Mar 102015
 
 March 10, 2015  Posted by at 6:14 am Finance Tagged with: , , , , , , , ,  1 Response »


NPC Ford Motor Co., McReynolds & Sons garage, L Street, Washington DC 1926

S&P 500 Can’t Fight The Market’s Selloff Forever (MarketWatch)
China’s ‘Money Garrote’ May Choke Us All (MarketWatch)
Three Reasons Japan Will Get More Stimulus (Bloomberg)
Central Bank Blues (Deutsche Welle)
Japan’s Not So Golden Oldies Tighten Their Purse Strings (CNBC)
ECB Starts Buying German, Italian Government Bonds Under QE Plan (Bloomberg)
Presenting The Buyers Of Over 100% Of New German And Japanese Bond Issuance (ZH)
Aftershocks, Part 1: That Austrian Bank (John Rubino)
Billionaire Greek Ship Owners Surface on Tax-Exempt Overseas Profit (Bloomberg)
EU, Greece To Start Technical Loan Talks Wednesday (Reuters)
Draghi Urged Greece to Allow Officials Back Before It’s Too Late (Bloomberg)
Eurozone Calls On Greece To Come Up With Credible Economic Reforms (Guardian)
Greece Sees First Shortages In Imported Goods (Kathimerini)
Liquidity Fears Slow Greek Government Payments (Kathimerini)
Creditors Reject Greece’s Reform Proposals (Bloomberg)
Spain’s Post-Franco Elite Under Attack From Popular Podemos Party (Bloomberg)
truthinesslessness (Jim Kunstler)
US Deploying 3,000 Troops To The Baltics (DW)
The Isolation of Donetsk: A Visit to Europe’s Absurd New Border (Spiegel)

“Something is wrong with this picture.”

S&P 500 Can’t Fight The Market’s Selloff Forever (MarketWatch)

Investors have reached a fork in the road. Should they follow the rally in the S&P 500, or the selloff in two key components and a much broader market index? One chart watcher believes the road with more travelers could prove to be right. The chart below compares the S&P 500, the NYSE Composite Index and the shares of General Electric and Exxon Mobil. “More and more stocks no longer are in uptrends, even as the S&P 500 manages to maintain its uptrend,” said Carter Braxton Worth, chief market technician at Sterne Agee. “Unsustainable divergence, we’d say.”

Worth believes it is important to view the performance of the NYSE Composite, which is composed of more than 2,000 stocks, because it is“one of the broadest (and oldest) indices in existence.” He also believes GE and Exxon are among the most important stocks within the S&P 500, given GE’s broad reach into all corners of the economy, and Exxon’s sheer size and the economic importance of the oil and gas markets. “Something is wrong with this picture. Either the S&P 500 accurately depicts the state of the world, or GE and Exxon do,” Worth said. “One or the other, but it cannot be both.

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“China’s money supply is already 372% of what it was at the beginning of 2006.”

China’s ‘Money Garrote’ May Choke Us All (MarketWatch)

— In this new era of all-powerful central banks, it is hard for investors to look past who will be next to take out the big gun of quantitative easing. This week, all eyes are on the European Central Bank, which follows the Bank of Japan as the latest of the major monetary-policy makers to embark on its own aggressive bond-buying program. In contrast, China appears to be entering a “new normal” era, in which its central bank only has a pea-shooter. While most headlines at the ongoing National Peoples Congress meeting focused on the “approximately 7%” economic growth target, the benchmark money-supply growth target of 12% was also the lowest in decades. Another part of China’s new normal is not just lower growth, but also an era where the central bank is no longer able to magically speed its money-printing presses.

Conventional wisdom holds that the People’s Bank of China (PBOC) has a gargantuan monetary arsenal, given that the country has the world’s largest stash of foreign reserves at $3.89 trillion. This cash mountain is routinely used to justify how Beijing has nearly unlimited firepower to backstop its economy. But according to some analysts, this reserve accumulation is merely a byproduct of another form of quantitative easing. Rather than strength, its size indicates just how staggeringly large China’s domestic credit expansion has become in recent decades. According to strategist Albert Edwards at Société Générale, such foreign-reserve accumulation — which typically takes place in emerging markets — is equivalent to quantitative easing.

The PBOC’s historic mass-printing of money to buy foreign currency and depress the yuan’s value is little different from what the Federal Reserve and others have done, Edwards said. This would mean that China has already embarked on a major monetary expansion after three decades of trade surpluses and reserve accumulation. Furthermore, the recent reversal in such reserve accumulation points to a significant turning point in monetary conditions. Indeed, Joe Zhang, author of “Inside China’s Shadow Banking System,” argues that China’s credit expansion has in fact been far more aggressive than the quantitative easing attempted in the U.S. or Europe.

Zhang, a former PBOC official, calculated that China’s money supply is already 372% of what it was at the beginning of 2006. And if you add up official data between 1986 and 2012, China’s benchmark M2 money supply has grown at a compound rate of 21.1%. While 7% economic growth is slow for China compared to the double-digit rates of the past, such data makes 12% money-supply growth looks positively measly. Another reason to believe that China is at the tail end of a huge monetary expansion is found in a recent study by McKinsey. They estimated that total credit in China’s economy has quadrupled since 2008, reaching 282% of gross domestic product.

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Do or die.

Three Reasons Japan Will Get More Stimulus (Bloomberg)

Two years after Haruhiko Kuroda, governor of the Bank of Japan, declared his team will “do whatever it can” to end deflation, it’s painfully clear their efforts aren’t working. Stocks are up, bond yields are down and people are buzzing about Japan for the first time in years. What’s still missing, though, is any hint of the self-sustaining recovery Kuroda hoped to be touting by now. With annualized growth of 1.5% between October and December after two straight quarters of contraction, Japan is hobbling out of recession far more slowly than hoped. A third dose of quantitative easing is almost certain. Here are three reasons why.

First, the initial rounds of QE weren’t potent enough. “In order to escape from deflationary equilibrium, tremendous velocity is needed, just like when a spacecraft moves away from Earth’s strong gravitation,” Kuroda recently explained. “It requires greater power than that of a satellite that moves in a stable orbit.” Although the Bank of Japan managed to lower the value of the yen by more than 20% beginning in April 2013, that clearly hasn’t provided enough of a boost to the economy. (Net exports, for example, added just 0.2% to fourth quarter GDP.) Meanwhile, the bank’s 2% inflation target looks more and more distant. The BOJ’s main inflation gauge slowed to just 0.2% in January, down from 1.5% in April last year.

The trouble with the first two rounds of QE was both the size and the strategy. While undoubtedly huge, neither injection was aggressive enough to, at Kuroda puts it, “drastically convert the deflationary mindset.” Also, the BOJ must get more creative than just hoarding government debt. This time, the BOJ should pledge bond purchases of closer to $1 trillion a year and buy bigger blocks of asset-backed, mortgage-backed and corporate securities; load up on distressed assets, including property in rural areas; and prod the government to tax excessive bond holdings by banks and households.

Second, the Federal Reserve is complicating Kuroda’s job. With U.S. unemployment falling to 5.5% in February, the lowest level in almost seven years, U.S. interest rates will soon be heading higher. On Friday, Fed Bank of Richmond President Jeffrey Lacker employed his own cosmic imagery when he declared: “June would strike me as the leading candidate for liftoff.” Monetary largess isn’t exactly a zero-sum game, but the Fed’s QE experiment supported asset markets from London to Tokyo as much as it’s enlivened U.S. demand. As the Fed withdraws, Kuroda will face pressure to make up the difference.

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“..experts question whether a flood of central bank reserve money, pumped into the hands of players in secondary financial markets, can generate a stimulus at all. ”

Central Bank Blues (Deutsche Welle)

On Monday (09.03.2015), the European Central Bank begins its long-anticipated program to buy sovereign bonds on secondary bond markets – i.e. previously issued government bonds held by institutional investors like banks or insurance funds. In central bankers’ jargon, this is called “quantitative easing,” or QE. The ECB’s plan is to pump 60 billion euros ($65 billion) into the financial markets each month, by trading central bank reserve money (a form of electronic cash) for bonds. That’s set to continue until at least September 2016, which means at least 1.1 trillion euros will be put into the hands of investment managers – who will have to find some alternative investments to make with the money. The bond-purchasing program’s goal is to push inflation back up to just under two% – at the moment, there’s consumer price deflation averaging 0.3% across the eurozone.

The ECB appears confident that QE will succeed in this aim. On Thursday last week, at the ECB’s governing board meeting in Nicosia on Cyprus, the central bank revised its projections for both GDP growth and inflation in the eurozone upward: The inflation rate is projected to go up to 0.7% for this year, and GDP growth from 1.0 to 1.5%. But are the new projections just a case of whistling in the dark? There are in fact serious doubts as to whether the ECB will actually be able to meet its targets, or if, instead, the bond-purchasing program will have effects that will make a structural recovery of the eurozone more difficult. For a start, many observers doubt whether the ECB will even be able to find willing sellers for €60 billion a month of bonds. Sovereign bonds – especially those of the core eurozone member states, like Germany – may soon become rather scarce on secondary markets.

Neither domestic banks and insurance funds, nor foreign central banks, will have much incentive to sell their government bond holdings to the ECB. The older bonds with long maturities and decent interest rates, in particular, will probably be held rather than sold. Moreover, experts question whether a flood of central bank reserve money, pumped into the hands of players in secondary financial markets, can generate a stimulus at all. It probably won’t lead to any boost in their lending activities to real-economy businesses or households, for two reasons: First, banks have recently been obliged to increase their core capital reserves – the amount of shareholders’ money, including retained earnings, which is available to cover possible loan losses – and they’re still adjusting their balance sheets accordingly. That means they’re being cautious about lending.

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Done spending long ago. Abenomics is just a mirage that only works as long as people believe in it. Abe himself has urged them to believe. But they’re not that crazy.

