications for the rest of the world.” Bass said his hedge fund has sold most of its riskier assets since the middle of last year to position itself for 18 months of “various events that are likely to transpire along this long road to a Chinese credit and currency reset.” In an e-mail, he said about 85% of his portfolio is invested in China-related trades.

“The problems China faces have no precedent,” Bass wrote in the letter. “They are so large that it will take every ounce of commitment by the Chinese government to rectify the imbalances. Risk assets will not be the place to be while all of this is happening.” [..] Bass estimates the Chinese economy actually expanded last year at a slower pace than reported, about 3.6%, according to the letter. He estimates that of China’s $3.2 trillion in foreign-exchange reserves, about $2.2 trillion are liquid. The banking system, which he estimates swelled 10-fold in assets over the last decade to more than $34.5 trillion, is fraught with risky products used by financial companies to skirt regulations, wrote Bass. The nation’s expanding shadow banking system – which he says has grown almost 600% in the last three years, citing UBS data – “is where the first credit problems are emerging.”

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A few more details.

Bass: China Banks May Lose 5 Times US Banks’ Subprime Losses (CNBC)

“China’s [banking] system is even more precarious when we realize that, even at the biggest banks, loans are not made to borrowers based on their ability to repay,” he wrote. “Instead, load decisions are political decisions made by the state.” Add to this the danger posed by China’s shadow banking system – made up of instruments Bass claimed the country’s banks used to subvert restrictions on lending – and the upshot was there were “ticking time bombs” in China’s banking system, the hedge fund manager explained. “Chinese banks will lose approximately $3.5 trillion of equity if China’s banking system loses 10% of assets,” Bass wrote. “Historically, China has lost far in excess of 10% of assets during a non-performing loan cycle.”

He noted that U.S. banks lost about $650 billion of their equity throughout the global financial crisis. The letter said that the Bank for International Settlements (BIS) estimated that Chinese banking system losses from the 1998-2001 non-performing loan cycle exceeded 30% of GDP. “We expect losses in this cycle to exceed prior cycles. Remember, 30% of Chinese GDP approaches $3.6 trillion today,” he warned. Bass wrote that he expected the massive losses to force Beijing to recapitalize Chinese banks and sharply devalue the yuan. “China will likely have to print in excess of $10 trillion worth of yuan to recapitalize its banking system,” he said. “By the time the loss cycle has peaked, we believe the renminbi will have depreciated in excess of 30% versus the U.S. dollar.”

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Is you have the likes of VW and Deutsche listed….

Germany’s DAX Is One Of The World’s Worst-Performing Stock Markets (BBG)

A one-day rebound in German shares is doing little to extinguish concerns in what has become one of the world’s worst-performing stock markets. The DAX Index has tumbled 16% this year through Wednesday, posting a loss that exceeds declines in France, the U.K. and Switzerland by as much as seven %age points. It plunged another 3.1% at 9:40 a.m. in Frankfurt. Investors are taking money out of an exchange-traded fund tracking German shares at the fastest pace since August. Fears about Deutsche Bank’s creditworthiness this week added to growing worries over a slowing global economy. Because of Germany’s close ties to China, its biggest trade partner outside of Europe, the nation stands to lose more than others in the region.

Carmakers such as BMW, Volkswagen and Daimler have already tumbled more than 23% this year on weakening demand there. “Oil and China are still on fire and a cause for concern, but we’ve got other, more broad-based fires to be watching now, and Deutsche Bank is just one of them,” said Alex Neil, EFG Bank’s head of equity and derivatives trading in Geneva. “Whichever way you look at the global economy in the next few months, there are more attractive markets than Germany.” While only about a dozen out of 93 equity gauges tracked by Bloomberg have risen this year, Germany stands out for the extent of its losses. After being some of investor’s favorites in 2015, none of the 30 DAX shares rose this year. The gauge closed 27% below its April peak on Wednesday.

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Or a shareholder. A pension fund that holds ‘secure’ stocks.

