William Henry Jackson Camp wagon on a Texas roundup 1901
Trust has been eroded to the point of almost being destroyed,” said Nunn. “You got a war going on right in the middle of Europe.”
• Nuclear Specter Redux: ‘Threat of War Is Higher than in the Cold War’ (Spiegel)
Deep mistrust has developed between the West and Russia, and it is having a massive effect on cooperation on security matters. In November 2014, the Russians announced that they would boycott the 2016 Nuclear Security Summit in the United States. In December, the US Congress voted, for the first time in 25 years, not to approve funding to safeguard nuclear materials in the Russian Federation. A few days later, the Russians terminated cooperation in almost all aspects of nuclear security. The two sides had cooperated successfully for almost two decades. But that is now a thing of the past. Instead, Russia and the United States are investing giant sums of money to modernize their nuclear arsenals, and NATO recently announced that it was rethinking its nuclear strategy.
At the same time, risky encounters between Eastern and Western troops, especially in the air, are becoming more and more common, a report by the European Leadership Network (ELN) recently concluded. “Civilian pilots don’t know how to deal with this,” explains ELN Chair Des Browne, a former British defense minister. “One of these incidents could easily escalate. We need to find a mechanism in which we can talk at the highest level.” Brown, together with Ivanov and former US Senator Sam Nunn, the grandfather of international disarmament policy, published an analysis last week. The trio recommends “that reliable communication channels exist in the event of serious incidents.” In other words, these channels currently do not exist.
Recently Philip Breedlove, the head of NATO Allied Command Operations in Europe, even called for a new “red telephone,” alluding to the direct teletype connection established in 1963 between the United States and the Soviet Union after the Cuban missile crisis. A direct line had been set up between NATO and the Russian military’s general staff in February 2013, but it was cut as a result of the Ukraine crisis. “Trust has been eroded to the point of almost being destroyed,” said Nunn. “You got a war going on right in the middle of Europe. You got a breakdown of the conventional forces treaty, you got the INF (Intermediate-Range Nuclear Forces) treaty under great strain, you got tactical nuclear weapons all over Europe. It’s a very dangerous situation.”
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The narrative that will allow Kiev to keep fighting despote the ceasefire deal. And then claim innocence.
• Ukraine Right Sector Leader Rejects Peace Deal, Vows ‘To Continue War’ (RT)
Ukraine’s Right Sector leader Dmitry Yarosh said his radical movement rejects the Minsk peace deal and that their paramilitary units in eastern Ukraine will continue “active fighting” according to their “own plans.” The notorious ultranationalist leader published a statement on his Facebook page Friday, saying that his radical Right Sector movement doesn’t recognize the peace deal, signed by the so-called ‘contact group’ on Thursday and agreed upon by Ukraine, France, Germany and Russia after epic 16-hour talks. Yarosh claimed that any agreement with the eastern militia, whom he calls “terrorists,” has no legal force. In his statement, Yarosh claimed that that the Minsk deal is contrary to Ukraine’s constitution, so Ukrainian citizens are not obliged to abide by it.
Thus if the army receives orders to cease military activity and withdraw heavy weaponry from the eastern regions, the Right Sector paramilitaries, who are also fighting there “reserve the right” to continue the war, he said. The Right Sector paramilitary organization continues to deploy its combat and reserve units, to train and logistically support personnel, while coordinating its activities with the military command of the Ukrainian army, paramilitary units of the Defense Ministry and the Interior Ministry, he said. The breakthrough Minsk agreement was reached on Thursday following marathon overnight negotiations between Ukraine, France, Germany and Russia, and offer hope the fighting in Eastern Ukraine may come to an end. The talks were part of a Franco-German initiative. President Hollande and Chancellor Merkel visited Kiev and Moscow before meeting the Russian and Ukrainian leaders at the negotiating table in Minsk.
Bluntly rejecting the German and French initiative, Yarosh said President Petro Poroshenko should have turned to the US or UK which “observe a consistent anti-Kremlin policy.” “This could be devastating for the whole agreement,” Lode Vanoost, a former OSCE security consultant, told RT. “It could destroy it before it even starts. Now the fact that they announced it already one day ahead could of course mean that they sort of tried to force some kind of provocation so that the other side would react giving them an excuse to go on. But nevertheless this is indeed a very dangerous situation, yes.” [..] In July last year Interpol put Right Sector leader Yarosh on its wanted list.
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Anyone still thinking she won’t do it?
• Yes, Yellen Can Have It All as She Gets Ready to Raise Rates (Bloomberg)
As the job market gains steam, Federal Reserve Chair Janet Yellen faces a massive challenge to adjust her monetary levers just right: She wants to keep the recovery going without stoking a bubble or spurring inflation. It’s a delicate balance that has bedeviled many central bank chiefs in the past. A dramatic drop in U.S. bond yields over the past year might be just what Yellen needs to strike that balance, according to two International Monetary Fund economists. “Having long-term rates at relatively low levels may actually give the Fed more degrees of freedom,” Nigel Chalk and Jarkko Turunen wrote in a blog post Thursday. That’s because low long-term government bond yields would act as a cushion to the Fed raising short-term rates (specifically, by supporting the housing sector). In other words, Yellen would be able to start tightening without having to worry as much about hobbling the economic recovery.
