Oct 282017
 
 October 28, 2017  Posted by at 9:15 am Finance Tagged with: , , , , , , , ,  


Stonehenge 1897

 

Spanish PM Dissolves Catalan Parliament And Calls Fresh Elections (G.)
Finland Prepares Parliamentary Vote To Recognize Catalonia (Exp.)
Catalonia Looks To Estonia’s E-Residency, Considers Cryptocurrency (IBT)
EU Economic Failures Are To Blame For Catalonia Mess – Steve Keen (Sp.)
Robert Mueller’s First Charges (Atlantic)
Large U.S. Cities Struggle With High Fixed Costs (BBG)
What You See Is Not What You Get in GDP (WS)
IRS Apologizes For Aggressive Scrutiny Of Conservative Groups (NPR)
J is for Junk Economics – Michael Hudson (Ren.)
New Zealand May Tighten Law That Allows Mega Wealthy To Buy Citizenship (G.)
Hopes Dashed For Giant New Antarctic Marine Sanctuary (AFP)

 

 

Vote for independence, get the opposite. A feature not a flaw in the EU.

Spanish PM Dissolves Catalan Parliament And Calls Fresh Elections (G.)

The Spanish government has taken control of Catalonia, dissolved its parliament and announced new elections after secessionist Catalan MPs voted to establish an independent republic, pushing the country’s worst political crisis in 40 years to new and dangerous heights. Speaking on Friday evening, the Spanish prime minister, Mariano Rajoy, said his cabinet had fired the regional president, Carles Puigdemont, and ordered regional elections to be held on 21 December. Rajoy said the Catalan government had been removed along with the head of the regional police force, the Mossos d’Esquadra. The Catalan government’s international “embassies” are also to be shut down. “I have decided to call free, clean and legal elections as soon as possible to restore democracy,” he told a press conference, adding that the aim of the measures was to “restore the self-government that has been eliminated by the decisions of the Catalan government.

“We never, ever wanted to get to this situation. Nor do we think that it would be good to prolong this exceptional [state of affairs]. But as we have always said, this is not about suspending autonomy but about restoring it.” The actions came hours after Spain’s national unity suffered a decisive blow when Catalan MPs in the 135-seat regional parliament voted for independence by a margin of 70 votes to 10. Dozens of opposition MPs boycotted the secret ballot, marching out of the chamber in Barcelona before it took place and leaving Spanish and Catalan flags on their empty seats in protest. Minutes later in Madrid, the Spanish senate granted Rajoy unprecedented powers to impose direct rule on Catalonia under article 155 of the constitution. The article, which has never been used, allows Rajoy to sack Puigdemont and assume control of Catalonia’s civil service, police, finances and public media.

Read more …

Finland, Argentina, perhaps Scotland, who’s next?

Finland Prepares Parliamentary Vote To Recognize Catalonia (Exp.)

Finland could be the first country to officially recognise Catalonia as a republic state, in a move that would put the Scandinavian country in direct opposition to the EU. The country’s MP for Lapland Mikko Karna has said that he intends to submit a motion to the Finnish parliament recognising the new fledgling country. Mr Karna, who is part of the ruling Centre Party, led by Prime Minister Juha Sipila, also sent his congratulations to Catalonia after the regional parliament voted earlier today on breaking away from the rest of Spain. Should Finland officially recognise the new state of Catalonia this will be yet another body blow to the the EU which has firmly backed the continuation of a unified Spain under the control of Madrid. European Commission President Jean-Claude Juncker warned today that “cracks” were appearing in the bloc due to the seismic events in Catalonia that were causing ruptures through the bloc.

Donald Tusk, the President of the European Council, said earlier today that for the EU nothing changes despite the Catalan parliament voting to breakaway from Spain. He said that the EU would continue to only speak with Spain. If Finland recognised Catalonia then this would make a mockery of the EU’s refusal to acknowledge the region’s new status. A statement from the European Union on October 2 read: “Under the Spanish Constitution, yesterday’s vote in Catalonia was not legal. [..] Argentina could also formally recognise the Republic of Catalonia and reject the intervention of the Spanish Prime Minister Mariano Rajoy who has moved to implement Article 155 which will permit Madrid to take over control of the semi-autonomous region. Socialist Left Argentine MP Juan Carlos Giordano, who represents Buenos Aires Province said that he would present a bill in parliament for the South American country to recognise Catalonia.

The Scottish Government has also sent a message of support, saying that Catalonia “must have” the ability to determine their own future. [..] “The European Union has a political and moral responsibility to support dialogue to identify how the situation can be resolved peacefully and democratically.”

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“Eva Kaili MEP, an advocate of fintech innovation who was a politician in Greece at the time of the crisis, recounts that the plan was taken seriously. “We talked about leaving the eurozone, finding another currency,” said Kaili. “There was even a ‘Plan B’, which involved essentially hacking into everyone’s accounts and replacing all their money with Bitcoin.”

Catalonia Looks To Estonia’s E-Residency, Considers Cryptocurrency (IBT)

As Spain is poised to seize control of the Catalan government and stop the region’s bid for independence, an initiative is underway to emulate Estonia’s innovative e-residency programme. Technology advocates in Catalonia, which is reputed to be ahead of the rest of Spain in areas like fintech, are also reportedly touting the possibility of a national cryptocurrency or digital token, something Estonia has also been considering. An article in Spain’s main daily newspaper El Pais reports that digital transformation experts working for the Government of Catalonia, the Generalitat de Catalunya, have visited Estonia several times to gather tips on how to implement an e-residency programme. Dani Marco, director of SmartCatalonia, who appears to be heading up the initiative, pointed out that the Estonians “started from scratch, with all the possibilities they were offered to build a model of economic development.”

The article goes on to namecheck Vitalik Buterin, inventor of the next generation public blockchain Ethereum, who was attending a technology conference in Barcelona. The takeaway was that Catalonia could follow Estonia’s proposal to issue some flavour of national blockchain tokens – a decentralised store of value in other words. Most of the time you hear about banks stating that cryptocurrencies like Bitcoin are only good for criminals, or that they are too slow, or volatile to be of any real use. However, issuing digital currency without the need for a central bank is undoubtedly a bona fide use case. Moreover, the mere mention of Estonia in this context is somewhat incendiary: the digitally advanced Baltic nation recently proposed issuing a national cryptocurrency – the so-called “Estcoin”.

This would make it the first nation to carry out an initial coin offering (ICO), a new way of funding technology projects by issuing tokens on a blockchain. A blogpost on the subject garnered so much interest and media attention that in the end ECB chief Mario Draghi publicly slapped down the proposal. “No member state can introduce its own currency; the currency of the eurozone is the euro,” he said. The other thing that Estonia has perfected across its 1.3 million e-residents is a secure and tamper-resistant e-voting system. [..] It was not widely reported, but during the years of punishing austerity that followed the banking bailouts, Greece considered a desperate measure called “Plan B”, which essentially involved switching from the euro to Bitcoin.

Eva Kaili MEP, an advocate of fintech innovation who was a politician in Greece at the time of the crisis, recounts that the plan was taken seriously. “We talked about leaving the eurozone, finding another currency,” said Kaili. “There was even a ‘Plan B’, which involved essentially hacking into everyone’s accounts and replacing all their money with Bitcoin. “Plan B was quite well drafted. Move all accounts into to Bitcoin, establish Bitcoin ATMs – it’s scary, and of course it goes against the ethos of Bitcoin and being in control of your own assets. But look what happened in Cyprus; sometimes you are not safe from your own government.”

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“..the European Union is about unifying Europe — this is a great example of it actually causing Europe to fragment.”

EU Economic Failures Are To Blame For Catalonia Mess – Steve Keen (Sp.)

Sputnik: Quite extraordinary scenes this afternoon in Catalonia. Are you surprised it’s come to this? Steve Keen: No, I am not. One thing that we tend to forget is that the last fascist dictator to die in his sleep was the last fascist ruler of Spain. So there’s a deep tendency for authoritarian reactions in that country. But in the meantime, the real story I think is the impact of the euro causing effectively depressions through southern Europe. And areas that were rich before the euro came are the ones that are leading revolts against it right now. Catalonia, of course, is the prime example!

Sputnik: People see this as a problem for Spain, but isn’t it a bit of a problem for the EU too? Steve Keen: Absolutely! The EU has completely sided with Spain, the only thing it did was acknowledge that the actual referendum was illegal. It didn’t make any mention of the heavy-handed treatment by the Spanish police and of the enforcing of that judgment. They should have been far more sensible simply ignoring it. The EU has aligned itself here with basically suppressing democratic tendencies inside its own member countries. Sputnik: Do you think that’s actually recognized by the European public? Or has it gone unnoticed?

Steve Keen: I think it’s gone unnoticed because the real reason to form the European Union was to bring about European unity. And that was, of course, a noble aim after the Second World War. But the mistake was the economic system into which it was imposed. And if you’re trying to bring about economic democracy of a continental level, when you don’t have a treasury at the same time and you don’t have a way of equalising the impact of trade imbalances, which is what removing the flexible exchange rates prior to the euro ended up causing, then you have a system which will end up causing crisis after crisis. Which is, of course, what happened with the global financial crisis leading to great-depression-levels of unemployment in Spain. And they’re still at 17% of the population. For everyone who thinks that the European Union is about unifying Europe — this is a great example of it actually causing Europe to fragment.

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It’s getting ugly. And murky.

Robert Mueller’s First Charges (Atlantic)

The special counsel overseeing the Russia investigation reportedly obtained a sealed indictment on Friday. It’s the end of the beginning for the Russia investigation. Special Counsel Robert Mueller’s team has reportedly filed the first criminal charges as part of the sprawling inquiry into Moscow’s interference in the 2016 presidential election, CNN reported Friday night. Citing “sources briefed on the matter,” the network said a federal grand jury in Washington, D.C., approved the charges, which have been sealed by a federal judge. CNN did not indicate who had been charged, how many people had been charged, or what charges had been filed by Mueller’s team. An arrest could come by Monday. Reuters subsequently confirmed CNN’s reporting.

John Q. Barrett, a St. John’s University law professor and former associate special counsel in the Iran-Contra affair, said that a sealed indictment itself is rare, as is its disclosure to the press. “It’s possible that this could come from sources in the Department of Justice or defense counsel, each of which would have been likely to know that charges were going to be sought and that a sealing order was going to be sought,” he explained. “It’s unusual and would be a serious violation,” Matthew Miller, a former Justice Department spokesman under the Obama administration, said Friday night. “No one outside of the Justice Department or the court—including grand jurors, court reporters and such—should know, with the possible exception of the defendant’s attorney, who might have been briefed to arrange surrender.”

No matter who is indicted, the move will send shockwaves throughout the Trump administration and the nation’s capital. Until now, the Russia investigation has followed President Trump’s first year in office like a shadow, darkening his political fortunes without substantially altering them. A federal indictment of anyone connected to the Trump campaign or the White House would turn that theoretical danger into hard reality.

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The problems that crawl up on you in the dark of night.

Large U.S. Cities Struggle With High Fixed Costs (BBG)

Cities across the U.S. often feel the same pinch—trying to manage the typical costs of running a city, such as picking up trash and filling potholes, on top of ballooning retirement obligations and outstanding debts. Several major cities are struggling to keep up. The culprit: As employees age and retire, cities are on the hook for funding more pensions and health-care benefits. In 2016, local governments faced a pension investment gap of $3.7 trillion, according to Moody’s Investors Service. Their predicament only worsens when cities fall behind in making those payments or their investments lag. When you measure those fixed costs against a city’s operating budget, no major city is as embattled as Jacksonville, Florida. In the city of 881,000 people, fixed costs are 31.4 percent of expenses, according to data compiled by Bloomberg.

That’s driven by pensions, which made up almost 18 percent of expenses in fiscal 2016. Twenty-six other U.S. cities with populations of more than 250,000 have fixed cost ratios above 23 percent. They include Los Angeles and Houston, which could also be on the hook to pay Hurricane Harvey recovery costs that federal funds don’t cover. Smaller cities aren’t necessarily immune. City leaders in Hartford, Connecticut, where fixed costs are 27 percent of expenses, warned last month that the city wouldn’t be able to meet its financial obligations without additional help from the state. State lawmakers passed a budget with additional aid to the capital city on Thursday. Relief may not be around the corner for other areas. City revenues are expected to stagnate in 2017, on average, while expenditures are forecast to rise 2.1 percent, according to a Sept. 12 survey of 261 U.S. city finance officers by the National League of Cities.

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Awaiting revisions.

What You See Is Not What You Get in GDP (WS)

The US economy, as measured by “real” GDP (adjusted for a version of inflation) grew 0.74% in the third quarter, compared to the prior quarter. That was a tad slower than the 0.76% growth in Q2, but up from the 0.31% growth in Q1. GDP was up 2.3% from a year ago. To confuse things further, in the US, we cling to the somewhat perplexing habit of expressing GDP as an “annualized” rate, which takes the quarterly growth rate (0.74%) and projects it over four quarters. This produced the annualized rate of 2.99%, or as we read this morning all over the media, “3.0%.” This was the “advance estimate” by the Bureau of Economic Analysis. The BEA emphasizes that the advance estimate is based on source data that are “incomplete or subject to further revision by the source agency.”

These revisions can be big, up or down, as we’ll see in a moment. The BEA will release the “second estimate” for Q3 on November 28 and the “third estimate” on December 21. More revisions are scheduled over the next few years. So 2.99% GDP growth annualized, or 0.74% GDP growth not annualized, or 2.3% growth from a year ago… is pretty good for our slow-growth, post-Financial-Crisis, experimental-monetary-policy era, but well within the range of that era, that goes from 5.2% annualized growth in Q3 2014 to a decline of 1.5% in Q1 2011. So nothing special here:

[..] In other words, we won’t really know how the economy did in the last quarter until we have a lot more hindsight. Point one: It’s devilishly hard to estimate what’s going on in the vast and complex US economy. The BEA comes up with an “advance estimate” to give economy watchers a feel, but it concedes that there will be many and substantial revisions as more data become available, and that initial “feel” may be wrong. Point two: Equally complex economies, such as China’s, are equally hard to estimate. Yet China’s National Bureau of Statistics comes up with one big-fat figure that is always very near the number the central government had mandated earlier. It publishes its GDP number less than three weeks after the end of the quarter, and a week or more before the BEA’s advance estimate.

For example, on October 18, the National Bureau of Statistics reported that GDP in Q3 grew 6.8% year-over-year. And this figure – however hastily concocted, inflated, or just plain fabricated – becomes etched in stone. No one believes it. At least in the US, after many revisions and years down the road, GDP becomes a credible number. In China, you’ll never get there. And point three: GDP is a terrible measure of the economy. It measures what money gets spent on and invested in. It’s a measurement of flow. Among other shortcomings, it doesn’t include the source of money – whether it’s earned money or borrowed money. This leads to the distortion that piling on debt is somehow good for the economy, when in reality it’s only good for GDP but will act as a drag on the economy down the road.

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WTF?

IRS Apologizes For Aggressive Scrutiny Of Conservative Groups (NPR)

In a legal settlement that still awaits a federal judge’s approval, the IRS “expresses its sincere apology” for mistreating a conservative organization called Linchpins of Liberty — along with 40 other conservative groups — in their applications for tax-exempt status. And in a second case, NorCal Tea Party Patriots and 427 other groups suing the IRS also reached a “substantial financial settlement” with the government. Attorney General Jeff Sessions announced the two settlements Thursday. The Justice Department quoted him as saying of the IRS activity: “There is no excuse for this conduct. Hundreds of organizations were affected by these actions, and they deserve an apology from the IRS. We hope that today’s settlement makes clear that this abuse of power will not be tolerated.”

It’s “a historic victory,” said Jay Sekulow of the American Center for Law and Justice, a conservative nonprofit legal group representing the Linchpins plaintiffs. Sekulow, who is also on President Trump’s personal legal-defense team, said the IRS agreed to stop “the abhorrent practices utilized against our clients.” The Linchpins case, in federal circuit court in Washington, D.C., has no monetary settlement. The two sides agreed to bear their own legal fees. The consent order says the IRS admits it wrongly used “heightened scrutiny and inordinate delays” and demanded unnecessary information as it reviewed applications for tax-exempt status. The order says, “For such treatment, the IRS expresses its sincere apology.” [..] The controversy began in 2013 when an IRS official admitted the agency had been aggressively scrutinizing groups with names such as “Tea Party” and “Patriots.”

It later emerged that liberal groups had been targeted, too, although in smaller numbers. The IRS stepped up its scrutiny around 2010, as applications for tax-exempt status surged. Tea Party groups were organizing, and court decisions had eased the rules for tax-exempt groups to participate in politics. Groups sought tax-exempt status as 501(c)(3) charities, where the organization and its donors get tax write-offs, and 501(c)(4) “social welfare” organizations, where donors’ contributions are not tax deductible. After the IRS confession in 2013, its top echelons were quickly cleaned out. Conservative groups sued. Congressional Republicans launched what became years of hearings, amid allegations the Obama White House had ordered the targeting.

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Economics is designed to distort our view of the economy.

J is for Junk Economics – Michael Hudson (Ren.)

The main goal of neoliberalism is to create an economic model for a parallel universe that seems plausible, says economist, Michael Hudson, Professor of economics at the University of Missouri in Kansas City and a researcher at the Levy Economics Institute at Bard College. “It seems that it would work very nicely, if the world where that day,” he tells host and co-founder, Ross Ashcroft. “But economics does not have a relationship to the real world. “The function of neoliberal economics is to distract attention away from how the economy really works: Why it’s polarising, why people are having to work harder despite the fact that productivity is increasing, and why the economy is polarising between the 1% and the rest of the economy.” It’s classic cognitive dissonance.

And though there have been many economists who have accurately explained the world, the economist says very little empirical research has been factored into classical economic modelling. “Everyone from Adam Smith, through even Malthus and Ricardo – had the basic concepts of value and price theory correct, for instance” said Professor Hudson. “John Stuart Mill gets even better marks, though he was a little optimistic about where capitalism was going. Then Thorstein Veblen caps-it-off. These are people Americans haven’t heard very much of: The institutionalist, Simon Patton for instance, was the first Professor of Economics at America’s first business school – the Wharton School – who became the intellectual mentor of economics turning into sociology early in the 20th century.

“There is an enormous amount of analysis, all of it based on history, on empirical analysis, on statistical analysis – and all of that is excluded from the curriculum – so there’s no way to fit economic reality into the academic curriculum of neoclassical economics.” [..] “What happens is that people who criticise financialisation – for instance, modern monetary theorists – find that they can’t get published in the major refereed journals. And without that, they can’t get promoted within academia. Universities are systematically detouring students away from economic reality.” [..] When Professor Hudson was teaching at the New School 50 years ago, he said his graduate students were dropping out of economics because they couldn’t fit reality into the curriculum.

The economist, famed for sacking Alan Greenspan back before the days he was appointed to the Chair of the US Federal Reserve, criticised him for claiming he was “shocked” by the self-interest lending of institutions to protect shareholders equity. “He knew who paid him,” said Hudson. “When I was on Wall Street in the 1960s, banks were afraid to hire him because he was known for saying whatever the client wanted to be said. He’s a public relations person. “The fact is universities are teaching the economics of public relations for the corporate sector. That’s why, underlying this theory, is a theory of how an economy would work without government, or any governmental regulation, where taxation is seen as a burden.”

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It’ll be hard to keep the rich away.

New Zealand May Tighten Law That Allows Mega Wealthy To Buy Citizenship (G.)

New Zealand’s new Labour government will reconsider legislation that allows wealthy foreigners to effectively buy citizenship, the housing minister has said. In an interview with the Guardian about the housing shortage in New Zealand, Phil Twyford said the law that allowed Trump donor and Paypal co-founder Peter Thiel to become a citizen and buy a bolt hole in the South Island would come under scrutiny. Since coming into power last week, Labour has said it will ban foreigners from buying existing homes, along with a slew of policies aimed at addressing the housing crisis, which has seen homelessness grow to more than 40,000 people. However, the ban will not apply to foreigners who gain citizenship in New Zealand – a loophole that billionaire Thiel used, after spending a total of 12 days in the country.

Thiel’s fast-tracked citizenship allowed him to buy multiple properties in New Zealand, even though he told the government he had no intention of living in the country, but would be an “ambassador” for New Zealand overseas instead, and provide contacts for New Zealand entrepreneurs to Silicon Valley. “That was a discretionary decision that was made at the time [Thiel’s citizenship], and we were very critical. Our policy, banning people would apply to everybody, regardless of how much money they have or what country they come from,” Twyford said. “We haven’t announced policy on that [tightening the investment immigration criteria] but I think it is probably something that we are likely to look at.” Twyford said New Zealand’s ban on foreign buyers was modelled on similar legislation in Australia, and was designed to ensure New Zealanders can once again achieve the Kiwi dream of owning their own home.

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We are the tragedy.

Hopes Dashed For Giant New Antarctic Marine Sanctuary (AFP)

Hopes for a vast new marine sanctuary in pristine East Antarctica were dashed Saturday after a key conservation summit failed to reach agreement, with advocates urging “greater vision and ambition”. Expectations were high ahead of the annual meeting of the Commission for the Conservation of Antarctic Marine Living Resources (CCAMLR) – a treaty tasked with overseeing protection and sustainable exploitation of the Southern Ocean. Last year’s summit in Hobart saw the establishment of a massive US and New Zealand-backed marine protected area (MPA) around the Ross Sea covering an area roughly the size of Britain, Germany and France combined. But an Australia and France-led push this year to create a second protected area in East Antarctica spanning another one million square kilometre zone failed.

Officials told AFP that Russia and China were key stumbling blocks, worried about compliance issues and fishing rights. Consensus is needed from all 24 CCAMLR member countries and the European Union. Greenpeace called for “greater vision and ambition” in the coming year while WWF’s Antarctic program chief Chris Johnson said it was another missed opportunity. “We let differences get in the way of responding to the needs of fragile wildlife,” he said. Australia’s chief delegate Gillian Slocum described the failure as “sad”. She also bemoaned little progress on addressing the impacts of climate change which was having a “tangible effect” on the frozen continent. “While CCAMLR was not able to adopt a Climate Change Response Work Program this year, members will continue to work together ahead of the next meeting to better incorporate climate change impacts into the commission’s decision-making process,” she said.

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Dec 232015
 
 December 23, 2015  Posted by at 9:11 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle December 23 2015


DPC Unloading bananas, New Orleans 1903

Macquarie Forecasts 13% Fall In Chinese Steel Export Prices (BBG)
U.S. Calls for 256% Tariff on Imports of Steel From China (BBG)
US Existing Home Sales Down 10.5% In November (Reuters)
Man Who Called China’s Boom and Bust Now Warns of Crisis Risks (BBG)
Canadian Oil Industry To Lose 100,000 Jobs By The End Of 2015 (FP)
Finland Should Never Have Joined Euro, Foreign Minister Says (BBG)
Finns’ Support For Euro Falls Ahead Of Referendum Debate (Reuters)
Singapore Stock Losses Set to Rival Greece in 2015 (BBG)
Hope And Fear In The Endless Greek Crisis (FT)
The Decline Of Europe Is A Global Concern (FT)
Mr. Schäuble’s Ultimate Weapon: Restructuring European Public Debts (Bastasin)
Greece Recalls Its Ambassador In Prague After Czech Grexit Comments (Kath.)
Christmas 2015: Will Syria & Iraq Become Washington’s Stalingrad? (Holland)
Military to Military (Seymour Hersh)
UN Blames Saudi-Led Coalition For Attacks On Yemeni Civilians (Reuters)
ExxonMobil and Sierra Club Agreed on Climate Policy – and Kept It Secret (BBG)
Britain Can No Longer Sit Out Refugee Crisis As EU Prepares For More (Guardian)
Turkey Moves to Clamp Down on Border, Long a Revolving Door (NY Times)
Some Catholics Heed Pope’s Call To Succor Refugees, Others Look Away (Reuters)
13 Refugees, 7 Children, Die as Boat Sinks Off Greek Island (Kath.)

“..the industry was built for demand growth that hasn’t come through..”

Macquarie Forecasts 13% Fall In Chinese Steel Export Prices (BBG)

The world needs to get used to cheap Chinese steel, with export prices poised to fall again next year as the world’s biggest producer adjusts to demand that’s dropping for the first time in a generation. The price of hot-rolled coil, used in everything from fridges to freight containers, may decline about 13% next year, Colin Hamilton, Macquarie’s head of commodities research, said. The nation’s steel exports, which have ballooned to more than 100 million metric tons this year, may stay at those levels for the rest of the decade as infrastructure and construction demand continues to falter. While falling steel prices are partly driven by the collapse in raw materials and lower output costs, “it’s just more to do with the fact the industry was built for demand growth that hasn’t come through,” Hamilton said last week.

“We’re past peak steel demand. I think provided there is overcapacity in the Chinese system and given where demand is, it’s going to be like this for some time.” The flood of Chinese supplies has roiled manufacturers around the world, triggering trade restrictions from India to Europe to the U.S. Continued low prices will pressure steel-making profits worldwide, and may trigger further measures against Chinese exports, according to Anjani Agrawal at Ernst & Young in Mumbai. China’s hot-rolled coil is a key reference price for the global steel market. The country is the biggest and one of the lowest-cost makers of a product used by manufacturers across the world. Macquarie is forecasting an average price next year of $267.50 a ton, down from $309 a ton in 2015.

Other banks, including JPMorgan Chase & Co., have said China’s outbound shipments will peak this year as low prices and trade tensions force Chinese producers to start paring output. China’s crude steel production shrank 2.2% to 738.38 million tons in the first 11 months of 2015. “What may slow down the exports is anti-dumping and protectionist measures that several countries have taken against cheap imports,” said Ernst & Young’s Agrawal. “We’re going to see an impact. More and more countries are raising their objections.” India plans to step up its protection for debt-laden domestic steelmakers by imposing a minimum price on steel imports among other measures, Steel Secretary Aruna Sundararajan said this week. The import curbs are necessary to ensure a “level-playing field” for Indian companies after restrictions imposed in September failed to stop a decline in prices, she said.

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We only like free trade when we profit from it.

U.S. Calls for 256% Tariff on Imports of Steel From China (BBG)

Corrosion-resistant steel imports from China were sold at unfairly low prices and will be taxed at 256%, according to a preliminary finding of the U.S. Department of Commerce. Imports from India, South Korea and Italy will be taxed at lower rates, the agency said Tuesday in a statement. Imports from Taiwan and Italy’s Marcegaglia will not face anti-dumping tariffs. The government found dumping margins of 3.25% for most South Korean steel imports, with Hyundai Steel’s shipments subject to duties of 3.5%. Imports from Italian companies excluding Marcegaglia will be taxed at 3.1%. Indian imports are subject to duties from 6.6% to 6.9%.

“We’re concerned that the dumping that’s occurring is at higher levels than these determinations reflect,” Tim Brightbill, a partner at Wiley Rein, a law firm representing U.S. steelmaker Nucor, said Tuesday in an interview. “We have serious concerns that these preliminary duties are not enough at a time when unfairly priced imports continue to surge into the U.S. market at unprecedented rates.” U.S. producers including Nucor, U.S. Steel and Steel Dynamics filed cases in June alleging that some products from China, India, Italy, South Korea and Taiwan had been dumped in the U.S., harming domestic companies. In November, the government found that all those countries, except Taiwan, subsidized their domestic production by as much as 236% of its price.

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Blamed on ‘paperwork’.

US Existing Home Sales Down 10.5% In November (Reuters)

U.S. home resales posted their sharpest drop in five years in November, a potential warning sign for the health of the U.S. economy although new regulations on paperwork for home purchases may have driven the decline. The National Association of Realtors said on Tuesday existing home sales plunged 10.5% to an annual rate of 4.76 million units. That was the sharpest decline since July 2010. October’s sales pace was revised slightly lower to 5.32 million units. Housing has been providing a sizable boost to U.S. economic growth this year as a strengthening labor market and low interest rates have helped young adults to leave their parents’ homes. Economists had forecast sales rising to a rate of 5.35 million units last month.