It’s A Bad Time To Be A Bank (Ind.)

It’s a bad time to be a bank. Banking stocks have lost around a quarter of their value since the start of the year. Some are now trading around lows not seen since the financial crisis. Shares in Deutsche Bank and Unicredit have been particularly hard hit as investors have lost confidence. It took reports that Deutsche Bank was considering buying back some of its own bonds on Wednesday to scrape its share price off the floor. But the extent of the losses suggests that something much bigger than a loss of confidence in one or two banks is going on.

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Beware French banks, and Santander et al. It’s far too quiet on that front.

European Banks Face More Energy Problems (CNBC)

European banks appear to face greater long-term exposure to problems in the energy sector compared to U.S. banks, many of which have already shored up capital reserves for half of their energy debt portfolio. Numerous European banks have not yet seen their borrowers draw down much of the credit that has been allotted for them, or, even more perplexing to analysts and investors, aren’t saying what their exposure to commodity-sensitive credit is, or what has already been committed. At the Credit Suisse Financial Services Conference this week in Florida, several bank executives highlighted the total exposure of their balance sheets to energy debt, but also explained what%age of that exposure is made up of outstanding paper.

Wells Fargo CFO John Shrewsberry highlighted the bank’s $42 billion in total oil and gas credit in his presentation at the conference; 41% ($17.4 billion) is already outstanding. The lender already has prepared for losses in outstanding paper by setting aside $1.2 billion to offset credit losses. The difference between Wells’ energy exposure and many of its competitors is that much of the California-based bank’s paper is non-investment grade. But the finance chief doesn’t sound like he’s sweating it. “This is not new for Wells Fargo,” Shrewsberry said at the event, and he noted “most of these loans are senior secured credit facilities.” However, European banks may have an even greater need to shore up capital. Many have billions in energy credit still waiting to be drawn down, which in turn could impact how much reserves must be set aside to bolster against defaults.

Credit Suisse CEO Tidjane Thiam spoke at the conference run by his bank Wednesday, and explained that while the company’s total energy exposure represents $9.1 billion, only $2.4 billion (about a quarter) of that had been drawn down by borrowers. In a JPMorgan report, analysts highlighted energy exposure for banks including Barclays, Standard Chartered, Royal Bank of Scotland and BNP Paribas. All told, the banks’ commodity exposure represented nearly $150 billion, much of which is yet to be drawn down, according to the report. Deutsche Bank didn’t quantify what its full energy exposure is in its fourth-quarter results, although, according to S&P Global Market Intelligence analyst Julien Jarmoszko, the lender has a lower exposure than its bigger competitors.

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Chesapeake looks done.

Energy Debt Fuels Broader Malaise (BBG)

This will most likely go down as the year of the Great Energy Debt Crisis, a spiral that exacerbated an economic funk that roiled the world. Companies are starting to go bankrupt. Banks are preparing for losses tied to oil and gas loans. And bond markets have all but closed to energy companies, especially the lowest-ranked ones. Borrowing costs for U.S. junk-rated energy companies have soared to records, with yields on their bonds surging past 20% for the first time, exceeding the past peak of about 17% in 2008, Bank of America Merrill Lynch index data show. Moody’s expects the U.S. default rate to reach the highest in six years in 2016, and a growing pool of investment-grade energy debt will most likely be downgraded to junk in the near future.

Chesapeake Energy is fast heading toward default, with Standard & Poor’s calling its debt “unsustainable.” Bonds of California Resources, Linn Energy, Energy XXI, Chesapeake and EP Energy have all lost more than 75% since the end of July. Without a doubt, the relentless carnage in energy debt is spilling over into the broader market, especially as prices continue to plunge, with Goldman Sachs seeing the possibility of crude prices dropping below $20 a barrel after rising as high as $107 in 2014.An estimated $75.7 billion in value has been eliminated from the pool of U.S. energy-related junk bonds since the end of June. Those losses are reverberating through mutual funds and hedge funds, which enabled an unprecedented borrowing spree by these companies just years earlier and are now suffering the consequences.