The IMF economists’ point runs counter to some of the prevailing wisdom. The depression of long-term yields was a well-known source of concern for former Fed Chairman Alan Greenspan, who called it a “conundrum” in testimony to Congress in 2005. Many say borrowing costs got too low in the mid-2000s, prompting people and businesses to take on too much debt. That all came crashing down in the form of the 2008 global financial meltdown. Credit is, once again, strikingly cheap. By the end of January, the yield on 10-year Treasury notes had fallen to the lowest since May 2013 (since the end of last month, the gauge has ticked slightly ticked back up). It’s strange because the U.S. economy has regained its status as the main engine of the world economy and analysts expect the Fed to soon start raising rates. The IMF economists note that the so-called term premium – the extra yield investors demand for holding long-term debt over short-term paper – has actually turned negative.
What’s driving this demand for long-term bonds? Chalk and Turunen offer several explanations. It’s possible that low inflation expectations are causing bondholders to require less compensation in the form of higher yields. With major risks ranging from instability in Ukraine to Greece and the Middle East, investors might be running to the safety of U.S. debt. Other reasons could include the recent strength of the U.S. dollar, according to the authors. The real risk is what happens when long-term yields head in the other direction – as occurred in 2013, when then-Fed Chairman Ben S. Bernanke mused about ending bond purchases sooner than investors expected. The resulting surge in mortgage rates and capital flight from emerging markets came to be known as the “taper tantrum.” “What we should be watching out for is the economic and financial stability fallout that could unfold if U.S. yields snap back upwards in a sudden and unexpected manner,” according to the IMF staff members.
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“”If every similar state saves at the same time by cutting spending, the result is the shrinkage of everyone’s economy since they are one another’s trading partners..”
• One Hundred Years of Austerity (Bloomberg)
People have been preaching austerity for a very long time. Ancient Greek philosophers, Jesus’s disciples, Benjamin Franklin—they’re all part of a chorus of voices over the centuries who’ve warned us against the dangers of debt and profligate spending. Fiscal austerity, though, is a modern invention. It wasn’t until after World War I that governments started making serious efforts to address debt and other problems by cutting their spending. One reason is that, until the early 20th century, most countries had such small budgets that there wasn’t much to cut. (The U.S. federal budget on the eve of World War I equalled about 2.5% of the national economy; now, it’s around 20%, and that in turn is much lower than the figure in some other countries.)
Nowadays, fiscal austerity is often associated with the IMF, which has required budget cutting as a condition for bailouts in scores of troubled economies. In other cases, though, governments have embraced austerity for reasons of their own, such as fighting inflation or repaying foreign debt. Some of these efforts—such as Germany’s and Japan’s in the 1930s and Romania’s in the 1980s—were catastrophic failures. Elsewhere, the record has been less clear-cut. The British are still debating the impact of Prime Minister Margaret Thatcher’s budget cuts in the early 1980s. Some countries have recovered fairly quickly after taking IMF-prescribed austerity medicine, while others suffered prolonged economic misery.
Muddying the picture still further, the IMF usually requires structural economic reforms, such as deregulating industries and labor markets, in addition to budget austerity. That, along with such other factors as interest-rate changes and currency devaluations, makes it harder to gauge the effect of austerity. The euro zone debt crisis adds a new wrinkle to the story. Countries pursuing austerity programs frequently have devalued their currencies, which can help spur growth as exports become more competitive. But Greece and other bailed-out European economies can’t devalue, because they’re part of a shared currency.
Mark Blyth, a Brown University professor who has written a book on the history of austerity, warns that it is a “dangerous idea.” The biggest danger, he writes, comes “when everyone tries it at once,” as happened when Japan and Germany cut spending during a global depression. Europe’s recent debt crisis is another example, Blyth contends. “If every similar state saves at the same time by cutting spending, the result is the shrinkage of everyone’s economy since they are one another’s trading partners and sources of income. Perversely, their debt goes up, not down, relative to their shrinking GDP.”
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“Some members, such as Energy Minister Panayiotis Lafazanis have been adamant that the government should stick to its pre-election pledges.”
• Greek Government Doesn’t Hold Out Much Hope For A Deal On Monday (Kathimerini)
Prime Minister Alexis Tsipras chaired a meeting of his cabinet on Friday night to brief ministers on the state of talks with the eurozone but also to assess his own room for maneuver ahead of Monday’s Eurogroup. With the possibility of the government having to make a compromise with the eurozone over the way forward in the next few days, Tsipras was eager to assess the mood of his cabinet. Some members, such as Energy Minister Panayiotis Lafazanis have been adamant that the government should stick to its pre-election pledges. Overall, the government is not holding out much hope for a solution in Brussels on Monday.
“There have been some positive steps but there is a lot of ground that has to be covered,” said a government source. Sources also insisted that the Greek government would not be willing to back down from its position on certain issues such as labor regulations, privatizations and the lowering of the primary surplus target. Athens believes that the two sides can find common ground on issues like public administration reform, improving tax collection and tackling corruption.
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I don’t think so.
• Hopes Of Greek Debt Deal Rise (Guardian)
Greek stock markets have rallied on growing confidence that Athens will reach a deal with its international creditors next week. In the runup to a meeting of eurozone finance ministers on Monday, the new Greek prime minister’s office vowed to do “whatever we can” to come to an agreement over a new support programme for the bailed-out country. Talks between eurozone ministers this week failed to make progress in resolving a standoff over the desire by Greece’s new leftist government to ditch the strict terms of its €240bn bailout programme and the insistence from other eurozone countries, most notably Germany, that the old framework should continue. But on Friday, the new prime minister, Alexis Tsipras, appeared to soften his stance. He agreed that Greek officials would meet representatives of the troika of lenders who supplied the bailout money and imposed and policed the terms that came with it.