NAR economist Lawrence Yun said most of November’s decline was likely due to regulations that came into effect in October aimed at simplifying paperwork for home purchasing. Yun said it appeared lenders and closing companies were being cautious about using the new mandated paperwork. Also potentially weighing on home sales, the median price for a U.S. existing home rose to $220,300 in November, up 6.3% from the same month in 2014. Yun said the steep rise in prices and shrinking inventories could also be constraining home purchases. Sales dropped across the country, down 13.9% in the West, 6.2% in the South, 15.4% in the Midwest and 9.2% in the Northeast.

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“Historically, every time the U.S. current account improved, concurrent with dollar strength, some country somewhere in the world plunged into some sort of crisis..”

Man Who Called China’s Boom and Bust Now Warns of Crisis Risks (BBG)

One of the few forecasters to predict both the start and peak of China’s equity boom, is now warning the nation will be buffeted by the same forces that caused financial crises around the world over the past four decades. Hao Hong, chief China strategist at Bocom International, says a shortage of dollars was the common feature in the oil rout in the 1970s, Latin American debt turmoil in the 1980s, the Asian currencies collapse in 1997 and the global crisis in 2008. Next year will see Federal Reserve interest-rate increases, an improving U.S. current-account balance and a stronger greenback, putting strains on the most-leveraged parts of the world’s second-largest economy, he says. “Historically, every time the U.S. current account improved, concurrent with dollar strength, some country somewhere in the world plunged into some sort of crisis,” Hong said.

“The pressure from a Fed tightening and thus a dollar liquidity shortage scenario will more likely show up” in Hong Kong property as well as China’s online lending and high-yield corporate bonds, he said in an interview. The yuan, for many years Asia’s most-profitable carry trade when adjusted for volatility, has weakened 4.2% against the dollar in 2015 as the yield advantage of China’s sovereign debt over U.S. Treasuries fell to the narrowest in five years. Chinese companies that borrowed in foreign currency at a record pace in the past three years are now buying dollars to protect against losses. Hot money that entered China with fake export invoicing, metals purchases and disguised foreign investment is now heading for the exit. “All roads to hell are paved with positive carry,” said Hong.

“Over the past few years, one of the biggest carry trades was to borrow dollar debt unhedged given the one-way expectation for yuan appreciation. We are seeing companies paying down dollar-denominated debt fast, and thus alleviating some of the risks, but not all.” The yuan strengthened 13% against the dollar in the four years through 2013, before retreating 2.4% in 2014. This year’s loss is set to be the biggest in more than two decades. The currency’s Sharpe ratio, a gauge of rewards that factors in the risks investors take, is the highest among 22 emerging markets for the period since 2010, reflecting its appeal to investors who buy higher-yielding currencies with funds borrowed in countries that have lower interest rates.

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Loonie at $1.40. That hurts.

Canadian Oil Industry To Lose 100,000 Jobs By The End Of 2015 (FP)

The oil and gas sector will see 100,000 job losses by the end of this year, including 40,000 direct jobs, as a combination of policy uncertainties and low crude oil prices decimates the sector, the head of the country’s oil and gas industry group says. “Canadians should be concerned in times like these,” Tim McMillan, president and chief executive of the Canadian Association of Petroleum Producers, said in an interview. “We have a lot of big policy pieces moving around. We need … to ensure we can compete in a slower price environment and if prices do bounce back , that we are the preferred investment jurisdiction and that we are picking up more than our fair share.”

Crude oil prices have halved in the space of a year to around US$35 per barrel and could slip further to the high US$20s as major producers continue to flood the market with record output, Citigroup estimates. Alberta alone has seen job losses of 63,500 jobs in the first eight months of the year, mostly related to the oil sector, according to Statistics Canada. Apart from the protracted price declines, Alberta’s oil and gas sector has also had to contend with a 20% hike in corporate taxes, a carbon tax and new regulatory policies to limit rein in carbon emissions. Meanwhile, a new provincial royalty regime is to be announced in January, leaving Alberta oil and gas producers under a cloud of uncertainty.

The new federal government also plans to unveil new policies, including a review of the regulatory process, which the sector sees as more burden in an already difficult environment for the industry. McMillan said those burdens are chipping away at Alberta’s competitiveness as an energy jurisdiction. In the 1990s, Canada attracted 37% of all oil and gas investments in North America, a figure that now stands at 17%, he said.

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Finland’s economy is tanking.

Finland Should Never Have Joined Euro, Foreign Minister Says (BBG)

Finland should never have signed up to the single currency union, according to its foreign minister. With the northernmost euro member now set to become the bloc’s weakest economy, the question of currency regime continues to resurface as Finland looks for explanations for its lost competitiveness. Timo Soini, who is also the leader of one of three members of the ruling coalition, the anti-immigration The Finns party, says the country could have resorted to devaluations had it not been for its euro membership. The comments come as a former foreign minister gathers signatures in an effort to force the government to hold a referendum on euro membership. While polls still show most Finns don’t want to go through the process of exiting the currency bloc, there are signs that a plurality of voters think they would be better off outside the euro.

Debate on the subject “will gather steam,” Soini, who rose to power on a platform of euro-skepticism, said in Helsinki on Tuesday. But he also warned that a referendum “wouldn’t provide solutions,” here and now, to Finland’s economic woes. “The fact is that Finland is a member of the euro area.” The country has seen its economy sink following the decline of a consumer electronics business once led by Nokia Oyj and a faltering paper industry, with political efforts to create new growth motors so far failing. Without the option of currency devaluation, the government has calculated that Finland needs to lower its labor costs as much as 15% to catch up with its main trade partners, Sweden and Germany. Finland’s economy has shrunk for the past three years and Nordea, the biggest Nordic bank, predicts further contraction in 2015. Finland will be the weakest EU economy by 2017, when it will grow at less than half the pace of Greece, according to the European Commission.

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Please, Finns, blow up the union! If you don’t do it, someone else will, anyway.

Finns’ Support For Euro Falls Ahead Of Referendum Debate (Reuters)

Support in Finland for keeping the euro currency has fallen to 54% amid persistent economic problems, an opinion poll showed on Tuesday, as parliament prepares for a debate next year on whether to hold referendum on euro membership. Despite recovery elsewhere in the euro zone, Finland has suffered three years of economic contraction and some Finns say its prospects would improve if it returned to the markka currency. Parliament had to agree to a debate on a possible referendum after a petition raised the necessary 50,000 signatures. The debate will probably be held in the first half of 2016. The move is unlikely to end membership, analysts say. The poll by public broadcaster YLE published on Tuesday showed that 54% of Finns supported remaining in the euro zone, while 31% wanted to leave. Asked whether Finland would do better outside the euro zone, 44% answered yes.

Last month, a Eurobarometer poll showed 64% of Finns backed the euro currency, down from 69% a year earlier. Finland’s foreign minister and the leader of eurosceptic The Finns party Timo Soini told reporters that even if many believed the euro was harmful for the country there was not enough political will to leave the currency bloc. “I think Finland should not have joined the euro. But how to dismantle that decision, that is a very complicated question.” He noted that Finland adopted the euro in 1998 without a referendum, while neighbors Sweden and Denmark voted down the idea of adopting the euro a few years later. Finland was once known for its prudent fiscal policy, but after the global financial crisis its recovery has been hit by a string of problems, including high labor costs and recession in neighboring Russia.

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Singapore gets hurt by China.

Singapore Stock Losses Set to Rival Greece in 2015 (BBG)

Singapore’s stocks are set for a 15% tumble this year, putting them in the same league as Greece. Baring Asset Management and UBS say shares need to get even cheaper before they’re prepared to buy. Commodity trader Noble and oil-rig builder Sembcorp fell at least 46% in 2015 through Monday amid a raw-materials price rout, while DBS Group has been the biggest drag on the Straits Times Index as property prices decline and bad debts increase. Among developed markets tracked by Bloomberg, the only benchmark measure that has fared worse is the ASE Index in Athens, which is poised for a 24% plunge. “While some value could emerge if Singapore drops another 10%, there’s not a lot of things to be wildly excited about Singapore at the moment,” said Soo Hai Lim, a Hong Kong-based money manager at Baring.

“Cheap valuations aren’t a good enough reason why these stocks would deliver the kind of performance we’re looking for. The growth outlook is still quite soft for 2016.” Following this year’s slump, shares on the MSCI Singapore Index trade at 1.1 times the value of its companies’ net assets, compared with a multiple of 2 on a measure of global equities. The gap between the two widened this month to the most since May 2003. The MSCI All-Country World Index is heading for a 5.5% retreat in 2015. While attractive valuations may spur a rebound in the early part of next year, the outlook for the whole year still looks pessimistic, according to Mixo Das at Nomura. “Growth overall is slowing, particularly in China, and that raises the risk for the earnings of banks and commodity companies,” Das said. “That’s going to drag on Singapore valuations.”

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The EU took any hope of a Greek recovery away. Martin Wolf should know that.

Hope And Fear In The Endless Greek Crisis (FT)

The Greek economic crisis has blighted the country and the eurozone for six years. The election last January, which brought Alexis Tsipras and his leftwing Syriza party to power, added further friction between Greece and the rest of the eurozone. Mr Tsipras vowed to undo austerity — a promise he could not deliver on his own. In the event, after winning a referendum in June against the terms offered by the eurozone, he agreed in July to a new €86bn three-year eurozone programme on terms not so different from those he had persuaded the Greek people to reject. After a split in his party, Mr Tsipras then won another election in September. Yet the capital controls imposed in June remain in force and the economy has fallen back into recession.

Is there a good chance that economic recovery will take hold in 2016? This was in my mind as I visited Athens last week. My conclusion was that a chance does exist. But it is not, alas, that good. The starting point has to be with the differences of view among the main players: the Greek government and wider political community; the IMF; and eurozone creditors, particularly Germany. As Mr Tsipras made clear last week, one of his aims is to avoid another programme with the IMF. He finds its demands hard to bear. More broadly, he thinks that “the sooner we get away from the [bailout] programme the better for our country”. He notes: “If Greece completes the first [progress] review in January, we’ll be covering more than 70% of fiscal and financial measures in the agreement.”

He hopes Greece will soon regain its sovereignty or, with the IMF out of the picture, at least will only have other Europeans to deal with. The Athens government is also optimistic about the economic future. Mr Tsipras expects remaining capital controls to be lifted by March 2016 and for Greece to regain access to international capital markets by the end of the year. Banks have been recapitalised more cheaply than feared and confidence in the banking sector is returning. The government also hopes economic growth will soon resume. Nevertheless, the government is hoping for further debt relief. The IMF agrees with it. This is also plausible. Interest due on public debt is forecast by the Bank of Greece to jump from 2% of gross domestic product up to 2021 to over 8% in 2022 and then stay over 4% until the 2040s.

Sustainability largely depends on the terms of the new debt. If the eurozone made it possible for Greece to borrow on triple-A terms forever, the debt would be sustainable. Otherwise, it probably would not be. The IMF argues that Greek debt has become unsustainable only because the government failed to meet its commitments. That is doubtful. The ability of Greece to deliver was never credible. Moreover, while the IMF does support Greece on debt relief, it is very sceptical of its ability to deliver structural reforms in the absence of a political consensus that the reforms are desirable. It insists, against the government, that the country is well behind where it was a year ago on reforms. It has backtracked in important areas.

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“..the EU is doomed always to be less than the sum of its parts”… “Europe’s leaders have a tried and tested method for coping with urgent problems. They find solutions that are temporary, barely satisfactory and designed chiefly to serve the purpose of somehow keeping the EU show on the road.”

The Decline Of Europe Is A Global Concern (FT)

In his 1898 poem “Waiting for the Barbarians”, the Greek poet CP Cavafy describes a polity that invents or exaggerates mysterious foreign threats to prop up its decaying power structures. The listless ruling elites, hollow public ceremonies and pervasive forebodings of doom depicted in Cavafy’s masterwork should serve in 2016 as a wake-up call for Europe. Whether it concerns terrorism, immigration, homegrown political extremism, the eurozone’s unity, unemployment, lacklustre economic growth or even Europe’s military defences, national governments and the EU apparatus in Brussels look increasingly as if they are not up to the numerous challenges bearing down simultaneously from every direction. This should worry not just Europeans but their friends and partners in the Americas and Asia.

The malaise goes much wider and deeper than the EU, which is not to blame for everything that happens or does not happen in Europe. It is partly a matter of Europe’s relative global decline, which makes it difficult to manage events even in its own neighbourhood. It is partly a matter of cultural, economic, political and technological change in western societies as a whole. This disrupts familiar patterns of life, undermines the trust of citizens in their rulers and weakens the ability of governments to act decisively. Nonetheless, the EU is the focus of concern. Its inadequate responses to one crisis after another create the unfortunate impression that, despite being a club of affluent democracies, with 28 member states and more than 500m inhabitants, the EU is doomed always to be less than the sum of its parts.

Rousing appeals from political leaders for a more efficient and closely integrated EU — and there have been lots of them in 2015 — turn out too often to be mere lip service to an ideal. The EU’s pitiful efforts at defence collaboration illustrate the problem. It was none other than Jean-Claude Juncker, the European Commission president, who said in October: “If I look at the common European defence policy, a bunch of chickens would be a more unified combat unit in contrast.” This is not to say that the EU is on the brink of falling apart. As they demonstrated during the eurozone crisis, and as they are demonstrating again in the refugee and migrant emergency, Europe’s leaders have a tried and tested method for coping with urgent problems.

They find solutions that are temporary, barely satisfactory and designed chiefly to serve the purpose of somehow keeping the EU show on the road. In this spirit they have arranged three hugely expensive financial rescues of Greece, but they have refused to grasp the nettle of a comprehensive write-off of Greek debt. They have created a semi-banking union which has common supervision and a common mechanism for winding up failed banks, but which lacks common deposit insurance. In both cases it is national political pressures, primarily in Germany, that are the obstacle. Just as the eurozone crisis split the currency union between northern and southern Europeans, so the refugee emergency is dividing the EU between its older western European member states and its newer central and eastern ones. The Schengen system of border-free travel, a cornerstone of EU integration, is already fragmenting along west-east lines.

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Germany never understood the meaning of ‘union’.

Mr. Schäuble’s Ultimate Weapon: Restructuring European Public Debts (Bastasin)

A German plan for revamping the euro-area proposes an automatic mechanism for sovereign debt-restructuring. This mechanism, designed by Berlin’s Ministry of Finance, is designed to prevent any form of risk-sharing between euro-area countries and to confine the costs of fiscal and financial instability primarily within the more fragile countries. From the perspective of debt defaults, the plan could enforce more discipline, but it also risks dramatizing any future episode of financial instability. The 18 countries sharing the euro are still struggling to recover from seven years of financial troubles that have jeopardized the very survival of the common currency. Since 2010, a slew of different proposals have been put forward for improving either the centralization of the area’s economic governance or, alternatively, for decentralizing the risks and limiting the amount of risk-sharing.

The German government seems to have lost faith in any form of centralized governance, and it would rather try to shield German taxpayers from sharing the potential costs of a sovereign debt crisis in other countries. The plan is described in a letter sent at the end of November by the Ministry of Finance to the heads of the Finance and Budget Committee of the German Parliament. The unpublished missive prescribes an automatic mechanism for restructuring the public debt of any country requesting financial assistance. Once a country asks for help through the European Stability Mechanism (the ad hoc fund established in 2012), for whichever reason, sovereign bond maturities will automatically be lengthened, reducing the market value of those bonds and causing severe losses for all bondholders.

The mechanism would turn euro-area sovereign bonds into riskier assets—the goal of another proposal by the German government, which scraps the regulatory exception for sovereign bonds that allows banks to hold them without hoarding capital reserves to cover eventual losses. According to a rather abstract interpretation of how European economies work, making sovereign bonds explicitly riskier encourages banks and households to refrain from underwriting them too lightly. Governments will have fewer incentives to pile up debt. Banks will also turn away from investing in government bonds and perhaps engage more intensely with the real economy. Economic efficiency across the euro area should increase.

Unfortunately, establishing an automatic mechanism for sanctioning undesirable financial predicaments could also make them more likely to happen. Sovereign bonds have a unique and pivotal role for the financial systems of the euro-area. So, once sovereign bonds in some euro-area countries become more risky, the whole financial system might turn frail, affecting growth and economic stability. Ultimately, rather than exerting sound discipline on some member states, the new regime could widen bond rate differentials and make debt convergence simply unattainable, increasing the probability of a euro-area break-up.

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The EU is tearing Europe apart.

Greece Recalls Its Ambassador In Prague After Czech Grexit Comments (Kath.)

In an unprecedented setback to diplomatic relations between the two EU members, Greece on Tuesday recalled its ambassador to the Czech Republic, Panayiotis Sarris, for consultations. The decision by Foreign Minister Nikos Kotzias came in response to comments by Czech President Milos Zeman to Slovak news agency TASR last week that his country would only join the eurozone after Greece had left the common currency area. “I was very disappointed from the result of the negotiations which almost led to the so-called Grexit, but eventually ended up with Greece staying in the eurozone,” said Zeman, adding that he would not like to see Greek debts being shouldered by Czech taxpayers.

Athens lodged a formal complaint with the Czech ambassador in Greece last week while Foreign Ministry spokesman Constantinos Koutras issued a laconic statement saying that “the Czech Republic is a member-state of the European Union thanks to Greece.” However, Athens made no further response to Zeman’s remarks in anticipation of a retraction from Prague. On Tuesday, Kotzias eventually decided to recall Sarris. Sources told Kathimerini that the move does not amount to a suspension of diplomatic ties between the two states, but it does mark a downgrade of relations between two EU partners. According to the same people, the diplomatic reaction is also aimed at conveying a signal to governments in Slovakia and Hungary, which appear to have been maintaining a skeptical stance toward Athens since the outset of the debt crisis in 2010 – a stance that has deteriorated since the summer due to the refugee crisis.

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The petrodollar.

Christmas 2015: Will Syria & Iraq Become Washington’s Stalingrad? (Holland)

[..] there are some scary parallels between the Nazi Empire of the 1940’s and the Washington Empire and conquests today that revolve around the Petrodollar system that has maintained the dollar reserve currency status since the end of World War Two. This dollar world reserve currency model required that oil was only priced and sold in dollars forced all foreign nations buying and importing oil to keep major dollar reserves to pay for their oil imports guaranteed a permanent and expanding demand for dollars around the world. Three Middle East countries first broke the oil/dollar requirement and threatened the petrodollar system including Iraq, Libya and Iran hence the US military attempts to violently overthrow these governments to maintain Washington hegemony and the dollar.

America has plenty of population to increase military forces unlike Germany in 1942 but we are reaching the limit to voluntary military enlistments in a time of permanent war and repeated overseas assignments. Also the continuous terror threats since 9/11 as well as real and orchestrated plots are being questioned by a growing number of alternative Internet media sites and polls show Americans no longer trust Congress or the media establishment. I fear the political leadership has determined a real war of limited scope and duration may be the best way to regain control of the situation and inspire the American people to sacrifice and support their political leadership.

Also a war scenario will allow Washington, Wall Street and the Federal Reserve to transfer the blame for the looming death of the Petrodollar to foreign adversaries like Russia, China and Iran. This will provide political cover to a decade long recession and dramatically reduced economic growth and prosperity as the death of the petrodollar works its way through the US economy over the next few years.

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US military shared info with Assad behind Washington’s back.

Military to Military (Seymour Hersh)

Barack Obama’s repeated insistence that Bashar al-Assad must leave office – and that there are ‘moderate’ rebel groups in Syria capable of defeating him – has in recent years provoked quiet dissent, and even overt opposition, among some of the most senior officers on the Pentagon’s Joint Staff. Their criticism has focused on what they see as the administration’s fixation on Assad’s primary ally, Vladimir Putin. In their view, Obama is captive to Cold War thinking about Russia and China, and hasn’t adjusted his stance on Syria to the fact both countries share Washington’s anxiety about the spread of terrorism in and beyond Syria; like Washington, they believe that Islamic State must be stopped.

The military’s resistance dates back to the summer of 2013, when a highly classified assessment, put together by the Defense Intelligence Agency (DIA) and the Joint Chiefs of Staff, then led by General Martin Dempsey, forecast that the fall of the Assad regime would lead to chaos and, potentially, to Syria’s takeover by jihadi extremists, much as was then happening in Libya. A former senior adviser to the Joint Chiefs told me that the document was an ‘all-source’ appraisal, drawing on information from signals, satellite and human intelligence, and took a dim view of the Obama administration’s insistence on continuing to finance and arm the so-called moderate rebel groups. By then, the CIA had been conspiring for more than a year with allies in the UK, Saudi Arabia and Qatar to ship guns and goods – to be used for the overthrow of Assad – from Libya, via Turkey, into Syria.

The new intelligence estimate singled out Turkey as a major impediment to Obama’s Syria policy. The document showed, the adviser said, ‘that what was started as a covert US programme to arm and support the moderate rebels fighting Assad had been co-opted by Turkey, and had morphed into an across-the-board technical, arms and logistical programme for all of the opposition, including Jabhat al-Nusra and Islamic State. The so-called moderates had evaporated and the Free Syrian Army was a rump group stationed at an airbase in Turkey.’ The assessment was bleak: there was no viable ‘moderate’ opposition to Assad, and the US was arming extremists.

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But they’re our friends…

UN Blames Saudi-Led Coalition For Attacks On Yemeni Civilians (Reuters)

The United Nations High Commissioner for Human Rights told the U.N. Security Council on Tuesday that a Saudi-led coalition’s military campaign in Yemen appeared to be responsible for a “disproportionate amount” of attacks on civilian areas. Speaking at the council’s first public meeting on Yemen since the Saudi-led bombing campaign began nine months ago, Zeid Ra’ad al Hussein said he had “observed with extreme concern” heavy shelling from the ground and air in civilian areas of Yemen including the destruction of hospitals and schools. He said all parties to the conflict were responsible, “although a disproportionate amount appeared to be the result of air strikes carried out by coalition forces.”

A Saudi-led Arab coalition intervened in Yemen’s civil war in March to try to restore the government after it was toppled by Iran-allied Houthi forces, but a mounting civilian death toll and dire humanitarian situation has alarmed human rights groups. Western nations have been quietly increasing pressure on Saudi Arabia to seek a political deal to end the conflict, U.N. diplomats have said. Diplomats said Tuesday’s session was convened to shine a spotlight on the conflict and pressure all sides to seek a negotiated end to the bloodshed. U.S. Ambassador to the United Nations, Samantha Power, president of the council for December, said all parties must abide by humanitarian law. She said the Houthis must stop indiscriminate shelling of civilians and cross-border attacks.

“We will also continue to urge the Saudi-led coalition to ensure lawful and discriminate targeting and to thoroughly investigate all credible allegations of civilian casualties and make adjustments as needed to avoid such incidents,” Power said. Warring parties in Yemen agreed to a renewable seven-day ceasefire under U.N. auspices that started Dec. 15, but it has been repeatedly violated. “I further call on the council to do everything within its power to help restrain the use of force by all parties and to urge all sides to abide by the basic principles of international humanitarian law,” Zeid said.

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What climate groups do with your donations.

ExxonMobil and Sierra Club Agreed on Climate Policy – and Kept It Secret (BBG)

ExxonMobil and Sierra Club may be thought of as natural enemies, particularly when it comes to a question so tricky as how to address climate change. That’s what two men named David thought, too, when they first met in 2008 to talk about a climate policy with very little support: a national tax on industrial carbon dioxide emissions. Secretly, however, they found that a common problem—the threat of unwieldy legislation—can for a time scramble the very idea of friends and enemies. “Demonizing people is not a good idea,” said David Bailey, who at the time managed climate policy for ExxonMobil in Washington. “I realized that people at the Sierra Club don’t all have horns and a tail, and—I think—likewise.” His negotiating partner at the time, David Bookbinder, was the chief climate counsel for the Sierra Club.

The two wonks, working for organizations that are typically locked in opposition, recognized a shared interest in finding an alternative direction for U.S. climate policy. It took nearly a year and more than a dozen meetings to come up with a short document that bridged a huge chasm. It turns out that America’s biggest oil company and one of its most iconic environmental groups could collaborate. What they came up with has gone unacknowledged until now—and it could provide a path past an intractable impasse on climate policy.
Congress’s first attempts to address climate change relied on the idea that markets and private enterprise can ratchet down greenhouse gas pollution faster, more efficiently, and more inexpensively than regulation. The first serious legislation, introduced in 2003 by Senator John McCain (R-Ariz.) and then-Senator Joseph Lieberman (D-Conn.), would have set a national limit on emissions that tightened them over time.

It also would have allowed heavy emitters to sell their pollution permits if they didn’t need them, or buy more permits from other companies if they exceeded their emissions quota. You might remember this proposal by its nickname: cap and trade. Despite the aura of inevitability around it in 2008, there were plenty of legitimate reasons not to like the cap-and-trade regime. Some businesses thought it overly complex, backed by a market-driven price for CO2 pollution permits that would prove too variable for careful planning. The complexity also scared off some environmentalists, particularly with the world undergoing a Wall Street-inflicted financial meltdown that began in the third quarter of 2008. Bailey and Bookbinder, the oilman and the environmentalist, independently started casting about for unlikely allies for an alternative to the cap-and-trade juggernaut.

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“The PM has firmly argued that it is better to keep the 4 million Syrian refugees “in-region”.. F**king stop bombing their homes then, you twit.

Britain Can No Longer Sit Out Refugee Crisis As EU Prepares For More (Guardian)

The difference in the response from the German chancellor and the British prime minister to the biggest refugee crisis Europe has faced since the second world war could not be more stark. Angela Merkel’s Germany has taken in more than 1 million asylum seekers this year. Her electrifying welcome announcement in August transformed the chancellor’s cautious reputation for leading from behind, to one of a moral pioneer. It is true that her open door response has provoked a backlash, particularly in Bavaria, through which most refugees and asylum seekers have entered Germany. But the backlash, while real enough in her own CDU party, appears to have been confined to a minority of the wider public.

A French-based IFOP poll of seven countries showed support for the principle of sheltering refugees from war and persecution has dropped in Germany from 79% in September to 75% in October. Fewer than half of Britons, French or Dutch say they feel the same way. While the demand for an upper limit on the number of refugees in Germany has damaged Merkel, it seems far from sweeping her from office. David Cameron and his home secretary, Theresa May, on the other hand, have not only kept the door firmly shut but have made a virtue of it. While Germany accepted 108,000 asylum seekers between September and November, Cameron was boasting last week of resettling just 1,000 Syrian refugees over a longer period.

The PM has firmly argued that it is better to keep the 4 million Syrian refugees “in-region”, underpinned by a generous cumulative £1bn aid programme and to end the incentive for those making the journey by “breaking the link between getting on a boat in the Mediterranean and getting the right to settle in Europe”.

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Yeah, so much better now: “Turkey at last seems to be getting serious about shoring them up.” “Whoever approaches the border is shot…” Whatever happened to humanity?

Turkey Moves to Clamp Down on Border, Long a Revolving Door (NY Times)

The Turkish Coast Guard has stepped up nighttime patrols on the choppy, wintry waters of the Aegean Sea, seizing rafts full of refugees fleeing war for Europe and sending them back to Turkey. Down south, at the border with Syria, Turkey is building a concrete wall, digging trenches, laying razor wire and at night illuminating vast stretches of land in an effort to cut off the flow of supplies and foreign fighters to the Islamic State. On land and at sea, Turkey’s borders, long a revolving door of refugees, foreign fighters and the smugglers who enable them, are at the center of two separate yet interlinked global crises: the migrant tide convulsing Europe and the Syrian civil war that propels it. Accused by Western leaders of turning a blind eye to these critical borders, Turkey at last seems to be getting serious about shoring them up.

Under growing pressure from Europe and the United States, Turkey has in recent weeks taken steps to cut off the flows of refugees and of foreign fighters who have helped destabilize a vast portion of the globe, from the Middle East to Europe. Smugglers who used to make a living helping the Islamic State, also known as ISIS or ISIL, bring foreign fighters into Syria say that it is increasingly difficult — though still not impossible — to do so now. Border guards who once fired warning shots, they say, now shoot to kill. “Whoever approaches the border is shot,” said Omar, a smuggler interviewed in the border town of Kilis who insisted on being identified by only his first name because of the illegal nature of his work. “And many have been killed.” Another smuggler, Mustafa, who also agreed to speak if only his first name was used, said, “Two months ago, you could get in whatever you liked.”