Japan’s Not So Golden Oldies Tighten Their Purse Strings (CNBC)

Rising prices are forcing Japanese pensioners to reduce spending, undercutting Prime Minister Shinzo Abe’s plan to boost economic growth and pay down the hefty public debt burden in one of the world’s fastest aging nations. “There is no solution to the structural problem: the government is running a huge budget deficit, but the only way to coax the elderly into spending more is by increasing public spending on them,” said Dai-ichi Life Research Institute (DLRI) chief economist Hideo Kumano. Japan limped out of a technical recession in the fourth quarter of 2014, but consumers are still struggling. A 3-percentage-point tax hike to 8% last April continues to weigh on consumption, while higher import prices have exacerbated the situation due to the yen’s over 40% decline against the U.S. dollar since Abe’s return to power.

In January, Japanese household spending fell 5.1% on month – its 10th consecutive decline, marking the longest losing streak since the global financial crisis. Meanwhile retail sales fell 2.0% – their first decline in 7 months. The elderly are reducing spending the most. “The average Japanese is suffering because of a weaker yen,” said Keio Business School associate professor Seki Obata, but “pensioners are suffering the most from the rising prices because there is no prospects of their incomes rising.” Whether a pensioner can afford to spend or has to cut back depends on their ability or willingness to work, according to according to DLRI’s Kumano figures, citing government data. The 37.8% of households with no income from paid work cut back spending by 1.5% in 2014 – and nearly all (95%) of these households are over 60 years old, according to DLRI’s Kumano.

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“They have just switched on the heat and we will need some time for the pressure to mount.”

ECB Starts Buying German, Italian Government Bonds Under QE Plan (Bloomberg)

With the first purchases of government bonds under a broader stimulus plan, the European Central Bank showed willingness to be patient in its efforts to reignite the euro area’s economy. The ECB and national central banks started buying sovereign debt on Monday under the 19-month plan to inject €1.1 trillion into the economy. While purchases included bonds from at least five countries, the size of individual trades — at between 15 million euros and 50 million euros — was small relative to the program’s goals, according to people with knowledge of the transactions. “The amount bought may be small to start with, but this will be like a pressure cooker,” said Ciaran O’Hagan, head of European rates strategy at SocGen in Paris. “They have just switched on the heat and we will need some time for the pressure to mount.”

Euro-area bonds extended a 14-month rally fueled by speculation that buying €60 billion of debt a month will create a scarcity of government bonds among buyers of the securities. Yields already fell to record lows across the region as the Frankfurt-based bank follows in the quantitative-easing footsteps of the Federal Reserve, Bank of England and Bank of Japan. Germany’s 10-year yield fell the most in six weeks. Gains in Italian bonds were smaller, with the yield on similar-maturity debt slipping four basis points to 1.28%. That widened the yield gap between the two securities by four basis points to 97 basis points, after it shrank to 90 basis points on Friday, the narrowest spread since 2010. “We will see more spread compression ahead,” SocGen’s O’Hagan said. National central banks purchased Belgian, French, German, Italian and Spanish debt..

The buying of bonds will be made roughly in proportion to the capital that each member central bank has contributed to the ECB, though that guideline doesn’t have to be strictly followed every month. There’s also flexibility on what maturity of bonds will be bought by the central banks to reach their target, and acquisitions of asset-backed securities and agency debt are also included in the plan. Some holders of government securities have indicated an unwillingness to sell, sparking concern that there will be a scarcity of available debt for the ECB to buy. There’s also a risk that flexibility and limited information on the plan stirs market volatility. “They know it will not be easy to purchase €60 billion a month including covered bonds and ABS, so they have to deal very cautiously,” said Patrick Jacq at BNP Paribas. “The market remains in positive territory but there is no further acceleration, which means that apparently there is no squeeze on any paper.”

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“.. please don’t tell your average Hinz and Kunz that more than all German bond issuance in 2015 will be monetized. It will bring back some very unpleasant memories.”

Presenting The Buyers Of Over 100% Of New German And Japanese Bond Issuance (ZH)

Back in December, when the total amount of annual ECB Q€ was still up in the air and and consensus expected a lowly €500 billion annual monetization number, we calculated that based on Germany’s capital key contribution of about 26%, the ECB would monetize some €130 billion of German gross Bund issuance, or about 90% of the total scheduled issuance for 2015. Subsequently, the ECB announced that the actual amount across all ECB asset purchasing programs, will be some 44% higher, or €720 billion per year (€60 billion per month). So what does that mean for the revised bond supply and demand across two of the most important developed markets?

Well, we already know that the Bank of Japan will monetize 100% or just over of all Japanese gross sovereign bond issuance (source). As for Germany, on a run-rate basis, and assuming allocation based on the abovementioned capital key, it means that for the next 12 month period, assuming no major funding changes in Germany, the ECB will swallow more than a whopping 140% of gross German issuance! Or, said otherwise, the entities who will buy more than all gross German and Japanese issuance for the next 12 months, are the ECB and the Bank of Japan, respectively.

This also means that to fulfill its monthly purchase mandate, the ECB will have to push the price to truly unprecedented levels (such as the -0.20% yield across the curve discussed previously, or even lower) to find willing sellers. That said, please don’t tell your average Hinz and Kunz that more than all German bond issuance in 2015 will be monetized. It will bring back some very unpleasant memories.

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“The result is a bunch of banks, pension funds and hedge funds whose balance sheets are stuffed with paper that has value only if 1) accounting rules continue to support “mark to fantasy” bookkeeping and 2) governments (via taxpayers) stand ready to convert that bad paper to newly-created currency upon demand.”

Aftershocks, Part 1: That Austrian Bank (John Rubino)

It’s amazing how fast credit ratings revert to their intrinsic value when artificial government support is removed. And the list of potential victims so far doesn’t even include the counterparties on whatever credit default swaps are out there on Heta-related bonds. So more scary headlines are coming. It’s also important to note just how tiny these numbers are. Not a single amount mentioned in the above article is over €25 billion. That’s chump change in today’s mega-bank world. Yet in the absence of a government backstop it’s enough to cause cascading credit downgrades and maybe even the bankruptcy of an entire Austrian state.

So Austria and by implication the rest of the eurozone now face a tricky choice: Stick with the bail-in program and risk a highly-unpredictable cross-border contagion. Or go back to the tried-and-true bail out, with the higher deficits and rising debt — and angry voters — that that implies. Over the past couple of decades, governments have generally blinked when confronted with the prospect of actually letting markets clear bad debts and other misallocated capital. Starting in the mid-1990s with the what came to be known as the “Greenspan put” governments around the world have made it clear to the financial sector that no mistake is too egregious to be unworthy of a central bank backstop. So leverage up, roll the dice, collect those bonuses, and don’t worry about the consequences.

The result is a bunch of banks, pension funds and hedge funds whose balance sheets are stuffed with paper that has value only if 1) accounting rules continue to support “mark to fantasy” bookkeeping and 2) governments (via taxpayers) stand ready to convert that bad paper to newly-created currency upon demand. As taxpayers and voters have caught onto the scam, they’ve raised the political costs for governments, forcing Austria’s leaders to have to decide which group — unstable financial markets or an appalled electorate — is more dangerous to cross heading into the next election. Either choice brings its own series of aftershocks and systemic risks.

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Big fight coming up, or are they just going to change the flags on their ships to Panamese?

Billionaire Greek Ship Owners Surface on Tax-Exempt Overseas Profit (Bloomberg)

The Hellenic fleet is the world’s most valuable at $106 billion, according to VesselsValue.com, accounting for 19% of the world’s tankers. Greece’s seafaring mastery is a remarkable feat for the world’s 42nd-largest economy, where economic and political turmoil has left a quarter of the population unemployed. “This is a business that’s part of their soul,” Matt McCleery at ship finance consultancy Marine Money International, said in a phone interview. “It’s so important to their culture, to their identity, and to their history.” It’s also made billionaires of the country’s four largest ship owners by tonnage: John Angelicoussis, George Prokopiou, Peter Livanos and George Economou. The quartet control a combined fortune of $7.6 billion, according to the Bloomberg Billionaires Index. None of them appear individually on an international wealth ranking. [..]

The value of the vessels are discounted by 60% to approximate the typical level of financing Greek ship owners can obtain today, according to Anthony Zolotas, chief executive officer of ship financing adviser Eurofin SA. Greeks have long dominated the shipping business. The nation’s fleet, 3,669 vessels in 2013, is the largest in the world, according to the Union of Greek Shipowners, making up more than 7% of the Greek economy and providing 192,000 jobs in 2013. Greece’s shipping magnates control 23% of the world bulk carrier fleet, according to the report, even as their home country accounts for less than 0.4% of the world economy.

Their success in one of the most global industries stands in contrast to their country’s domestic troubles, where 36% of the population was at risk of poverty or exclusion from social benefits at the end of 2013, according to Eurostat, the statistics agency of the European Commission. “There is a humanitarian crisis,” said Spyros Economides, a professor in international relations and European politics at the London School of Economics. “It’s not just the problems on the street, it’s much more endemic and deeper than that with people fearing they might get evicted from their homes, who can’t pay their electricity bills, who are having problems feeding their families.”

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At least something. But even this could get ugly.

EU, Greece To Start Technical Loan Talks Wednesday (Reuters)

Warning Greece it had “no time to lose”, euro zone ministers agreed technical talks between finance experts from Athens and its international creditors would start on Wednesday with the aim of unlocking further funding. “We’ve talked about this long enough now,” an impatient-sounding Dutch Finance Minister Jeroen Dijsselbloem said after chairing Monday’s meeting of euro zone colleagues, their first since Feb. 20, when they extended Greece’s bailout deal to June. “We only have four months,” he said. “Let’s get it done.” The new left-wing Greek government, keen to show voters it is keeping election promises to break with EU-imposed austerity, has tried patience among its EU peers by arguing over the form and venue for detailed talks required to establish its needs and whether it has met conditions the creditors have set on reforms.