Previously, Greece’s finance minister, Yanis Varoufakis, said the new government would refuse to engage with representatives of troika, made up of the ECB, the EC and the IMF. A government spokesman said Greece was straining to get the pieces in place for a deal on Monday, but he also sought to play down fears time was running out to avert a fresh crisis in the eurozone that would see Greece defaulting on the bailout programme and being forced to leave the single currency. “We will do whatever we can so that a deal is found on Monday,” Gabriel Sakellaridis told Greece’s Skai TV. “If we don’t have an agreement on Monday, we believe that there is always time so that there won’t be a problem.”
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Dijsselbloem has been the worst factor in all this. Expect him to be ousted soon.
• Dijsselbloem ‘Pessimistic’ About A Quick Deal With Greece (AFP)
Eurogroup president Jeroen Dijsselbloem said Friday he was pessimistic about making progress on resolving a bitter row over extending Greeces bailout at an upcoming meeting of eurozone finance ministers. “At this stage I’m very pessimistic about it,” Dijsselbloem told the NOS public broadcaster when asked whether he thought concrete steps will be taken on Monday at the talks between Greece and its fellow single currency countries in the Eurogroup. “The Greeks have sky-high ambitions. The possibilities, given the state of the Greek economy, are limited,” said Dijsselbloem, who is the Dutch finance minister, ahead of a cabinet meeting on Friday. “I don’t know if we’ll get there by Monday.” Dijsselbloem and Greek PM Alexis Tsipras agreed on Thursday to renew efforts to find a solution on extending Greeces current bailout after talks overnight Wednesday collapsed acrimoniously.
An agreement however was reached to ask “institutions to engage with Greek authorities to start work on a technical assessment of the common ground between the current programme and the Greek government’s plans,” Dijsselbloem tweeted after the meeting. The agreement was made to help discussions set to take place Monday, seen by many as the last chance to seal a deal before Greeces current bailout programme expires at the end of the month. Dijsselbloem however on Friday blasted Greece, saying Athens “for a number of months now has received no loans from Europe, because nothing’s happening.” “We only lend out money when theres real progress and when new reforms are being carried through. For months this has not been the case,” Dijsselbloem said.
“It really is up to the Greek government to take the firsts steps,” he said. Failure to reach a deal on an extension of the bailout or a credit line for Greece by the end of the month means Athens would quickly default and almost inevitably crash out of the eurozone. European sources who spoke on the condition of anonymity said Wednesday’s eurozone ministers’ meeting had descended into a “total mess”, making a reconciliation between Dijsselbloem and Tsipras necessary to prepare the talks for Monday. Dijsselbloem said: “The Greek government has made it clear that they don’t want to carry on with the programme as it currently stands.” “The Eurogroup has made it clear that there are only possibilities for change as long as the programme remains on the rails.”
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Too much difference between Gernamy and Greece: “Look beyond the figures and the chatter of ivory tower policymakers..”
• GDP Growth Masks A Broken Eurozone (Guardian)
Frankfurt’s stock market has reached a new high, topping 11,000 for the first time. According to the latest eurozone GDP figures, Germany enjoyed strong GDP growth in the last three months of the year and helped push expansion across the currency bloc to 0.3% for the quarter and 0.9% for the year. In Portugal and Spain, the headline growth figures improved. Even Italy beat analysts’ expectations after it avoided a decline. So the recovery is real. In fact, say the eurozone’s top policymakers, it’s all going so well the new Greek government should open its eyes and see the warm, golden glow of sunshine appearing on the horizon. Jens Weidmann, the head of the German central bank, was in London on Thursday evening and joined the chorus of top officials bemoaning those who believe the eurozone is entering a long period of Japan-like stagnation.
He urged the Greeks to stop opposing the austerity measures imposed by Brussels and accept wage cuts that have already brought an increase in competitiveness. No doubt the 0.2% fall in Greek GDP in the fourth quarter will be cast as a temporary blip and a lesson that political uncertainty has unhelpful economic consequences. Investors also believe the upbeat story, hence the soaring Frankfurt stock market. The promise of a huge stimulus package from the ECB (which Weidmann believes is unnecessary, such is his confidence) and the fall in value of the euro it has precipitated, when combined with the vast European bailouts funds now available, have convinced global investment funds that Europe is a one-way bet. Look beyond the figures and the chatter of ivory tower policymakers and you will find the story is radically different. Yes, Spain is growing. But its GDP growth in 2014 has made up only around half of its losses in 2013.
It is still an economy in need of major investment to get back on its feet. Unemployment remains at disturbingly high levels and the state is held in contempt in many quarters. Why else would the radical anti-austerity Podemos party be polling ahead of all the established parties at the moment, and its leader be writing in praise of Tsipras (and the Catalonia independence movement still be in full swing)? Weidmann said the policies of austerity he supported would work slowly but staying the course was important. To him, a lost generation of young workers, who were denied skilled training and out of work for several years, is a matter for individual countries. He cannot see that sovereign states under the current arrangements are denied the funds to invest and improve productivity over the longer term. He cannot see that austerity, if only for this reason, is self-defeating.
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“They have asymmetric rules. They need to make it socially fairer..”
• White House Warns Europe On Greek Showdown (AEP)
Washington blames Europe for the lack of global recovery and is losing its patience with EMU creditor states that fail to pull their weight The Obama administration has leapt to the defence of Greece, warning Germany and Europe’s creditor powers that they must meet Athens half-way to avert a potentially dangerous rupture and a euro break-up. Caroline Atkinson, the US deputy-national security adviser, said the eurozone authorities had imposed the main burden of adjustment on the weaker deficit states and should do more to accept their share of responsibility for the euro crisis. “They have asymmetric rules. They need to make it socially fairer,” she said. “It is important for creditors to take into account that Greece has had a very sharp drop in incomes, real wages, and output as well as a big rise in unemployment,” she told a gathering at Chatham House in London.