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Financial innovation.

Is The Market In European Coco Bonds About To Pop? (Ind.)

In May last year Martin Taylor, the former chief executive of Barclays Bank, addressed a crowd of high-powered financiers in the ballroom of the InterContinental Park Lane hotel in London. Mr Taylor, an adviser to the Bank of England’s Financial Policy Committee and an influential voice on market risk, spoke darkly about his fears for Coco bonds, a quirky-sounding debt instrument launched in the wake of the financial crisis. “I talk to a group like this about credit matters with the greatest timidity. I am sure you are good citizens and desire to exercise exemplary scrutiny. But I wonder whether you will flip – like the holders of European sovereign bonds before 2010 – from believing all issuers equally safe to thinking many equally precarious when the sky next darkens,” he said.

Skies have not only darkened this week, but Mr Taylor’s words have a prophetic rings: investors have indeed flipped out with concern about Cocos after the German lender Deutsche Bank was forced to reassure investors it could meet interest, or coupon, payments on its Coco bonds. The move has stoked fears that something is rotten at the heart of the European banking sector and led many to question why Cocos – considered a silver bullet solution – have melted like their chocolate breakfast cereal namesake in the face of market turmoil. Cocos, formally known as contingent convertible bonds, were born out of the 2008 financial crisis as a solution for stricken banks without the need for a state bail-out.

They work quite simply on the surface: banks issue them to finance their business like normal bonds but they morph into equity if a bank’s capital falls below a certain threshold. This automatically reduces a bank’s debt and boosts its capital buffers at a time when external investors could be reluctant to inject new money. The flexibility removes some of the risk inherent in loading up bank balance sheets with debt. But herein lies the rub: how can a bank be flexible on debt obligations without spooking the market into thinking it is in trouble?

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Long overdue.

Some Hedge Funds Want to Make Subprime Auto Loans Next Big Short (BBG)

A group of hedge funds, convinced they have found the next Big Short, are looking to bet against bonds backed by subprime auto loans. Good luck finding a bank willing to do the trade. Money managers have looked at betting that subprime auto securities will tank for many of the same reasons that investors wagered against risky mortgage bonds in the run-up to the financial crisis: Loan volume has mushroomed in the last few years, lending terms have become looser and delinquencies are ticking higher. Mary Kane, an asset-backed securities analyst at Citigroup Inc., wrote in a note late last month that the bank has received “an explosion of calls” in recent weeks, after the movie “The Big Short” portrayed a group of traders that wagered against subprime bonds.

The demand now is coming from hedge funds that trade everything from stocks to bonds, analysts said. But many banks, including Bank of America and Morgan Stanley, are not interested in making the bet happen for clients, according to representatives of the firms. Some said they fear that helping clients wager against car loans would be bad for their reputation, and that new capital rules and other post-crisis regulations would make the transactions difficult or even impossible to put together. “Most trading desks just don’t take that kind of risk now,” said Mike Edman, a former Morgan Stanley executive who helped invent credit derivatives that helped Wall Street banks bet against subprime mortgage bonds.

At least one trading desk has done this sort of trade. Etai Friedman, who runs hedge fund Crestwood Advisors, said he was able to work with a salesman he had known for years to buy an option that performed well if a custom-made index of subprime auto bonds fell. Friedman declined to identify the bank that did the trade, on which he earned a 36% return, but said finding a dealer was hard. “A trade like this is just taboo now,” Friedman said. Banks’ reluctance to help investors bet against subprime auto loans signals that may be paying more attention to how their trades will play with regulators and in the media, after having been criticized for crisis-era transactions.

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They’re all still thinking in terms of short term cycles only.