He said he used to bring in explosives and foreign fighters for the Islamic State, which allowed him to continue his regular business of smuggling food and other items, like cigarettes, into Syria. Now, he said, “the Turkish snipers shoot any moving object.” At the coast, Turkey’s efforts to interdict more boats full of migrants came after the European Union agreed to pay Ankara more than $3 billion to help with education and health care for the refugees in the country. Some rights groups have cried foul. Amnesty International recently accused Turkey of illegally detaining migrants and, in some cases, of sending them back to war zones. Turkish officials have said they detain relatively few migrants, and only ones they say have links to smuggling rings.

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Same reaction as Europe.

Some Catholics Heed Pope’s Call To Succor Refugees, Others Look Away (Reuters)

One Catholic parish in Germany tore out its pews to make space for refugees. Franciscan monks near Rome took a family into their hilltop convent. But in northern Italy, a rural priest faced hostility when he asked his flock to shelter Muslims. Four months after Pope Francis appealed to the parishes and religious communities of Europe to each take in one family of refugees, the response is decidedly mixed. Arms have opened wide in some places but indifference, bureaucracy, fear, and xenophobia have reared their heads elsewhere, particularly after the attack by Islamist militants who killed 130 people in Paris last month. Around a million migrants arrived by sea in Europe in 2015, with some 3,700 dying, according to the International Organisation for Migration.

Some of them, if Francis is heeded, should be heading to safety among the roughly 120,000 Catholic parishes in Europe But in Italy – which with more than 25,000 has the largest number of parishes – only about 1,000 have responded, according to Father Giancarlo Perego, head of the Church-affiliated Migrantes Foundation. Another 1,500 families had offered to host refugees. Perego and other Church officials pointed out, however, that many Catholic parishes were already supporting refugee services well before the pope’s appeal. Italian bishops have published a “How To” booklet for parishes, dealing with everything from how to prepare parishioners for the arrival of refugees, legal issues, and a glossary explaining terms such as asylum and repatriation.

When Francis announced the initiative on Sept. 6, he set the example by welcoming two families into the Vatican’s own two parishes. Many of the migrants entering Europe have headed to Germany, where the Catholic Church is one of the richest in Europe, partly because of a Church tax on members, and which has an institutional tradition of helping refugees. More than 3,000 staff members work full time to help refugees and are backed up by about 100,000 volunteers, according to a spokesperson. St. Benedikt’s parish in the northern port city of Bremen removed pews and confessionals and converted the church into a temporary refugee shelter. “This is our duty. We can’t sing Christmas carols about opening doors to those in need and at the same time refuse to let anyone enter,” said one of its priests, Father Johannes Sczyrba.

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Brussels should be taken to The Hague.

13 Refugees, 7 Children, Die as Boat Sinks Off Greek Island (Kath.)

Seven children, two women and four men drowned when their boat sank off the small Aegean island of Farmakonisi, Greek coastguard officials said early Wednesday. Another 15 people were rescued and one was still missing according to witnesses, the officials said adding that a Super Puma helicopter, a patrol boat and private vessels assisted the search-and-rescue operation. “The vessel, a 6-metre (20-foot) speed boat, sank under unknown circumstances,” one of the officials told Reuters. “They were in the water when they were spotted by a rescue boat.”

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Nov 172015
 
 November 17, 2015  Posted by at 10:26 am Finance Tagged with: , , , , , , , , , , ,  


DPC “Grant’s Tomb. Rubber-neck auto on Riverside Drive, New York” 1911

Steel Is the Poster Child For Oversupplied Commodity Markets (Bloomberg)
Oil Approaching $40 Deepens Investor Pessimism on Recovery (Bloomberg)
The Saudis Are Stumbling – And May Take The Middle-East Down With Them (Hallina)
US Approves Sale Of Smart Bombs To Saudi Arabia (Reuters)
Yuan’s Offshore Discount Widens as IMF Nod May Curb Intervention (Bloomberg)
India Exports Fall 17.5%, Imports Down 21.2% (LiveMint)
France Swats Aside EU Budget Rules In Rearmament Blitz (AEP)
Finnish Parliament Will Debate Next Year Leaving Euro Zone (Reuters)
An Entirely Rigged Political-Financial System (Nomi Prins)
Greece Reaches Deal With Lenders Unlocking Stalled Aid (Reuters)
UK Inflation Stays Below Zero as Price Weakness Persists (Bloomberg)
There Are No Safe Spaces (Jim Kunstler)
A Most Convenient Massacre (Dmitry Orlov)
ISIS Financed by 40 Countries, Including G20 Member States – Putin (Sputnik)
Putin Confirms Egypt Plane Crash Due To Bomb, Offers $50 Million Reward (ZH)
More Than Half of US State Governors Say Syrian Refugees Not Welcome (CNN)
Paris Attacks Fuel Calls For Canada To Delay Taking In 25,000 Syrians (AFP)
El Niño: Food Shortages, Floods, Disease And Droughts (Guardian)
Greek Coast Guard Rescues 1,244 Refugees In Three Days (AP)
Refugee Boat Overturns Near Greek Island, At Least Eight Dead (AP)

I’d say steel AND oil. And copper.

Steel Is the Poster Child For Oversupplied Commodity Markets (Bloomberg)

The collapse in oil prices following the shale revolution has stolen the limelight for investors mulling the end of the commodities supercycle. But the real “poster child for problems in commodities markets is perhaps the global steel industry,” according to Macquarie analysts led by Colin Hamilton, the firm’s global head of commodities research. The front-month contract for U.S. hot-rolled coil steel futures traded on the New York Mercantile Exchange is down nearly 40% year-over-year/ Forecasts for a boom in Chinese consumption helped spur a rise in production that left the segment with a massive glut. The successful realization of economic rebalancing in China, meanwhile, necessarily entails a material slowdown in that nation’s demand for steel. Macquarie observes that global steel consumption has contracted on an annual basis throughout 2015.

“With 1.6 billion tonnes of consumption globally, steel remains the lynchpin of industrial growth,” wrote Hamilton. “However, the growth part of this equation is an increasing problem, and not only in China.” India, which has the potential to buoy demand for steel, is also contributing significantly to supply growth. Bloomberg Intelligence’s Yi Zhu notes that 37 million metric tons of production capacity in India are currently under construction or in planning to be added. “The only people who still seem to think there is significant upside in global steel consumption akin to the past decade are the major iron ore producers—for example BHP’s belief global steel consumption will hit 2.5 billion tonnes by 2030—just a further 50% upside required there!” Hamilton wrote in a separate note.

Arguably, overcapacity across the commodity complex is a perverse side effect of years of near-zero interest rates and asset purchases by the Federal Reserve. Lower input prices, however, can have a silver lining. For example, the collapse in oil prices, in simple terms, represents a transfer of wealth from major oil conglomerates to consumers. The largest positive effects accrue to lower-income households that spend a heftier portion of take-home pay on energy costs. “A world of cheap money not only sees new capacity built, it also means existing capacity doesn’t disappear,” explains Hamilton. “While most regions are well off their peak production levels over the last decade, permanent capacity closures have been few and far between.”

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Speculator pessimism.

Oil Approaching $40 Deepens Investor Pessimism on Recovery (Bloomberg)

Hedge funds have turned more pessimistic on oil as prices flirted with $40 a barrel for the first time since August. “The speculators keep trying to pick the bottom and keep getting burned,” Michael Lynch, president of Strategic Energy & Economic Research said. Money managers’ short bets in West Texas Intermediate crude surged 21% in the week ended Nov. 10, according to data from the Commodity Futures Trading Commission. The net-long position dropped 16%. The release of the figures was delayed because of Veterans Day on Nov. 11. Oil inventories in developed countries have expanded to a record of almost 3 billion barrels because of massive supplies from both OPEC and non-OPEC producers, the International Energy Agency said in a report on Nov. 13.

WTI slipped to the lowest level since August before the CFTC release Monday. Thirty-nine oil tankers are waiting near Galveston, Texas, up from 30 in May, according to vessel-tracking data compiled by Bloomberg. “There’s been concern about excess supply in the market for a while now and that’s been strengthened by the IEA report,” Lynch said. [..] Oil inventories surged because of increased global production, OPEC said on Nov. 12. U.S. crude supplies rose to 487 million barrels as of Nov. 6, the highest for this time of year since 1930, the Energy Information Administration reported on Nov. 12. “We think the next few months will be very weak,” Sarah Emerson, managing director of ESAI Energy said by phone. “The market is focused on inventories. Prices shouldn’t rally in the coming year unless we have a disruption.”

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The regime puts itself in grave danger. This could blow up much faster than presumed.

The Saudis Are Stumbling – And May Take The Middle-East Down With Them (Hallina)

When the Arab Spring broke out in 2011, Saudi Arabia headed it off by pumping $130 billion into the economy, raising wages, improving services, and providing jobs for its growing population. Saudi Arabia has one of the youngest populations in the Middle East, many of whom are unemployed and poorly educated. Some 25% of the population lives in poverty. Money keeps the lid on, but – even with the heavy-handed repression that characterizes Saudi political life – for how long? Meanwhile they’re racking up bills with ill-advised foreign interventions. In March, the kingdom intervened in Yemen’s civil conflict, launching an air war, a naval blockade, and partial ground campaign on the pretense that Iran was behind one of the war’s factions – a conclusion not even the Americans agree with.

Again, the Saudis miscalculated, even though one of their major allies, Pakistan, warned them they were headed for trouble. In part, the kingdom’s hubris was fed by the illusion that US support would make it a short war. The Americans are arming the Saudis, supplying them with bombing targets, backing up the naval blockade, and refueling their warplanes in midair. But six months down the line the conflict has turned into a stalemate. The war has killed 5,000 people (including over 500 children), flattened cities, and alienated much of the local population. It’s also generated a horrendous food and medical crisis and created opportunities for the Islamic State and al-Qaeda to seize territory in southern Yemen. Efforts by the UN to investigate the possibility of war crimes were blocked by Saudi Arabia and the US.

As the Saudis are finding out, war is a very expensive business – a burden they could meet under normal circumstances, but not when the price of the kingdom’s only commodity, oil, is plummeting. Nor is Yemen the only war that the Saudis are involved in. Riyadh, along with Qatar and the United Arab Emirates, are underwriting many of the groups trying to overthrow Syrian president Bashar al-Assad. When antigovernment demonstrations broke out there in 2011, the Saudis – along with the Americans and the Turks – calculated that Assad could be toppled in a few months. But that was magical thinking. As bad as Assad is, a lot of Syrians – particularly minorities like Shiites, Christians, and Druze – were far more afraid of the Islamists from al-Qaeda and the Islamic State than they were of their own government.

So the war has dragged on for four years and has now killed close to 250,000 people. Once again, the Saudis miscalculated, though in this case they were hardly alone. The Syrian government turned out to be more resilient than it appeared. And Riyadh’s bottom line that Assad had to go just ended up bringing Iran and Russia into the picture, checkmating any direct intervention by the anti-Assad coalition. Any attempt to establish a no-fly zone against Assad will now have to confront the Russian air force – not something that anyone other than certain US presidential aspirants are eager to do.

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Smart move. There is more sympathy for ISIS in Saudi Arabia than in any other country. And a lot of -private- Saudi capital goes towards funding it. And we sell them smart bombs.

US Approves Sale Of Smart Bombs To Saudi Arabia (Reuters)

The U.S. State Department has approved the sale of thousands of smart bombs worth a total of $1.29 billion to Saudi Arabia to help replenish supplies used in its battle against insurgents in Yemen and air strikes against Islamic State in Syria, U.S. officials familiar with the deal said on Monday. The Pentagon’s Defense Security Cooperation Agency (DSCA), which facilitates foreign arms sales, notified lawmakers on Friday that the sales had been approved, the sources said. The lawmakers now have 30 days to block the sale, although such action is rare since deals are carefully vetted before any formal notification.

The proposed sale includes thousands of Paveway II, BLU-117 and other smart bombs, as well as thousands of Joint Direct Attack Munitions kits to turn older bombs into precision-guided weapons using GPS signals. The sales reflect President Barack Obama’s pledge to bolster U.S. military support for Saudi Arabia and other Sunni allies in the Gulf Cooperation Council after his administration brokered a nuclear deal with their Shiite rival Iran. The weapons are made by Boeing and Raytheon, but the DSCA told lawmakers the prime contractors would be determined by a competition.

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I brought this up the other day: how much control over the yuan does Beijing give up with its desired inclusion in the ‘SDR basket’? And how does that play out when things go downhill for China?

Yuan’s Offshore Discount Widens as IMF Nod May Curb Intervention (Bloomberg)

The offshore yuan’s discount to the onshore spot rate widened to the most this month amid speculation the People’s Bank of China will rein in intervention now that the currency is on the cusp of winning reserve status. The difference between the yuan’s exchange rates in Hong Kong and Shanghai rose to as much as 417 pips on Monday, data compiled by Bloomberg show. It last exceeded 400 pips on Oct. 28, prompting suspected intervention by the PBOC the following day. [..] IMF Managing Director Christine Lagarde said late Friday that her staff have recommended the yuan be included in its Special Drawing Rights basked, as all operational issues including a sufficient gap between the onshore and offshore rates had been solved.

The Washington-based lender’s board will vote to approve inclusion on Nov. 30. “As the yuan’s inclusion is largely a done deal, we expect the PBOC to reduce foreign-exchange intervention and allow a wider spread between the onshore and offshore yuan,” said Ken Cheung, a Hong Kong-based currency strategist at Mizuho Bank Ltd. The central bank’s tolerance level may have widened to 500 pips from 400 pips before the IMF announcement and it will probably allow more depreciation via weaker fixings, he said.

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Wasn’t India supposed to pick up global growth where China left off?

India Exports Fall 17.5%, Imports Down 21.2% (LiveMint)

India’s merchandise exports contracted for the eleventh consecutive month in October, as shipments of petroleum products continued to decline on lower crude oil prices, and external demand remained weak amid tepid global economic recovery. Exports contracted 17.5% from a year ago to $21.3 billion while imports shrank 21.2% to $31.1 billion, leaving a trade deficit of $9.8 billion, data released by the commerce ministry showed on Monday. In comparison, China’s October exports fell 6.9% from a year ago, down for a fourth month, while imports slipped 18.8%, leaving the country with a record high trade surplus of $61.64 billion. India’s dip in exports was driven mainly by a 57.1% drop in shipments of petroleum products to $2.5 billion.

The ministry has sent a cabinet note on the long-pending interest subsidy scheme for providing rupee credit to exporters at a subsidized interest rate. However, the cabinet is yet to take a view on it. India aims to take exports of goods and services to $900 billion by 2020 and raise the country’s share in world exports to 3.5% from 2% now. Exports in the past four fiscal years have been hovering at around $300 billion. India’s current account deficit (CAD) further contracted in the first quarter of 2015-16, as lower global crude oil prices helped rein in India’s import bill.

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Big deal: if budget rules are no longer applicable to France, they are to nobody. Schengen is gone, budget restrictions are gone; why still have an EU?

France Swats Aside EU Budget Rules In Rearmament Blitz (AEP)

France has invoked emergency powers to sweep aside EU deficit rules and retake control over its economy after the terrorist atrocities in Paris, pledging a massive in increase and security and defence spending whatever the cost. President Francois Hollande said vital interests of the French nation are at stake and there can be no further justification for narrowly-legalistic deficit rules imposed by Brussels. “The security pact takes precedence over the stability pact. France is at war,” he told the French parliament. Defence cuts have been cancelled as far out as 2019 as the country prepares to step up its campaign to “eradicate” ISIS, from the Sahel in West Africa, across the Maghreb, to Syria and Iraq. At least 17,000 people will be recruited to beef up the security apparatus and the interior ministry, fast becoming the nerve centre of the country’s all-encompassing war against the ISIS network.

The new forces include 5,000 new police and gendarmes, 1,000 customs officials, and 2,500 prison guards. “I assume it will lead to an increase in expenses,” he said. The combined effect amounts to a fiscal stimulus and may ultimately cushion the economic damage of terrorist attacks for the tourist industry, but the “rearmament” drive spells the end of any attempt to meet deficit limit of 3pc of GDP enshrined in the Stability and Growth Pact. With France in open defiance, the reconstituted pact is now effectively dead. The European Commission expects the French deficit to be 3.4pc of GDP next year and 3.3pc in 2017, but the real figure is likely to be much higher and will last through to the end of the decade. The concern is that this could push the country’s debt yet higher from 96.5pc of GDP to nearer 100pc, made worse by the effects of deflation on debt dynamics.

Mr Hollande said France will invoke article 42.7 of the Lisbon Treaty, the solidarity clause obliging other member states to come to his country’s help by “all means in their power”. It would be beyond parody for Brussels to continue insisting on budget rules in such a political context. The French economy is slowly recovering as the triple effects of a weak euro, cheap oil, and quantitative easing by the ECB combine to create a short-term blast of stimulus, but it still remains remarkably depressed a full six years into the post-Lehman cycle of global expansion. Growth crept up to 0.3pc in the third quarter after stalling earlier in the year. Unemployment is still stuck at 10.7pc and has actually risen over recent months. “Momentum may fade in 2017 as tailwinds peter out,” said the Commission.

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France’s move opens whole new avenues for Finland, too, to finance debts.

Finnish Parliament Will Debate Next Year Leaving Euro Zone (Reuters)

Finland’s parliament will debate next year whether to quit the euro, a senior parliamentary official said on Monday, in a move unlikely to end membership of the single currency but which highlights Finns’ dissatisfaction with their country’s economic performance. The decision follows a citizens’ petition which has raised the necessary 50,000 signatures under Finnish rules to force such a debate, probably the first such initiative in any country of the 19-member euro zone. “There will be signature checks early next year and a parliamentary debate will be held in the following months,” said Maija-Leena Paavola, who helps guide legislation through parliament. The petition – which will continue to gather signatures until mid-January – demands a referendum on euro membership, but this would only go ahead if parliament backed the idea.

Despite the initiative, a Eurobarometer poll this month showed 64% of Finns backed the common currency, though that is down from 69% a year ago. But the Nordic country has suffered three years of economic contraction and is currently performing worse than any other country in the euro zone. Some Finns say the country’s prospects would improve if it returned to the markka currency and regained the ability to set its own interest rates, pointing to the example of neighboring Sweden, which is outside the euro. The markka could then devalue against the euro, making Finnish exports less expensive. “Since 2008 the Swedish economy has grown by 8%, while ours has shrunk by 6%,” said Paavo Vayrynen, a Finnish member of the European Parliament who launched the initiative.

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Nomi is a fan of the Automatic Earth and our Debt Rattles, which she calls: “the most comprehensive daily rundown of main stream and alternative press articles out there!” Makes her an even smarter cookie.

An Entirely Rigged Political-Financial System (Nomi Prins)

Too big to fail is a seven-year phenomenon created by the most powerful central banks to bolster the largest, most politically connected US and European banks. More than that, it’s a global concern predicated on that handful of private banks controlling too much market share and elite central banks infusing them with boatloads of cheap capital and other aid. Synthetic bank and market subsidization disguised as ‘monetary policy’ has spawned artificial asset and debt bubbles – everywhere. The most rapacious speculative capital and associated risk flows from these power-players to the least protected, or least regulated, locales. There is no such thing as isolated ‘Big Bank’ problems. Rather, complex products, risky practices, leverage and co-dependent transactions have contagion ramifications, particularly in emerging markets whose histories are already lined with disproportionate shares of debt, interest rate and currency related travails.

The notion of free markets, mechanisms where buyers and sellers can meet to exchange securities or various kinds of goods, in which each participant has access to the same information, is a fallacy. Transparency in trading across global financial markets is a fallacy. Not only are markets rigged by, and for, the biggest players, so is the entire political-financial system. The connection between democracy and free markets is interesting though. Democracy is predicated on the idea that every vote counts equally, and in the utopian perspective, the government adopts policies that benefit or adhere to the majority of those votes. In fact, it’s the minority of elite families and private individuals that exercise the most control over America’s policies and actions.

The myth of a free market is that every trader or participant is equal, when in fact the biggest players with access to the most information and technology are the ones that have a disproportionate advantage over the smaller players. What we have is a plutocracy of government and markets. The privileged few don’t care, or need to care, about democracy any more than they would ever want to have truly “free” markets, though what they do want are markets liberated from as many regulations as possible. In practice, that leads to huge inherent risk. Michael Lewis’ latest book on high frequency trading seems to have struck some sort of a national chord. Yet what he writes about is the mere tip of the iceberg covered in my book. He’s talking about rigged markets – which have been a problem since small investors began investing with the big boys, believing they had an equal shot. I’m talking about an entirely rigged political-financial system.

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Have they given in on foreclosures? Will tens of thousands more Greeks be thrown into the streets?

Greece Reaches Deal With Lenders Unlocking Stalled Aid (Reuters)

Greece reached an agreement with its lenders on financial reforms early on Tuesday, its finance minister said, removing a major obstacle holding up fresh bailout loans for the cash-starved country. Athens signed up to a new aid program worth up to €86 billion earlier this year, but payment of part of an initial tranche had been held up over disagreement on regulations on home foreclosures and handling tax arrears to the state. “There was an agreement on all the milestones … whatever was required,” Finance Minister Euclid Tsakalotos told reporters after meeting representatives of European institutions and the IMF on aid disbursement.

Tsakalotos said the deal meant Parliament could now ratify the set of reforms to law, and that deputy eurozone finance ministers, known as the Euro Working Group, would on Friday endorse the deal. That would allow a €2 billion aid disbursement and about €10 billion in recapitalization aid to the country’s four main banks, he said. Greece has been keen to complete its first assessment under the new bailout package, its third since 2010, so it can start talks with lenders on debt relief.

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The levels of nonsense in the expert comments is priceless. Would that have a negative effect on prices too?

UK Inflation Stays Below Zero as Price Weakness Persists (Bloomberg)

U.K. consumer prices fell for a second month in October, extending the weakest bout of inflation in more than half a century. The Office for National Statistics said prices declined 0.1% from a year earlier, matching the median forecast of economists in a Bloomberg survey. That’s the third negative reading this year and largely reflects weaker global commodity costs. Core inflation, which excludes volatile food and energy prices, accelerated to 1.1% from 1%. The Bank of England expects inflation to remain low into 2016 before picking up toward its 2% target. BOE Governor Mark Carney has highlighted core inflation as an important measure for policy makers as they weigh when to begin interest rate increases after keeping them at a record low for more than six years.

Consumer-price inflation has been below 1% all this year and less than 2% since the end of 2013. Britain last saw a sustained period of price declines in 1960, according to a historic series constructed by the statistics office. In forecasts published this month, the BOE said inflation is likely to reach its goal in late 2017 and accelerate to 2.2% a year later. Services inflation, a proxy for domestic price growth, was at 2.2% in October. “In the absence of sharp movements in global commodity prices, inflation is likely to accelerate quickly beyond October as the direct impact of past falls in oil drops out,” said Dan Hanson, an economist at Bloomberg Intelligence in London. “Evidence that this is happening is likely to be enough for the BOE to begin monetary tightening in May.”

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“The long emergency is showing signs of morphing into something like civil war.”

There Are No Safe Spaces (Jim Kunstler)

One thing seems assured: hard-line governments are coming soon. Politically, the West had boundary problems that go way beyond the question of national borders to the core psychology of modern liberalism. When is enough of anything enough? And then, what are you really willing to do about it? The answer lately among the Western societies is to do little and do it slowly. The behavior of college administrators and faculties in the USA these days is emblematic of this cowardly dithering. Intellectual despotism reigns on campus and the university presidents roll over like possums. They don’t have the moral strength to defend free speech as the campus witch-hunts ramp up.

The result will be first the intellectual death of their institutions (brain death), and then the actual death of college per se as a plausible route to personal socioeconomic development. The financial racketeering that has infected higher education — the engineering of the gargantuan college loan scam in tandem with the multiplication of “diversity” deanships and tuition inflation — pretty much guarantees an implosion of that system. The cowardice in the college executive suites is mirrored in our national politics, where no persons of real standing will dare step forward to oppose the juggernaut of Hillary-the-Grifter, or take on the clowning Donald Trump on the grounds of his sheer mental unfittedness to lead a government. In case you haven’t noticed, the center not only isn’t holding, it gave way some time ago.

The long emergency is showing signs of morphing into something like civil war. The Maoists on campus apparently want to turn it into race war, too. So many forces are in motion now and they are all tending toward criticality. The European Union may not survive the reestablishment of boundaries, since it was largely based on the elimination of them. Spain and Portugal are back to breaking down politically again. The Paris bloodbath has discredited Angela Merkel’s plea for “tolerance” — of what is proving to be an intolerable alien invasion. The only political figure on the scene who doesn’t appear to be talking out of his ass is Vlad Putin, who correctly stated at the UN that undermining basic institutions around the world was not a good idea.

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“In order to qualify as a victim of a tragedy, you have to be each of these three things: 1. a US-puppet, 2. rich and 3. dead.”

A Most Convenient Massacre (Dmitry Orlov)

What a difference a single massacre can make! • Just a week ago the EU couldn’t possibly figure out anything to do to stop the influx of “refugees” from all those countries the US and NATO had bombed into oblivion. But now, because “Paris changed everything,” EU’s borders are being locked down and refugees are being turned back. • Just a week ago it seemed that the EU was going to be swamped by resurgent nationalism, with incumbent political parties poised to get voted out of power. But now, thanks to the Paris massacre, they have obtained a new lease on life, because they can now safely embrace the same policies that a week ago they branded as “fascist.”

• Just a week ago the EU and the US couldn’t possibly bring themselves admit that they are utterly incompetent when it comes to combating their own creation—ISIS, that is—and need Russian help. But now, at the après-Paris G-20 summit, everybody is ready to line up and let Putin take charge of the war against terrorism. Look—the Americans finally found those convoys of tanker trucks stretching beyond the horizon that ISIS has been using to smuggle out stolen Syrian crude oil—after Putin showed them the satellite photos! Am I being crass and insensitive? Not at all—I deplore all the deaths from terrorist attacks in Iraq, in Syria, in Lebanon, and in all the other countries whose populations did absolutely nothing to deserve such treatment. I only feel half as bad about the French, who stood by quietly as their military helped destroy Libya (which did nothing to deserve it).

Note that after the Russian jet crashed in the Sinai there weren’t all that many Facebook avatars with the Russian flag pasted over them, and hardly any candlelight vigils or piles of wreaths and flowers in various Western capitals. I even detected a whiff of smug satisfaction that the Russians got their comeuppance for stepping out of line in Syria. Why the difference in reaction? Simple: you were told to grieve for the French, so you did. You were not told to grieve for the Russians, and so you didn’t. Don’t feel bad; you are just following orders.

The reasoning behind these orders is transparent: the French, along with the rest of the EU, are Washington’s willing puppets; therefore, they are innocent, and when they get killed, it’s a tragedy. But the Russians are not Washington’s willing puppet, and are not innocent, and so when they get killed by terrorists, it’s punishment. And when Iraqis, or Syrians, or Nigerians get killed by terrorists, that’s not a tragedy either, for a different reason: they are too poor to matter. In order to qualify as a victim of a tragedy, you have to be each of these three things: 1. a US-puppet, 2. rich and 3. dead.

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Can’t wait for Russia to publish the details.

ISIS Financed by 40 Countries, Including G20 Member States – Putin (Sputnik)

Putin said at the G20 summit that Russia has presented examples of terrorism financing by individual businessmen from 40 countries, including from member states of the G20. “I provided examples related to our data on the financing of Islamic State units by natural persons in various countries. The financing comes from 40 countries, as we established, including some G20 members,” Putin told reporters following the summit. The fight against terrorism was a key topic at the summit, according to the Russian leader. “This topic (the war on the terror) was crucial. Especially after the Paris tragedy, we all understand that the means of financing terrorism should be severed,” the Russian president said. Russia has also presented satellite images and aerial photos showing the true scale of the Islamic State oil trade.