In a compromise, Dijsselbloem said the negotiations among financial experts from Greece and the creditor institutions – the EC, ECB and IMF – would start in Brussels on Wednesday, not in Athens as has been normal for EU bailout programs so far. Those talks, however, would be “supported” by international teams working in Athens to obtain and check information. The Greek government has insisted it will no longer deal with the “troika”, as the three institutions have been called in a term that is now anathema for many Greeks who associate it with massive cuts in public spending. It has also said it will not tolerate irksome foreign inspection visits to Athens. The Eurogroup now calls the troika “the institutions” and the talks will, formally at least, be based in Brussels. EU ministers say they do not want “semantics” to get in the way of negotiations intended to prevent Greece going bankrupt and potentially being forced to abandon the single currency.

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Is the Troika back for real?

Draghi Urged Greece to Allow Officials Back Before It’s Too Late (Bloomberg)

ECB President Mario Draghi told Greek officials they face a critical situation and must let euro-area representatives return to Athens if they are ever going to obtain more aid, according to two European officials. Draghi told Greek Finance Minister Yanis Varoufakis at a meeting on Monday in Brussels the government’s books needed to be examined to determine its financing shortfall, said the people, who asked not to be named because the conversation was private. Representatives from the European Commission and IMF had a similar message, one of the officials said.\ Greece agreed to allow experts representing the commission, ECB and IMF to start work in Athens on Wednesday, the Netherlands’s Jeroen Dijsselbloem said, after chairing the meeting of euro-region finance ministers.

With financial markets closed, and the central bank keeping its banks on a tight leash, the Greek treasury could face a cash crunch in one, two or three weeks, a different euro-area official said Monday. Without getting access to the books, it’s impossible to know for sure, the official added. Prime Minister Alexis Tsipras is trying to access European bailout funds for Greece without completely ditching the anti-austerity agenda that won him election seven weeks ago. So far he’s dropped demands for a writedown on Greek debt, abandoned his plan to halt privatizations and accepted that he won’t get “bridge financing” without signing up to conditions. In return he’s won concessions to shift some meetings to Brussels and persuaded European officials to describe the country’s official creditors as “institutions” rather than “the troika.”

“The troika is a cabal of technocrats that used to arrive in Athens and enter the ministries with a kind of power play that smacked of a colonial attitude,” Varoufakis said at a press conference after the meeting. “That practice is finished. We shall endeavor to do whatever it takes to provide the institutions with whatever information they need.” Greece won’t get any more cash from its €240 billion rescue program until its official creditors are satisfied that Tsipras is committed to all the economic fixes needed to meet its conditions, Dijsselbloem said. It’s impossible for Greece’s creditors to adequately audit the government’s accounts without sending officials to Athens, a troika official said. The government would need to fly hundreds of Greek officials to Brussels for the work to be done there, he added.

As Draghi pressed Varoufakis to accept the return of the troika officials, the minister said that the idea that Greece was opposed to such a move was a misunderstanding, according to one of the officials with direct knowledge of the exchange. Can they start soon? Draghi asked. Varoufakis agreed. Wednesday? And the deal was done.

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“Wolfgang Schäuble declared that the outcome of the fractious negotiations would be decided by the “troika”. He repeated the term several times, despite the new Greek government’s insistence that the troika is dead.”

Eurozone Calls On Greece To Come Up With Credible Economic Reforms (Guardian)

Greece’s eurozone creditors have stepped up the pressure on Athens over reforms that might unleash billions more in bailout loans and save the country from bankruptcy over the next three months. Finance ministers from the single currency area broke off a discussionabout Greece on Monday, after little more than one hour in Brussels. The Greek finance minister, Yannis Varoufakis, was told to come up with what the creditors view as a realistic programme of economic and fiscal reforms. The chair of the eurozone finance ministers’ group displayed his frustration at the pace of the Greek government response since Athens secured a bailout extension last month. “Little has been done since the last Eurogroup [meeting two weeks ago] in terms of talks, in terms of implementation,” he said before the talks. “We have to stop wasting time and really start talks seriously.”

The Greek government led by prime minister Alexis Tsipras reached an agreement on extending the eurozone bailout by four months a fortnight ago, but it has to commit to a programme of reforms credible to its creditors by the end of April to access more than €7bn (£5bn) still available in loans. Ministers voiced impatience and irritation with Greece’s efforts to deliver a reform menu that would satisfy the lenders. Varoufakis was uncharacteristically silent going into the meeting after delivering two separate lists of vague reforms over the past fortnight, including a proposal to employ students and tourists to snoop on tax-dodgers and report them to the authorities.

It was clear that key eurozone policymakers were less than impressed with the suggestions from Greece, which faces a financing gap in the coming months and has to repay or redeem billions of euros in debts. Wolfgang Schäuble, the German finance minister, who has been feuding with Varoufakis for weeks, declared that the outcome of the fractious negotiations would be decided by the “troika”. He repeated the term several times, despite the new Greek government’s insistence that the troika is dead. It refers to the triumvirate of officials from the ECB, the EC, and the IMF, which has run the €240bn bailout of Greece since 2010, dictating the country’s fiscal policies and a massive programme of austerity.

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Will this turn vs Syriza or vs Germany?

Greece Sees First Shortages In Imported Goods (Kathimerini)

The first occurrences of shortages in imported goods and raw materials have arisen as a result of Greek enterprises’ inability to pay with cash in advance for the entire cost of the commodities they import, and the situation is even worse than in 2012. Market professionals have told Kathimerini that there are already some problems in the cases of mechanical equipment and electronic appliances, while in the food and drinks sector there are shortages in certain premium products such as a well-known Belgian beer.

Difficulties have also been noted in imports of chemical commodities, both end products and raw materials, which is hampering the production of fertilizers and pesticides. Even reliable clients have been hit with the same demands from foreign suppliers, while the phenomenon is creating a chain reaction across other sectors as well. “A number of tourism companies wanted to renew their equipment ahead of the new season but now face a serious problem,” Ioannis Papageorgakis, the president of the Athens Association of Commercial representatives and Distributors (SEADA), told Kathimerini.

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Serious enough as well.

Liquidity Fears Slow Greek Government Payments (Kathimerini)

Payments to state procurers have stopped as the General Accounting Office has blocked any state expenditure not related to salaries and pensions as a part of the efforts being made toward optimum cash management during the state’s current liquidity crisis. Coming up with cash appears particularly difficult, increasing concerns regarding a possible “accident” over the course of this month. Sources say that the Accounting Office is examining every detail of public spending and putting off payments that are not pressing or even curtailing other spending considered excessive. Its officials say the budget has 4,772 expenditure categories that are not salary-related and concern procurements and operating expenses, among others.

Their review has already saved some €180 million that can be used to finance the program aimed at fighting the humanitarian crisis, they add. The Accounting Office is also trying to postpone obligations in the coming months so as to secure a cushion for the state’s needs. Payments to procurers, subsidies and other obligations are being postponed till later in a bid to lighten the March spending program. Even the heating oil benefit has not yet been credited to recipients’ bank accounts in its entirety.The state’s liquidity remains marginal: The 500 million euros from the HFSF bank bailout fund has not yet yet been drawn as it requires a special law amendment.

The directors of social security funds have not approved the utilization of their cash reserves in commercial banks, meaning the state cannot use that liquidity which amounts to €2 billion. In this context the Finance Ministry’s projections regarding the flow of revenues and expenditure show that there may be a shortfall of €1 billion toward the end of March. This week the ministry has to cover two debt maturities, concerning the repayment of €350 million to the International Monetary Fund on Friday and treasury bills worth €1.6 billion that mature on the same day, with a fresh T-bill auction to that amount expected tomorrow. Officials say these obligations will be fulfilled normally.

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Rhetoric.

Creditors Reject Greece’s Reform Proposals (Bloomberg)

Greece’s provisional agreement with creditors to avert a default started to crack as European officials said the country’s latest proposals fell far short of what was put forward two weeks ago and Greek ministers floated the prospect of a referendum if their reforms are rejected. The list of measures Greece’s government sent to euro-region finance ministers last Friday, including the idea of hiring non-professional tax collectors, is “far” from complete and the country probably won’t receive an aid disbursement this month, Eurogroup Chairman Jeroen Dijsselbloem said on Sunday. German Deputy Finance Minister Steffen Kampeter said ministers are not expected to advance on Greece today.

“It’s not enough to exchange letters with non-committal statements,” Kampeter told Deutschlandfunk radio. “What’s needed is hard work and tough discussions.” Greece’s anti-austerity government, elected in January on a promise to renegotiate the terms of a €240 billion bailout, has to present detailed proposals to European creditors or risk running out of cash as soon as this month. The renewed tensions threaten to temper a rally in Greek bonds sparked by optimism over the provisional accord. “It seems their money box is almost empty,” Dijsselbloem said at an event in Amsterdam. Greece must adhere to its commitments as a “first step to restore trust” among its euro-area peers, Valdis Dombrovskis, European Commission vice-president for euro policy, said.

Greek bonds fell, with the yield on 10-year government bonds gaining 40 basis points to 9.8%. The Athens Stock Exchange index declined 3% as of 11:33 a.m. local time. The country is seeking the disbursement of an outstanding aid tranche totaling about €7 billion. Without access to capital markets, its only sources of financing are emergency loans from the euro area’s crisis fund and the IMF. Its banks are being kept afloat by an Emergency Liquidity Assistance lifeline, subject to approval by the European Central Bank.