“Greece has moved into primary surplus. How much more fiscal consolidation is necessary?” she said. The comment will be music to the ears of Greek finance minister Yanis Varoufakis, who wants a cut in the EU-IMF Troika target for the primary surplus to 1.5pc of GDP from 3pc this year and 4.5pc next year. Mrs Atkinson said the White House is relieved that “both sides” are starting to pull back from the brink, a clear warning that Washington is just as exasperated with the high-handed approach of eurozone creditors as it is with the leftist Syriza government in Athens. “We believe it is strongly in the interests of the Greek people and Europe more generally that Greece and its creditors work out a compromise for Greece to stay in the euro and thrive in the euro,” she said.
The two sides have toned down the rhetoric slightly and agreed to start technical talks but each is in a different cognitive universe on the core dispute over austerity and debt relief. The US administration does not share the widespread view in Europe that there is little risk of contagion if the European Central Bank cuts off liquidity support for the Greek banking system and forces the country out of the euro. President Barack Obama has seized on the Greek crisis to push for a broader reflation strategy in Europe. “You cannot keep on squeezing countries that are in the midst of depression. At some point there has to be a growth strategy in order for them to pay off their debts,” he said earlier this month.
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Draghi doesn’t like being accused of taking political decisions. Even though he’s taken many already.
• Don’t Make Us Do It: ECB Wants a Political Deal on Greece (Bloomberg)
The European Central Bank is sending a message to the euro-area’s leaders: don’t make us pull the trigger on Greece’s banks. After the Frankfurt-based ECB blessed the expansion of so-called Emergency Liquidity Assistance to the debt-stricken country’s lenders by about €5 billion euros on Thursday, officials are insisting that continued support is contingent on political talks over Greece’s bailout. Greek stocks and bonds rallied Friday, after PM Alexis Tsipras hinted at progress. The ECB does not want to be pushed into a position where it is making decisions on the future of the Greek banking system – and the country’s membership of the euro – without political cover from European capitals.
If talks on a “bridge” financing deal for Greece break down again, ECB President Mario Draghi will have to weigh whether to ration funds further or threaten a veto, just as he did in Cyprus two years ago. “Ending ELA would be a very last-resort type of intervention, paramount to a nuclear option,” said Henrik Enderlein at the Hertie School of Governance in Berlin. “The ECB would never really want to use it, as it is basically the same as pushing Greece out of the euro area.” ELA is funding provided by national central banks at their own risk, and is extended against lower-quality collateral than the ECB itself will accept.
Greece’s lenders now have access to about €65 billion in such funds, according to a euro-area central bank official. The expansion from €60 billion euros was reported Thursday by German newspaper FAZ. Tsipras said yesterday that his government aims to reach a six-month bridge agreement leading to a “new contract” with international creditors. In 2012, as Greece stumbled toward its second international rescue and a debt-writedown, banks ran up a tab of as much as €158 billion euros in local central bank and ECB funding. That suggests the ECB will allow a much greater extension of the emergency line, as long as politicians are seen as being on the path to agreement.
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More political decisions by an allegedly ‘neutral’ central bank. First cut them off, then feed them bite-sized carrots.
• Rising Deposit Outflows Behind Extra Greek Bank ELA Access (Reuters)
The ECB allowed Greek banks access to extra emergency financing from the Bank of Greece because deposit outflows have picked up and to make sure they have liquidity while tense talks take place in Brussels next week, Greek banking sources said on Friday. The ECB on Thursday raised the cap on what Greek banks can get from the Bank of Greece through the Emergency Liquidity Assistance (ELA) window by about €5 billion to €65 billion. The extension will run until Feb. 18 when the ECB Governing Council will reappraise the situation. One banking source said that there was a mix of reasons for the action. “Some banks likely needed to tap more ELA,” said the senior banker at one of the country’s four top banks. “(But) I believe the ECB wanted to allow some headroom, liquidity comfort until Feb. 18.”
He said recent daily outflows were in the region of €300 million to €500 million on average. Another executive at a big bank cited a similar figure. “Outflows continued this week, the situation showed a deterioration in the last days,” he said. “When you see €400-500 million of outflows a day, this shows a developing trend.” He added that outflows may have gone as high €1 billion on some days. Euro zone finance ministers will meet in Brussels on Monday in an attempt to forge a deal which will allow for Greek funding over a period in which Greece’s large debt will be renegotiated. Failure to reach a deal before the end of February, when Greece’s current bailout ends, could lead to Greece being ejected from the euro zone – hence the nervousness of Greek banks and depositors.
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The outflow problem isn’t all that bad.
• Most Of Greek Deposit Outflows To Return If A Deal Is Made (Kathimerini)
The bulk of deposits withdrawn from Greek bank accounts in the last two-and-a-half months due to political and financial uncertainty has stayed inside the country, stashed away in safe deposit boxes, mattresses and investment products. Banks estimate that only a small part, about 20%, of the funds that came out of depositors’ accounts has been sent to banks abroad. As banks sources have stressed, if the government agrees terms with its creditors next week, confirming the European course of the country and putting an end to uncertainty, most of the €20 billion that has left local banks since end-November could return, and quickly.
Bankers believe that some 50% of the deposit outflows, i.e. some €10 billion, has stayed in the country in the form of disposable cash and can be found in safe deposit boxes, mattresses etc, as many households have chosen to keep their cash at hand due to the ongoing uncertainty. Another 30%, or €6 billion, has been deposited in investment products. The 20% of deposit outflows that has gone abroad, amounting to some €4 billion, mostly concerns corporate funds and some of it has gone to subsidiaries of Greek banks in other countries, such as in Cyprus, Great Britain, Luxembourg, Malta, etc.