“I’ve demonstrated the pictures from space to our colleagues, which clearly show the true size of the illegal trade of oil and petroleum products market. Car convoys stretching for dozens of kilometers, going beyond the horizon when seen from a height of four-five thousand meters,” Putin told reporters after the G20 summit. The Russian president also said that Syrian opposition is ready to launch an anti-ISIL operation if Russia provides air support. “A part of the Syrian opposition considers it possible to begin military actions against ISIL with the assistance of the Russian air forces, and we are ready to provide that assistance,” the Russian president said. If this happens, the army of Syrian President Bashar Assad, on the one hand, and the opposition, on the other hand, will fight a common enemy, he outlined.

Russian President Vladimir Putin said Monday that the United States has shown a certain willingness to resume cooperation with Russia in several areas. “It seemed to me that, at least at an expert level, at the level of discussing problems, there was, indeed, a clear interest in resuming work in many areas, including the economy, politics, and the security sphere,” Putin told reporters. Vladimir Putin said that Russia needs support from the US, Saudi Arabia and Iran in the fight against terrorism. “It’s not the time to debate who is more effective in the fight against ISIL, what we need to do is consolidate our efforts,” president Putin added.

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“Assuming there were higher powers behind the Russian plane bombing than just a bunch of cave-dwelling a la carte terrorists, those arrested may just be tempted enough by the $50 million award to reveal who the mastermind behind this particular terrorist attack was.”

Putin Confirms Egypt Plane Crash Due To Bomb, Offers $50 Million Reward (ZH)

The world may have moved on from the tragic terrorist attack that took place just three weeks ago above Egypt’s Sinai peninsula, which killed all 224, but for some inexplicable reason Russia refused to admit what was obvious to most from the first minutes since ISIS released a video clip of the midair explosion: that the crash was the result of a bomb set to go off shortly after take off. But no longer. Moments ago the Kremlin confirmed for the first time on Tuesday that a bomb did bring down a Russian passenger plane that crashed over the Sinai Peninsula in Egypt on Oct. 31, killing all 224 people on board. “One can unequivocally say that it was a terrorist act,” Alexander Bortnikov, the head of Russia’s FSB security service, told a meeting chaired by President Vladimir Putin.

Bortnikov added that during the flight, a homemade device with the power of 1.5 kilograms of TNT was detonated. “As a result, the plane fell apart in the air, which can be explained by the huge scattering of the fuselage parts of the plane.” This not the first time that Russia has faced “barbarous terrorist crimes, more often without apparent causes, outside or domestic, as it was with the explosion at the railway station in Volgograd at the end of 2013.” Bortnikov added: “We haven’t forgotten anything or anyone. The murder of our nationals in Sinai is among the bloodiest crimes in [terms of] the number of casualties.” Putin also spoke, vowing to find and punish the culprits behind the Sinai plane attack. “Our military work in Syria must not only continue. It must be strengthened in such a way so that the terrorists will understand that retribution is inevitable.”

“The murder of our people in Sinai is among the bloodiest crimes in terms of the number of victims. We won’t wipe the tears out of our souls and hearts. This will remain with us forever. But it won’t stop us from finding and punishing the perpetrators.” According to RT, Russia will act in accordance with Article 51 of the UN Charter, which provides for countries’ right to self-defense, Putin said. “Those who attempt to assist criminals should be aware that the consequences of such attempts will be entirely their responsibility,” he added. Finally, just to make sure Russia gets its blood debt repaid, The Russian Federal Security Service director also announced a reward of $50 million for information on those behind the terror attack on the A321.

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Obama can push this through, but would that be wise?

More Than Half of US State Governors Say Syrian Refugees Not Welcome (CNN)

More than half the nation’s governors – 27 states – say they oppose letting Syrian refugees into their states, although the final say on this contentious immigration issue will fall to the federal government. States protesting the admission of refugees range from Alabama and Georgia, to Texas and Arizona, to Michigan and Illinois, to Maine and New Hampshire. Among these 27 states, all but one have Republican governors. The announcements came after authorities revealed that at least one of the suspects believed to be involved in the Paris terrorist attacks entered Europe among the current wave of Syrian refugees. He had falsely identified himself as a Syrian named Ahmad al Muhammad and was allowed to enter Greece in early October.

Some leaders say they either oppose taking in any Syrian refugees being relocated as part of a national program or asked that they be particularly scrutinized as potential security threats. Only 1,500 Syrian refugees have been accepted into the United States since 2011, but the Obama administration announced in September that 10,000 Syrians will be allowed entry next year. The Council on American-Islamic Relations said Monday, “Defeating ISIS involves projecting American ideals to the world. Governors who reject those fleeing war and persecution abandon our ideals and instead project our fears to the world.”

Authority over admitting refugees to the country, though, rests with the federal government – not with the states – though individual states can make the acceptance process much more difficult, experts said. American University law professor Stephen I. Vladeck put it this way: “Legally, states have no authority to do anything because the question of who should be allowed in this country is one that the Constitution commits to the federal government.” But Vladeck noted that without the state’s participation, the federal government would have a much more arduous task. “So a state can’t say it is legally objecting, but it can refuse to cooperate, which makes thing much more difficult.”

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Right wing Canada sees an opportunity, too, for political gain over the backs of people fleeing the very terror they’re now supposedly suspected of.

Paris Attacks Fuel Calls For Canada To Delay Taking In 25,000 Syrians (AFP)

Canada’s prime minister Justin Trudeau has faced calls to delay bringing in 25,000 Syrian refugees by the end of the year due to security concerns prompted by the Paris terror attacks. While an online petition against fast-tracking Syrian asylum seekers’ bids to relocate to Canada gained steam, the premier of Saskatchewan province, Brad Wall, urged the prime minister to “suspend” the move. “I understand that the overwhelming majority of refugees are fleeing violence and bloodshed and pose no threat to anyone,” Wall wrote in an open letter. “However, if even a small number of individuals who wish to do harm to our country are able to enter Canada as a result of a rushed refugee resettlement process, the results could be devastating,” he added.

The Islamic State group has claimed responsibility for the bomb and gun attacks that killed at least 129 people in Paris on Friday. In another part of Canada, Quebec Immigration Minister Kathleen Weil said it was still ramping up to welcome the refugees, adding she is confident security will not be compromised. “I did get assurances from [Immigration Minister John] McCallum and [Public Safety Minister] Ralph Goodale that all the measures are being taken to ensure that the newcomers have been properly vetted.” Dueling online petitions for and against a delay, meanwhile, had amassed more than 55,000 and 25,000 signatures, respectively by midday Monday. One cited “national security” concerns in asking for a postponement, while the other blasted the first for stoking “despicable and inhumane xenophobic” attitudes.

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This won’t become a big story until and unless it hits a rich part of the world.

El Niño: Food Shortages, Floods, Disease And Droughts (Guardian)

The UN has warned of months of extreme weather in many of the world’s most vulnerable countries with intense storms, droughts and floods triggered by one of the strongest El Niño weather events recorded in 50 years, which is expected to continue until spring 2016. El Niño is a natural climatic phenomenon that sees equatorial waters in the eastern Pacific ocean warm every few years. This disrupts regular weather patterns such as monsoons and trade winds, and increases the risk of food shortages, floods, disease and forest fires. This year, a strong El Niño has been building since March and its effects are already being seen in Ethiopia, Somalia, Kenya, Malawi, Indonesia and across Central America, according to the World Meteorological Organisation. The phenomenon is also being held responsible for uncontrolled fires in forests in Indonesia and in the Amazon rainforest.

The UN’s World Meteorological Organization warned in a report on Monday that the current strong El Niño is expected to strengthen further and peak around the end of the 2015. “Severe droughts and devastating flooding being experienced throughout the tropics and sub-tropical zones bear the hallmarks of this El Niño, which is the strongest in more than 15 years,” said WMO secretary-general Michel Jarraud. Jarraud said the impact of the naturally occurring El Niño event was being exacerbated by global warming, which had already led to record temperatures this year. “This event is playing out in uncharted territory. Our planet has altered dramatically because of climate change,” he said. “So this El Niño event and human-induced climate change may interact and modify each other in ways which we have never before experienced. El Niño is turning up the heat even further.”

In 1997, the phenomenon led to severe droughts in the Sahel and the Indian subcontinent, followed by devastating floods and storms, which killed thousands of people and caused billions of dollars of damage across Asia, Latin America and and Africa. The WMO said countries are expected to be much better prepared for a strong El Niño now than they were in 1997, but governments and charities are warning of serious food shortages and floods. “While difficult to predict, the El Niño this year looks set to be the strongest on record. This is a real threat to people’s lives, health and livelihoods across the world, which will see increased calls for humanitarian assistance as people struggle to grow crops, face water shortages and disease,” said a spokeswoman at Britain’s Department for International Development.

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And the beat goes on.

Greek Coast Guard Rescues 1,244 Refugees In Three Days (AP)

Greek authorities say 1,244 refugees and economic migrants have been rescued from frail craft in danger over the past three days in the Aegean Sea, as thousands continue to arrive on the Greek islands. A coast guard statement Monday said rescuers responded to a total 34 incidents since Friday morning, near the islands of Lesbos — where most migrants head — Chios, Samos, Kos, Kalolimnos and Megisti. The count does not include thousands more people who safely made the short but often deadly crossing from nearby Turkey’s western coast.

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Four children, four women and one man. Can we mourn them the way we mourn the Paris victims?

Refugee Boat Overturns Near Greek Island, At Least Eight Dead (AP)

Greece’s coast guard says a plastic boat carrying refugees or migrants has overturned near the coast of the eastern Aegean island of Kos, killing at least eight people. The coast guard said Tuesday it had rescued seven people and had located eight bodies, two of which were still trapped inside the overturned vessel. Crews were searching for between three and five more people listed as missing. It was not immediately clear how the boat overturned, or what the passengers’ nationality was.

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Aug 102015
 
 August 10, 2015  Posted by at 11:25 am Finance Tagged with: , , , , , , , ,  


NPC Congressman John C. Schafer of Wisconsin 1924

Why Commodities Are Dying The Death Of 1,000 Cuts (CNBC)
The Canaries Continue To Drop Like Flies (Mark St.Cyr)
China’s Hard Landing Suddenly Gets a Lot Rougher (WolfStreet)
Quantitative Easing With Chinese Characteristics Takes Shape (Bloomberg)
China Slashes U.S. Debt Stake by $180 Billion – and Bonds Shrug (Bloomberg)
The Monetary Superpower Strikes Again (David Beckworth)
Greece Hopes to End Bailout Talks by Tuesday (Bloomberg)
Finland Throws Support Behind Greek Bailout It Says Won’t Work (Bloomberg)
Berlln Faces Isolation As Athens And Creditors Near €86 Billion Accord (FT)
Democracy At The Heart Of Fight For Greece (FT)
Analysis: Varoufakis Vs Media Manipulation (Press Project)
Portugal Cautioned By IMF Over Debt Sustainability (FT)
In Southern Europe, Bank Share Sales Can Hit Depositors Hard (WSJ)
Scotland To Issue Formal Ban On GMO Crops (Guardian)
Good For Migrants, Good For Britain (Philippe Legrain)
‘Marauding’ Migrants Threaten Standard Of Living: Foreign Secretary (Guardian)
Germany Has a Refugee Problem, and the Problem Is the Germans (FP)

“..Carlyle Group saw the holdings of a commodities fund it owns plummet from $2 billion to $50 million, due to bullish bets on a host of commodities.”

Why Commodities Are Dying The Death Of 1,000 Cuts (CNBC)

Commodities are the gift that keep on not giving. The sector is in the throes of an ‘annus horribilis’, having gotten wrecked over the past few years despite massive liquidity that should have boosted their value. Bullish investor after bullish investor has tried to call a bottom, in a set of calls that now appear ill-conceived and money losing. In the past week, the S&P GSCI Commodity Index has dropped 3.4 in the past week, as crude oil plunged 7% to hit multi-month lows, and a host of metals fell alongside it. That, of course, hardly marks the first big drop for the alternative investment group. That widely watched commodity index has fallen 17% the last three months, and a whopping 42% in the past two years. It’s not just an energy issue, either.

Copper, platinum, lumber, coffee, sugar, wheat, oats and lean hogs are all down double-digit percentages this year. While each specific commodity obviously responds to its own distinct supply-and-demand dynamics, a few fundamental factors appear to be weighing on commodities as a whole. First of all, the U.S. dollar has risen nearly 8% this year against a basket of major currencies, and has rediscovered some of its strength in the past three months. A strong dollar tends to be bad for commodities, as it should mean that it takes fewer dollars to buy the same amount of a given fixed asset. And in fact, many investors bought commodities to get protection from a Federal Reserve stimulus-stoked rise in inflation that never came.

As the Fed ended its QE program—and now appears months away from raising rates—what now appears to have been a massive bubble in commodities like gold has slowly popped. But Fed fears didn’t form the only bull case for commodities. Others maintained that the global economy would heat up, leading to greater demand for industrial commodities like oil and copper. Instead, Europe has been a mess, and that great commodity consumer China has seen its economy continue to slow. The losses in the complex have been dramatic indeed. The Astenbeck commodities fund managed by famed trader Andy Hall tumbled 17% in July. And the WSJ said last week that private equity firm Carlyle Group saw the holdings of a commodities fund it owns plummet from $2 billion to $50 million, due to bullish bets on a host of commodities.

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“That was not a “canary” but rather a “dodo.”

The Canaries Continue To Drop Like Flies (Mark St.Cyr)

One would think as “canary” after “canary” falls silent either sickened with laryngitis, or worse – completely comatose, that those on Wall Street as well as the financial media itself would not only have seen, but heard, many of the warning calls that have been obvious for quite some time. Yet, history always shows; not only do they not see, but more often than not – they don’t want to see, nor hear the warning calls. Even when all the warning signs are screaming danger – not only are they ignored, they’re explained away as if those which saw or heard them, should be ignored as they’ll contend not only did one not see; but couldn’t see. What they’ll propose is: “That was not a “canary” but rather a “dodo.” After all, with a Fed that’s as interactive as this one currently is, surely what they believe they heard, or saw is impossible.

For people say they’ve spotted warning signs in these ‘markets’ for years, and none have yet produced a crisis because – they’re now extinct!” Yet, the wheezing sounds of many a Wall Street songbird has been apparent for quite a while. Again: If only one would care to look or listen. Back in April of 2014 in an article titled “The Scarlet Absence Of A Letter of Credit” I opined a few scenarios as to why this seemingly dismissed revelation by the so-called “smart crowd” should not go unnoticed. For the implications may very well portend far greater reasons too worry in the coming future. Let’s not forget this is some 16 months ago. When the financial media et al were still reciting in unison the wonders to which, “China will be the economy that leads us out of this current malaise.”

“Over the last few years since the financial melt down of 2008, we have seen what many have believed are precursors that may tip the hand of markets as to show just how unhealthy this levitating act fueled by free money has become. And yes there are always false indicators, and we all know correlation doesn’t equal causation. And even more may shrug and think, “No letter of credit, so what.” However, if there were ever a canary in a coalmine worth noting this is one not to let one’s eyes to divert from.

The issue at hand is not just the foolishness of the absence contained in a one-off LOC gamble some company would take. Far from it. It’s the desperation that could be hidden that’s a precursor one has to watch for. For the amount of desperation, or the degree that might be hidden beneath the surface to which a commodity will be sent overseas to another country, a country for all intents and purposes is using that very product as a pseudo currency to back other financial obligations without the requisite document to be paid. Is mind numbingly dangerous in its implications in my view.”

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“..568 strikes and worker protests in the second quarter, raising this year’s tally to 1,218 incidents as of June..”

China’s Hard Landing Suddenly Gets a Lot Rougher (WolfStreet)

This has become a sign of the times: Foxconn, with 1.3 million employees the world’s largest contract electronics manufacturer, making gadgets for Apple and many others, and with mega-production facilities in China, inked a memorandum of understanding on Saturday under which it would invest $5 billion over the next five years in India! In part to alleviate the impact of soaring wages in China. Meanwhile in the city of Dongguan in China, workers at toy manufacturer Ever Force Toys & Electronics were protesting angrily, demanding three months of unpaid wages. The company, which supplied Mattel, had shut down and told workers on August 3 that it was insolvent. The protests ended on Thursday; local officials offered to come up with some of the money owed these 700 folks, and police put down the labor unrest by force.

These manufacturing plant shutdowns and claims of unpaid wages are percolating through the Chinese economy. The Wall Street Journal: The number of labor protests and strikes tracked on the mainland by China Labour Bulletin, a Hong Kong-based watchdog, more than doubled in the April-June quarter from a year earlier, partly fueled by factory closures and wage arrears in the manufacturing sector. The group logged 568 strikes and worker protests in the second quarter, raising this year’s tally to 1,218 incidents as of June, compared with 1,379 incidents recorded for all of last year. The manufacturing sector is responsible for much of China’s economic growth. It accounted for 31% of GDP, according to the World Bank. And a good part of this production is exported. But that plan has now been obviated by events.

Exports plunged 8.3% in July from a year ago, disappointing once again the soothsayers surveyed by Reuters that had predicted a 1% drop. Exports to Japan plunged 13%, to Europe 12.3%. And exports to the US, which is supposed to pull the world economy out of its mire, fell 1.3%. So far this year, in yuan terms, exports are down 0.9% from the same period last year. As important as manufacturing is to China, this debacle is not exactly conducive to economic growth. The General Administration of Customs, which issued the report, added: “We could see relatively strong downward pressure on exports in the third quarter.”

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Qe with an extra step built in.

Quantitative Easing With Chinese Characteristics Takes Shape (Bloomberg)

China’s leaders are increasingly relying on the central bank to help implement government programs aimed at shoring up growth, in an adaptation of the quantitative easing policies executed by counterparts abroad. Rather than bankroll projects directly, the People’s Bank of China is pumping funds into state lenders known as policy banks to finance government-backed programs. Instead of buying shares to prop up a faltering stock market, it’s aiding a government fund that’s seeking to stabilize prices. And instead of purchasing municipal bonds in the market, it’s accepting such notes as collateral and encouraging banks to buy the debt.

QE – a monetary policy tool first deployed in modern times by Japan a decade and a half ago and since adopted by the U.S. and Europe – is being echoed in China as Premier Li Keqiang seeks to cushion a slowdown without full-blooded monetary easing that would risk spurring yet another debt surge. While the official line is a firm “no” to Federal Reserve-style QE, the PBOC is using its balance sheet as a backstop rather than a checkbook in efforts to target stimulus toward the real economy. “It’s Chinese-style quantitative easing,” said Shen Jianguang, chief Asia economist at Mizuho in Hong Kong. “But it’s not a direct central bank asset-purchase plan. China’s easing is indirect and more subtle compared with the U.S. or Japan.”[..]

While there’s been no public unveiling of the strategy, China’s leaders are putting in place plans for the central bank to finance, indirectly, a fiscal stimulus program to put a floor under the nation’s slowdown. China will sell “special” financial bonds worth trillions of yuan to fund construction projects, and the PBOC will provide funds to state banks to buy the bonds, people familiar with the matter said this month. China Development Bank and the Agricultural Development Bank of China – known as policy banks because they carry out government objectives – will issue bonds, people told Bloomberg earlier.

The Postal Savings Bank of China will buy the debt, aided by liquidity from the central bank, according to one of the people. It’s unclear whether by taking on bonds as collateral and delivering cash in return the PBOC’s official balance sheet will expand. In the U.S., the euro region and Japan, central banks have bought securities outright in secondary markets, making the quantitative easing transparent on their books.

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Dollars flowing back home.

China Slashes U.S. Debt Stake by $180 Billion – and Bonds Shrug (Bloomberg)

To get a sense of how robust demand is for U.S. Treasuries, consider that China has reduced its holdings by about $180 billion and the market barely reacted. Benchmark 10-year yields fell 0.6 percentage point even though the largest foreign holder of U.S. debt pared its stake between March 2014 and May of this year, based on the most recent data available from the Treasury Department. That’s not the doomsday scenario portrayed by those who said the size of the holdings – which peaked at $1.65 trillion in 2014 – would leave the U.S. vulnerable to China’s whims. Instead, other sources of demand are filling the void. Regulations designed to prevent another financial crisis have caused banks and similar firms to stockpile highly rated assets.

Also, mutual funds have been scooping up government debt, flush with cash from savers who are wary of stocks and want an alternative to bank deposits that pay almost nothing. It all adds up to a market in fine fettle as the Federal Reserve moves closer to raising interest rates as soon as next month. “China may be stepping away, but there is such a deep and broad buyer base for Treasuries, particularly when you have times of uncertainty,” Brandon Swensen at RBC Global Asset Management said. America has relied on foreign buyers as the Treasury market swelled to $12.7 trillion in order to finance stimulus that helped pull the economy out of recession and bail out the banking system.

Overseas investors and official institutions hold $6.13 trillion of Treasuries, up from about $2 trillion in 2006, government data show. China was a particularly voracious participant, boosting its holdings from less than $350 billion as its economy boomed and the nation bought dollars to keep the yuan from soaring. Now, the Asian nation is stepping back as it raises money to support flagging growth and a crumbling stock market, and allows its currency to trade more freely. The latest update of Treasury data and estimates by strategists suggest that China controls $1.47 trillion of Treasuries. That includes about $200 billion held through Belgium, which Nomura says is home to Chinese custodial accounts.

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Da Fed.

The Monetary Superpower Strikes Again (David Beckworth)

China’s economy has been slowing down for the past few years and many observers are worried. The conventional wisdom for why this is happening is that China’s demographic problems, its credit binge, and the related malinvestment have all come home to roost. While there is a certain appeal to these arguments, there is another explanation that I was recently reminded of by Michael T. Darda and JP Koning: the Fed’s passive tightening of monetary policy is getting exported to China via its quasi-peg to the dollar. Or, as I would put it, the monetary superpower has struck again.

The Fed as a monetary superpower is based on the fact that it controls the world’s main reserve currency and many emerging markets are formally or informally pegged to dollar. Therefore, its monetary policy is exported across the globe and makes the other two monetary powers, the ECB and Japan, mindful of U.S. monetary policy lest their currencies becomes too expensive relative to the dollar. As as result, the Fed’s monetary policy also gets exported to some degree to Japan and the Euro. This understanding lead Chris Crowe and I to call the Fed a monetary superpower, and idea further developed by Collin Gray. Interestingly, Janet Yellen implicitly endorsed this idea in a 2010 speech:

For all practical purposes, Hong Kong delegated the determination of its monetary policy to the Federal Reserve through its unilateral decision in 1983 to peg the Hong Kong dollar to the U.S. dollar in an arrangement known as a currency board. As the economist Robert Mundell showed, this delegation arises because it is impossible for any country to simultaneously have a fixed exchange rate, completely open capital markets, and an independent monetary policy. One of these must go. In Hong Kong, the choice was to forgo an independent monetary policy.

The original context of the monetary superpower argument was that the Fed was exporting its easy monetary policy to the rest of the world in the early-to-mid 2000s. Now the argument is that its normalization of monetary policy is creating a passive tightening of monetary conditions for the rest of the world, especially the dollar peggers like China.

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And then the Troika can start stalling again.

Greece Hopes to End Bailout Talks by Tuesday (Bloomberg)

The Greek government is seeking to conclude talks on a rescue program by Tuesday, leaving enough time for national parliaments to assess the deal so funds can be disbursed for an Aug. 20 payment to the ECB. The four institutions representing Greece’s creditors – the ECB, the IMF, the EC and the European Stability Mechanism – made progress over the weekend on the details of a plan that would make as much as €86 billion available to Greece, according to three people with knowledge of the discussions. Officials are optimistic an agreement will be reached, allowing Greece’s parliament to pass any new required reforms in the middle of the week and paving the way for a meeting of euro-area finance ministers at the end of the week.

The indebted nation needs a quick release of about €20 billion to create a buffer for its banks and to make loan payments. “We are trying to make swift progress in order to have a deal preferably before the 20th of August so the disbursement can be made under the new ESM program,” EC spokeswoman Mina Andreeva told reporters on Aug. 7 in Brussels. Greece and its creditors still need to decide exactly how much money will be required for the bailout, which will be the nation’s third in five years, as well as what reforms will have to be concluded before any money is released, one of the people said. The headway comes as some members of the 19-nation common currency express skepticism that a deal can work.

Finnish Foreign Minister Timo Soini said over the weekend that his government is ready to discuss a new aid plan for Greece but that “we should admit that this isn’t going to work.” Last week, Hans Michelbach, a Bavarian lawmaker who has argued against a deal with Greece, said he didn’t believe a rescue program could be reached in time and other financing arrangements would be needed. Even as the European governments are racing to cinch an agreement before Greece needs to pay €3.2 billion to the ECB on Aug. 20, the situation isn’t as dire as it was earlier this summer; if the leaders fail to disburse the funds in time, Greece could still request a short-term loan from a European fund that has about €5 billion available.

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They have that in common with Tsipras. Just make sure to lay the blame where it belongs.

Finland Throws Support Behind Greek Bailout It Says Won’t Work (Bloomberg)

A third Greek bailout won’t work and will only prolong the difficulties plaguing the euro area, according to Finnish Foreign Minister Timo Soini. But his party, the euro-skeptic the Finns, is ready to discuss another rescue package because allowing Greece to fail would only add to Europe’s costs, he said. “Truth is the strongest force,” Soini said in an interview on Saturday. “We should admit that this isn’t going to work.” Soini shares the skepticism of Greece’s ruling Syriza party, which despite its opposition to further austerity measures, is seeking €86 billion in international loans to stay afloat. Greece is struggling to strike a deal with its creditors as €3.2 billion in debt to the ECB falls due on Aug. 20.

The Finns party, which in April became part of a ruling coalition for the first time, has no choice but to support a bailout since not doing so would cause the three-party government to collapse. That would only open the door for the left-wing opposition, Soini said. “I kept my party in the opposition for four years because of this subject,” he said. “But with this government structure we can’t block the program alone and we’d be replaced.” While Finland drove a hard bargain during Greece’s second bailout, it may no longer have the clout to block a deal. Finland has already made its 1.44 billion-euro contribution to the permanent European Stability Mechanism. Should Europe decide that the future of the euro zone is at stake, a bailout won’t require unanimous backing from members; 85% is enough.

Even without an imminent bailout agreement, a European fund deployed in July to help Greece clear arrears contains about €5 billion and could be tapped again for a bridge loan. According to Soini, bridge financing will do little to solve the long-term fiscal plight Greece faces. “This bridge funding isn’t going to be final solution,” he said. “There’s no solution for this particular problem that doesn’t cost Finnish taxpayers. If Greece collapsed and Grexit would be tomorrow’s reality, we would lose €3-4 billion more or less at once. So I hope that the EU and euro zone, that in due course, we can face the facts and say enough is enough and that we must do something else.”

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Replace Schäuble.

Berlln Faces Isolation As Athens And Creditors Near €86 Billion Accord (FT)

Greece and its creditors are close to reaching an outline deal this week on the debt-laden country’s €86bn rescue programme, amid signs of growing German isolation over its tough stance towards Athens. Significant concessions by Alexis Tsipras and his negotiators in the past month have encouraged other hawkish eurozone members such as Finland to break with Berlin, which wants to hold out longer to squeeze more reforms from Athens. Even previously sceptical EU diplomats now say that a full agreement could be reached by the August 20 deadline, when Athens must make a €3.2bn debt repayment to the ECB. The cautious optimism contrasts sharply with the acrimony at last month’s eurozone summit, which came close to ushering Greece out of the currency bloc before agreeing to negotiate a deal.

The main elements of the proposed deal include spending cuts, administrative reform and privatisations. Remaining sticking points between Athens and its creditors include details of a €50bn privatisation plan and proposals for raising the planned budget surplus, excluding debt interest, to 3.5 per cent of gross domestic product in 2018 from zero this year. Officials in Brussels said an early deal was “ambitious but feasible”. But they emphasised that while this was the “preferable” way forward, the option of a €5bn bridging loan to give negotiators more time, championed by Berlin, was still on the table. As often in the past, Greek officials were the most positive about the likelihood of a breakthrough, expressing confidence that an outline deal could come by Tuesday and be approved by the Athens parliament later this week, despite political divisions and public anger over the terms.