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“Corruption is not just the scoundrels who put their hands in the till, it’s also the rich 1% who own as much as 70% of the population,”

Spain’s Post-Franco Elite Under Attack From Popular Podemos Party (Bloomberg)

Pablo Iglesias was a foreign exchange student in Italy when reports of the 1999 protest riots at the World Trade Organization meeting in Seattle inspired him to switch to political science from law. Today, leading Spain’s most popular party less than a year before a general election, he’s aiming to clear out the political old guard and set the country’s economy on a new path. The eruption of Iglesias’s group, Podemos, over the past year is part of a tectonic shift stemming from the seven-year slump that destroyed more than 3 million jobs and threatens to unseat the political and economic elite that emerged to control Spain after the death of Francisco Franco 40 years ago. If the rupture gives Iglesias a chance to implement his program, the shock waves will be felt far beyond the Iberian peninsula.

At the center of the Podemos’s platform is a plan to force a restructuring of Spain’s €1 trillion of government debt in what would be the biggest sovereign reorganization in history. The proposal has helped Podemos top 10 opinion polls in Spain since November.
Iglesias’s project, which would potentially affect five times more securities than Greece’s 2012 default, the current record holder, has yet to sink in with financial markets. Spain’s €21 billion of January 2016 bonds were yielding less than 0.1% last week. By the time that debt comes due, Iglesias could be prime minister. Investors are being “complacent,” Alastair Newton at Nomura in London, said in an interview. “We’re going to start getting some choppiness.”

Prime Minister Mariano Rajoy’s People’s Party and his main parliamentary opposition, the Socialists, have governed Spain since 1982, transforming an isolated economy that had lagged behind most of Europe under Franco. Under their rule, the country consolidated its democracy after an attempted coup, joined the European Union and NATO, and saw the economy more than double in size. Spain’s benchmark stock index, the Ibex-35, rose 500% between 1988 and its 2007 peak, almost double the gains on the U.K.’s FTSE 100. But since 2008, that model has unraveled, with the pain of the crisis compounded for many Spaniards by reports of widespread graft at both the main parties and the network of public savings banks they controlled.

Iglesias captured that narrative with a single expression: “the caste.” For his supporters, the caste is a corrupt elite that kept most of the gains from the boom years and left ordinary people to shoulder the cost of the crisis. “Corruption is not just the scoundrels who put their hands in the till, it’s also the rich 1% who own as much as 70% of the population,” Iglesias told hundreds of thousands of supporters gathered in downtown Madrid on Jan. 31. “Rajoy’s policies don’t create jobs, they spread misery.”

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“The whole ZIRP and QE game, for instance, can be boiled down to a basic wish to get something for nothing, that is, prosperity where nothing of value is created”

truthinesslessness (Jim Kunstler)

Finance is complicated, but not as complex as the wizards employed in it would have you believe. They would have you think it is an order of magnitude more abstruse and recondite than particle physics, when, in fact, it is often not much more than a Three Card Monte switcheroo. The whole ZIRP and QE game, for instance, can be boiled down to a basic wish to get something for nothing, that is, prosperity where nothing of value is created. Now, that’s not so hard to understand, is it? Until the economics wardrobe team comes in and dresses it up in martingales and bumrolls of metaphysics and you end up in a contango of mystification.

More galling and worrisome, though, is the failure of anyone even remotely in authority to stand up and publically object to the tidal wave of lies washing over this dying polity, actually killing it softly with truthinesslessness. The code of anything goes and nothing matters is turning lethal and the more it is kept swaddled in lies, the more perverse, surprising, and destructive the damage will be. The more our leaders lie about misbehavior in banking — including especially the actions of the Federal Reserve — the worse will be the instability in currencies. The more central bankers intervene in price discovery mechanisms, the more unable to reflect reality all markets will become. The more that the US BLS lies about the employment picture in America, the worse will be the eventual wrath of citizens who can’t get paid enough to heat their houses and feed their children.

An economist (sic) named Richard Duncan last week proposed the interesting theory that Quantitative Easing can go on virtually forever in an endless chain of self-canceling debt. Government spends money it doesn’t have and cannot raise, issues bonds to “investors,” buys its own bonds and stashes them in a storage vault so deep that the sun will not shine on them until it becomes a blue dwarf — long after the cockroaches have taken charge of Earthly affairs. Duncan forgets one detail: consequences. The consequence of this behavior will not be eternal virtual prosperity, but rather a wrecked accounting system for the operations of civilized human life. We’ve stepped across the event horizon of that consequence, but we just don’t know it yet. My bet is that we start feeling the effects sooner rather than later and when it is finally felt, all the Kardashian videos in this universe and a trillion universes like it will not avail to distract us from the flow of our own blood.

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Purely defense.

US Deploying 3,000 Troops To The Baltics (DW)

The United States is sending 3,000 troops to the Baltic states to partake in joint military exercises with NATO partners in Estonia, Latvia, and Lithuania over the next three months, US defense officials announced Monday. The mission, part of “Operation Atlantic Resolve” is designed to reassure NATO allies concerned over renewed Russian aggression amid the ongoing crisis in Ukraine. Around 750 US Army tanks, fighting vehicles and other military equipment arrived in Latvia Monday, and US ground troops are expected to begin arriving next week, US Army Col. Steve Warren told reporters. According to a US military source speaking on condition of anonymity, the military equipment will remain in the Baltics even after the US troops return to base.

The deployment is designed to “demonstrate resolve to President (Vladimir) Putin and Russia that collectively we can come together,” US General John O’Connor said. Vladimir Putin’s actions in Ukraine have raised concerns the Russian President could act against other eastern European countries. The military equipment, including the tanks and fighting vehicles will stay “for as long as required to deter Russian aggression,” O’Connor said. Russia’s recent annexation of Crimea and its support of anti-government rebels in Ukraine has sparked fears that Moscow might pursue similar actions against the Baltic nations, which have little military equipment of their own.

British Defense Secretary Michael Fallon recently said Putin represented a “real and present danger” to the Baltic nations, warning that the Russian leader could launch an undercover campaign to destabilize Estonia, Latvia and Lithuania. Putin was quoted in September as saying, “if I wanted, Russian troops could not only be in Kyiv in two days, but in Riga, Vilnius, Tallinn, Warsaw or Bucharest, too.” The US deployment also comes amid reports Putin made the decision to annex Crimea after a night-long meeting at the Kremlin following the ouster of Ukrainian president Viktor Yanukovych. The Baltic nations have been members of NATO since 2004, and the military alliance is seeking to counter potential Russian aggression by developing a rapid reaction force of 5,000 troops, to be stationed in the Baltic states as well as Bulgaria, Poland, and Romania.

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The dark side of the moon.

The Isolation of Donetsk: A Visit to Europe’s Absurd New Border (Spiegel)

One can argue whether the separatists are to be blamed or whether Kiev is exacting revenge. But either way, Donetsk is now just as isolated as West Berlin once was. Even from the east, where the border to Russia lies nearby, hardly any goods are allowed through. The rebels control the border, and they only allow the propaganda-driven aid shipments from Moscow to pass. Everything from milk to meat and vegetables is becoming scarce in the city. And the Ukrainian government has all but sealed off access to the “People’s Republic.” More recently, anyone wishing to cross the line between the two warring camps must present a “propusk,” a small, white identity card with a large “B” printed on it.

The Ukrainians have divided the demarcation line between their forces and the separatists into sections. The propusk is the Open Sesame for crossing the line in “zone B.” Since January, no one has been able to cross the line without this propusk. The problem is that it’s difficult to get. There is currently a two to four-week waiting period to obtain the propusk, which is issued in Velyka Novosilka, a village 90 kilometers west of Donetsk. But a “Sector B” propusk is required to reach Velyka Novosilka from Donetsk in the first place. The result is that people from Donetsk are in a paralyzing catch-22. Even in divided Berlin, such problems were more effectively solved. West Berliners were able to obtain travel permits from East Berlin officials in West Berlin so that they could cross the Wall. It was a small gesture of goodwill in the Cold War.

“It’s a theater of the absurd,” says Yevgeny, while another driver calls the situation at the border Kafkaesque. “Just look at the people over there, who have come from Donetsk. They give their documents to Ukrainian soldiers, hoping that the documents will somehow reach Velyka Novosilka. And then they come back, two weeks later, and spend days standing outside in the cold here to get their propusk.”

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Aug 272014
 
 August 27, 2014  Posted by at 8:03 pm Finance Tagged with: , ,  6 Responses »


Esther Bubley Greyhound garage, Pittsburgh, PA Sep 1943

Our Canadian friend Marina, who has Russian roots, sent me this video today. Marina has also translated several Automatic Earth articles into Russian (I’ll put up a link in a sidebar), see here. This is a taped August 24 international press conference with Alexander Zakharchenko, Chairman of The Council of Ministers of The Donetsk National Republic (DNR), and Vladimir Kononov, Defense Minister of DNR.

Since we in the west don’t often get to see the point of view of East Ukrainians, I thought it would be good to post it here. What is likely to be new to most is that the Donetsk leaders have not only recently actively started the formation of a state, they have to that end already established an army; and are therefore no longer – part of – militias.

Before I get accused of being partial once again – I get my fair share of that lately when I for instance ask for evidence of what either Russia or the (by now former) militias are accused of in the west -, I’ll just let it stand as is, and add parts of the transcript. At the very least you may find this informative. I did. And if at the end you think these guys are terrorists who don’t have the right to live free and in peace, so be it. But at least you’ll have seen their side of the story.

And I’ll add Putin’s speech yesterday at the Customs Union, where he met Poroshenko, for even more information from ‘the other side of the fence’. If only because whether we like it or not, the Ukraine ‘situation’ is very far from being solved, or over. And if you ask me, far too many people have died in the conflict already.

Our western leaders insist that the resolution is in the hands of Russia, or even Putin alone, but I think we need to ask ourselves if that is really the truth and nothing but the truth.

• As you all know, a week ago we announced our plan to attack. We started it yesterday. Until yesterday we have been preparing for the attack, examining trophy equipment, arming the crews, and testing communication between different military formations. I can now proudly announce that we formed 2 tank battalions, 2 full artillery brigades, 2 Grad divisons, 1 mechanized infantry battalion, 3 infantry brigades and a special purpose assault airborne brigade. All these units have now received Army numbers. The communication system have been regularized and 2 field hospitals and 1 maintenance brigade have been formed.