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The purpose behind all this is more centralization, and that will cause ever stronger reactions.
• Band-Aids for Greece, Ukraine and Global Economy (El-Erian)
This week, three sets of meetings sought to defuse three distinct threats to the global economy. All of the gatherings featured suspenseful atmospheres, dramatic posturing and some public tantrums. And their outcomes were similar, too: The participants ended up just buying time, without doing much, if anything, to begin to address the underlying causes of the unfolding crises. In the first instance, President Francois Hollande of France and Chancellor Angela Merkel of Germany traveled to Minsk on Wednesday to compel the Russian and Ukrainian presidents to stem the escalating violence in eastern Ukraine that has claimed about 5,000 lives. After a tough all-night negotiation session, they agreed Thursday to a cease-fire to take effect this weekend.
Earlier Wednesday, the finance ministers of the euro zone countries gathered in Brussels to try to find common ground on Greece. After seven hours of discussions, they weren’t even able to settle on a road map for future negotiations. But with both their finance ministers playing tough and signaling seemingly unbridgeable negotiating positions, Merkel and the newly elected prime minister of Greece, Alexis Tsipras, were subsequently able to show leadership and be “presidential.” On Thursday, both declared themselves willing to compromise, providing much needed political cover for the finance ministers’ negotiations that are set to resume Monday (preceded by technical preparations starting today).
Earlier in the week, some of those ministers had joined their central bank colleagues in Istanbul for a meeting of the Group of 20. The agenda included policy actions to strengthen a global economy that, with the exception of the U.S., has been losing steam. In their communiques, they reaffirmed prior commitments and renewed their encouragement of central banks to continue pursuing unconventional monetary policies. Yes, some progress was made in all three meetings, but they mainly just kicked the can down the road. At best, they were holding operations that risk resulting in failure if they aren’t quickly supplemented by more comprehensive agreements.
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It’s not the 1920’s.
• Inside The Germans’ Debt Psyche – What Makes Them Tick? (BBC)
Germany is the world’s fourth largest economy, the beating heart of the eurozone and guardian of financial discipline. So when it comes to money – and especially debt – what makes Germans tick? The election of Greece’s left-wing government on a promise to reduce the country’s mountain of debt has created a standoff with Europe’s economic powerhouse. And it has thrown Germany’s ultra-conservative attitude to debt into sharp focus. Germany’s extreme debt aversion is even rooted in the German language itself, says Prof Marcel Fratzscher, head of Germany’s leading Economic Research Institute. “The German word for debt – ‘schuld’ – is the same as the German word for ‘guilt’,” he explains. “To get into debt you have done something bad and that describes the German people’s attitude quite well.”
The German way is to “save now, have later” rather than “have now, pay later” – and that is not just the older generation talking. On the streets of Berlin young Germans told us what they would do if they won a million euros. A new car, a holiday, a new outfit? “I would save it for when I need it,” came a typical reply. That habit of saving money is the key to understanding another characteristic of Germans – fear of inflation. Popular wisdom says that this is due to the scars left by hyperinflation in the 1920s, when the exchange rate escalated out of control. One US dollar went from being worth four Deutschmarks to four trillion. There may be some residual echoes of that period but it is nearly 90 years ago now and Germans have moved on. The real reason is to be found in the German love of saving.
Inflation is the enemy of savers. So for a nation full of them, the idea of lowering interest rates and printing money holds a double threat – it reduces the rate you get on your savings, while any potential future inflation would mean that those same savings allow you to buy less. The good news for Germany is that inflation hasn’t arrived and, although interest rates are low, the related weakness of the euro has kept German exports like cars and machinery competitively priced. Indeed education, engineering and exporting success is the source of considerable German pride. Economists credit the post-war economic miracle – or “Wirtschaftswunder” – to a set of crucial, interlocking principles[..]
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“We constantly hear, ‘if you don’t sign on the dotted line there is going to be Armageddon’. My answer is ‘let it happen!’
• Yanis Varoufakis: ‘If I Weren’t Scared, I’d Be Awfully Dangerous’ (Guardian)
In the space of three short weeks, he’s been christened Europe’s man of the moment, compared to heroes great and small, likened to a rock star, hailed as a sex icon, feted by fashionistas, and in Germany, no less, portrayed as the greatest action man to bestride planet earth since Bruce Willis set Hollywood alight in Die Hard 6. Few have had their demeanour and dress code so dissected; when he posed with George Osborne in Downing Street, his tieless, leather-jacketed look standing in stark contrast to the Chancellor’s, the press was as breathless as if a supermodel had blown in. “Britain,” declared no less venerable an authority than the Daily Telegraph, “is crying out for a politician who looks like Yanis Varoufakis. It’s quite a change in lifestyle. Has it gone to his head? The response is immediate. “I can assure you, Helena, I did not engineer it in any way. I am not promoting it. They go on about me riding a bike, but I have been riding a bike since I was 15. I just am who I am.” [..]