Eurogroup finance ministers would then meet on Friday to approve the deal, leaving time next week for national parliaments in Germany, and the other creditor countries which must vote on the plan, to do so before August 20. One Greek official said: ”If there aren’t any last-minute obstacles raised by our partners, we can wrap up a deal this week.” However, Germany, the biggest creditor, was late last week still holding out for more reforms from Athens, arguing that a two- or three-week bridging loan was better than hurriedly striking an inadequate three-year deal. Jens Spahn, deputy finance minister, tweeted on Friday: “It is better done thoroughly than hastily.” An EU official said that even if Wolfgang Schäuble, Berlin’s hawkish finance minister, dug in his heels, chancellor Angela Merkel would not want Berlin isolated.

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Didn’t we pass that point a while back?

Democracy At The Heart Of Fight For Greece (FT)

The biggest question raised by Syriza’s election victory last January was not about Greece. It was whether any national population that has adopted the euro can meaningfully express a democratic choice. This is a test case of the euro itself. If monetary union and democracy are incompatible, even the euro’s most committed friends need to choose the latter. Fortunately, they are not incompatible. But European policy is premised on the opposite view. Without a change in approach, it must lead to failure. The list of pressures on Greeks’ self-determination is uniquely long. It includes, first, the extraordinary micromanagement of policy by creditors.

Second, the shameless intervention in Greek elections by European leaders who both in 2012 and in 2015 made abundantly clear they wanted Greeks to re-elect the same discredited elites. Third, the huge efforts made to avoid any plebiscitary upset, or even support, of the eurozone’s policy programme. In November 2011, Angela Merkel, the German chancellor, and Nicolas Sarkozy, France’s then-president, bullied Prime Minister George Papandreou out of an attempt to establish Greek ownership of the second rescue loan (and the attached conditions) through a referendum. While the eurozone failed to scare Syriza off from holding a ballot this June, it was not for the lack of trying. Why this astonishingly prickly attitude to letting people make a choice?

The answer is as obvious as it is worrying: Europe’s leaders fear that the people will make the wrong choice. In Greece, opinion polls have been remarkably consistent about two things: most Greeks want to keep the euro as their currency, and most also reject the policies imposed by the creditor institutions previously known as the troika. That is what the “no” landslide this summer meant; and it is what Mr Papandreou’s referendum would also have shown had it not been aborted. It is the expression of this particular preference — keep the euro, but with different policies — that the eurozone political elite has done everything it can to prevent.

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Nice study. Translation could be better. The Press Project tries to give Greece an actual news outlet.

Analysis: Varoufakis Vs Media Manipulation (Press Project)

There comes a point in any crisis where we have to look at all the players involved and ask who ultimately is responsible, in other words, where does the buck stop? In the case of Greece it’s rather muddled, there are more villains than a Tarantino movie. But it appears that the former Finance minister, Yiannis Varoufakis, has found himself with the finger of blame pointing squarely at him. The “revelation” that Varoufakis had a contingency plan for Grexit after all has led to the filing of two lawsuits, one by the Mayor of Stylida and the other by the head of a new political party Teleia – which translates as ‘full-stop’ (yes really). At the moment Varoufakis is protected by political immunity and will not have to face trial unless the Greek Parliament decrees otherwise.

But as talk of ‘treason’ gains traction it’s important to remember what our frame of reference for all of these events is – the media. Everything we think we know about this crisis, every opinion we have formed and our knowledge of the people involved, including Varoufakis, starts with what we read and watch and how we then process that narrative or ‘story.’ It’s important to grasp that news narratives come with an array of potential variables that might influence how we see them, the cultural experiences of the author for example or the pre held-prejudices of the reader. The question then is how those involved, whether it’s the IMF, Greece or the EU, can push the public to accept their version of the narrative because capturing the public’s much coveted validation provides a cloak of legitimization for decisions.

The answer is media manipulation. The systematic warping of news narratives happens everyday almost everywhere. To demonstrate this we can start by doing what governments and institutions such as the EU do daily – analyze the media output. In the run-up to the Greek elections in January, when it was looking likely that Syriza would win, global news related to ‘corruption’ in Greece skyrocketed and has maintained relatively high levels until now. Yet, during the same period no major corruption scandals came to light. Syriza as a virgin government can claim to be untainted at that time. So why with the arrival of Syriza is there a corruption narrative flooding the airwaves and printing presses and sticking there? The media monitoring software reveals that this ‘corruption related to Greece’ news is present overwhelmingly in the IMF’s homeland – America. It’s important to point out here that stories starting in the US impact massively because they are regurgitated far and wide.

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Calling Troika!

Portugal Cautioned By IMF Over Debt Sustainability (FT)

Even if they had been compiled by his own spin-doctors, Portugal’s latest unemployment figures could hardly have been better for Pedro Passos Coelho, the country’s centre-right prime minister. The last batch of labour market numbers to be published before a general election in October showed the biggest quarterly drop in the country’s jobless rate for at least 17 years — falling by 1.8 percentage points in the second quarter to 11.9%. This is the lowest level since 2010, before painful austerity measures imposed under an international bailout saw unemployment soar to a record 17.5% in 2013.

Mr Passos Coelho’s ruling coalition welcomed the figures as “historic” – trumpeting them as proof that punishing spending cuts and tax increases have turned around a struggling economy and put Portugal definitively on a path towards export-led growth and sustained debt-reduction. But the day after the National Statistics Institute released the jobless figures last week, the euphoria was dashed by a series of sobering warnings from the IMF over the country’s heavy debt burden and a slackening pace of reform. Particularly stinging for the prime minister’s two-party coalition, which is neck-and-neck in the polls with the moderately anti-austerity opposition Socialists, was the IMF’s view that the government faced a “tangible risk” of failing to bring this year’s budget deficit below 3% of national output, as required under EU rules.

Government election pledges to ease austerity, partly by phasing out extraordinary tax charges introduced during the €78bn bailout, would have to be postponed or partially cancelled if insufficient spending cuts were put in place or revenues fell lower than forecast, the IMF warned. João Galamba, a Socialist politician, said that despite Mr Passos Coelho’s “long romance” with the IMF, the Fund’s latest assessment of the Portuguese economy showed that it no longer trusted the government’s forecasts and had been “surprised by its electioneering”.

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Why Spain still has bankcs that are going concerns?!

In Southern Europe, Bank Share Sales Can Hit Depositors Hard (WSJ)

When Spain’s Banco de Sabadell needed to raise nearly $2 billion for its takeover of a British bank this year, it instructed branch employees to sell shares directly to retail customers. One customer said his banker called him several times to entice him to purchase shares. Later, at the branch, the banker placed a 10-by-10-inch box of Nestlé chocolates next to a document and urged him to sign, ceding to Sabadell’s management the right to vote his shares at the annual meeting. The customer, who declined to be named, said he signed and took the chocolates. In southern Europe, which has a tradition of mutually owned or unlisted savings banks, it is a legal and long-standing practice for branch employees to sell stocks and bonds issued by the bank to people who have deposits and loans with the bank.

Sometimes, customers are encouraged to cede their shareholder voting rights to the bank, too. But the practice cost customers dearly during Europe’s financial crisis and is coming under fire anew as an inherent conflict of interest that prioritizes banks’ balance sheets over investors’ pocketbooks. In Portugal, clerks of the now collapsed Banco Espírito Santo sold €550 million ($603 million) in debt from the bank’s parent to retail customers in late 2013. The parent was already in trouble and has since gone bankrupt. Many clients have lost their entire savings. Spanish bank customers were saddled with around €3 billion of paper losses after they bought €7 billion of complex bonds from Banco Santander in 2007. Five years later, the bonds converted into shares that had plummeted in value.

Around 300,000 Bankia depositors also lost millions after they purchased shares in the lender’s ill-fated 2011 initial public offering. Bankia was bailed out in 2012. “The bank should always act in good faith and in the interest of the client,” said Fernando Herrero, spokesman for Spanish consumer association Adicae. But when a bank sells its own securities, he said, “the interest that is going to take priority is the bank’s interest in obtaining financing.”

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Might want to hold that next independence vote soon.

Scotland To Issue Formal Ban On GMO Crops (Guardian)

Scottish ministers are planning to formally ban genetically modified crops from being grown in Scotland, widening a policy divide with the Tory government in London. Ministers in Edinburgh are to apply to use recent EU powers which allow devolved administrations to opt out entirely from a more relaxed regime which is expected to see far more commercial use of GM crops around the EU. The move will reinforce a long-standing moratorium on planting GM crops in Scotland and allow the Scottish National party to further distance itself from the UK government.

Backed by agribusiness, scientific bodies and the National Farmers Union, ministers in London have already signalled that they plan to allow commercial cultivation of GM crops such as maize and oilseed rape in England, despite significant consumer resistance and opposition from environmental groups. The Scottish government announcement on Sunday was silent on whether this new legal power would extend to a ban on scientific and experimental research, but a spokeswoman confirmed that laboratory research on GMOs would continue. Scottish scientists, including those at the James Hutton Institute and the Rowett Institute, have taken a leading role in GM research. The Scottish government’s former chief scientific officer, Dame Anne Glover, who became the EC’s chief scientific adviser before the position was abolished, is a keen advocate of GM crops.[..]

Richard Dixon, director of Friends of the Earth Scotland, said: “The Scottish government has been making anti-GM noises for some time, but the new Tory government has been trying to take us in the direction of GM being used in the UK, so it is very good news that Scottish ministers are taking that stance. “If you are a whisky producer or breeding high-quality beef, you ought to be worried if you don’t want GM but it is going to come to a field near you and you were worried that there was going to be some contamination. It is certainly in Scotland’s interests to keep GM out of Scotland.”

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This has long ceased being a rational discussion. Not sure trying to make it one will fly.

Good For Migrants, Good For Britain (Philippe Legrain)

The chaos in Calais is a nightmare, not least for the 3,000 or so migrants scraping by in makeshift camps. It’s not fun for the 75,000 people of Calais either. And it’s a big disruption for British hauliers and holidaymakers who are delayed, and for people in Kent whose roads are jammed. With £200 billion worth of UK trade transiting between Dover and Calais each year, the Financial Times estimates that the lost trade, including wider costs such as retailers having to write off spoiled food and manufacturers not receiving crucial goods in time, amounts to (a surprisingly large) £250 million a day. Perhaps it would be cheaper to let the migrants come work here instead.

The poor people squatting in squalid conditions in the Jungle outside Calais have risked life and limb to get there from war-torn and repressive places such as Syria, Afghanistan and Eritrea. Now they are again risking death to try to reach Britain through the Channel Tunnel. Such brave, enterprising people are surely just the kind that an open, dynamic country would want to welcome. While the disruption they are causing is large, their numbers are small. The 3,000 in Calais are a tiny fraction of the 219,000 migrants who crossed the Mediterranean Sea to Europe last year. They pale into insignificance compared to the 1.2 million Syrian refugees in Lebanon (local population: 4.4 million). Overall, Britain received only 31,400 asylum applications last year – and most are rejected.

Sweden, with a seventh of our population, received 75,100. The total number of refugees in the UK at the end of 2014 was 117,161: 0.18% of the population. What attracts desperate people to Britain is not the measly benefits for asylum seekers. People don’t spend thousands of pounds risking their lives crossing the Mediterranean to get £36.95 a week in benefits. If welfare was their priority, they’d stay in France. Most asylum seekers wouldn’t need to claim benefits at all if they were allowed to work. But in a futile attempt to deter “economic migrants”, Britain bans asylum seekers from working.

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Not a rational discussion, but a sliding scale into dark days not unlik the 1930s.

‘Marauding’ Migrants Threaten Standard Of Living: Foreign Secretary (Guardian)

The foreign secretary, Philip Hammond, has weighed in to the debate over migration with some of the government’s strongest language yet, claiming millions of marauding African migrants pose a threat to the EU’s standard of living and social structure. Senior Labour figures responded by accusing Hammond of scaremongering after he claimed Europe “can’t protect itself” if it has to take in millions of migrants from Africa. Speaking to the BBC while visiting Singapore on Sunday, Hammond said: “The gap in standards of living between Europe and Africa means there will always be millions of Africans with the economic motivation to try to get to Europe.”

He said: “So long as there are large numbers of pretty desperate migrants marauding around the area, there always will be a threat to the tunnel security. We’ve got to resolve this problem ultimately by being able to return those who are not entitled to claim asylum back to their countries of origin.” Hammond said EU laws meant migrants could be “pretty confident” that after setting foot on EU soil they would not be returned to their country of origin. “Now that is not a sustainable situation because Europe can’t protect itself, preserve its standard of living and social infrastructure if it has to absorb millions of migrants from Africa.”

Three of the candidates to be Labour’s next leader condemned Hammond’s use of language. Shadow home secretary, Yvette Cooper, described it as “alarmist and unhelpful”, and Liz Kendall said there should be no place for dehumanising language in the debate. Jeremy Corbyn said Hammond’s comments were part of a pattern of language designed to whip up prejudice and hostility.

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Or do we think that sliding scale is scarier when it applies to Germany?

Germany Has a Refugee Problem, and the Problem Is the Germans (FP)

Anti-refugee sentiment has touched a nerve at a time when record numbers of people are seeking shelter in Germany. The government received nearly 203,000 asylum applications last year – more than twice as many as any other country in the EU.The government received nearly 203,000 asylum applications last year – more than twice as many as any other country in the EU. And that number is expected to double by the end of this year. Hundreds of thousands of people fleeing war and persecution, from Syria to Eritrea, are appealing to Berlin for protection. Many receive it. Of the more than 34,000 Syrians who submitted asylum applications in the first half of this year, only seven were denied permission to stay according to data from the Federal Office for Migration and Refugees.

That comes as the European Union is wrangling over a contentious plan to overhaul its immigration system. A recent proposal would see Europe distribute asylum-seekers according to a quota system, based on a country’s size, economy, and other factors. Britain and a host of Eastern European nations have refused. Germany, which stands to take in the most asylum-seekers under the new proposal (18.4%), supports the plan: It would help regulate how many migrants Berlin is expected to shelter as waves of asylum-seekers continue to arrive. Authorities here have been unprepared for the influx. Aydan Özoguz, the Federal Commissioner for Migration, Refugees and Integration, said the government has just approved 2,000 new positions to help work through a backlog of over 240,000 asylum applications.

The responsibility for housing refugees falls on states, and they have hastily arranged makeshift reception facilities in gyms and tents. Chancellor Angela Merkel’s government committed an additional 1 billion euros for support. But refugee groups say Berlin has consistently underestimated the amount of time and funds needed. “The [federal] government has reacted far too slowly in allocating more money towards shelters for asylum-seekers — that would help relieve the burden on states,” said Marei Pelzer of Pro Asyl, a refugee organization based in Frankfurt. “A lot has been discussed and announced but very little has been implemented.” “It’s still not a lot of people for such a large and rich country like Germany,” she added.

The commissioner, Aydan Özoguz, says the government has instituted some important changes – freeing up asylum-seekers to find jobs while they wait for their applications to be processed, for example. The rest takes time. “I find it a bit dishonest when people say we could have been better prepared — you can’t just create an apartment building in one year, not in the amount we need,” she said. “I think we’re doing a really good job.”

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Jul 252015
 
 July 25, 2015  Posted by at 9:09 am Finance Tagged with: , , , , , , ,  


Harris&Ewing Calvin Coolidge Inaugural Ball. March 4, Washington DC 1925

Emerging Market Currencies Fall to Record Low in ‘Violent’ Selloff (Bloomberg)
Emerging Market Currencies Crash On Fed Fears And China Slump (AEP)
China’s Global Ambitions, With Loans and Strings Attached (NY Times)
How China Can Create the $68 Trillion Consumer Economy (Bloomberg)
The Eurasian Big Bang – China, Russia Run Rings Around Washington (Pepe Escobar)
How Tsipras and Syriza Outmaneuvered Merkel and the Eurocrats (Slavoj Zizek)
Europe’s Civil War (Slaughter)
Greek Bonds To Resume Trading As Luxembourg Exchange Lifts Ban (Bloomberg)
Open Letter to Yanis Varoufakis & Dominique Strauss-Khan (Tremonti & Savona)
Syriza’s Covert Plot During Crisis Talks To Return To Drachma (FT)
Greek Debt Crisis Talks Stall Over Choice Of Hotel, Security Issues (Guardian)
The Great Greece Fire Sale (Guardian)
Greece Loosens Capital Restrictions On Businesses (Reuters)
The Rift Between France And Germany Can’t Be Papered Over Anymore (MarketWatch)
Upcoming French Vote Could Send Shock Waves Across Europe (MarketWatch)
The Euro Is Driving Finland To Depression (AdamSmith.org)
US, EU Battle Over ‘Feta’ In Trade Talks (Reuters)
Facing The Future At The International Monetary Fund (BBC)
Pearson In Talks To Sell The Economist Too (Politico)

USD=safe haven.

Emerging Market Currencies Fall to Record Low in ‘Violent’ Selloff (Bloomberg)

Emerging-market currencies are in free fall. An index of the major developing-nation currencies fell to an all-time low this week, extending its drop over the past year to 19%, according to data compiled by Bloomberg going back to 1999. The Russian ruble, Colombia’s peso and the Brazilian real have fallen more than 30% over the past year for some of the worst global selloffs. China’s economic slowdown is pushing down commodity prices, weighing on raw-material exporters from Brazil to Mexico and South Africa. Adding to the pain is the expectation that the Federal Reserve will soon embark on the first interest rate increase since 2006, threatening to lure capital away from developing nations.

“This combination of a soft landing in China and a Fed that will normalize rates soon poses significant risks to emerging markets, especially their currencies,” Stephen Jen, a former IMF economist who is now managing partner at SLJ Macro Partners in London, wrote in a July 23 note. Jen said he expects “a violent sell-off in some emerging-market currencies in the second half this year.” While currency depreciation tends to spur growth by making exports cheaper, so far this is not happening because global trade has stalled, according to Citigroup and UBS. The IMF forecasts emerging markets will grow 4.2% this year, the slowest since 2009.

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Once again: USD=safe haven.

Emerging Market Currencies Crash On Fed Fears And China Slump (AEP)

The currencies of Brazil, Mexico, South Africa and Turkey have all crashed to multi-year lows as investors flee emerging markets and commodity prices crumble. The drastic moves came as fears of imminent monetary tightening by the US Federal Reserve combined with shockingly weak figures from China, which stoked fears that the country may be sliding into a deeper downturn and sent tremors through East Asia, Latin America and Africa. The Caixin/Markit manufacturing survey for China fell to a 15-month low of 48.2 in July, with a sharp drop in new export orders. Danske Bank said the slide “pours cold water” on hopes of a quick recovery from the slump seen earlier this year. Brazil’s real plummeted to a 12-year low of 3.34 to the dollar, reflecting the country’s heavy reliance on exports of iron ore and other raw materials to China.

The devaluation tightens the noose on Brazilian companies saddled with $188bn in dollar debt taken out during the glory days of the commodity boom. The oil group Petrobras alone raised $52bn on the US bond markets. Mexico’s peso hit a record low of 16.24 against the dollar. The country’s foreign exchange commission is mulling emergency action to defend the currency, despite the extreme reluctance of the Mexican authorities to meddle with market forces. Colombia’s peso collapsed 5.2pc to a historic low on Friday, a huge move in a single day. Similar dramas played out in Chile and a string of countries deemed vulnerable to the combined spill-overs from China and the US. The MSCI index of emerging market equities fell to 1.8pc to 36.92 and may soon test four-year lows.

Bernd Berg, from Societe Generale, said Brazil faces a “perfect storm” as the economy slides into deeper recession and corruption scandals spread. New worries about political risk may soon push the real to 3.60, a once unthinkable level.There is mounting concern that President Dilma Rousseff could be impeached for her failure to stop pervasive malfeasance at Petrobras. Brazil’s travails come just as the US nears full employment and the Fed prepares to raise interest rates for the first time in eight years. issuing what amounts to a “margin call” for emerging markets that have borrowed $4.5 trillion in dollars. Mr Berg said Brazil’s debt may be cut to junk status over coming months. This would be a humiliating blow for a country that thought it had escaped the endless cycle of debt booms and populist misrule, and saw itself as a pillar of a new BRICS-led global order.

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How much longer will the yuan be a credible currency though?

China’s Global Ambitions, With Loans and Strings Attached (NY Times)

Where the Andean foothills dip into the Amazon jungle, nearly 1,000 Chinese engineers and workers have been pouring concrete for a dam and a 15-mile underground tunnel. The $2.2 billion project will feed river water to eight giant Chinese turbines designed to produce enough electricity to light more than a third of Ecuador. Near the port of Manta on the Pacific Ocean, Chinese banks are in talks to lend $7 billion for the construction of an oil refinery, which could make Ecuador a global player in gasoline, diesel and other petroleum products. Across the country in villages and towns, Chinese money is going to build roads, highways, bridges, hospitals, even a network of surveillance cameras stretching to the Galápagos Islands.

State-owned Chinese banks have already put nearly $11 billion into the country, and the Ecuadorean government is asking for more. Ecuador, with just 16 million people, has little presence on the global stage. But China’s rapidly expanding footprint here speaks volumes about the changing world order, as Beijing surges forward and Washington gradually loses ground. While China has been important to the world economy for decades, the country is now wielding its financial heft with the confidence and purpose of a global superpower. With the center of financial gravity shifting, China is aggressively asserting its economic clout to win diplomatic allies, invest its vast wealth, promote its currency and secure much-needed natural resources.

It represents a new phase in China’s evolution. As the country’s wealth has swelled and its needs have evolved, President Xi Jinping and the rest of the leadership have pushed to extend China’s reach on a global scale. China’s currency, the renminbi, is expected to be anointed soon as a global reserve currency, putting it in an elite category with the dollar, the euro, the pound and the yen. China’s state-owned development bank has surpassed the World Bank in international lending. And its effort to create an internationally funded institution to finance transportation and other infrastructure has drawn the support of 57 countries, including several of the United States’ closest allies, despite opposition from the Obama administration.

Even the current stock market slump is unlikely to shake the country’s resolve. China has nearly $4 trillion in foreign currency reserves, which it is determined to invest overseas to earn a profit and exert its influence. China’s growing economic power coincides with an increasingly assertive foreign policy. It is building aircraft carriers, nuclear submarines and stealth jets. In a contested sea, China is turning reefs and atolls near the southern Philippines into artificial islands, with at least one airstrip able to handle the largest military planes. The United States has challenged the move, conducting surveillance flights in the area and discussing plans to send warships.

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Just plain dumb.

How China Can Create the $68 Trillion Consumer Economy (Bloomberg)

You’ve heard of Made in China. Get ready for Sold in China. For decades, China has exported cheap goods to the rest of the world even while domestic consumption waned. Now, the country’s shoppers could be set for a reboot. If the government delivers on its promise to transform the economy by encouraging spending on the high street, China’s consumer base has the potential to hit $67 trillion over the next decade, according to The Demand Institute, a think tank jointly run by The Conference Board and Nielsen. Global interest in Chinese shoppers is already high. Music doyenne Taylor Swift has teamed up with JD.com Inc., the second-largest e-commerce company in China, to sell a new fashion line designed specifically for Chinese shoppers.

At the movies, ticket sales are surging, with first-half box office revenue this year rising to 20 billion yuan ($3.2 billion), compared with just 4 billion yuan in all of 2008. The hard economic data are also showing a shift, albeit slowly. Consumption in China contributed 60% to gross domestic product growth in the first half, even as the country grew at its slowest in 25 years. Part of the spending increase is down to a government led push to shift the economy away from debt fueled investment and more toward consumption. But that won’t happen overnight: Consumption’s share of the economy eased to 28% in 2011 from 76% in 1952, according to the Demand Institute. “There are signs that the decline in consumption’s share of GDP may have abated, but it has certainly not yet been reversed,” the report’s lead authors said.

In its analysis, the Demand Institute modeled two scenarios, both based on GDP growth slowing from around 7% to 4% by 2019 where it would stay until 2025. Under the first scenario – which they figure is the most likely – the consumption share of GDP would remain constant at about 28% between 2015 and 2025, with total spending reaching 330 trillion yuan or $53 trillion. In the second case, where consumption reaches 46% of output by 2025, or annual spending rises 126%, consumption would balloon to 420 trillion yuan, or $68 trillion. The analysis is based on the development of 167 countries between 1950 and 2011. Countries with similar underlying fundamentals to China saw consumption remain flat relative to GDP for some time after it stopped falling. If China’s shoppers do take off, it will be from a relatively low base. Using the latest available comparative data from 2011, consumption in China made up 28% of real GDP, according to the report. That compares with 76% in the U.S., 67% in Brazil, 60% in Japan, 59% in Germany, and 52% in India.

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Escobar continually fails to address the Chinese economic slump.

The Eurasian Big Bang – China, Russia Run Rings Around Washington (Pepe Escobar)

Let’s start with the geopolitical Big Bang you know nothing about, the one that occurred just two weeks ago. Here are its results: from now on, any possible future attack on Iran threatened by the Pentagon (in conjunction with NATO) would essentially be an assault on the planning of an interlocking set of organizations – the BRICS nations (Brazil, Russia, India, China, and South Africa), the SCO (Shanghai Cooperation Organization), the EEU (Eurasian Economic Union), the AIIB (the new Chinese-founded Asian Infrastructure Investment Bank), and the NDB (the BRICS’ New Development Bank) – whose acronyms you’re unlikely to recognize either. Still, they represent an emerging new order in Eurasia. Tehran, Beijing, Moscow, Islamabad, and New Delhi have been actively establishing interlocking security guarantees.

They have been simultaneously calling the Atlanticist bluff when it comes to the endless drumbeat of attention given to the flimsy meme of Iran’s “nuclear weapons program.” And a few days before the Vienna nuclear negotiations finally culminated in an agreement, all of this came together at a twin BRICS/SCO summit in Ufa, Russia – a place you’ve undoubtedly never heard of and a meeting that got next to no attention in the U.S. And yet sooner or later, these developments will ensure that the War Party in Washington and assorted neocons (as well as neoliberalcons) already breathing hard over the Iran deal will sweat bullets as their narratives about how the world works crumble.

With the Vienna deal, whose interminable build-up I had the dubious pleasure of following closely, Iranian Foreign Minister Javad Zarif and his diplomatic team have pulled the near-impossible out of an extremely crumpled magician’s hat: an agreement that might actually end sanctions against their country from an asymmetric, largely manufactured conflict. Think of that meeting in Ufa, the capital of Russia’s Bashkortostan, as a preamble to the long-delayed agreement in Vienna. It caught the new dynamics of the Eurasian continent and signaled the future geopolitical Big Bangness of it all. At Ufa, from July 8th to 10th, the 7th BRICS summit and the 15th Shanghai Cooperation Organization summit overlapped just as a possible Vienna deal was devouring one deadline after another.

Consider it a diplomatic masterstroke of Vladmir Putin’s Russia to have merged those two summits with an informal meeting of the Eurasian Economic Union (EEU). Call it a soft power declaration of war against Washington’s imperial logic, one that would highlight the breadth and depth of an evolving Sino-Russian strategic partnership. Putting all those heads of state attending each of the meetings under one roof, Moscow offered a vision of an emerging, coordinated geopolitical structure anchored in Eurasian integration. Thus, the importance of Iran: no matter what happens post-Vienna, Iran will be a vital hub/node/crossroads in Eurasia for this new structure.

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Zizek is an intriguing writer.

How Tsipras and Syriza Outmaneuvered Merkel and the Eurocrats (Slavoj Zizek)

Why this horror? Greeks are now asked to pay a high price, but not for a realist perspective of growth. The price they are asked to pay is for the continuation of the “extend and pretend” fantasy. They are asked to ascend to their actual suffering in order to sustain another’s—the Eurocrats’—dream. Gilles Deleuze said decades ago: “Si vous êtes pris dans le rêve de l’autre, vous êtes foutus” (“If you are caught into another’s dream, you are fucked.” This is the situation in which Greece now finds itself: Greeks are not asked to swallow many bitter pills for a realist plan of economic revival, they are asked to suffer so that others can go on dreaming their dream undisturbed. The one who now needs awakening is not Greece but Europe.