We have begun testing all these units in battle. Yesterday we began an attack on Amvrosiyivka enemy group. According to our data, in the course of the offensive, the enemy lost about 45 units of military equipment, we captured 14 units of military equipment, and about 1,200 people were killed and wounded. There are two cauldrons at the moment, in Amvrosiivka and Starobeshevskaia. We started to advance at 4 a.m. on Elenovka, where the fighting is still going on. 2/3 of Elenovka is under our control. We hope to clean up these areas before the night. However, the offensive will not end at that. We will continue until we free all populated areas in the Donetsk National Republic. The army is ready and we have the support of the people. There will be more and more prisoners.

• Now regarding the Parade. I deliberately put the trophy equipment on display on Lenin Square. Everything that will come to us from Kiev, will end up in the same condition sooner or later. The more will come, the easier it will be for us to restore our economy. As you may know, metallurgy is one of our main industries.

• You can now ask your questions.

Does the militia fire on the houses?

Let me correct you right away. We were the militia 10 days ago. Today, we are the armed forces of the Donetsk National Republic. The DNR’s armed forces by no means try to strike on residential neighborhoods and houses. We don’t and never will practice this. This is our homeland, our soil, and our Motherland. This is a war on our territory that we want to preserve. We’re not animals. We are not fighting in Kiev, we are fighting at home.

• Unfortunately, dear journalists, the West tries to invade us with a regularity of 30-50 years. That is, every 30-50 years the Western civilization tries to impose on us their opinion and their way of life. The First World War, the Great Patriotic war, the Crimean war before that and so on well into the depths of history. As a result, the West traditionally gets the fall of Berlin, Paris, etc. There is Maidan every year In Kiev [..] The West comes every 30-50 years to get what it deserves. Now in 2014, they are slightly delayed.

• I will invite several officers of the French Navy, who want to fight with us. They are willing to give an interview. We have Europe fighting amongst us. The European ideals of equality, fraternity, and the French revolution, as in the Marseillaise, resonate with the patriots of France. It means, the nation is not dead, since it has such representatives who are willing to go to the far away place to fight for their ideals, which the Bastille was once taken for. Yes, there are volunteers: the French, the Russians. Is it a bad thing? It’s great.

Are there regular Russian military units fighting on your side?

If you think that Russia is sending its regular units here, then let me tell you something. If Russia was sending its regular troops, we wouldn’t be talking about the battle of Elenovka here. We’d be talking about a battle of Kiev or a possible capture of Lvov. Now there is a war on our soil for our territory. We have an influx of volunteers from all over the world. Of course, the Russian help would be very desirable, but from a political point of view it is impossible and unrealistic.

• Thanks, by the way, to the European countries. You do not acknowledge this war just as you did not acknowledge the great Patriotic war, didn’t you? You support the anti-terrorist operation against terrorists and separatists.

Have you not developed a Charter of free territory, I believe, in Switzerland? A Territory has a right of self determination and separation after a referendum. Germany lives by the same principles. There will be a referendum in Scotland soon. That is, you call your own principles democratic and carry them out (almost) democratically. The example of Czechoslovakia was peaceful. Yugoslavia, unfortunately, was torn into a thousand little pieces by you.

Using military methods by the way. We have the same thing happening here. That is, if you stop pursuing a policy of double standards and will be able to understand that people live here. What is our fault? The fault of Donetsk, Donbass, our land? That we are asked to live independently? That we wanted to live the way we want? To speak our language? To make friends with whom we want?

• We didn’t want to go to Europe. We have different mentalities, religion. But we have a different religion. We want to go East. We wanted to live the way we want, but we were not allowed to. We were called terrorists and separatists. Please note, we did not capture any regional administrations, nor did we scorch district departments. That’s what the Maidan did. Slogans: “No oligarchy‚ Equality and brotherhood”, “Freedom of religion and language”, “Freedom of choice”. All these slogans are from the Maidan. We want the same thing. So why are we the bad guys? What did we do to deserve being bombed from planes?, shot at from tanks? and have phosphorous bombs dropped on us?

Explain to me what an anti-terrorist operation is?! There police forces and intelligence services are involved, and not regular military units, military vehicles and aircrafts. Dear journalists, please correct me if I am wrong. If we are terrorists, then the police and the security service of Ukraine must fight us. 30, 25, 95, 72, and 76 – the entire Ukrainian army is present on our territory. Three conscriptions, the national guard, territorial battalions, private battalions Aidar, Azov, Shakhtersk, Donbass, Dnieper-1, Dnieper-2, Dnieper-3, battalion Kiev, and now Kryvbas. What have we done? What is our guilt? The fact that we have shale gas, for which you want to erase entire Slavyansk from the face of the earth? Or any other financial interests?

• We are all descendants of the glorious ancestors. We all have ancestors that we are proud of. Between the two of us there are two Heroes of the Soviet Union. We are still able to hold weapons in our hands. We swallowed with our mothers’ milk a pride and desire to live in free and happy Donbass. We’ll tell anyone who comes to harm us on our soil: we will fight tooth and nail for our Motherland. Kiev and the West made a big mistake by awaking us. We are the hardworking people.

While others were jumping on the Maidan for 300 grivnas, our people were down in the mine, mining coal, melting metal and sowing crop. None of us had time to jump, we were busy working. When a person who just yesterday worked with a jackhammer or operated a harvester, today got behind a steering wheel of a tank or Grad, or picked up a machine gun, the line has been crossed and you cannot stop him. The one who left his job knows that he will fight to the end and to his last breath. You may pass it on to others: do not wake the beast. Just don’t. While there is still an opportunity, let mothers spare their sons.

• Now I want to say: I don’t want to fight. It wasn’t my choice, but I’ll fight till the end for my land, no matter who, when and how numerous they were. This is a battle of annihilation. Unfortunately, the Slavs are fighting among themselves and destroying their best people. We want to reach out to all the relatives and mothers: do not send your sons here. Leave us alone. Let us live free and in peace. We didn’t come to you in Kiev, Dnepropetrovsk, or Zaporozhye. We are not marauding your villages, raping your women, killing your elders and stealing their military decorations.

Remember decorations for Stalingrad, the capture of Berlin, Gold Star medals, Orders of Glory, Orders of the Red Banner, mixed up with women’s earrings?… We don’t do that. We want to live on our land the way we want. We don’t need you. We are different. Ukraine of the East and the West is an artificially created conglomerate. However, we didn’t start this war. If someone has a political conscience, a will and a courage of a real man, I’m just suggesting to stop this operation. You don’t have to recognize our status, just leave us alone within our borders of Donetsk and Lugansk republics, and we will kiss each other goodbye.

Do you think the meeting with Poroshenko will bring any positive solutions?

Let me clarify. No federalization can be possible today. There is time for everything. We asked for the federalization 3 months ago, then we asked for a permission to hold a referendum. That time has passed, now we want to live independently. The Ukrainian authorities are using police methods to subdue us: they arrest us, cordon us off, and conduct anti-terrorist operations against us. By now so much blood has been spilled and so many people have died for freedom.

How can we speak of federalization? What is federalization? This is a series of bureaucratic procedures that need to be done. But we want to live independently. We have very rich land. Talks about subsidies is a lie perpetrated by thieves to steal money. Each President understood this very well and always participated in it. We are a self-sufficient region with its agriculture, developed industry, forests, fields, and seas. We have everything from a ‘Switzerland’ to the sea. Resort areas, agriculture, chemical and coal industry, rich minerals, gas deposits, etc.

Despite close ties with the rest of Ukraine, we can and must be able to feed ourselves. If they do not understand it in a good way, then we will ask them in a hard way. I hope that the meeting between Poroshenko and President Vladimir Putin will lead to the taking of our position into account.

Speech at the meeting of the Customs Union Heads of State with President of Ukraine and European Union representatives

President Of Russia, Vladimir Putin:

Colleagues, First, I would like to thank Minsk and Belarus for the opportunity to meet here. The format we are using here – the Customs Union-Ukraine-EU – gives us a good opportunity to discuss issues pertaining to the impact of signing by Ukraine of the EU Association Agreement within the context of its cooperation with the Customs Union states.

Russia has always respected the sovereign choice of any nation to organise its political life and make all sorts of unions, both military and economic, and we will continue to do so. However, we hope that this will not be detrimental to other participants in international communication, and not at our cost. As you may know, Ukraine is deeply integrated into the CIS economic space. Alongside Russia, Belarus and Kazakhstan, it is actually an inseparable part of the largest economic complex in the world, which took ages, rather than years or decades, to create – and this is no exaggeration.

Our countries’ companies have developed close ties in all the basic industries: in the fuel and energy sector, which includes nuclear power, in chemical production, in aviation and machine building, space, metallurgy and metals processing, in construction and agriculture. We have developed unique production chains and created technological alliances. Russian capital represents about 32% of the Ukrainian banking system. The Customs Union states are Ukraine’s key foreign trade partners. In 2013, mutual trade turnover came up to $50 billion. This is comparable to what is going on the western track. In the first six months of 2014, our trade turnover reached $22.7 billion. The Customs Union accounts for 30% of Ukraine’s exports. We have to openly state that the Russian market takes up most of this volume.

We have developed a good legal basis for our cooperation. In 2011, a free trade zone agreement was signed within the CIS framework. I would like to stress here that Ukraine took a very active stance in this respect. It actually insisted on signing this agreement. We are still drafting agreements on free trade in services, on state purchases and on pipeline transit. We believe that it would be expedient not only to maintain, but also to significantly step up our cooperation. However, the question arises of whether this would be possible if the Ukraine’s association agreement with the EU really starts to work.