The Mining Industry Makes Oil Giants Look Great (BBG)

When you find yourself in a hole, the saying goes, stop digging. A simple lesson that arguably has bypassed a mining industry that’s wiped out more than $1.4 trillion of shareholder value by digging too many holes around the globe. The industry’s 73% plunge from a 2011 peak is far beyond the oil industry’s 49% loss during the same time. Just how long it will take for the world to erode bulging stockpiles of metals, coal and iron ore was the central debate at the mining industry’s biggest investment conference in Cape Town this week, which attracted more than 6,000 top executives, bankers, brokers, analysts, miners and reporters. This year may be the worst yet with prices trending lower for longer, according to Anglo American CEO Mark Cutifani, who says his company should be better prepared “for the winter that inevitably comes after the summer.”

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Because it sees it as its duty to harass its citizens.

Why Does the US Government Pursue Student Debtors in Prison? (BBG)

For Cecily McMillan, getting mail while incarcerated was a complex project. Any letter that was sent to her went through a metal detector and was opened by correctional officers before landing in the mailroom, where she had a two-hour window to collect it on a good day, she said. McMillan was living in the Rikers Island facility, a city-run jail complex in Queens, N.Y., but that did not stop the clock on her student loan payments. McMillan was serving a 58-day stint for assaulting a police officer, who tried to remove her from Zuccotti Park on the night of March 17, 2012, when people had assembled to mark the Occupy Wall Street protests. Eight months after she was released, McMillan realized she had missed a letter from a government debt collector warning that one of her federal student loans was coming due.

She ended up defaulting on her loan, leading that debt to balloon 35% to more than $7,600. In all, she had more than $100,000 in student debt. Her experience helps to illustrate the persistence of student loans—the only form of consumer debt that can almost never be erased, even if you declare bankruptcy. While collectors for other types of loans also pursue debtors behind bars, federal student loans are different because the government is the collector, which means taxpayer money is spent trying to reach borrowers who cannot easily communicate with the outside world and have few opportunities to earn money to repay the debt. McMillan, for example, said she was making less than a dollar per hour at her job as a suicide-prevention aid worker at Rikers. The average federal prison worker makes about 92 cents per hour, according to the Economic Policy Institute.

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“..whoever occupies the White House in 2017 will preside over a financial debacle like unto nothing in scale that the world has ever seen before..”

Notes from the Locked Ward (Jim Kunstler)

Beyond all the political histrionics, is there not some broad recognition that whoever occupies the White House in 2017 will preside over a financial debacle like unto nothing in scale that the world has ever seen before? With all the reverberating side effects imaginable among the traumatized nations? Something wicked has been creeping through the stock markets since the year began. The velocity and damage are amping up. Credit default swap spreads are yawning like fault lines in a ‘quake. Bankers are watching their share prices collapse. It’s a wonder that panic has not already broken out.

This is not just about Wall Street and its counterparts in London, Shanghai, Tokyo, and Frankfurt. This is the financial world (and underworld) catching up with the Economy of Actual Stuff. In the USA, that economy has bled out like a hapless bystander with a sucking chest wound for the last eight years. Despite all the patriotic sanctimony on view at the Superbowl, the nation appears to be visibly cracking up, along with the fantasy of a permanent global economy. None of the desperate work-arounds since 2008 have worked around the predicaments of our time. Politics will not abide a rational journey out of our fatal hyper-complexity to something simpler and more consistent with the realities at hand. Expect more and greater craziness as the year lurches on.

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I can tell you when: when the economy deteriorates sharply. How does 2016 sound?

When Will the Rest of Europe Want Its Own ‘Brexit’? (BBG)

If David Cameron leaves next week’s European Union summit with a deal to overhaul the terms of Britain’s membership, many of his counterparts will breathe a sigh of relief – and dig out their own wishlists. As populist and anti-EU forces surge across the region, the prime minister’s ultimately successful strategy of issuing demands for change and threatening to leave if they’re not met has left an impression on his fellow leaders, two senior EU officials said. Some see his approach as a template for pushing their own causes, the officials said, asking not to be named because the discussions were private. “The fact David Cameron raised a number of concerns and these concerns have all been addressed is creating a political precedent,” said Vincenzo Scarpetta, policy analyst at the London-based Open Europe think tank.