Everyone who is not caught in this dream knows what awaits us if the bailout plan is enacted: another €90 billion or so will be thrown into the Greek basket, raising the Greek debt to €400 or so billions (and most of those billions will quickly return back to Western Europe—the true bailout is the bailout of German and French banks, not of Greece), and we can expect the same crisis to explode again in a couple of years. But is such an outcome really a failure? At an immediate level, if one compares the plan with its actual outcome, obviously yes. At a deeper level, however, one cannot avoid a suspicion that the true goal is not to give Greece a chance but to change it into an economically colonized semi-state kept in permanent poverty and dependency, as a warning to others. But at an even deeper level, there is again a failure – not of Greece, but of Europe itself, of the emancipatory core of European legacy.

The “no” of the referendum was undoubtedly a great ethico-political act: against a well-coordinated enemy propaganda spreading fears and lies, with no clear prospect of what lies ahead, against all pragmatic and “realist” odds, the Greek people heroically rejected the brutal pressure of the EU. The Greek “no” was an authentic gesture of freedom and autonomy. The big question is, of course, what happens the day after, when we have to return from the ecstatic negation to the everyday dirty business? And here, another unity emerged, the unity of the “pragmatic” forces (Syriza and the big opposition parties) against the Syriza Left and Golden Dawn. But does this mean that the long struggle of Syriza was in vain, that the “no” of the referendum was just a sentimental empty gesture destined to make the capitulation more palpable?

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“The Greeks, for their part, have been putting their national identity ahead of their pocketbooks, in ways that economists do not understand and continually fail to predict. ”

Europe’s Civil War (Slaughter)

The negotiations leading up to the latest tentative deal on Greece’s debt brought into relief two competing visions of the European Union: the flexible, humane, and political union espoused by France, and the legalistic and economy-focused union promoted by Germany. As François Heisbourg recently wrote, “By openly contemplating the forced secession of Greece [from the eurozone], Germany has demonstrated that economics trumps political and strategic considerations. France views the order of factors differently.” The question now is which vision will prevail? The Greeks, for their part, have been putting their national identity ahead of their pocketbooks, in ways that economists do not understand and continually fail to predict.

It is economically irrational for Greeks to prefer continued membership in the eurozone, when they could remain in the EU with a restored national currency that they could devalue. But, for the Greeks, eurozone membership does not mean only that they can use the common currency. It places their country on a par with Italy, Spain, France, and Germany, as a “full member” of Europe – a position consistent with Greece’s status as the birthplace of Western civilization. Whereas that stance reflects the vision of an “ever-closer union” that motivated the EU’s founders, Germany’s narrower, economic understanding of European integration cannot inspire ordinary citizens to support the compromises necessary to keep the EU together. Nor can it withstand the inevitable attacks directed against EU institutions for every action and regulation that citizens dislike and for which national politicians want to avoid responsibility.

The original European Economic Community, created by the Treaty of Rome in 1957, was, as the name indicates, economic in nature. The Treaty itself was hard-headed, grounded in the converging economic interests of France and Germany, with the Benelux countries and Italy rounding out the basis of a new European economy. But economic integration was underpinned by a vision of peace and prosperity for Europe’s peoples, after centuries of unprecedented violence had culminated in two world wars that reinforced the seemingly eternal enmity between France and Germany. And, indeed, the language of a larger political union was embedded in Europe’s treaties, to be interpreted by the European Court of Justice and subsequent generations of European decision-makers in ways that supported the construction of a common European polity and identity, as well as a unified economy.

My mother, a young Belgian in the 1950s, remembers the idealism and the excitement of the European federalist movement, with its promise that her generation could create a different future for Europe and the world. To be sure, the vision of a United States of Europe, espoused by many of those early federalists, looked backward to the founding of the US, rather than forward to a distinctive European venture. Nonetheless, the EU that emerged – which pools sovereignty sufficiently to benefit from being a powerful regional entity in a world of almost 200 countries while maintaining its members’ distinct languages and cultures – is something new.

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At what rates, though?

Greek Bonds To Resume Trading As Luxembourg Exchange Lifts Ban (Bloomberg)

The Luxembourg Bourse said it authorized a resumption of trading Greek bonds on Friday. The exchange lifted a suspension on trading securities issued by 25 Greek entities, from government bonds to those of Alpha Bank SA and Hellenic Telecommunications Organization SA, according to a statement. Trading was halted at the end of June as the Greek government shuttered its financial markets. The nation’s banks reopened on July 20, though limits on withdrawals are only being eased gradually and officials said they will extend the shutdown of its stock and bond markets at least through Monday. Greek bond trading was scant even before the suspension, with the central bank’s electronic secondary securities market, or HDAT, recording no turnover on the government’s notes in June, according to Athens News Agency.

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Nice headline, not enough substance.

Open Letter to Yanis Varoufakis & Dominique Strauss-Khan (Tremonti & Savona)

Dear Yanis, dear Dominique: There is a place on earth that represents Europe’s very roots: Greece. Let us begin there. Athens, April 28, 1955. Albert Camus’ conference on “The future of Europe”.[1] On this occasion, participants agreed that the structural characteristics of European civilization are essentially two: the dignity of the individual; a spirit of critique. At that time (1955), human dignity was a focus of much debate in Europe. Nobody doubted, however, the European “spirit of critique”. There were no doubts about the rationalist, Cartesian, Enlightened vision, which was agent and engine of continuous progress on the continent, as much in terms of technical-scientific domination as for political, social and economic domination.

Today, more than half a century later, we might well invert these two: human dignity is widely appreciated throughout Europe, albeit challenged by dramatic problems generated by immigration; it is the force of reason in Europe that no longer underlies continuous progress. Why is this so? What happened? It was not some shadowy curse that descended upon the continent. It was not some evil hand that sowed our fields with salt. So what did happen? Just as the dinosaurs died off because an asteroid slammed into the planet, so was dinosaur Europe struck by 4 different phenomena. Each was revolutionary even when taken alone, but all together, one after another, they proved enough to cause an explosion, an implosion, paralysis: enlargement, globalization, the euro, the crisis.

And that is not all. During the process of political union, we took a wrong turn at one point. We failed to unite that which could be and needed to be united (such as defense). Instead, we united that which did not need to be united (for example, the size of vegetables). This is why, in Europe today, it is not “more union” that we need. What we need is to propose, discuss and design new “articles of confederation”. Dear Yanis, dear Dominique, we agree on the fact that life and civilization cannot be reduced to mere calculations of interest rates; we agree that today, in Europe, it is not the technicalities that need changing but the political vision. History teaches us that in order to reach our goal we must change what is inside people’s heads or – at the very least – admit that mistakes have been made. We agree that the piazzas of protest are to be avoided, but that we must find a new road, down which we can all walk, regardless of our country or political party of origin.

Paolo Savona, Emeritus professor of Political economy
Giulio Tremonti, Senator of the Italian Republic

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Some doubtful claims being made here, but an interesting insight. Let’s first see what Syriza has to say about it, though.

Syriza’s Covert Plot During Crisis Talks To Return To Drachma (FT)

Arresting the central bank’s governor. Emptying its vaults. Appealing to Moscow for help. These were the elements of a covert plan to return Greece to the drachma hatched by members of the Left Platform faction of Greece’s governing Syriza party. They were discussed at a July 14 meeting at the Oscar Hotel in a shabby downtown district of Athens following an EU summit that saw Greece cave to its creditors, leaving many in the party feeling despondent and desperate. The plans have come to light through interviews with participants in the meeting as well as senior Greek officials and sympathetic journalists who were waiting outside the gathering and briefed on the talks.

They offer a sense of the chaos and behind-the-scenes manoeuvring as Greece nearly crashed out of the single currency before prime minister Alexis Tsipras agreed to the outlines of an €86bn bailout at the EU summit. With that deal still to be finalised, they are also a reminder of the determination of a sizeable swath of Mr Tsipras’ leftwing party to return the country to the drachma and increase state control of the economy. Chief among them is Panayotis Lafazanis, the former energy and environment minister and leader of Syriza’s Left Platform, which unites a diverse group of far left activists — from supporters of the late Venezuelan president Hugo Chávez to old-fashioned communists. He was eventually sacked in a cabinet reshuffle after voting against reforms tied to the bailout.

“Obviously it was a moment of high tension,” a Syriza activist said, describing the atmosphere as the meeting opened. “But you were also aware of a real revolutionary spirit in the room.” Yet even hardline communists were taken aback when Mr Lafazanis proposed that the Syriza government should seize control of the Nomismatokopeion, the Greek mint, where the bulk of the country’s cash reserves are kept. “Our plan is that we go for a national currency. This is what we should have done already. But we can do it now,” he said, according to people present at the meeting. Mr Lafazanis said the reserves, which he claimed amounted to €22bn, would pay for pensions and public sector wages and also keep Greece supplied with food and fuel while preparations were made for launching a new drachma.

Meanwhile, the central bank would immediately lose its independence and be placed under government control. Its governor, Yannis Stournaras, would be arrested if, as expected, he opposed the move. “For people planning a conspiracy to undermine the Greek state, they were pretty open about it,” said one reporter who staked out the event. The plan demonstrates the apparently ruthless determination of Syriza’s far leftists to pursue their political aims — but also their lack of awareness of the workings of the eurozone financial system. For one thing, the vaults at the Nomismatokopeion currently hold only about €10bn of cash — enough to keep the country afloat for only a few weeks but not the estimated six to eight months required to prepare, test and launch a new currency.

The Syriza government would have quickly found the country’s stash of banknotes unusable. Nor would they be able to print more €10 and €20 banknotes: From the moment the government took over the mint, the ECB would declare Greek euros as counterfeit, “putting anyone who tried to buy something with them at risk of being arrested for forgery,” said a senior central bank official. “The consequences would be disastrous. Greece would be isolated from the international financial system with its banks unable to function and its euros worthless,” the official added. As the details of the Left Platform meeting have leaked out, some political opponents are demanding an accounting.

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Permit me a chuckle.

Greek Debt Crisis Talks Stall Over Choice Of Hotel, Security Issues (Guardian)

In an inauspicious start to talks over awarding Greece a third bailout, international officials have postponed the negotiations after failing to agree with their hosts where they will stay and how they will operate when in Athens. Mission chiefs representing the troika of creditors – the European commission, European Central Bank and International Monetary Fund – were forced to delay discussions over the €86bn (£61bn) programme after it emerged they had been unable to agree on a secure venue in the capital. “There are some logistical issues to solve, notably security-wise,” said a European commission official. “Several options are on the table.”

The leftwing government in Athens, which had previously vowed to never let the auditors step foot in Greece again, is understood to be irritated by demands that the creditor team is given free access to ministries and files. Acutely aware of the anger the monitors have triggered in the past, due to the austerity measures attached to previous bailouts, it has insisted the mission heads stay in a hotel outside the Greek capital. “A lot of trust has been lost and the big issue is who they are going to see, what ministries they are going to be let into, what files are going to be made available,” said Anna Asimakopoulou, a shadow finance minister with the main opposition New Democracy party. “That, of course, will be a big defeat for the government given that negotiations have moved to Brussels for the past six months but that is what they want, due diligence at a deeper level. Holding talks in a hotel is just not practical.”

Symbolically, the inspectors’ return is humiliating for Prime Minister Alexis Tsipras who won power in January promising to dismantle the troika. The European commission wants a deal to be reached on a bailout programme by the second half of August when Greece must honour a €3.4bn debt repayment to the ECB. But with the talks also expected to be extremely tough there are few who believe that deadline will be met. Instead EU officials have signalled the debt-stricken country will likely be given a bridging loan – as it was earlier this week – to avert default. “It is difficult to envisage these negotiations ending before early September at the earliest,” said Asimalopoulou, the shadow finance minister.

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Dead in the water.

The Great Greece Fire Sale (Guardian)

While Tsipras has been forced into a humiliating climbdown over the sale of state assets, he has repeatedly branded the entire bailout plan as a bad deal that he doesn’t believe in. Unions with ties to the governing party have already vowed to “wage war” to stop the sale of docks in Piraeus, where the Chinese conglomerate, Cosco, currently manages three piers. With the debt-stricken country on its knees, officials have stressed that the prime minister will fight to ensure the denationalisations are not seen as a fire sale. However, independent observers fear just that. “Privatisation in Greece right now means a fire sale,” political economist Jens Bastian said.

Bastian was one of the officials responsible for privatisation under the European commission’s Taskforce for Greece, a body of experts distinct from the troika. He thinks it was a “political mistake” to set a target to raise €50bn from asset sales, in the absence of support from Greek politicians across the political spectrum, from the centre-right New Democracy party, to Pasok on the centre-left and Syriza on the left. “We have never had a political majority to embrace the idea of privatisation. How are you going to create the political momentum that has been absent in the past years under more difficult conditions today?” he asks. Greece’s creditors share such scepticism. Their answer is tighter controls. The privatisation fund will be managed by Greeks under the close watch of creditors.

The privatisation fund has few precedents, although it has been compared to the Treuhandanstalt, the German agency created in the dying days of the GDR to privatise East German assets shortly before reunification. Greece’s former finance minister, Yanis Varoufakis, was one of the first to draw the parallel, although others offer the comparison unprompted. Peter Doyle, a former IMF economist, says the Treuhand offers the closest parallels: the agency had full control over government ministries to sell assets quickly. “The principal task was to sell these things to somebody for cash.”

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Big relief for the entire economy. Hospitals, zoos, tourist industry, anywhere there’s a need for money transfers.

Greece Loosens Capital Restrictions On Businesses (Reuters)

Greece started loosening restrictions on foreign transfers by businesses on Friday, unblocking imports held up after the country introduced capital controls last month. “The daily limit (on money transfers) has been raised to 100,000 euros from 50,000 euros,” central bank governor Yannis Stournaras told reporters, adding that this covered almost 70% of requests. Greek businesses have been hit by limits on transferring money abroad to pay for imports of raw material and other items since capital controls started on June 29, and have had to apply to a special committee for permission to pay their foreign suppliers, a time-consuming process. Stournaras said conditions for businesses were improving and authorities aimed to resolve pending issues in the next 10 days.

“As far as approvals are concerned, we are now very close to the monthly imports the Greek economy was registering before the crisis,” he said after meeting business leaders on Friday. Greece reopened its banks on Monday after it secured a €7.2 billion bridging loan to pay its debt obligations and enacted tough reforms demanded by its lenders to start negotiations on a third bailout. The banks’ three-weeks shutdown has cost Greek businesses €3 billion, said the head of Athens Chamber of Commerce and Industry Constantinos Michalos, with many firms warning of closures as a result of the capital curbs. Greece has approved requests for money transfers totaling €1.585 billion from June 29 to July 23, much of it earmarked for energy imports, according to the Bank of Greece on Friday.

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But its economy says that France can be made to kowtow.

The Rift Between France And Germany Can’t Be Papered Over Anymore (MarketWatch)

A “temporary” Greek exit from economic and monetary union, proposed by Germany, supported by many German-leaning euro members, yet hotly opposed by France and Italy, was narrowly averted in the marathon negotiations that ended on July 13. But the suggestion may still eventually decide Greece’s fate in the euro. The divergence between the two countries traditionally seen as the motor of the European Union demonstrates new fragility in Franco-German relations that looks likely to cast a shadow over European cooperation for some time to come. Wolfgang Schaeuble, the German FinMin, whose hard line on Greece ended up determining Angela Merkel’s negotiating stance, has made clear in the week since the ill-tempered European summit on Greece that he still favors a Greek exit from the euro .

Once it would have feared European isolation, but Germany now puts forward views opposed by France with demonstrative self-confidence. This reflects not only manifest German economic strength but also EMU membership by several smaller nations from central and eastern Europe that take an even more robust attitude than Germany on the Greek economy. From the Baltic to former Yugoslavia, small euro states that were previously part of the Eastern bloc have been converted to German allies and steadfast proponents of monetary orthodoxy. European changes since German reunification 25 years ago represent a double blow for France. The Germans used to be France’s buffer zone against the Soviet Union.

Yet as the new round of EMU antagonism shows, a cluster of small ex-communist countries now play a similar role – but now as buffer states to protect Germany against France. We shall see reinforced efforts in coming months by French President François Hollande and Italian Prime Minister Matteo Renzi to build a European coalition opposing German-style austerity — an alliance that could find support (depending on economic and political developments) in Madrid and Lisbon. The problem for Hollande is the same one that faces Sigmar Gabriel, the German Social Democrat leader and deputy chancellor in Merkel’s coalition. Full-blooded efforts to resist the Merkel-Schaeuble line on Greece, and downgrade efforts at economic discipline or supply-side reforms, are likely to generate strong countervailing pressures.

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Nothing new.

Upcoming French Vote Could Send Shock Waves Across Europe (MarketWatch)

Much has been made of the rift between Germany and France over how the European Union has handled the Greek crisis, with Berlin maintaining a hard line on debt and austerity and Paris, belatedly, calling for a more flexible approach. [..] it is the partnership of equals between these two countries that has driven European integration. The problem is that France has fallen into a political malaise with a series of weak leaders and a disenchantment with politicians as a whole. This malaise results largely from prolonged economic doldrums — stagnant growth, persistent high unemployment — as France tries to conform to the fiscal strictures dictated by Germany’s narrow view of economics and enshrined in the treaty terms for monetary union.

French President François Hollande and his prime minister, Manuel Valls, have abandoned the campaign pledges to foster growth that brought them to power and instead are trying to make France more like Germany. To call the results disappointing would be an understatement. The political backlash creates an opening for the anti-euro, anti-EU National Front under Marine Le Pen, who continues to surge in polls as a leading contender for president in 2017. Le Pen, the daughter of National Front founder Jean-Marie Le Pen, announced this month that she will put her electability to the test this December in regional elections as she heads the party’s campaign in the depressed Nord-Picardy region in northern France.

The elections for governing councils in France’s 13 newly re-constituted regions will provide the broadest test yet of Marine Le Pen’s efforts to soften the National Front’s image and make it more acceptable to mainstream voters. Polls have her winning that election in two rounds of voting, which wouldgive her considerable leverage heading into the presidential campaign. In addition, her niece, Marion Maréchal-Le Pen, the 25-year-old granddaughter of Jean-Marie Le Pen and currently a National Front member of Parliament, is leading the regional election polls in the more prosperous Provence region in southern France.

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Brussels elects to look the other way, but Finland can be the black swan that tears it all apart.

The Euro Is Driving Finland To Depression (AdamSmith.org)

The Finnish economy has been hit by three shocks over the past decade:
• Nokia has more or less disappeared;
• The paper industry is in crisis;
• And recently the Russian crisis has hurt Finland’s economy too.

These have all caused a very significant change in Finland’s current account balance, which over the past 15 years has gone from a sizeable surplus (around 9% of GDP in 2001) to a small deficit (around -1% of GDP in past four years). This would under normal circumstances require a (real) exchange rate depreciation to restore competitiveness. However, as Finland is a member of the euro such adjustment has not been possible through a nominal depreciation of the currency and instead Finland has had to rely on an internal devaluation through lower price and wage growth. However, Finland’s labour market is excessively regulated and non-wage costs are high, which means that the internal devaluation has been very sluggish. As a result growth has suffered significantly.

In fact, Finland’s real GDP level today is around 5% lower than at the onset of the crisis in 2008. This makes the present recession – or rather depression – deeper and longer than the Great Depression in 1930 and the large Finnish banking crisis of the 1990s. Rightly we should call the present crisis Finland’s Greater Depression. ECB policy obviously has not helped. First of all, the 2011 rate hikes from the ECB had a significantly negative impact on Finnish growth. Second, the shocks that have hit the economy are decisively asymmetrical in nature. This means that Finnish growth increasingly has come out of sync with the core Eurozone countries – such as Germany, Belgium and France.

Hence, Finland is a very good example that the eurozone is not an “Optimal Currency Area”, where one monetary policy fits all countries. Concluding, the crisis would likely have been a lot shorter and less deep had Finland had its own currency. This would not have protected Finland from the shocks – Nokia would still have done badly, and exports to Russia would still have been hit by the crisis in the Russian economy, but a currency depreciation would have done a lot to offset these shocks.

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Guess who’ll win?

US, EU Battle Over ‘Feta’ In Trade Talks (Reuters)

EU plans to seal the world’s largest free trade deal with the United States are threatened by intractable differences over food names, none more so than the right of cheese makers to use the term “feta”. Negotiators talk of accelerated progress and hope to thrash out a skeleton agreement on a Transatlantic Trade and Investment Partnership (TTIP) within a year, aiming for a major boost to growth in the advanced Western economies. But geographical indications (GIs), a 1,200-long list ranging from champagne to Parma ham, present a major headache. At the same time as euro zone leaders are ordering Greece to balance its budget and liberalise its product markets, EU trade negotiators are fighting to defend its signature cheese.

GIs are a cornerstone of EU agricultural and trade policy, designed to ensure that only products from a given region can carry a name. To the United States, it smacks of protectionism. “It’s politically extremely important in Europe. As (the EU) phases out direct agricultural support, there has to be a trade-off by promising to do more in trade policy,” said Hosuk Lee-Makiyama, director of the European Centre for International Political Economy. “For 20 years they have been fighting about it at the World Trade Organisation even if the economic value is disputed.” EU member states will have to approve any deal and will need food name protection as compensation for EU farmers facing a flood of U.S. beef and pork imports.

Agriculture is not a sizeable part of either the EU or the U.S. economy, but farmers retain political muscle, as French livestock and dairy producers showed this week by forcing the government to offer aid after protests including road blockades. Washington does not object to protection of niche items such as British Melton Mowbray pork pies. But negotiators face a very difficult task to find a balance for widely produced feta, Parma ham or parmesan, the biggest maker of which is America’s Kraft Foods. The EU introduced GIs and designations of origin in 1992, securing protection for Greek feta, which means “slice”, 10 years later when it declared that non-Greek producers’ use of the term was “fraudulent”.

It is a view echoed by Christina Onassis, marketing manager at the Lytras & Sons dairy in central Greece. She describes the unique plants and microflora of Greece’s mountainous regions and says feta “imitations” mostly use cow’s milk. “For 6,000 years, Greece has produced continuously using milk from ewes and goats,” she said. “We also ripen the cheese for days, which does not happen in any other feta production.”

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Dinosaur fund.

Facing The Future At The International Monetary Fund (BBC)

Maybe it has been the strange twists and turns of the Greek financial crisis that have brought the anomalies of who it is that runs the the IMF into sharper focus – whatever the reason the Fund’s leaders certainly seem concerned. “Our governance needs to be fully modernised to reflect an ever-changing world,” said David Lipton, the IMF’s first deputy managing director – spelling out the problem facing the organisation as he sees it. “If you’re China or a fast-growing country, you need to know that there’ll be a series of changes that enable your role at the IMF to grow,” he told the BBC World Service’s In the Balance programme. Since being set up in 1944 at the Bretton Woods Conference along with the World Bank, the IMF has played a critical and at times controversial role in stabilising the global economy.

It has intervened in national economies with huge loans and often a highly prescriptive set of loan conditions as it did in the 1997 and 1998 East Asian crisis, in Africa throughout the last three decades and most recently in the eurozone in Ireland in 2010, in Portugal in 2011 – and of course, now in Greece. IMF loan agreements usually require severe cut-backs in government spending – austerity with a capital ‘A’ – tax reform, pensions reforms and a crackdown on corruption. The Fund rarely leaves a country with more friends than it had when it arrived. But recently there has the increasingly noisy criticism of the IMF’s pecking order. For many outside the Fund there is the nagging question which comes along with its loans and the calls for countries to reform their economies: “Says who?”

Under the rules agreed when the IMF was established, every IMF managing director must be a European. Currently it is Christine Lagarde – and in fact five of the 11 IMF’s leaders have been French. Meanwhile, the head of the World Bank must be an American, say those same rules. So when unpopular measures are demanded by the IMF in exchange for funding for a country, there is a sense that the West, the world’s richer economies, the ones that have been calling the shots for the last 70 years and are seemingly willing to ignore the rapidly shifting global economic landscape – are still calling the shots. Harvard University’s Prof Kenneth Rogoff, and formerly chief economist at the IMF said: “The number one issue for the IMF, is to dispense with the ridiculous requirement that the managing director be a European, and that the World Bank be run by an American.” “It’s an incredible anachronism.”

Prof Ngaire Woods, an expert in global governance and dean of the Blavatnik school of government, Oxford University, goes further: “I think the risk to the IMF is irrelevance and marginalisation.” “Emerging economies are using other things – anything but rely on the IMF. If you’re sitting in Zambia, Brazil or China, it looks like an organisation that’s still run by the USA and Europe.”

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Dinosaur rag.

Pearson In Talks To Sell The Economist Too (Politico)

Pearson is in advanced talks to sell its 50% stake in the Economist magazine, people familiar with the matter say. The deal would be valued at about £500 million, one of the people said. The prospective buyer of the stake was described as a “diversified, western media company.” The planned deal, which would come on the heels of Pearson’s sale of the Financial Times to Japan’s Nikkei earlier this week, would represent the 171-year-old U.K. group’s latest major divestiture as it seeks to focus on its core education business. The price tag implies a value for the entire Economist Group of £1 billion, a multiple of 17 times the company’s annual operating earnings of £60 million. That’s about half the 35 times the FT’s operating profit that Nikkei agreed to pay Pearson.

But in contrast to that sale, the Economist deal would not offer the buyer a controlling stake. Pearson had hoped to announce the sale concurrently with the FT transaction and its half-year earnings this week, but last minute complications prevented it from doing so, according to a source. Founded in 1843 in London, the weekly “newspaper” as the Economist refers to itself, has long been an influential voice in global journalism, renowned for its sharp, often irreverent analysis of the world stage. Like the FT, the Economist is considered a trophy asset with an influence that outstrips its global circulation of 1.6 million.

The remaining 50% of the Economist not controlled by Pearson is owned by a diverse group of shareholders including Evelyn Robert Adrian de Rothschild, an heir to the banking dynasty and a former chairman of the magazine group. His wife, American-born Lynn Forester de Rothschild, is a member of the Economist’s board. The Rothschild Group, the boutique M&A firm controlled by the family, advised Nikkei on its purchase of the FT. Under a complex shareholder agreement, Pearson would have to obtain the approval of four trustees charged with preserving the magazine’s legacy and independence before transferring any shares to a different owner. That narrows considerably the pool of potential buyers.

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Jul 122015
 
 July 12, 2015  Posted by at 10:40 am Finance Tagged with: , , , , , , , , , ,  


DPC Up Sutter Street from Grant Avenue, San Francisco 1906

China’s Real Problem Isn’t Stocks – It’s Real Estate! (Harry Dent)
Greece Crisis: Europe Turns The Screw (Paul Mason)
EU Leaders’ Greece Summit Cancelled As Eurozone Talks Grind On (Guardian)
Greek Bailout Deal Remains Elusive (WSJ)
Germany Prepares ‘Temporary’ Grexit, Euro Project On Brink Of Collapse (Khan)
Germany Trying To Humiliate Greece, Says MEP Papadimoulis (Reuters)
Finland’s Parliament In Favour Of Forcing Greece Out Of The Euro (AFP)
The Problem With a Euro Fix: What’s in It for the Dutch? (NY Times)
Would Grexit Be A Disaster? Probably Not, Says History (Arends)
Angela Merkel’s Legacy At Stake As She Chooses Between Two Disasters (Guardian)
The Eurogroup Gets Mythological on Greece (Lucey)
A Union of Deflation and Unemployment (Andricopoulos)
The Great Recession and the Eurozone crisis (Wren-Lewis)
Greece Prepares Itself To Face Another Year Of Political Turmoil (Observer)
Greeks Resigned To A Hard, Bitter Future Whatever Deal Is Reached (Observer)
A Coming Era Of Civil Disobedience? (Buchanan)

China private debt is staggering.

China’s Real Problem Isn’t Stocks – It’s Real Estate! (Harry Dent)

I always say bubbles burst much faster than they grow. And after exploding up 159% in one year, Chinese stocks crashed 35% in three weeks. This all happened while the Chinese economy and exports continued to fall. And two thirds of these new trading accounts belong to investors who don’t have so much as a high school degree. How crazy is that? As Rodney wrote earlier this week, the Chinese government is taking every desperate measure to stop the slide: Artificial buying to prop up the market… Banning pension funds from selling stocks… Threatening to jail investors for shorting stocks… Allowing 1350 out of 2900 major firms to halt trading in their stocks indefinitely, and stopping trades on another 750 that fell 10% or more… It’s madness!