Russia has stated on numerous occasions that full acceptance by our Ukrainian friends of all the tariff liberalisation requirements and the adoption of the European Union technical, sanitary and veterinary norms will have a negative impact on the scope and dynamics of trade and investment cooperation in Eurasia. Not to mention the fact that all these norms – the EU sanitary norms and regulations that we do not apply or apply only partially, and the technical regulations will actually close the Ukrainian market for our goods, for goods from the Customs Union and Russia.

The rejection of common CIS technical norms and adaptation to EU standards will cost Ukraine billions of euros. It will lose its partnerships with the Customs Union states in industry, finance, agriculture and transportation. As soon as Ukraine introduces zero import duty on goods from the EU, a step envisaged right after the ratification of the agreement that would apply to 98% of all the goods, there will obviously be a sharp increase in the supply of European goods to the Ukrainian market.

We understand our European partners; they have already developed the Ukrainian market rather well, and would like to get hold of whatever is left and squeeze out everyone else. Besides, less competitive Ukrainian produce will also be squeezed out from its own market. Where to? Primarily to Russia and the other Customs Union states, but primarily to us.

We should not rule out the risk of illegal re-export to the Customs Union market of goods from the EU under the guise of Ukrainian produce, either. Technical regulations and ways of establishing the country of origin are very important here. Nobody ever discussed this with us. Nobody, actually, ever discussed with us any of the issues I have just mentioned. I believe we will take this up in detail later, without press coverage. At some stage, we were simply told that this was none of our business, that they do not, for instance, discuss our relations with China or Canada.

However, let us bear in mind that China and Canada are far away, while economic relations between Russia and Ukraine are a completely different story. Besides, Russia is not the least of our EU friends’ partners. I believe it would be appropriate to have an open discussion of this matter. There has been nothing of the kind, unfortunately. However, we pin great hopes on this meeting, in the sense that it would be frank and substantive.

By very conservative estimates, the total loss for the economy of Russia alone may amount to 100 billion rubles on the first stage, that is $3 billion. This will affect entire sectors of our economy and agriculture, with all the consequences for economic growth and employment rates. Belarus and Kazakhstan will also incur losses, of course. And of course, Russia cannot lie by in this situation. I would like to stress that we would be forced to reciprocate, to protect our market. In full compliance with the provisions of the CIS agreement on the free trade zone and with WTO norms, I would like to stress this, we would be forced to cancel preferences for imports from Ukraine.

I would like to note here that we do not intend to discriminate against anyone, and we will not do it. I simply wanted to make this perfectly clear. We will simply be forced to introduce a regular trade regime for Ukraine. The same one that applies to trade between Russia and the European Union. It is called the most-favoured nation treatment. Sounds good and is exactly to the point. However, no preferences that are now envisaged by the CIS free trade zone regulations.

We will of course take a very careful look at the application by our Ukrainian friends of the phyto-sanitary norms envisaged by the EU Association Agreement and we will mirror them. Our regulations in this area are very flexible now. We will introduce the exact same norms for Ukraine; and as regards the industry, one of the major components here, as I have said, is establishing the origin of the goods. We have a strong suspicion, as I have already said, and there is a great threat that European goods will be brought in through Ukraine. Mr Poroshenko will say what he thinks about this when he makes his address, I can see him disagreeing. Even within the Customs Union, we are already receiving goods from the EU that are banned for import in Russia. In this case, unfortunately, they are coming through Belarus.

The label reads: the country of origin – Belarus. You remove it: Poland. With Ukraine this would increase manifold. We will be flooded, you see? I know that both the President and the Government of Belarus are trying to prevent this negative illegal practice. We at least have an agreement, which we do not have with Ukraine. We expect today to have a constructive discussion, during which our partners will hear our arguments. Overall, we are in favour of establishing closer cooperation between the EU and the Eurasian Economic Union, of searching for ways to combine the two integration processes. I hope that all the participants in today’s meeting support the strategic goal of creating a common economic space from Lisbon to Vladivostok.

I would like to stress that we are ready to consider any cooperation scenarios that are based on the consideration of mutual interests. We are ready to have an exchange on the critical situation that has developed in Ukraine, which, I am certain, cannot be resolved through further escalation of force without due consideration of the vital interests of the country’s southeast regions and without a peaceful dialogue with these regions’ representatives.

Thank you for your attention.

Nice pick! Let the tractors come to Paris!

Hollande Entrusts French Economy To Ex-Rothschild Banker Macron (Reuters)

By making ex-banker Emmanuel Macron his new Economy Minister, French President Francois Hollande will be hoping to boost his pro-reform agenda and end two years of infighting on his economics team. Macron, 36, Hollande’s top economic adviser until a few weeks ago, has the business community’s ear, although his appointment will not ease the cabinet’s relations with rebel lawmakers who want an economic policy U-turn. The contrast could not be starker between Macron, who helped draw up Hollande’s pro-business agenda, and the man he will replace, firebrand, anti-austerity advocate Arnaud Montebourg, who was ousted on Monday for slamming the government’s economic policy. Macron, a former partner at Rothschild bank, will work alongside Finance Minister Michel Sapin, 62, a close Hollande ally, to try and reinvigorate the euro zone’s second-biggest economy. The stagnant economy has forced the government to abandon its growth and fiscal targets for this year, while unemployment is at a record high of over 3 million.

Macron will be charged with carrying out Hollande’s main economic goals of cutting labor costs, slashing red tape and opening up closed professions such as notaries and pharmacists, not an easy task as the government has a shaky majority with which to push through reforms. Still, while French CEOs often complained about Montebourg’s protectionist policies, Macron won wide respect in the business community within months of becoming Hollande’s advisor two years ago. “Emmanuel Macron is our relay, our entry point to the president,” France Telecom chief executive Stephane Richard told Challenges magazine in September 2012. “I have seen him at Rothschild, he will reassure everybody.” Macron studied in France’s top elite schools, including the ENA civil service school, which Hollande and many top French officials have attended. “Macron has proven his worth in the Elysee,” an advisor to Hollande said, referring to the president’s official residence. “He knows the business world very well … and most important of all, the president fully trusts him.”

Tensions between ministries over France’s economic policy are a long-standing tradition, but had never been as strong as since Hollande became president in May 2012 and Montebourg took the industry and then the economy portfolio. The new team of Sapin and Macron should “increase the pace of reforms in the strict line of what has been decided at the Elysee,” ING analyst Julien Manceaux said, referring to public spending cuts and tax cuts for businesses to boost the economy. “The new economy minister is certainly a confirmation of Mr Hollande’s intentions, and a very good signal to France’s European partners,” Manceaux said. The first reaction from one of the 40 or so Socialist lawmakers who are opposed to Hollande’s pro-business policies was far less enthusiastic. “Macron the liberal to replace Montebourg: a laughable provocation,” Laurent Baumel said on his Twitter page.

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Germany Must Soften Hard Line As France Falls Apart (MarketWatch)

The German government is likely to take the line of least resistance over the latest European discord about its policies of budgetary rigor, allowing some extra fiscal leeway for the embattled French and Italian administrations, while at the same time maintaining a longer-term drive for reforms and orthodoxy. Yet, beneath the surface, tensions are building that point to a deep-seated schism among the three principal members of economic and monetary union (EMU), making up two-thirds of the gross domestic product of the euro bloc. Angela Merkel, the chancellor, and Wolfgang Schäuble, the finance minister, have little choice but to acquiesce in renewed pro-growth calls. These are particularly virulent in France, where President François Hollande is looking ever-more vulnerable after he was forced on Monday to sack Economy Minister Arnaud Montebourg following his assault on Hollande’s budget-consolidation plans.

At the same time, opposition in Berlin to quantitative easing in the form of full-scale European Central Bank purchases of government bonds by euro-member governments appears to be softening, even though deep skepticism about the utility of such measures remains in force. Any eventual ECB decision on QE — which could still be months away — will need to be coupled with cooperative action with governments on structural and fiscal reforms, a point made by Mario Draghi, the ECB president, in his speech at the Jackson Hole monetary conference in the U.S. last week. The ousting of Montebourg over what he claimed have been German-inspired austerity policies is being greeted in Berlin as a positive clarification of France’s determination to press ahead with reform efforts. Schäuble is likely to maintain a show of public solidarity with Michel Sapin, the pro-reform finance minister, who held the same post 22 years ago in the ill-starred government of Pierre Bérégovoy (who committed suicide in May 1993) under President François Mitterrand.

Sapin’s position has been reinforced in the short term by the departure of his outspoken rival Montebourg, who has blamed Merkel for launching “absurd” policies that have unleashed ‘the most destructive crisis in Europe since 1929”. However, the French finance minister could be forgiven for being haunted by a sense of déjà vu, for the parallels with past European monetary turbulence are disturbing. Sapin is a veteran of the upsets between France and Germany in 1992 that almost forced the devaluation of the French franc within the European exchange rate mechanism (ERM), the forerunner of the EMU. He was preparing for a breakdown of Franco-German monetary ties when antagonism between the German and French monetary authorities was overcome by a secret telephone intervention from Chancellor Helmut Kohl, cajoling the Bundesbank to acquiesce in a statement supporting the franc’s ERM parity, in the midst of talks in Paris with Mitterrand. At the height of the crisis on Sept. 22, 1992, Mitterrand told Kohl, “I am aware of the independence of the Bundesbank. But what does it want? To remain the last one standing on a field of ruins. Because it will be a field of ruins.”

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Yeah, right.

2008 Meltdown Was Worse Than Great Depression, Bernanke Says (WSJ)

Former Federal Reserve Chairman Ben Bernanke, a prominent student of the Great Depression, contends that the 2008 financial crisis was actually worse than its 1930s counterpart. Mr. Bernanke is quoted making the statement in a document filed on Aug. 22 with the U.S. Court of Federal Claims as part of a lawsuit linked to the 2008 government bailout of insurance giant American International Group. “September and October of 2008 was the worst financial crisis in global history, including the Great Depression,” Mr. Bernanke is quoted as saying in the document filed with the court. Of the 13 “most important financial institutions in the United States, 12 were at risk of failure within a period of a week or two.” Former Treasury Secretary Timothy Geithner is quoted in the document offering a similarly apocalyptic assessment. From Sept. 6 through Sept. 22, the economy was essentially “in free fall,” he said.