Even by the standards of those who have occupied the sixth floor of the finance ministry before, Varoufakis’ tenure comes at an unusually onerous time. With the country’s €240bn bailout – the biggest in global history – set to expire at the end of February, and the Greek electorate having overwhelmingly rejected austerity, Greece is at a crossroads. In a climate of high-octane pressure – though her language was more emollient, the German chancellor Angela Merkel showed little sign this week of giving in anytime soon – the possibility of political blunder, or accident, grows with each day. Athens owes some €25bn in repayments, this year alone, and what is certain is that it does not have that kind of money. When I ask Varoufakis if he has a plan B, for all negotiators surely have a credible alternative, he looks at me wide-eyed. “We constantly hear, ‘if you don’t sign on the dotted line there is going to be Armageddon’. My answer is ‘let it happen!’ There is no fall-back plan. That is my plan B. ”
What if it does happen, I ask, as images of the chaos bankruptcy would surely entail flicker across my mind. “Well, that is like asking me what happens if a comet strikes planet Earth. I have no idea. None!” he shoots back. Varoufakis is the first to say that no one should grow too fond of power. He has no desire to be on the sixth floor of the finance ministry longer than necessary. He has dispensed with the policemen assigned to protect him, the army of advisers that come with the job (let go to make way for the rehiring of the ministry’s sacked women cleaners), and each of the three cars deployed to him. If he lost the job, he says, he wouldn’t mind. “When interlocutors threaten me with the fall of this government, because they do, I say: ‘Make my day,’” he smiles. “I mean, I really don’t want to be in this office … I will go back to my book about Europe, which is half-finished. It’s very difficult to find an ending when I am still in this job.”
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“Simple logic dictates that if you cannot even conceive the possibility of leaving a negotiation, then it is preferable never to enter one..”
• Yanis Varoufakis, Greek Bailout Foe (BBC)
Greece’s left-wing Finance Minister Yanis Varoufakis is leading the offensive to persuade the nation’s creditors to end austerity and forgive part of its debt. Mr Varoufakis, 53, is not only a well-respected political economist, but a charismatic man and natural charmer. A few weeks after his appointment, he has become something of a global celebrity. That is hardly surprising for Greeks – after all, Mr Varoufakis got more votes than any other candidate in the 25 January general election that swept the leftist Syriza party into power. In the wake of victory he immediately embarked on a European tour that took him to London, Paris, Rome and Berlin. The sight of a shaven-headed, athletic minister refusing to tuck his shirt into his trousers or wear a tie – even while visiting 11 Downing Street – fascinated business reporters, fashion editors and gossip columnists.
Even the German media – among Greece’s sternest critics – seemed impressed. ZDF television anchor Marietta Slomka said “he is someone you could imagine starring in a film like Die Hard 6”, and conservative daily Die Welt ran the headline “What makes Yanis Varoufakis a sex icon”. In his home country, a new word was coined – “Varoufitses” – to describe women who idolise Mr Varoufakis. At the time of writing, Mr Varoufakis had 128,000 Twitter followers, a number of devoted fan pages on Facebook, and he has inspired a video game “Syrizaman Vs Troika”. His eurozone colleagues may not find him quite so charming. In his first meeting with them on 11 February he refused to approve a common statement by the Eurogroup that implied Athens would seek an extension of its bailout. “Simple logic dictates that if you cannot even conceive the possibility of leaving a negotiation, then it is preferable never to enter one,” he wrote in a blog entry back in May 2010.
Mr Varoufakis showed signs of defiance and non-conformism from a very early age. That includes deliberately misspelling his name Yanis, writing it with only one “n” since elementary school. “I had an aesthetic problem with the double “n”,” he said. “So I decided to write my name with one. My teacher gave me a bad grade, which made me very angry and I’ve kept writing my name with one “n” ever since.” Mr Varoufakis was born on 24 March 1961 in Athens. He is a graduate of the Moraitis private school, which has nurtured many members of Greece’s political and economic elite. His father, 89-year-old Giorgos Varoufakis, is chairman of Halyvourgiki, a Greek industrial giant. This background of relative privilege did not prevent Mr Varoufakis from becoming a libertarian Marxist, who has said that “Karl Marx was responsible for framing my perspective of the world we live in, from my childhood to this day”.
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So let’s put that myth to rest.
• US Will Not Become Energy Independent: Total CEO (CNBC)
Despite the so-called U.S. shale revolution and American aspirations for energy independence, the CEO of major oil giant Total told CNBC he was not convinced it would happen any time soon. “The U.S. is still relying on oil from the Middle East. It is not true the U.S. will be independent in oil – they continue to import,” Patrick Pouyanne, the new chief executive of French oil giant Total, told CNBC this week. He stressed that the U.S. “will not get” energy independence because it still consumes far more oil than it produces. “For me, the world today is interdependent. This idea that you could be (energy) independent – especially when you are the U.S., where you have many world companies; a country that is probably benefiting the most from the globalization of the world – is just something that is strange to me, I don’t believe in that,” Pouyanne added.
Oil prices have fallen dramatically in recent months – and at one point were down around 60% from highs in June 2014, on the back of a glut in supply and lack of global demand. Brent crude is currently trading around $59 a barrel and U.S. crude is at $51. OPEC has been blamed for the volatility in prices after it refused to cut production to support the cost of oil. Many saw its inaction as a bid to retain market share in the face of increased competition from U.S. shale oil producers. American oil production has grown steadily from 5 million barrels per day in 2005 to 8.6 million last year, according to the U.S. Energy information Administration.
If OPEC was hoping a low oil price would put the brakes on U.S. oil production, it might have worked. Some 87 rigs were deactivated in the week ending February 6, according to oilfield services company Baker Hughes, after a drop of 90 rigs over the previous seven days. It marks the largest absolute reduction in a single week since Baker Hughes started keeping records in 1987. But Pouyanne said that, despite anger from some at OPEC’s “game of chicken,” the U.S. was still a major oil importer and its economy was benefitting from a lower oil price.