This second and FINAL bubble in Chinese stocks occurred precisely because real estate stopped going up. Over the last year it actually declined. So after decades of speculation, the gains stopped coming in, and rich and poor investors alike switched to stocks. But the funny thing about the Chinese is – they don’t put most of their money in stocks. Only about 7% of urban investors own stocks and half of those accounts are under $15,000. In fact, it’s estimated that the Chinese only put 15% of their assets there, and that may be on the high side. What is so unusual about the Chinese is that they save just over half their income! And the top 10% save over two-thirds! And where do those savings go? Mostly into real estate! China’s home ownership rate is 90%. It’s just 64% in the U.S. even though we’re much wealthier and credit-worthy.

That’s because home ownership is a staple of their culture. A Chinese man has no chance of getting a date or getting laid unless he owns a home – no matter how small. Just look at this simple chart:

Chinese households have 74.7% of their assets in real estate vs. 27.9% in the U.S. – which helps explain why theirs is one of the greatest real estate bubbles in modern history! But the key here is – when that bubble bursts, it will cause an unimaginable implosion of Chinese wealth. In one fell swoop, three-quarters of their assets will get crushed! And just how big of a bubble is it? In Shanghai, real estate is up 6.6 times since 2000. That’s 560%. I’ve been going on and on about the massive overbuilding of basically everything in China for years now. I’ve never once flinched from my prediction that this enormous bubble will burst. And I’ve kept saying there will be a very hard landing no matter how much the government tries to fight it.

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So there! “.. the Greeks last night revealed the true dysfunctionality of the system they are trying to stay inside.”

Greece Crisis: Europe Turns The Screw (Paul Mason)

The Greeks arrived with a set of proposals widely scorned as “more austere than the ones they rejected”. The internet burst forth with catcalls – “they’ve caved in”. By doing so, however, the Greeks last night revealed the true dysfunctionality of the system they are trying to stay inside. First, Germany put forward a proposal one could best describe as “back of envelope” for Greece to leave the Eurozone for five years. There is logic to it – because Germany was signalling that only outside the Eurozone could Greece’s debts be written off. But for the most powerful Eurozone nation to arrive with an unspecified, two-paragraph “suggestion” at this stage explains why the Italians, according to the Guardian, are about to blast them with both barrels for lack of leadership.

Then came the Finns. Their government is a coalition of centre right parties and the right-wing populist Finns Party. The latter threatened to collapse the new governing coalition if the Finns take part in a new bailout for Greece. The demand is now that the Greeks pass all the laws they signed up to in advance of any new bailout deal. This is backed up by a threat to keep the Greek banks starved of liquidity from the ECB for another week. In Greece large numbers of people – on all sides of politics – believe the Europeans are trying to force the elected government to resign before a deal is concluded. If so there will be political chaos. Syriza’s poll rating is currently 38% and rising. Without a “moderate” split from Syriza the centrist parties have no chance of forming a new government, and without Tsipras’ tacit consent there can be no interim government of unelected technocrats.

On Friday I reported, on the basis of intelligence being supplied to large corporations, that the key supply concerns are gas – because of the need for forward contracts – disposables in the healthcare system, and meat imports. The screw Europe is turning on its own supposed member state now begins to resemble a sanctions regime. Without more liquidity the banks will run out of money some time this week. To be clear, it is Europe that is in charge of the Greek banking system, not Greece. Yet after last night what many in Greece and elsewhere see is that Europe has no single understanding of what it’s trying to achieve through this enforced destruction of a modern economy.

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Got to stretch it out for dramatic effect.

EU Leaders’ Greece Summit Cancelled As Eurozone Talks Grind On (Guardian)

A meeting of all EU leaders to decide Greece’s fate has been cancelled, as ministers from the narrower eurozone group struggle to agree on a way forward to resolve the intractable debt crisis. Donald Tusk, the European council president, announced that the session of the 28 EU heads of government scheduled for Sunday had been postponed. Instead, eurozone finance ministers are meeting on Sunday morning, and a summit of eurozone heads of government will take place in the afternoon. “I have cancelled #EUCO today. #EuroSummit to start at 16h and last until we conclude talks on #Greece,” Tusk tweeted. Last-chance talks between the 19 eurozone finance ministers in Brussels ended at midnight, with deep divisions persisting over whether to extend another bailout of up to €80bn to Greece in return for fiscal reforms.

Finland rejected any more funding for the country and Germany called for Greece to be turfed out of the currency bloc for at least five years. Experts from the group of creditors known as the troika said fiscal rigour proposals from Athens were good enough to form “the basis for negotiations”. But the German finance minister, Wolfgang Schäuble, dismissed that view, supported by a number of northern and eastern European states. “These proposals cannot build the basis for a completely new, three-year [bailout] programme, as requested by Greece,” said a German finance ministry paper. It called for Greece to be expelled from the eurozone for a minimum of five years and demanded that the Greek government transfer €50bn of state assets to an outside agency for sell-off.

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Only some of the parties seem to want one.

Greek Bailout Deal Remains Elusive (WSJ)

Greek crisis talks between eurozone finance ministers on a new €74 billion loan came to an inconclusive end this morning in a sign that a deal which would secure much-needed financing for Athens and prevent a possible exit from the currency area is still far from certain. The ministers will reconvene at around 11am local time in an effort to reach consensus on whether economic overhauls and budget cuts proposed by Greece are sufficiently far-reaching to form a basis for negotiations on fresh loans to Athens. Then the baton will be handed over to European leaders, who will gather for an emergency summit. The heads of state and government will then have to determine how much money, and political goodwill, they are prepared to spend on keeping Greece in their currency union.

“It is still very difficult, but work is still in progress” said Dutch Finance Minister Jeroen Dijsselbloem, who presides over the meetings with his counterparts. “There’s always hope,” said Pierre Moscovici, the European Union’s economics commissioner, adding that he hoped for more progress. Only unanimous agreement on the amount of new rescue loans and debt relief to grant Athens will allow the country to avoid full-on bankruptcy and Greek banks to reopen on Monday with euros in their tills. The talks came after an assessment by the Troika estimated that a new bailout for Greece would cost €74 billion. In a letter requesting the loan earlier this week, Greece has estimated its financing needs at €53.5 billion.

Two weeks of capital controls have inflicted such damage on Greece’s banks that it will cost €25 billion to prop them up again, European officials said. Such costs would add to Greece’s already high debt load, creating more pressure for controversial action to be taken to make it more manageable. Over the past five months, Athens has exhausted the patience of most of its counterparts — particularly after Prime Minister Alexis Tsipras unexpectedly called for a referendum on creditors’ demands, asking voters to reject them. While Mr. Tsipras has since largely backed down on most of the overhauls and budget cuts creditors asked for, there are doubts across European capitals over whether his government can implement any deal it signs.

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If you ask me, tempexit is the craziest notion so far.

Germany Prepares ‘Temporary’ Grexit, Euro Project On Brink Of Collapse (Khan)

The German government has begun preparations for Greece to be ejected from the eurozone, as the European Union faces 24 hours to rescue the single currency project from the brink of collapse. Finance ministers failed to break the deadlock with Greece over a new bail-out package, after nine hours of acrimonious talks as creditors accused Athens of destroying their trust. It leaves the future of the eurozone in tatters only 15 years after its inception. In a weekend billed as Europe’s last chance to save the monetary union, ministers will now reconvene on Sunday morning ahead of an EU leaders’ summit later in the evening, to thrash out an agreement or decide to eject Greece from the eurozone.

Should no deal be forthcoming, the German government has made preparations to negotiate a temporary five-year euro exit, providing Greece with humanitarian aid while it makes the transition. An incendiary plan drafted by Berlin’s finance ministry, with the backing of Angela Merkel, laid out two stark options for Greece: either the government submits to drastic measures such as placing €50bn of its assets in a trust fund to pay off its debts, and have Brussels take over its public administration, or agree to a “time-out” solution where it would be expelled from the eurozone. German vice-chancellor Sigmar Gabriel said they were Greece’s only viable options, unless Athens could come up with better alternatives. “Every possible proposal needs to be examined impartially” said Mr Gabriel, who is also Germany’s socialist party leader.

Creditors voiced grave mistrust with Athens, a week after the Leftist government held a referendum in which it urged the Greek people to reject the bail-out conditions it has now signed up to. A desperate Alexis Tsipras managed to secure parliamentary backing for a raft of spending cuts and tax rises to secure a new three-year rescue programme worth around €75bn-€100bn. But finance ministers rounded on Mr Tsipras for offering to implement measures that he had previously dubbed “humiliating” and “blackmail” only seven days ago. “We will certainly not be able to rely on promises,” said Germany’s hard-line finance minister, Wolfgang Schäuble. “In recent months, during the last few hours, the trust has been destroyed in incomprehensible ways,” he said. “We are determined to not make calculations that everyone knows can’t be trusted. We will have exceptionally difficult negotiations. I don’t think we will reach an easy decision.”

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No kidding.

Germany Trying To Humiliate Greece, Says MEP Papadimoulis (Reuters)

Germany is trying to humiliate Greece by bringing new demands for a bailout deal, Dimitrios Papadimoulis, Vice-President of the European Parliament and member of Greece’s ruling SYRIZA party, said on Sunday. Highlighting the depth of reluctance to grant another rescue to Greece, Germany’s finance ministry put forward a paper on Saturday demanding stronger Greek measures or a five-year “time-out” from the euro zone that looked like a disguised expulsion. “What is at play here is an attempt to humiliate Greece and Greeks, or to overthrow the (Prime Minister Alexis) Tsipras government,” Papadimoulis told Mega TV.

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A country with a population half the size of Greece will decide?

Finland’s Parliament In Favour Of Forcing Greece Out Of The Euro (AFP)

Finland’s parliament has decided it will not accept any new bailout deal for Greece, media reports said Saturday, piling on pressure as eurozone finance ministers tried to find a way out of the impasse. The decision to push for a so-called “Grexit” came after the eurosceptic Finns party, the second-largest in parliament, threatened to bring down the government if it backed another rescue deal for Greece, according to public broadcaster Yle. Under Finland’s parliamentary system, the country’s “grand committee” – made up of 25 of 200 MPs – gives the government a mandate to negotiate on an aid agreement for Greece. Members of the committee met for talks in Helsinki on Saturday afternoon to decide their position, YLE reported.

The finance minister, Alexander Stubb, was at the crunch eurozone talks in Brussels and tweeted that he could not reveal the mandate given to him by the grand committee so long as the negotiations were still ongoing. “The mandate is not public and the Finnish delegation will not discuss it publicly,” Kaisa Amaral, a Finnish spokesman, told AFP. The Brussels talks were set to resume on Sunday after failing to reach an agreement on Saturday but opinion among northern and eastern European countries appeared to be hardening against accepting the reform’s Greece has offered in exchange for another bailout. Finns party leader Timo Soini, who is also the country’s foreign minister, has repeatedly argued in favour a “Grexit”, saying it would be better for Greece to leave the euro.

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Holland in the role of Connecticut.

The Problem With a Euro Fix: What’s in It for the Dutch? (NY Times)

Economists agree: If the eurozone does not break up, it will have to move closer together. They’re right. But it’s easy to understand why Europeans are not eager to heed their advice. Basically, the proposition of European integration is that the Netherlands should end up like Connecticut. And even though Connecticut is a lovely place, the Dutch have good reason to be wary of that. It’s expensive to be Connecticut, because Connecticut has to pay for Mississippi and Alabama. Large, economically diverse areas can successfully share a single currency if they have deep economic links that make it possible for troubled regions to ride out crises. That means shared bank regulation and deposit insurance, so banks don’t face regional panics; a labor market that lets people move from places without jobs to places with them; and a fiscal union, which allows the government to collect taxes wherever there is money and spend it wherever there are needs.

The United States shows that this approach can work: America’s 50 economically diverse states share a currency quite comfortably, in part because of our banking union (Washington State did not have to bail out Washington Mutual on its own when it failed), our fluid labor market (as oil prices rise and fall, workers move in and out of North Dakota) and our fiscal union (states in economic pain benefit from government programs financed by all states). Nevada does not need to devalue its currency to restore its competitiveness relative to California in a severe recession; instead, Nevadans can collect federally funded unemployment insurance and, if necessary, move to California. If the Greeks had similar options available in 2008, they would be much better off today.

But the EU’s centralized budget equals only about 1% of Europe’s GDP, compared with more than 20% for the American federal government. A much more centralized E.U. budget, with much more money flowing through Brussels the way it flows through Washington, could provide similar macroeconomic stability to Europe by creating a fiscal union. But the American fiscal union is very expensive for rich states. According to calculations by The Economist, Connecticut paid out 5% of its gross domestic product in net fiscal transfers to other states between 1990 and 2009; that is, its tax payments exceeded its receipt of government services by that amount. This is typical for rich states: They pay a disproportionate share of income and payroll taxes, while government services are disproportionately collected in states where people are poor or old or infirm.

The obvious question, then, about a fiscal union is: What’s in it for the Netherlands (or Austria or Luxembourg)? Is it worth making the euro “work” if that entails devoting several%age points of your economic output to fiscal transfers to poorer countries, indefinitely, the way Connecticut does to poorer states?

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I would not rule this out. But Greece would have to start from scratch with printing a new currency.

Would Grexit Be A Disaster? Probably Not, Says History (Arends)

If Greece rejected the international “bailout” terms, defaulted on its debts and dropped out of the eurozone, would it really face economic devastation, collapse and disaster? The IMF, the ECB and most economic “news” reports about the crisis say so. But history says something completely different. Contrary to what you may have read, lots of countries have been in a similar bind to that faced by the Greeks. And those that chose the so-called nuclear option of devaluation and default did just fine. Great Britain saw a “V-shaped” economic recovery after it dropped out of the European Exchange Rate Mechanism, the forerunner to the euro, in 1992. Real economic output expanded by 14% over the next five years, IMF records show.

The East Asian “Tiger” economies boomed after dropping their pegs to the U.S. dollar and letting their currencies plunge in 1997-1998. Ditto Russia after it defaulted and devalued in 1998. Ditto Argentina after it defaulted and devalued in 2001-2002. Those countries saw huge gains in real, inflation-adjusted output per person in the years following the alleged “nuclear” option of devaluation or default. The IMF’s own data reveal that from 1998 to 2003, Russia’s output per person soared by more than 40%. So did Argentina’s from 2002 to 2007. So much for “disaster” and “collapse.” Even the U.S. has been through this. In 1933, in the depths of the Great Depression, U.S. President Franklin Roosevelt outraged bankers by abandoning the gold standard and devaluing the dollar by 70%.

Over the next five years, gross domestic product expanded by around 40% (at constant prices). If history says financial devaluation or default may turn out just fine on Main Street, the same may even be true of bank closures. Ireland suffered three massive bank strikes in the 1960s and 1970s, including one that lasted for six months. During that time, people were effectively unable to use banks or get their hands on currency. What happened? The real economy emerged largely unscathed. People coped. They circulated IOUs and endorsed checks as makeshift currencies. They understood that “money” is just an accounting system. In other words, human beings proved to be adaptable and used some common sense, even without the help of financiers. Gosh. Who knew?

Our grandparents and great-grandparents did something similar here in the U.S. in the early 1930s, at the depths of the Great Depression’s banking crisis, records Loren Gatch, a political-science professor at the University of Central Oklahoma. Towns and even employers that lacked official currency to meet payroll or pay suppliers issued IOUs or notes, he writes. In March 1933, 24 companies in the mill town of New Bedford, Mass., effectively issued their own bank notes, and those were accepted by retailers around the town and circulated at face value, Gatch wrote. It’s hardly a surprise. Only bankers or fools would think human beings are completely powerless without banks. As for currencies, whether gold or dollars or euros or drachmas: The idea that they have power in themselves is a myth. They are purely a social construct..

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Her legacy is shot.

Angela Merkel’s Legacy At Stake As She Chooses Between Two Disasters (Guardian)

Merkel has faced a decision between two potentially disastrous scenarios. As Artur Fischer, joint CEO of the Berlin stock exchange, puts it: “Either she goes for a third bailout but risks isolating herself domestically in the process – and also faces returning to the same point we’re at now six months down the line and again a year down the line. Or she agrees to a Grexit and, as Greece sinks into more misery with pictures of their plight flashed round the world, she is blamed for that.” For weeks Merkel has talked more about Greece than Germany. So familiar is she with its politics that Bernd Ulrich, chief political correspondent of the weekly Die Zeit, half-joked that “she could co-govern in Athens any time”.

The Neue Osnabrücker Zeitung summed up in an editorial what it described as the “Herculean task” that has faced her over the past few days. “This is Angela Merkel’s hour. She was the one expected to negotiate between the Greeks and the other euro partners. She was the one expected to find the compromise between the interests of 11 million Greeks and 320 million other inhabitants of the eurozone.” She will now have to bring the decision made in Brussels back to the Bundestag, where she will find an increasingly rebellious mood in her own conservative ranks, many of whom are seething that she has not pushed for a Grexit. They have also refused to even contemplate a haircut or debt restructuring, which the IMF is insisting upon if it is to remain involved.

They all say they are representing the voices of their angry constituents. And while there is not much doubt Merkel could get a bailout deal of some sort through the Bundestag if she wanted to, thanks to the backing of her junior coalition partner, the Social Democrats, the question remains: at what cost to her? A revolt within her party ranks could prove critical to her future as German chancellor. She sees her legacy at stake just as there are murmurings that she may contemplate a fourth term in 2017. In the past days an online petition by the economist Thomas Piketty, which appeals for the German government to grant Greece a debt cut like the one Germany received to help it to restructure after the second world war, has made a huge impact.

That and headlines such as the New York Times one last week: “Germans Forget Postwar History Lesson on Debt Relief in Greece Crisis”, accompanying an article that referred to “German hypocrisy” and a picture of the signing of an agreement that effectively halved West Germany’s postwar debt in 1953, has left some Germans smarting.

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Tantalus!

The Eurogroup Gets Mythological on Greece (Lucey)

Greek myth, which is in case you missed it full of tragedies, is the cultural mine that keeps on yielding for the present crisis. Last night we had a Eurogroup meeting. Greece offered everything the Eurogroup wanted, and more. The Eurogroup demurred and the Finns, in thrall to as populist a bunch of vote grabbers as ever was in the True Finns (the hint in the name is chilling) apparently said Aye, which is apparently Finnish for yes, although as nobody speaks Finnish outside Finland, who knows. So delving into Greek myth, today we see Tantalus. Tantalus fits right on the button. He was condemned to stand in a lake of water with a grapevine over his head. If he stooped to drink the water receded, if he stretched to eat the grapes drew back.

If Greece tries to cut its way from a depression the debt burden worsens, if it seeks aid the aid is yanked out of reach. What was Tantalus’s crime? Again, it fits. He took from the gods that which they would not give, in some myths ambrosia (not the custard dish but the food of the gods), in others it was Nectar. These he distributed to humans, angering the gods who believed that these goodies were theirs to distribute and not his. Greece entered the Euro and ..well, you see it. We should also note that Tantalus had form for hiding things, notably the golden hound of Hephaestus , the smith of the gods who made all things. Greece, let us not forget, hid the true state of the finances, a well functioning state statistical apparatus being the foundation of all things in a modern economy.

Interestingly, in myth he was aided by Pandareus, who could gorge forever on the finest things and neither be satiated nor suffer. Greece was aided in its concealment of the true state of its economy by Goldman Sachs… A further crime that Tantalus committed was, in an attempt to appease the now vengeful deities, he sacrificed his son Pelops and served a Greek version of Frey Pie to the gods. They recoil and his punishment is sealed. Syriza have killed, baked and served up to the Eurozone their own mandate and policies, only to have them thrown back faceward. Mind you, in myth Pelops was revived, repaired, and taken on board by the gods, Demeter (the bountiful goddess) having eaten of the pie and wanting to turn back time. The IMF, under Lagarde, have eaten of the pie and taken on board its central spice, the need for debt relief, and are now busy with time travel experiments.

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Can’t cover all ideas in a summary. Read original.

A Union of Deflation and Unemployment (Andricopoulos)

On Twitter recently, someone posted that anyone who doesn’t understand the importance of the difference between a sovereign money supply and a non-sovereign money supply does not understand economics. I wholeheartedly agree with this. And the majority of comments I see on articles about the Greek situation confirms that most people don’t understand economics. I don’t even know where to begin with criticisms of the idea of a shared currency without shared government. There are three main problems:

Problem 1: It is very easy to get into debt: A country in the Euro has no control of its monetary policy. Therefore when Greece had negative real interest rates during the boom time, there was nothing it could do to prevent people borrowing money. When added to a government also borrowing to appease special interests, this can be disastrous. But Spain had this problem even whilst running government budget surpluses. A country in the Euro has very little control over fiscal policy due to the rules determining how much governments can borrow and save. So even if a government wanted to combat loose monetary policy with correctly tight fiscal policy, it couldn’t.

Problem 2: Once in debt is impossible to get out of debt: There are three main ways a government has historically gotten out of debt. The first is economic growth; a growing economy means that debt to GDP ratios go down as GDP rises. The second is inflation; if a government’s debt gets too large it can always resort to the printing press to help it out. The third is outright default.

Problem 3: After both of these are realised, economic growth becomes very difficult: Governments, chastened by the experience of Greece and knowing that they are effectively borrowing in a foreign currency, can not borrow much more. A sovereign nation would have no problem issuing 150 or 200% debt to GDP. The central bank would support them and they would know that real interest rates could not get too high. Not so a borrower of a foreign currency.

I think I show three things here:
• The only policy a country can follow if it wants to avoid debt crisis is to run a current account surplus.
• This leads to a policy of internal devaluation and deflation.
• This creates a positive feedback mechanism which leads to a spiral of deflation and unemployment.

This is true certainly as long as Germany insists on low inflation and trade surpluses but possibly anyway, just by the nature of the riskiness of sovereign borrowing. I would like to hereby offer my humble advice to the leaders in Europe; now is the time to give up on this unworkable idea before it becomes even more of a disaster.

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Very good. “Two crises with the same cause but very different outcomes.”

The Great Recession and the Eurozone crisis (Wren-Lewis)

The Great Recession and the Eurozone crisis are normally treated as different. Most accounts of the Great Recession see this as a consequence of a financial crisis caused by profligate lending by – in particular – US and UK banks. The crisis may have originated with US subprime mortgages, but few people blame the poor US citizens who took out those mortgages for causing a global financial crisis. With the Eurozone crisis that started in 2010, most people tend to focus on the borrowers rather than the lenders. Some ill-informed accounts say it was all the result of profligate periphery governments, but most explanations are more nuanced: in Greece government profligacy for sure, but in Ireland and other countries it was more about excessive private sector borrowing encouraged by low interest rates following adoption of the Euro.

Seeing things this way, it is a more complicated story, but still one that focuses on the borrowers. However if we see the Eurozone crisis from the point of view of the lenders, then it once again becomes a pretty simple story. French, German and other banks simply lent much too much, failing to adequately assess the viability of those they were lending to. Whether the lending was eventually to finance private sector projects that would end in default (via periphery country banks), or a particular government that would end up defaulting, becomes a detail. In this sense the Eurozone crisis was just like the global financial crisis: banks lent far too much in an indiscriminate and irresponsible way.

If borrowers get into difficulty in a way that threatens the solvency of lending banks, there are at least two ways a government or monetary union can react. One is to allow the borrowers to default, and to provide financial support to the banks. Another is to buy the problematic loans from the banks (at a price that keeps the banks solvent), so that the borrowers now borrow from the government. Perhaps the government thinks it is able to make the loans viable by forcing conditions on the borrowers that were not available to the bank.

The global financial crisis was largely dealt with the first way, while at the Eurozone level that crisis was dealt with the second way. Recall that between 2010 and 2012 the Troika lent money to Greece so it could pay off its private sector creditors (including many European banks). In 2012 there was partial private sector default, again financed by loans from the Troika to the Greek government. In this way the Troika in effect bought the problematic asset (Greek government debt) from private sector creditors that included its own banks in such a way as to protect the viability of these banks. The Troika then tried to make these assets viable in various ways, including austerity. Two crises with the same cause but very different outcomes.

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Taking Syriza apart?

Greece Prepares Itself To Face Another Year Of Political Turmoil (Observer)

Greece’s embattled prime minister is expected to come under intense fire in the coming weeks after leading figures in his own leftwing Syriza party rebelled against the adoption of further austerity as the price of keeping bankruptcy at bay. The prospect of the crisis-hit country being thrown, headlong, into political turmoil drew nearer amid speculation that Alexis Tsipras will be forced not only to reshuffle his cabinet, possibly as early as Monday, but to call fresh elections in the autumn. “I cannot support an austerity programme of neoliberal deregulation and privatisation,” said his energy minister, Panagiotis Lafazanis, after refusing to endorse further tax increases and spending cuts in an early-morning vote on Saturday.

“If accepted by the [creditor] institutions and put into practice, they will exacerbate the vicious circle of recession, poverty and misery.” The Marxist politician, who heads Syriza’s militant wing and is in effect the government’s number three, was among 17 leftist MPs who broke ranks over the proposed reforms. Other defectors included the president of the 300-seat parliament, Zoe Konstantopoulou; the deputy social security minister, Dimitris Stratoulis; and the former London University economics professor Costas Lapavitsas. All described the policies – key to securing solvency in the form of a third bailout – as ideologically incompatible with Syriza’s anti-austerity platform.

Whatever the outcome of this weekend’s emergency summit, Tsipras will face intense pressure at home when he is forced to push several of the measures through parliament. The house is expected this week to vote on tax increases and pension cuts – crucial to receiving a bridging loan that will allow Athens to honour debt payments including €3bn to the ECB on 20 July. “It is very hard to see how a government with this make-up can pass these measures,” said the political commentator Paschos Mandravelis. “Already several prime ministers have been ousted during this crisis attempting to do that very thing. The idea of a leftist trying is almost inconceivable.”

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Troika gutted the entire economy. Takes time to rebuild no matter what.

Greeks Resigned To A Hard, Bitter Future Whatever Deal Is Reached (Observer)

Greece has become so gloomy that even escapism no longer sells, the editor of the celebrity magazine OK! admits. “All celebrity magazines have to pretend everything is great, everyone is happy and relaxed, on holiday. But it is not,” says Nikos Georgiadis. Advertising has collapsed by three-quarters, the rich and famous are in hiding because no one wants to be snapped enjoying themselves – and even if OK! did have stories, a ban on spending money abroad means it is running out of the glossy Italian paper that the magazine is printed on. “We have celebrities calling and asking us not to feature them because they are afraid people will say ‘we are suffering and, look, you are having fun on the beach’,” Georgiadis says. “One did a photoshoot but then refused to do the interview. They don’t want to be in a lifestyle magazine.”

It might be easy to mock the panic of Greece’s gilded classes, if the only thing affected was the peddling of aspiration and envy. But the magazine provides jobs to many people whose lives are a world away from the ones they chronicle, and like thousands of others across Greece they are on the line as the government makes a last-ditch attempt to keep the country in the euro. “If we go back to the drachma, they told us the magazine will close. It’s possible we won’t have jobs to go to on Monday,” Georgiadis says bluntly, as negotiations with Greece’s European creditors headed towards the endgame.

Prime minister Alexis Tsipras pushed a €13bn austerity package through parliament early on Saturday, overcoming a rebellion by his own MPs and sealing a dramatic and unexpected transformation from charismatic opponent of cuts to their most dogged defender. It seemed like nothing so much as a betrayal of those he had called out in their millions less than a week earlier to reject an almost identical package of painful reforms. Greece’s creditors had soon made clear though that they were not ready to improve bailout terms, even to keep the country in the euro. And so after painful days of cash shortages, closed banks, dwindling supplies of anything imported, from medicine to cigarettes, and mounting fear, the extraordinary U-turn was met with more resignation than anger.

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In the US.