“The British renegotiation has to be seen as a longer-term path – Cameron has raised existential questions about the future of the EU.” Europe’s economic foundations were fractured by the debt crisis and now over a million refugees are pulling at its social fabric, bolstering populist movements from Madrid to Helsinki and fanning anti-EU feeling in former Soviet-bloc nations. That ensures when Cameron pushes for an accord at the Feb. 18-19 summit diminishing some of the bloc’s influence over the U.K., the shockwaves could resonate far beyond the English Channel. “All eyes are on France,” said John Springford, senior research fellow at London’s Centre for European Reform. EU officials are keen on “sending signals” to National Front leader Marine Le Pen and the wider French electorate “that this trick won’t work,” because “if France goes euro-skeptic, the project is toast.”

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“..it would lead to “downright apocalyptic scenarios”: Greece would collapse within a few weeks..”

Will Greece Become a Refugee Bottleneck? (Spiegel)

At five o’clock in the morning last Tuesday: Macedonia has once again closed its border, and just a few hours later, chaos reigns. Eighty buses with 4,000 refugees have been stopped by the Greek police 20 kilometers from the frontier and they are now waiting in a gas-station parking lot. Bus drivers argue, refugees jostle on the overfilled lot and overwhelmed police officers yell orders. “Macedonia, Macedonia,” the people waiting scream, “open the border!” But today, the border remains closed to most people. And if it were up to Brussels and the Germans, it would remain that way – that is, to anyone not from Syria, Iraq or Afghanistan. Since mid-November, Macedonia has tightened its border controls and whoever isn’t from one these three countries is turned away. Now, many people’s dreams of Europe come to an end here, in Idomene.

For it has recently become clear that Turkey is both unable and unwilling to stop the flow of refugees. As a result, the EU is placing its bets on Macedonia, with a plan that has the support of European Commission President Jean-Claude Juncker. Last year, the majority of the over 850,000 refugees traveling along the Balkan route went through Macedonia. If authorities have their way, that will come to an end. “Macedonia is our second line of defense,” says a high-ranking EU official. Several EU states have approved the deployment of 82 officers in Macedonia with the task of improving border protection. Financial support is to follow. If Macedonia reduces the number of people it allows into the country, it will lessen the pressure on Germany and Austria. It will also mean that more people will stay in Greece – and, Brussels hopes, place additional pressure on Greece to better protect its borders.

Idomene is a case study of what would happen were Europe to seal its borders and shut down the Balkan Route, the path most migrants take on their way to Germany and the rest of Europe. The result would be a massive backup of hundreds of thousands of refugees in Greece. And this in a country that is in a deep recession, and where every fourth citizen is unemployed. It is a country where angry farmers, teachers, doctors, lawyers, taxi drivers and ferry workers — actually everyone — is opposed to the government’s austerity measures. And it is a country that is once again in danger of sliding into its next big political crisis. The country will face big problems if Prime Minister Alexis Tsipras can’t find a compromise with the country’s international creditors, who are pushing for tough reforms. Or if Greece is made to bear the burden of the refugee crisis.

[..] According to a report by the Gemeinsames Analyse- und Strategiezentrum illegale Migration (Joint Analysis and Strategy Center on Illegal Immigration), many refugees in Greece live on the streets, even children and neo-nazis periodically hunt them down. The conditions for many refugees in Greece are described by the German authorities as “inhumane.” And still, the country is potentially being turned into a giant refugee camp. According to a confidential memo from the German Foreign Office, a backup of refugees would “inevitably lead to uncontrollable humanitarian conditions and security problems within days.” Migration researcher Franck Düvell from Oxford University warns that it would lead to “downright apocalyptic scenarios”: Greece would collapse within a few weeks, he believes.

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