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“The average price of Russian gas supplied abroad will be $222 per 1,000 cubic meters in 2015. It could mean a 35% price cut for Gazprom supplied gas to Europe..”
• Russian Gas To Europe Can Be 35% Cheaper: Ministry (RT)
The average price of Russian gas supplied abroad will be $222 per 1,000 cubic meters in 2015. It could mean a 35% price cut for Gazprom supplied gas to Europe, the Russian Ministry of Economic Development has forecast. The price for Russian gas started to decline last year, as the contract price for Gazprom supplies are directly linked to falling oil prices, according to Vedomosti. Gas prices respond to the dynamics of oil prices with a lag of 6-9 months. In summer 2014 the company expected $350 per 1,000 cubic meters, in the end the average turned out to be $341, while the price of Brent in the second half of 2014 lost more than 50%. Next week, the management of Gazprom plans to present to the board of directors stress tests of a financial plan with an oil price of $40 and $50 per barrel based on the Ministry’s forecast.
Gazprom is expected to increase supplies to Europe to 160 billion cubic meters compared to 146.6 billion in 2015. At the same time revenue will decrease by $14.3 billion to $35.5 billion if the ministry’s prediction comes true. However, the figures may change in a planned outlook revision in April and September; Vedomosti say citing the ministry. Gazprom’s sales to Europe accounted for almost 70% of company revenues in 2014. In recent years, the average price in the EU, according to calculations by Vedomosti, was 5 to 14% higher than the overall average sales price. However, $222 per 1,000 cubic meters may be unprofitable for Gazprom in view of growing production costs, said Michael Krutikhin a partner at RusEnergy, as quoted by Vedomosti.
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“..at $110 oil and 33 rubles to the U.S. dollar, Russian upstream free cash flow for the companies his group covered was roughly the same as now, with oil near $60 and 60 rubles per U.S. dollar.”
• Falling Oil Prices Don’t Scare Russian Energy Firms (CNBC)
Low oil prices are hurting the Russian state as tax revenue tumbles along with crude. But Russia’s energy firms aren’t feeling the same pain, and they may in fact weather the cheap oil storm better than their international peers. Experts point to two major factors helping the companies in a low-price environment: Moscow’s tax rate on producers shifts lower as the price of oil falls (meaning the cost is mostly borne by the state), and most of the oil companies’ expenses are denominated in rubles. Together, those factors largely offset any negative impact from oil prices, Goldman Sachs energy analyst Geydar Mamedov wrote in a recent note.
The currency point is key: Russian energy companies’ expenditures are largely conducted in rubles because there is a strong local oilfield services sector, and their revenues are dollar-denominated. So as the Russian currency has fallen against the dollar, the firms have been nearly totally insulated from oil’s price decline. “In the short term, there is definitely a natural buffer built into the system through the ruble,” Ildar Davletshin, Renaissance Capital oil and gas analyst, told CNBC. “The ruble has halved over the past 12 months; that’s a natural hedge against weak oil prices.” Mamedov noted that at $110 oil and 33 rubles to the U.S. dollar, Russian upstream free cash flow for the companies his group covered was roughly the same as now, with oil near $60 and 60 rubles per U.S. dollar.
Meanwhile, while many international oil companies outside Russia are cutting back on production, Mamedov wrote that he does not expect to see a slowdown in Russian upstream activity. (Russian refiners, on the other hand, could take a hit because of how the tax scheme works). In fact, Goldman predicts that Russian production will increase to 532 million tonnes in 2015 from 527 million tonnes in 2014. Despite those short-term positives, Davletshin said he “wouldn’t be too optimistic” in the medium or long term. Local costs may catch up with the currency differentials as inflation accelerates, and sanctions are hurting the companies by depriving them of international technology-sharing opportunities, he explained. “I’m not saying Russia cannot move on its own, but it will take longer,” he said.
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Germany only plays green.
• German Coal Imports From Russia Highest Since 2006 (RT)
Germany imported more than 12 million tons of coal from Russia in 2014 – the biggest volume in 9 years, despite calls for energy independence and a switch to renewables. Coal imports from Russia increased 6.6% in 2014, at 12.6 million metric tons, Germany’s Federal Statistics Office reported Friday. This is about a third of the country s total coal imports. At a time when geopolitical relations between the two countries are strained, Germany continues to pump money into a country that the US and other European countries are bent on economically isolating. Poland, also a Moscow naysayer, is Russia’s second biggest coal importer in the EU. Another country that had sworn off Russian coal, but ended up buying the cheap energy to heat homes and factories, was Ukraine. Kiev bought some 50,000 metric tons in December.
Russian coal has become even more attractive to Europeans since the ruble depreciated more than 50%, which means importers spend less dollars and euro. The devaluation of the ruble and the decline in oil prices has placed Russian thermal coal exporters among the most competitive suppliers to both the Atlantic and Pacific markets, says Diana Bacila, a coal analyst at Oslo-based Nena, an independent energy analysis firm. About 50% of German electricity comes from coal, with the rest coming from natural gas and nuclear energy. Germany is also Russia’s biggest gas client, importing over 25 billion cubic meters per year. The recently completed Nord Stream pipeline, which feeds directly from Russia to Germany, has a capacity to deliver 55 billion cubic meters of natural gas.
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This is serious.