Starr International Co., a company run by AIG’s former chief executive, Maurice “Hank” Greenberg, sued the U.S. government in 2011, seeking billions of dollars in damages over AIG’s rescue. Starr’s suit alleges that parts of the government’s $182 billion bailout and sale of AIG assets were unconstitutional. Asked why he thought it was essential for the government to rescue AIG, Bernanke said, “AIG’s demise would be a catastrophe” and “could have resulted in a 1930s-style global financial and economic meltdown, with catastrophic implications for production, income, and jobs.” Also, the former Fed chief felt comfortable that the overall business was viable despite the troubles of the so-called financial products division. “It was our assessment that they had plenty of collateral to repay our loan,” Mr. Bernanke said.

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Do see, but don’t believe.

Ambrose Evans-Pritchard: Nothing Has Been Resolved Since 2008 (MAM)

In this first of a series of London interviews that Lars Schall conducted for Matterhorn Asset Management this summer, Lars met up with the Telegraph’s Ambrose Evans-Pritchard to discuss geopolitical tensions in the world, China’s challenges, threats to the global economy and the expectations for gold. Ambrose Evans-Pritchard is the international business editor of the British newspaper The Telegraph. He was the Telegraph’s Washington bureau chief in the 1990s. While he hardly needs an introduction to regular Automatic Earth or Zero Hedge readers, here’s a recent statement encapsulating the global economy, from July 25: “In the 30 years or so that I have been writing about world affairs and the international economy, I have never seen a more dangerous confluence of circumstances, or more remarkable complacency.”

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To bankruptcy?

Former ECB President Trichet: France Now Has ‘Clear Line And Course’ (CNBC)

The cabinet reshuffle taking place at the heart of the French government will restore confidence and help to maintain the course of reform plans, according to Jean-Claude Trichet, the former president of the European Central Bank (ECB) and the former governor of the Bank of France. Trichet said that the changes were “absolutely necessary” after the extreme aggression showed by some of the former members of the cabinet and rejected the idea that it wouldn’t make a difference to France’s stagnating economy. “I think there is a lot of confidence,” he told CNBC Wednesday. “Now we have a clear line and of course.” In France on Tuesday, President Francois Hollande named a new lineup for his cabinet after left-wing rebels were ejected from their positions on Monday. The most significant and surprising appointment was that of Emmanuel Macron, a former Rothschild banker and ex-presidential economic adviser to Hollande.

Michael Sapin, the current finance minister was widely-tipped to be given the role, but the relatively unknown Macron will now be given the chance to work alongside Sapin. Macron is not a politician and is exactly the opposite of his predecessor Arnaud Montebourg. Montebourg was an anti-austerity advocate and was dismissed on Monday for slamming Hollande’s economic policy. Macron is seen as pro-business and extremely well connected within the industry. He was the main architect behind the reforms passed in the first two years of Hollande’s incumbency and has already caused some concern with the extreme left-wing in the ruling Socialist Party.

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Germans today said Draghi was “overinterpreted”. Don’t bet on QE yet.

For Bonds, The Key Central Bank Now Isn’t The Fed (CNBC)

Market-watchers are parsing the Federal Reserve’s every word for clues about where bond yields are headed, but the European Central Bank (ECB) may be in the driver’s seat. “Monetary policy development in the euro zone remains a critical factor in projecting the forward path of global long-term bond yields, especially since quantitative easing appears forthcoming,” DBS said in a note Wednesday. It noted that global 10-year government bond yields have largely trended downward this year, with the biggest declines coming from euro zone economies. “Even as the market expects U.S. [interest rate] hikes to draw closer, the decline in 10-year yields across the developed world has dragged down 10-year Treasury yields,” it said.

The U.S. stock markets rallied to record highs this week, but while that would traditionally signal an exit from safe-haven assets such as Treasurys, yields barely budged — even as Fed chief Janet Yellen made slightly more hawkish comments at the Jackson Hole meeting of central bankers last week. But bond yields, which move inversely to prices, in the euro zone have continued to fall since ECB President Mario Draghi said Friday that the central bank is considering additional tools if inflation falls further, suggesting an asset-purchase program could be in the offing. U.S. 10-year Treasury yields were around 2.39% in Asian trade Wednesday, down from around 3.0% at the beginning of the year. The 10-year German bund was around 0.94%, tapping its lowest in at least 200 years, if not a record low, down from around 1.94% at the beginning of the year. On the periphery, Spain’s 10-year bond also may have tapped record lows, yielding around 2.19%, down from around 3.90% at the beginning of the year.

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Good talk.

Ron Paul: Americans Must Choose Non-Intervention for Peace, Prosperity (VoL)

Ron Paul and Mark Spitznagel talk. Mark Spitznagel: Ron, you have been the galvanizing force of a resurgent liberty movement in the United States. Yet, we find ourselves in this world where interventionism is on the rise, and much of America remains complacent about it. For instance, I think we would agree that today’s crony-capitalism and monetary-interventionism by central banks is at an unprecedented scale that will once again leave destruction in its wake. Why is America letting this happen, and moving away from its Jeffersonian ideals? Moreover, I have to ask you, has the liberty movement stalled, or even failed?

Ron Paul: Mark, on the surface and in Washington it may appear that interventionism is on the rise but in reality it’s on the defensive, more so than ever. Indeed there is a lot of complacency as that is frequently the rule for the majority of people regardless of the system. Where there is little complacency is with the intellectual leaders now leading the charge against the foreign and economic interventionists who have been in charge for decades and created the major crisis that we face today.It’s never easy politically to turn off bad policies and many times we have to wait until the policies self-destruct. The philosophy of non-intervention is growing significantly and that is crucial since ideas do have consequences. The obvious failure of the current system, and the current intellectual leaders of the younger generation who are more favorably inclined toward non-intervention, provide the encouragement we need to clean up the mess. During my presidential campaigns, I was always quite pleased when students held up signs saying: “You cured my apathy.”

A question for you, Mark: I know you and a very few others like Jimmy Rogers know about authentic non-intervention in the economy, but what are Wall Street traders and investors like? Are they helpful in exposing crony-capitalism or are they part of the problem?

Mark: Unfortunately, Wall Street can’t help but respond to monetary intervention, like puppets to the Federal Reserve puppet master. Not only has the Fed turned just about every investor into a crazed gambler desperate for any yield above today’s artificially low interest rates, for professional investors the desperation is compounded by the career risk associated with underperforming in the very next period. If you’re fired for not having played the Fed’s game in the next round, who cares about what will happen in future rounds, and who cares about the long-run implications of this crony-capitalist game? I see this temporal myopia at the very heart of Washington politics as well. If politicians don’t get reelected each period, then from a career standpoint any concern for the future was for naught. It ranges far and wide, from corporate managers to, even more significantly, farmers: Think of how debt and farm policy distortions induce wringing out everything that we can from each harvest, even at the expense of future harvests (such as with soil erosion).

Frédéric Bastiat said it best when he condemned the pursuit of a small present good that will be followed by a great evil to come, rather than a great good to come at the risk of a present small evil. The latter is extraordinarily difficult today. To me, your ability to focus away from the present and truly see the great good or evil to come was really so astonishing about your political career. What was your secret, Ron, and what kept you from losing sight of that?

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Old boys club.

IMF Chief Lagarde Under Investigation In French Fraud Case (Reuters)

IMF chief Christine Lagarde has been placed under formal investigation by French magistrates on Wednesday for her alleged role in a long-running political fraud case, a source close to the former French finance minister said. The source said Lagarde, who earlier was questioned by magistrates in Paris under her existing status as a witness, considered their decision to investigate her for alleged “negligence” was unfounded and would appeal it. A French judiciary source also confirmed the step. In French law, magistrates place someone under formal investigation when they believe there are indications of wrongdoing, but that does not always lead to a trial. The inquiry into tycoon Bernard Tapie has embroiled several of former president Nicolas Sarkozy’s cabinet members including Lagarde. Tapie – who supported Sarkozy in the last two elections – was awarded €403 million in a 2008 arbitration payment under Sarkozy’s presidency to settle a dispute with the now defunct, state-owned bank Credit Lyonnais over a 1993 share sale. Lagarde was finance minister at the time.

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NATO Plans Eastern European Bases ‘To Counter Russia’ (Guardian)

Nato is to deploy its forces at new bases in eastern Europe for the first time, in response to the Ukraine crisis and in an attempt to deter Vladimir Putin from causing trouble in the former Soviet Baltic republics, according to its secretary general. Anders Fogh Rasmussen said the organisations’s summit in Cardiff next week would overcome divisions within the alliance and agree to new deployments on Russia’s borders – a move certain to trigger a strong reaction from Moscow. He also outlined moves to boost Ukraine’s security, “modernise” its armed forces and help the country counter the threat from Russia. Rasmussen said: “We will adopt what we call a readiness action plan with the aim to be able to act swiftly in this completely new security environment in Europe. We have something already called the Nato response force, whose purpose is to be able to be deployed rapidly if needed.

“Now it’s our intention to develop what I would call a spearhead within that response force at very, very high readiness. “In order to be able to provide such rapid reinforcements you also need some reception facilities in host nations. So it will involve the pre-positioning of supplies, of equipment, preparation of infrastructure, bases, headquarters. The bottom line is you will in the future see a more visible Nato presence in the east.” Poland and the three Baltic states have been alarmed at the perceived threat from Russia and have been clamouring for a stronger Nato presence in the region. They have criticised what they see as tokenism in the alliance’s response so far. But the issue of permanent Nato bases in east Europe is divisive. The French, Italians and Spanish are opposed while the Americans and British are supportive of the eastern European demands. The Germans, said a Nato official, were sitting on the fence, wary of provoking Russia.

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Two NATO Warships Heading To Black Sea (RT)

A US Navy destroyer and a French frigate are expected to enter the waters of the Black Sea next week, a diplomatic and military source said. “Two NATO warships at once will arrive in the Black Sea on September 3. They are US Navy’s destroyer USS Ross and frigate, Commandant Birot, of the naval forces of France,” the unnamed source told RIA-Novosti news agency. There’s currently one NATO ship present in the Black Sea, with French surveillance ship, Dupuy de Lome, expected to remain in the area until September 5. USS Vella Gulf, which was patrolling the black Sea since August 7, recently left for its port of commission. The maintenance of the operational rotational presence of NATO ships does not promote stability in the Black Sea region in any way, the source noted. According to the Montreux Convention of 1936, warships of non-Black Sea states can stay in the Black Sea for no more than 21 days. But, earlier this year, the convention was violated by American frigate USS Taylor, which exceeded the authorized time limit by 11 days, the source said.

In July this year, the grouping of NATO ships in the Black Sea reached nine units, setting a record for the post-Soviet period. The grouping consisted of Vella Gulf of the US Navy, French frigate Surcouf, Greek corvette Mahitis, two reconnaissance ships of France and the Elettra of the Italian Navy. The same months, NATO held BREEZE 2014 naval exercises off the Bulgarian cost of the Black Sea, in which ships from Bulgaria, Romania, Turkey, Greece, Italy, Britain and the US participated. The maneuvers were aimed at showing the alliance’s willingness to support its east European members who have been unnerved by Russia’s alleged involvement in the Ukraine crisis. In April, a Russian Su-24 fighter jet made several circles around USS Donald Cook that was then in the waters of the Black Sea. Pentagon officials reacted by claiming that “Russia’s actions were contrary to international protocols and accepted agreements regulating the interaction of the armed forces of the two countries”.

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There we go.

Ukraine Expects ‘Practical Help’ From NATO (Reuters)

Ukraine needs “practical help” from NATO and expects the U.S.-led military alliance to make momentous decisions to this end at its summit in Wales in September, Prime Minister Arseny Yatseniuk said on Wednesday. “NATO is our partner and we expect practical help from our Western partners and from the (NATO) alliance,” Yatseniuk told a government meeting.

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Putin: Russia Can’t Set Ceasefire Conditions In Ukraine Internal Conflict (RT)

Russian and Ukrainian leaders have concluded their first official face-to-face meeting in Minsk during which they discussed Ukraine’s Association Agreement with EU and the crisis and humanitarian disaster in the east of the country. Russia will do everything to facilitate a peace process in Ukraine, President Putin told the press following the 2-hour talks, which he described as “positive.” However, Russia did not and had never set forth conditions for settling Ukraine’s internal conflict, Putin added, so a ceasefire agreement was not discussed during the talks in the absence of peace suggestions from Ukrainian leadership. “We, Russia, cannot talk about any ceasefire conditions whatsoever, or possible agreements between Kiev, Donetsk and Lugansk,” Putin stated.

“We can only facilitate the creation of an environment of trust in the course of this possible and much needed, in my opinion, negotiation process. This is what we talked about,” Putin added. In the meantime a contact group on the implementation of Ukraine’s Association Agreement with the EU must resume its work as soon as possible to formulate final conditions for the free trade zone, Putin said. “Not all of our arguments are accepted by our colleagues, but at least we were heard and we have agreed to intensify the exchange of views, and try to find some solutions,” Putin said, adding that in the absence of a final agreement Russia will have to “take measures” to protect its economy. The sides have also agreed that a resumption of gas and energy talks is urgently needed, the Russian president said.

President Poroshenko quickly left the building after the talks, and headed to the Ukrainian embassy in Minsk. There he has held a ‘wrap-up meeting’ with the head of EU diplomacy, Catherine Ashton. Ukraine has reached an agreement with Russia to start consultations between the border guards and the general staff of the two states in order to produce initial conditions for reaching a settlement in east Ukraine, Poroshenko told the press afterwards. Poroshenko also said that a peace plan will be prepared soon for a speedy cessation of hostilities.

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Might as well be nice then. Or civilized.

Europe To Be Russia’s ‘Energy Hostage’ For At Least Another Decade (Telegraph)

Europe will remain heavily reliant on Russian gas for at least another decade, according to a leading rating agency. Fitch said a lack of alternative sources meant policymakers would have no choice but to continue buying gas from Russia until at least the mid-2020s and “potentially much longer”. Europe already buys a quarter of its gas from Russia, and analysts expect consumption to increase by a third by 2030 as economies recover from the debt crisis and gas-fired electricity generation replaces old coal and nuclear power. Analysts said it would be difficult for countries to secure alternative sources of supply in the medium term, leaving them at risk of being “held hostage by dominant suppliers”, including Russia. “Any attempt to improve energy security by reducing European reliance on Russia would require either a significant reduction in overall gas demand or a big increase in alternative sources of supply, but neither of these appears likely,” Fitch said in a report on Tuesday.

Growing tensions between Ukraine and Russia over the latter’s annexation of Crimea have led to a raft of tit-for-tat sanctions between Russia and the West. The European Commission (EC) has laid out plans to reduce Europe’s reliance on energy imports, including promoting indigenous sources of renewable and nuclear energy, and a single energy market. Finland, the Czech Republic and much of eastern Europe rely heavily on Russia for gas, while Germany imports a substantial amount from Russia. Fitch said overhauling Europe’s current infrastructure and making the network more resilient to shocks would cost around €200bn (£160bn). Although around half of this can be funded by capital markets, there is a risk that consumers may also be forced to pay for the upgrade through higher energy bills. Analysts also highlighted Russia’s dominant role across the energy market. “Even if coal-fired and nuclear energy were favoured over gas, the impact on energy security would be limited because Russia also supplies 26pc of the EU’s hard coal and is the sole supplier of fuel rods to nuclear power plants in several countries,” it said.

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Not so sure going forward.

Investors May Find It Hard to Break Up With Oil and Gas (Bloomberg)

Investors seeking greener energy stocks will find it difficult to reproduce the returns offered by oil and natural gas producers, according to a report from Bloomberg New Energy Finance. With a market value of $4.9 trillion, oil and gas investments offers a combination of scale, growth and dividends that can’t be readily found in other industries, the London-based research company said today. Coal, which has already fallen out of favor with institutional investors, can be more easily replaced with bets in other industries. Environmentalists have proposed fossil-fuels divestment, modeled on a campaign that targeted companies in apartheid-era South Africa, as a way to curb climate change by shifting investments away from polluting technologies. Stanford University is among 13 colleges and universities to join the campaign this year, committing in May to divest from coal – but not oil and gas.

“Oil and gas stocks have outperformed other major sectors over the past five years,” according to the report. “Coal stocks, on the other hand, have been striking underperformers, reflecting a fall in international coal prices as the U.S. shale boom caused generators to switch into gas-firing.” The divestiture movement is backed by Bill McKibben, an environmental writer and co-founder of 350.org, a group that has identified 200 companies with the largest reserves of coal, oil and gas. McKibben warns that fossil fuel companies hold undisclosed financial risks as governments move to limit emissions blamed for global warming. “If you are investing in fossil fuels, you are essentially betting that we won’t ever take climate change seriously,” Jason Kowalski, U.S. policy director for 350.org, said in an e-mail. Smart investors are moving “their money sooner rather than later.”

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And that’s how we all stay warm …

New Brown Coal Power Stations Threaten EU Emissions Target (Guardian)

New coal power stations designed to burn Europe’s massive deposits of lignite pose a serious threat to the continent’s decarbonisation efforts, according to figures released on Wednesday. Analysts from Greenpeace’s Energydesk compiled data from the German government that shows burning Europe’s reserves of lignite would wipe out the EU’s entire carbon budget from 2020 until the end of the century. Lignite – also known as brown coal – power stations currently make up more than 10% of the EU’s total CO2 emissions. Greenpeace said that if Europe is to continue to play its part in keeping the world within the internationally accepted limit of 2C of warming, 90% of the carbon contained in its lignite reserves must remain buried.

Despite this, lignite-fuelled power stations are still being built, locking in consumption of the fuel for decades. There are 19 such facilities in various stages of approval, planning or construction in Bulgaria, Czech Republic, Greece, Germany, Poland, Romania and Slovenia. Greenpeace figures show these new projects alone would emit almost 120m tonnes of CO2 every year – equivalent to three-quarters of the annual carbon output of the UK’s energy sector. The average lifespan for a coal power station is about 40 years, meaning the plants could release nearly 5bn tonnes of CO2 into the atmosphere.

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IPCC Reports Irreversible Damage From Climate Change (Bloomberg)

Humans risk causing irreversible and widespread damage to the planet unless there’s faster action to limit the fossil fuel emissions blamed for climate change, according to a leaked draft United Nations report. Global warming already is impacting “all continents and across the oceans,” and further pollution from heat-trapping gases will raise the likelihood of “severe, pervasive and irreversible impacts for people and ecosystems,” according to the document obtained by Bloomberg. “Without additional mitigation, and even with adaptation, warming by the end of the 21st century will lead to high to very high risk of severe, widespread, and irreversible impacts globally,” the UN Intergovernmental Panel on Climate Change said in the draft.

The study is the most important document produced by the UN about global warming, summarizing hundreds of papers. It’s designed to present the best scientific and economic analysis to government leaders and policymakers worldwide. It feeds into the UN-led effort drawing in more than 190 nations for an agreement on limiting emissions. The report “will provide policymakers with a scientific foundation to tackle the challenge of climate change,” IPCC Chairman Rajendra Pachauri said in a statement from the panel’s office in Geneva. “It would help governments and other stakeholders work together at various levels, including a new international agreement to limit climate change” that countries intend to broker by the end of next year.

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