• Argentina President Fernandez Charged in Probe of Alleged Cover-Up (Bloomberg)
Argentine President Cristina Fernandez de Kirchner was formally accused by a prosecutor of trying to cover up the alleged involvement of Iranian officials in the bombing of a Jewish center that killed 85 people. In a document filed to a federal court, Prosecutor Gerardo Pollicita said Fernandez, Foreign Minister Hector Timerman, lawmaker Andres Larroque and other government supporters tried to remove Iranian officials from Interpol lists in exchange for trade preferences with the Islamic republic. Pollicita’s 62-page statement was posted on the prosecutor general’s website. The charges will overshadow Fernandez’s last 10 months in office as she struggles to revive growth in South America’s second-biggest economy and repair relations with investors after last year’s default.
The accusations come one month after former prosecutor in the case, Alberto Nisman, was found dead in his apartment with a bullet to the head. Investigators have yet to determine if it was suicide or murder. “This could be a seismic change for Argentina’s political environment,” said Carl Meacham, Americas program director at the Center for Strategic and International Studies in Washington. “You have an economic crisis on the horizon and you marry that with a political crisis, it could be a disaster for Argentina.” Fernandez, 61, has denied the accusations against her and said last month that Nisman may have been murdered in order to sully the image of her government.
Judge Daniel Rafecas must now decide whether the evidence of a cover-up is admissible and whether to pursue the case, said Hernan Munilla Lacasa, a professor in criminal law at the Universidad Catolica Argentina in Buenos Aires. Fernandez can be called on to testify, though as president she has the right to do so in writing and not in person. Cabinet Chief Jorge Capitanich early Friday said the accusations and a march planned for Feb. 18 to commemorate Nisman’s death were part of a “judicial coup” against the president. “The Argentine people should know that we’re talking about a vulgar lie, of an enormous media operation, of a strategy of political destabilization and the biggest judicial coup d’etat in the history of Argentina to cover up for the real perpetrators of the crime,” Capitanich said at his daily press conference.
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Asset prices cannot hold.
• Farmland Values in Parts of Midwest Fall for First Time in Decades (WSJ)
Farmland values declined in parts of the Midwest for the first time in decades last year, reflecting a cooling in the market driven by two years of bumper crops and sharply lower grain prices, according to Federal Reserve reports on Thursday. The average price of farmland in the Federal Reserve Bank of Chicago’s district, which includes Illinois, Iowa and other big farm states, fell 3% in 2014, marking the first annual decline since 1986, the Chicago Fed said. Prices for cropland during the fourth quarter remained steady compared with the previous quarter, according to the bank’s survey of agricultural lenders, though half of all respondents said they expect farmland values to decline further in the current quarter.
In the St. Louis Fed’s district, which includes parts of Illinois, Kentucky and Arkansas, prices for “quality” farmland gained 0.8% in the fourth quarter compared with year-ago levels, despite lower crop prices and farm incomes in the region. A majority of lenders in the district expect values to cool in the current quarter compared with the first quarter of last year, reflecting reduced demand for land amid tighter profit margins for farmers. The reports spotlight an overall slowdown in the U.S. farm economy and in the appreciation of farmland prices. Crop prices had soared for much of the past decade, fueled by drought and rising demand for corn from ethanol processors and foreign importers. The gains pushed agricultural land values so high that some analysts warned of a bubble.
On Tuesday, the U.S. Department of Agriculture projected net U.S. farm income this year would fall to $73.6 billion, the lowest since 2009, from $108 billion in 2014. Prices for corn, the biggest U.S. crop by value, have tumbled more than 50% since the summer of 2012, when they soared to record highs amid a severe U.S. drought. Growers produced the nation’s largest corn and soybeans harvests ever last autumn, helped by nearly flawless weather over much of the growing season. In the Chicago Fed district, farmland values in the latest quarter dropped in major corn-producing states like Illinois, Iowa and Indiana compared with year-ago levels, while land values in Wisconsin increased slightly and were unchanged in Michigan.
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Marie Antoinette all over again.
• The Super-Rich Don’t Care About Us. It Will Be Their Downfall (Guardian)
The news this week that a bank helped wealthy customers to dodge taxes should not come as a surprise to many. The super-rich have long held some profoundly distorted ideas about the world. They are more than averagely likely to believe their achievements are the product of their superior brains and hard work. They may believe the Selfish Gene rhetoric that those with the best genes rise to the top of the pond, and at the bottom is genetic sludge. They are oblivious to any evidence to the contrary. They have no idea that had they been born on a sink estate they too would have sunk. This is partly because the super-rich are no longer exposed to data and experiences that contradict their worldview. Flitting between their various homes around the world, they know nothing of our lives.
They have never, ever had to sit on the phone waiting for the next available customer support agent – “your call really matters to us” – to not fix their phone/internet/energy bill issue. Of particular concern is that they only consume media that support their worldview. Recently, an Oxbridge-educated CEO in all seriousness told me that there has been no increase in inequality in this country. My jaw was slack with amazement when another told me that “inner London secondary pupils have the best exam results of any in the world”. They are living in the la-la land that Polly Toynbee and David Walker painstakingly exposed in their book Unjust Rewards. Consider your response to the following information. About 15,700 under-two-year-olds live in a family that is classed as homeless, according to a new report.
Homelessness adversely affects parental responsiveness, and early responsiveness has been proved to affect the capacity of the brain to process positive experiences. My response to this would be: “Since early care profoundly affects the size and content of our brains and subsequent mental health, government should act to eradicate involuntary homelessness. If Thatcher had not sold off the council housing stock this problem would be far less. A Labour government should reverse that policy.” When I put that to a super-rich man whom I know, he said: “It’s a shame there are so many babies with homeless parents but it is not the role of the state to house them. My charity does not directly address this issue but I am sure there are others that do. The role of government is to leave people like me free to create jobs which will enable those parents to earn enough to pay rent and live in decent accommodation.”
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