A Coming Era Of Civil Disobedience? (Buchanan)

The Oklahoma Supreme Court, in a 7-2 decision, has ordered a monument of the Ten Commandments removed from the Capitol. Calling the Commandments “religious in nature and an integral part of the Jewish and Christian faiths,” the court said the monument must go. Gov. Mary Fallin has refused. And Oklahoma lawmakers instead have filed legislation to let voters cut out of their constitution the specific article the justices invoked. Some legislators want the justices impeached. Fallin’s action seems a harbinger of what is to come in America — an era of civil disobedience like the 1960s, where court orders are defied and laws ignored in the name of conscience and a higher law. Only this time, the rebellion is likely to arise from the right.

Certainly, Americans are no strangers to lawbreaking. What else was our revolution but a rebellion to overthrow the centuries-old rule and law of king and Parliament, and establish our own? U.S. Supreme Court decisions have been defied, and those who defied them lionized by modernity. Thomas Jefferson freed all imprisoned under the sedition act, including those convicted in court trials presided over by Supreme Court justices. Jefferson then declared the law dead. Some Americans want to replace Andrew Jackson on the $20 bill with Harriet Tubman, who, defying the Dred Scott decision and fugitive slave acts, led slaves to freedom on the Underground Railroad.

New England abolitionists backed the anti-slavery fanatic John Brown, who conducted the raid on Harpers Ferry that got him hanged but helped to precipitate a Civil War. That war was fought over whether 11 Southern states had the same right to break free of Mr. Lincoln’s Union as the 13 colonies did to break free of George III’s England. Millions of Americans, with untroubled consciences, defied the Volstead Act, imbibed alcohol and brought an end to Prohibition. In the civil rights era, defying laws mandating segregation and ignoring court orders banning demonstrations became badges of honor. Rosa Parks is a heroine because she refused to give up her seat on a Birmingham bus, despite the laws segregating public transit that relegated blacks to the “back of the bus.”

In “Letter from Birmingham Jail,” Dr. King, defending civil disobedience, cited Augustine — “an unjust law is no law at all” — and Aquinas who defined an unjust law as “a human law that is not rooted in eternal law and natural law.” Said King, “one has a moral responsibility to disobey unjust laws.” But who decides what is an “unjust law”?

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Apr 192015
 
 April 19, 2015  Posted by at 8:38 am Finance Tagged with: , , , , , , , , , , ,  


DPC Peanut stand, New York 1900

At Global Economic Gathering, US Primacy Is Seen as Ebbing (NY Times)
IMF Credibility Faces Tipping Point Over Greece (USA Today)
‘Bernanke To Go Down As One Of The Most Vilified People Of The Century’ (CNBC)
Markets Face New Threat As US Fed Ponders Interest Rate Rise (Guardian)
Most Americans Think College Is Out of Reach (Bloomberg)
Record Drop In House Prices Suggests China Is Already In A Recession (Zero Hedge)
Germany FinMin Schaeuble Worried About China’s Debt And Shadow Banking (BIA)
Europe Ready For Grexit Contagion As Athens Gets Closer To Russian Cash (AEP)
ECB’s Draghi Says Urgent That Greece Strikes Deal With Creditors (Bloomberg)
Draghi Warns Of Uncharted Waters If Greece Crisis Deteriorates (FT)
Greece Wants EU/IMF Deal But Impasse Could Bring Referendum (Reuters)
Moscow Denies Planning Multibillion Credit To Greece (RT)
Finns Set to Topple Government as Vote Focuses on Economic Pain (Bloomberg)
How Sleepy Finland Could Tear The Euro Apart (Telegraph)
Australia, The Latest Country With Negative Interest Rates (Simon Black)
California’s New Drought Rules Would Require Cuts of Up to 36% (Bloomberg)
Pope Francis Urges EU To Do More To Help Italy With Flood Of Migrants (CT)
Australia Government In Secret Bid To Hand Back Asylum Seekers To Vietnam (SMH)
Air-Pocalypse: Breathing Poison In The World’s Most Polluted City (BBC)

But wait, didn’t Obama say the US has to set the rules for the entire world?

At Global Economic Gathering, US Primacy Is Seen as Ebbing (NY Times)

As world leaders converge [in Washington] for their semiannual trek to the capital of what is still the world’s most powerful economy, concern is rising in many quarters that the United States is retreating from global economic leadership just when it is needed most. The spring meetings of the IMF and World Bank have filled Washington with motorcades and traffic jams and loaded the schedules of President Obama and Treasury Secretary Jacob J. Lew. But they have also highlighted what some in Washington and around the world see as a United States government so bitterly divided that it is on the verge of ceding the global economic stage it built at the end of World War II and has largely directed ever since. “It’s almost handing over legitimacy to the rising powers,” Arvind Subramanian, chief economic adviser to the government of India, said of the United States.

“People can’t be too public about these things, but I would argue this is the single most important issue of these spring meetings.” Other officials attending the meetings this week, speaking on the condition of anonymity, agreed that the role of the United States around the world was at the top of their concerns. Washington’s retreat is not so much by intent, Mr. Subramanian said, but a result of dysfunction and a lack of resources to project economic power the way it once did. Because of tight budgets and competing financial demands, the United States is less able to maintain its economic power, and because of political infighting, it has been unable to formally share it either.

Experts say that is giving rise to a more chaotic global shift, especially toward China, which even Obama administration officials worry is extending its economic influence in Asia and elsewhere without following the higher standards for environmental protection, worker rights and business transparency that have become the norms among Western institutions. President Obama, while trying to hold the stage, clearly recognizes the challenge. Pitching his efforts to secure a major trade accord with 11 other Pacific nations, he told reporters on Friday: “The fastest-growing markets, the most populous markets, are going to be in Asia, and if we do not help to shape the rules so that our businesses and our workers can compete in those markets, then China will set up the rules that advantage Chinese workers and Chinese businesses.”

In an interview on Friday, Mr. Lew, while conceding the growing unease, hotly contested the notion of any diminution of the American position. “There is always a lot of noise in Washington; I’m not going to pretend this is an exception,” he said. “But the United States’ voice is heard quite clearly in gatherings like this.”

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All managing directors are eventually arrested.

IMF Credibility Faces Tipping Point Over Greece (USA Today)

It was perhaps inevitable that the Greek crisis would hijack the spring meeting of International Monetary Fund this week, but the damage to the international lending agency could grow much worse as the situation in Europe becomes increasingly acute. The standoff between a new Greek government seeking debt relief after five years of grinding recession and authorities at the IMF and European Union, who were unbending in their demands to follow through on further austerity measures to get more bailout money, dominated discussions at the meeting that brings economic policymakers from around the world.

The Greek imbroglio overshadowed other messages from IMF officials this week regarding new sources of financial instability in the world, the need to stimulate economies to more vigorous growth and even discussion about other financial and geopolitical hot spots, such as Ukraine. But the unwillingness of IMF Managing Director Christine Lagarde and her staff to countenance any relief for Greece stands to make the agency an accessory to the potential turmoil that could spread well beyond Greece as the chances for a reasonable, agreed solution to the crisis grow slim. A debacle in Greece would further tarnish the reputation of an agency that has already seen its credibility and influence diminished.

It was perhaps a fitting sideshow to the drama in Washington that a former IMF managing director, Rodrigo Rato, was briefly detained Thursday in Spain as part of a money-laundering investigation and may be charged in the case, even as he is being investigated for other infractions. Rato led the IMF from 2004 to 2007, and was succeeded by Dominique Strauss-Kahn, a political heavyweight who aspired to the presidency of France but who had to leave the IMF post under a cloud of scandal in 2011 over charges of sexual assault against a New York hotel maid. Lagarde, then French finance minister, was parachuted in to take his place, though she herself is involved in a long-running judicial probe over an arbitration process she approved that awarded half a billion dollars to a businessman with ties to her center-right political party.

The legal travails of a succession of IMF leaders have diminished its ability to take the moral high ground in forcing lenders to implement the difficult policy measures that are the conditions for its loans. But that is not the only problem. The neoliberal economic principles enshrined in the IMF economic prescription — which generally call for a reduction in government spending and higher taxes even in the midst of recession — are part of a so-called “Washington consensus” that is finding very little consensus in other parts of the world.

Former IMF economist Peter Doyle, a 20-year veteran who left the agency in anger in 2012 saying he was “ashamed” he had ever worked there, this week urged his fellow economists “to turn on the IMF in public.” Citing several leading economists by name, Doyle noted they had expressed support of the Greek position sotto voce. He called upon these economists to “shout, together, right now,” to be on the record against the IMF stance before the “Euro-tinder box” explodes.

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Along with Monti, Draghi, Kuroda and Yellen.

‘Bernanke To Go Down As One Of The Most Vilified People Of The Century’ (CNBC)

Former Federal Reserve Chair Ben Bernanke is heading down a well-beaten path: shuffling through the revolving door between Washington’s policy circles and Wall Street’s big money institutions. In a move announced on Thursday, he’s going from his former position at the Federal Reserve to Wall Street as a senior adviser at Citadel. The latter is what has “Fast Money” trader Guy Adami—and a number of other Street watchers—outraged. The $25 billion hedge fund, Citadel, in a statement said, “Dr. Bernanke will consult with Citadel teams on developments in monetary policy, financial markets and the global economy.” Adding a note from its founder and CEO Ken Griffin, “He has extraordinary knowledge of the global economy and his insights on monetary policy and the capital markets will be extremely valuable to our team and to our investors.”

Adami, however, said this week on Thursday’s Fast Money of Bernanke’s new role: “It’s wrong. It’s wrong on so many levels.” Bernanke “was a hero for a month, [and now] he’s going to go down as one of the most vilified people of the 21st century. Mark my words,” the trader added. In an interview with Andrew Ross Sorkin, co-anchor of CNBC’s “Squawk Box” and a columnist for the New York Times, Bernanke said he understood the concerns about going from Washington to Wall Street. He said he decided in Citadel because the hedge fund “is not regulated by the Federal Reserve and I won’t be doing lobbying of any sort.” He also said banks had approached him about jobs but he declined because “wanted to avoid the appearance of a conflict of interest” by working for an institution the Fed does regulate.

Bernanke is not the first and likely won’t be the last federal worker to jump to Wall Street. In 2008 after handing over the reins to Ben Bernanke, Alan Greenspan joined hedge fund Paulson & Co. as an adviser. And just last month, Ex-Fed Governor Jeremy Stein joined hedge fund Blue Mountain Capital Management. “He shouldn’t have been allowed to leave the Fed, number one,” Adami stated. “He should have saw [quantitative easing] through, in my opinion, and for him to go to a place that can take advantage of the information that he has privy to, it’s just wrong.” Indeed, Wall Street observers were broadly critical of Bernanke’s move into the world of big money hedge funds. The Washington Post said this week that the former Fed chief “deserves a seven figure sinecure” based on hisHerculean efforts to save the world economy from another Great Depression.

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There are no markets left, only casinos.

Markets Face New Threat As US Fed Ponders Interest Rate Rise (Guardian)

The moment US central bank chief Janet Yellen presses the button will be a massive economic event. The prospect that higher interest rates in the world’s largest economy could come this year has already sent the dollar surging against the pound and euro. It has also fuelled fears of a meltdown in countries that have borrowed heavily in the US currency. Borrowing is inherently risky, all the more so when the interest rate can change at short notice. Higher costs for those that have borrowed in dollars could cripple companies in Brazil and Turkey that were enticed by cheap credit to fund a new factory or office building, or just to pay the wages. At the IMF’s spring meeting last week, chief economist Olivier Blanchard dismissed these concerns, arguing that companies may have hedged their position, while investors and finance ministers were well prepared.

But a succession of market shocks in the last two years has convinced many in the financial community that a bigger crash is coming. There have been violent movements in currencies, bonds and commodity prices, especially crude oil and metals. A rise in US interest rates could add to this already volatile situation and drag stock markets towards another sudden crash. The IMF discussed the context in which another financial crash could occur in its latest financial stability report. It highlighted how any shock can send investors fleeing; with only sellers in the market, the price keeps plunging until someone believes it has gone far enough and starts buying. The nervous state of markets these days means there is generally either a surplus of buyers or a surplus of sellers; only rarely have we seen periods of calm with roughly equal numbers.

Last January, for instance, the Swiss franc soared an unprecedented 30% after the central bank conceded that tracking the ailing euro was no longer possible. The previous year, markets had been rocked by the first hint from the US that it would end the era of ultra-cheap credit. It happened after former Fed boss Ben Bernanke let slip that he might stop pumping funds into the US economy through quantitative easing. The “taper tantrum” – referring to the premature “tapering” of QE – sent shock waves through world markets and forced a clarification from the Fed to steady the ship. The IMF’s financial stability report discussed the potential for Taper Tantrum II. The scenario was worse, yet the warning was described by Larry Fink, boss of BlackRock, the world’s biggest private investment fund, as too optimistic.

He is concerned about the European insurance industry, which must pay returns on pensions and other products at a time when the European Central Bank has been driving interest rates in much short-term government debt below zero; in other words, rather than earning interest on government bonds, insurers are paying to park their money in such assets. How could they survive for long under this regime, he asked. The IMF posed the same question, but again expected everything to work out for the best, somehow.

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Young people can’t afford a home, can’t afford an education. What a sad country it has become. And there‘s much worse to come yet.

Most Americans Think College Is Out of Reach (Bloomberg)

Most Americans believe people who want to go to college can get in somewhere—they just don’t think they’d be able to afford it, according to a new Gallup-Lumina Foundation poll. While 61% of adults believe education beyond high school is available to anyone who needs it, only 21% agree that it’s affordable, according to the poll results, released on Thursday. Some racial groups were much more optimistic than others. 51% of Hispanic adults said higher education is still affordable, Gallup found. Just 19% of black adults and 17% of white adults agreed. The results, based on a survey of 1,533 adults who were contacted from November through December 2014, show there’s a sizable gap between the share of Americans who believe people can merely access college and those who believe people can still afford it.

“If a bachelor’s degree is one important way for today’s young adults to achieve the American dream, affordability in particular could jeopardize that dream,” the report said. Tuition at public colleges has risen more than 250% over the last 30 years, the two organizations noted. At the same time, financial aid hasn’t kept up. Students have been leaving school with record amounts of debt: In a separate study, Gallup and Purdue University found more than a third of students who graduated college from 2000 to 2014 were saddled with more than $25,000 in loans. Even if Americans believe anyone, in theory, could find their way to a college classroom, they’re not optimistic anyone could pay to stay there.

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And still many keep claiming China will be just fine.

Record Drop In House Prices Suggests China Is Already In A Recession (Zero Hedge)

Another month, and another confirmation that China’s hard landing is if not here, then likely mere months away. Overnight, the NBS reported that in March, Chinese house prices dropped in 69 of 70 cities compared to a year ago. According to Goldman’s seasonal adjustments, in March home prices dropped another 0.5% from February, the same as the prior month’s decline, suggesting that the February 28 rate cut hasn’t done much to boost housing spirits. However, it is the annual data that truly stands out, because with a drop of 6.1% this was the biggest drop in Chinese house prices in history.

To be sure, the PBOC is now scrambling to halt what, unless it is stopped, will become a full-blown hard landing in months, if it isn’t already. As a result, as shown in the chart below it has recently engaged in several easing steps, with many more to come according to the sell-side consensus. So far these have failed to stimulate the overall economy, which continues to be pressured by a deflation-importing world, but have certainly lead to a massive surge in the Chinese stock market. Incidentally, the ongoing collapse in Chinese home prices is precisely why the PBOC and the Politburo have both done everything in their power to substitute the burst housing bubble with another: that of stocks, by pushing everyone to invest as much as possible in the stock market, leading to the biggest and fastest liquidity and margin debt-driven bubble in history.

Unfortunately for China, as we have shown before, all Chinese attempts to do what every self-respecting Keynesian would do, i.e., replace one bubble with another, are doomed to fail for the simple reason that unlike in the US, where the bulk of assets are in financial form, in China 75% of all household wealth is in real estate. [..]

And this is where things get scarier, because if one compares the history of the Chinese and US housing bubbles, one observes that it was when US housing had dropped by about 6% following their all time highs in November 2005, that the US entered a recession. This is precisely where China is now: a 6.1% drop following the all time high peak in January of 2014. If the last US recession is any indication, the Chinese economy is now contracting! So much for hopes of 7% GDP growth this year. The good news, if any, is that Chinese home prices have another 12% to drop before China, which may or may not be in a recession, suffer the US equivalent of the Lehman bankruptcy.

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All you need to know: “..debt has nearly quadrupled since 2007”.

Germany FinMin Schaeuble Worried About China’s Debt And Shadow Banking (BIA)

Should we concerned about growing debt levels around the world? Wolfgang Schaeuble, Germany’s finance minister, certainly seems to thinks so, stating overnight that debt levels in the global economy continue to give cause for concern. Singling out China in particular, Schaeuble noted that debt has nearly quadrupled since 2007, adding that its growth appears to be built on debt, driven by a real estate boom and shadow banks. Certainly, according to McKinsey’s research, total outstanding debt in China increased from $US7.4 trillion in 2007 to $US28.2 trillion in 2014. That figure, expressed as a percentage of GDP, equates to 282% of total output, higher than the likes of other G20 nations such as the US, Canada, Germany, South Korea and Australia. With China slowing and expectations for further monetary and fiscal easing growing by the day, the concerns raised by Schaeuble may well amplify from here.

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“There will not be the slightest privatisation in the country, particularly of strategic sectors of the economy.”

Europe Ready For Grexit Contagion As Athens Gets Closer To Russian Cash (AEP)

The ECB has warned that a rupture of monetary union and Greek exit from the euro could have dramatic consequences, but insisted that it has enough powerful weapons to avert contagion. Mario Draghi, the ECB’s president, said it would be far better for everybody if Greece recovers within EMU but made it clear that the currency bloc is no longer vulnerable to the immediate chain-reaction seen in earlier phases of the debt crisis. This sends an implicit message to the radical-Left Syriza government that it cannot hope to secure better terms from EMU creditors by threatening to unleash mayhem. “We have enough instruments at this point of time, the OMT (bond-buying plan), QE, and so on, which though designed for other purposes could certainly be used in a crisis if needed,” said Mr Draghi, speaking after a series of tense meetings at the IMF.

“We are better equipped than we were in 2012, 2011.” In effect, the ECB now has the license to act as a full lender-of-last-resort and mop up the bond markets of Portugal, Spain, or Italy, preventing yields from rising. Yet Syriza appears to be countering such pressure with its own foreign policy gambits as events move with electrifying speed in Athens. Greek sources have told The Telegraph that Syriza may sign a deal with Russia for Gazprom’s “Turkish Stream” pipeline project as soon as next week, unlocking as much as €3bn to €5bn in advance funding. This confirms a report in Germany’s Spiegel magazine, initially denied by both the Russian and Greek governments. It is understood that the deal is being managed by Panagiotis Lafazanis, Greece’s energy minister and head of Syriza’s militant Left Platform, a figure with long-standing ties to Moscow.

Mr Lafazanis warned defiantly on Saturday that Syriza would not “betray the people’s mandate” even if this means a full-blown clash with the creditor powers. “There can’t be a deal with neo-liberal, neo-colonial powers that rule the EU and the IMF unless Greece really threatens their deep economic and geo-strategic interests. We still do not know our own strength,” he told Greek television. Mr Tsipras visited the Kremlin last month insisting he would pursue an independent foreign policy “Several of the so-called partners and certainly some in the IMF want to denigrate and humiliate our government, blackmailing us to implement measures against the working classes,” added Mr Lafazanis. “There will not be the slightest privatisation in the country, particularly of strategic sectors of the economy.”

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Draghi’s way out of his league.

ECB’s Draghi Says Urgent That Greece Strikes Deal With Creditors (Bloomberg)

European Central Bank President Mario Draghi said it is urgent that Greece strikes a deal with creditors, although its banks continue to meet the requirements for Emergency Liquidity Assistance. “ELA will continue to be given to the banks if they’re judged to be solvent and if they have adequate collateral which is the case now,” Draghi told reporters on Saturday at the International Monetary Fund’s meetings in Washington. The Frankfurt-based ECB decides on Greece’s financial lifeline on a weekly basis. The funding has so far helped defer a financial meltdown as euro-area governments hold back bailout money, complaining that Prime Minister Alexis Tsipras must do more to revamp his country’s economy.

Draghi said “much more work is needed now and it’s urgent” if Greece and its creditors are to strike a deal to release aid. He said any package of policies should produce “growth, fairness, fiscal sustainability and financial stability.” “We all want Greece to succeed,” he said. “The answer is in the hands of the Greek government.” While Europe is better equipped to deal with any fallout in financial markets if Greek negotiations fail than it was when it first fell into crisis, Draghi said the region is still in “uncharted waters.” Draghi said the euro zone economy is strengthening after the ECB began a €1.1 trillion bond-buying program last month. Still, he warned an extended period of low interest rates could prove “fertile ground” for instability in financial markets. “We should be alert to these risks,” Draghi said, adding the risk was not currently a reason to tighten monetary policy.

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And here he admits he doesn’t have a clue.

Draghi Warns Of Uncharted Waters If Greece Crisis Deteriorates (FT)

Mario Draghi said the euro area was better equipped than it had been in the past to deal with a new Greek crisis but warned of uncharted waters if the situation were to deteriorate badly. The ECB president called for the resumption of detailed discussions aimed at resolving the country’s debt woes and urged the Greek authorities to bring forward proposals that ensured fairness, growth, fiscal stability, financial stability. Asked about the risks of contagion from a new flare-up in Greece, he said: we have enough instruments at this point in time … which although they have been designed for other purposes would certainly be used at a crisis time if needed. The two tools he referred to were the ECB’s so-called outright monetary transactions, which have never been used, and Quantitative Easing, which the ECB launched in January.

He added: we are better equipped than we were in 2012, 2011 and 2010. However Mr Draghi added: Having said that, we are certainly entering into uncharted waters if the crisis were to precipitate, and it is very premature to make any speculation about it. The ECB president was speaking following meetings in Washington that have been overshadowed by renewed fears about the risk of a Greek debt default and possible exit from the euro. US Treasury secretary Jack Lew warned on Friday that a full-blown crisis in Greece would cast a new shadow of uncertainty over the European and global economies, as he put pressure on Athens to come forward urgently with detailed reforms to its economy. Mr Lew said that while financial exposures to Greece had changed significantly since the turmoil of 2012, it was impossible to know how markets would respond to a default.

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“In the back of our minds these are possibilities of finding a way out, if there is a dead end.”

Greece Wants EU/IMF Deal But Impasse Could Bring Referendum (Reuters)

Greece aims for a deal with its creditors over a reforms package but will not retreat from its red lines, the country’s deputy prime minister told the Sunday newspaper To Vima, not ruling out a referendum or early polls if talks reach an impasse. Athens is stuck in negotiations with its euro zone partners and the International Monetary Fund over economic reforms required by the lenders to unlock remaining bailout aid. Ongoing talks are not expected to produce a deal for the approval of euro zone finance ministers at their next meeting in Riga on April 24 as progress is painfully slow. “Our objective is a viable solution inside the euro,” Yanis Dragasakis told the paper. “We will not back off from the red lines we have set.”

Asked whether the government had thought of calling a referendum or even going to the polls if talks become deadlocked, Dragasakis said this could be a possibility, although the government’s goal was to reach an agreement. “In the back of our minds these are possibilities of finding a way out, if there is a dead end. The aim is (to reach) an agreement.” Greece is quickly running out of cash and in the next few weeks may face a choice of either paying salaries and pensions or paying back loans from the International Monetary Fund. Shut out of bond markets, Athens could get more loans from both the IMF and euro zone governments, but it would first have to implement reforms, agreed with the creditors, to make its finances sustainable and its economy more competitive. The leftist-led government does not want to implement measures including cuts in pensions as it won elections in late January on pledges to end austerity.

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A credit is not the same as an advance payment.

Moscow Denies Planning Multibillion Credit To Greece (RT)

Russia denied media reports that it is going to give Greece a loan of up to $5 billion as advance payment for future transit profits from a future gas pipeline. The sum was mooted by the German magazine Spiegel. Greece is expected to shortly join a joint Russian-Turkish pipeline project that will pump Russian gas to Europe via Turkey. The magazine cited a senior source in the Greek government as saying that the country would get from $3 billion to $5 billion in credit as part of the deal. It was reportedly agreed during Greek Prime Minister Alexis Tsipras’ visit to Moscow last week. But on Saturday, the Russian president’s spokesman Dmitry Peskov said no such loan is planned.

“[Russian President Vladimir] Putin said himself during the media conference that nobody asked for our help. Naturally energy cooperation was discussed. Naturally, the parties of the high level talks agreed to work out all details of these issues at an expert level. Russia didn’t offer financial help because it was not asked,” the spokesman told the Russian radio station Business FM. Earlier Greek and Russian officials said an energy deal that would have Greece join the Turkish stream project would be inked in a matter of days, but no exact date or particular terms were given. If Russia did loan money to Greece, it would help it deal with a looming national default. The new Greek government is in difficult negotiations with Germany and the IMF to secure further loans to help its economy.

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Anti-euro gets a foot in the door.

Finns Set to Topple Government as Vote Focuses on Economic Pain (Bloomberg)

Finns look set to vote out a government marred by political infighting and elect a party led by a self-made millionaire promising a business-driven recovery. After three years of economic decline, Finland’s next government will need to fix chronic budget deficits, a debt load that’s set to breach European Union limits, rising unemployment and economic growth that’s about half the average of the euro zone. Juha Sipila, who leads the opposition Center Party, has promised business-friendly policies he says will create 200,000 private-sector jobs. His party is polling about 6% ahead of the next-biggest groups, according to newspaper Helsingin Sanomat. If he wins Sunday’s vote, Sipila will probably try to form a majority coalition that’s likely to include the euro-skeptic The Finns party.

“Putting together a new, workable government that can turn around Finland’s public finances is the most important economic policy step,” Anssi Rantala, chief economist at Aktia Bank Oyj, said by phone. “The government has to take seriously the gigantic deficits we have in state and municipal budgets, and it has to change the way it implements austerity: most has been through tax increases.” Austerity isn’t what splits Finland’s political parties. All major groups have pledged some combination of belt-tightening and growth policies. The Finance Ministry estimates €6 billion euros of austerity measures are needed by 2019 to prevent debt reaching 70% of gross domestic product. It also says there’s no scope to raise taxes without stifling economic growth.

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Lovely prospect.

How Sleepy Finland Could Tear The Euro Apart (Telegraph)

Finland is the unlikely stage for the latest turn in Greece’s interminable eurozone drama this weekend. With events having decamped temporarily to Washington DC, Athens will be keeping half an eye on developments in Helsinki, where the Nordic state of just 5.4m people heads for the polls on Sunday. In the five years since Greece’s financial woes were revealed to the world, it has been sleepy Finland which has emerged as the most trenchant critic of EU largesse to the indebted Mediterranean. The outcome of the country’s general election could now determine Greece’s future in the monetary union. In a leaked memo seen last month, it was revealed that the Finns had already drawn up contingency plans for a Greek exit from the euro.

Although ostensibly a sensible measure for any finance ministry to contemplate, the document confirmed the Finns’ position as the most uncompromising of the EU’s creditor nations. The reputation is well-deserved. At the height of Greece’s bail-out drama in 2011, Helsinki negotiated an unprecedented bilateral agreement with Athens, receiving €1bn in collateral in return for supporting a rescue deal. A year later, the Finns were prime candidates to become the first dissenters to voluntarily break the sanctity of the monetary union. “We have to be prepared,” the country’s then foreign minister told the Telegraph three years ago. Greece’s current impasse is also partly a result of Finnish obstinacy.

Helsinki was one of the main obstacles to securing a long-term extension to Greece’s bail-out programme under the previous Athens government late last year. The eventual compromise of a three-month, rather than six-month reprieve, has seen the new Leftist regime scramble desperately for cash since February. With the situation in Athens deteriorating by the day, both Finland’s prime minsiter and central bank governor have eschewed high-minded rhetoric about European unity, to insist creditors should be ready to pull the plug on Greece. But unlike its fellow creditor giant Germany, Finland is more economic laggard than European powerhouse. Having been mired in a three-year recession, the country heads to the polls with economic output still 5pc below its pre-crisis levels.

Finland has suffered an economic downturn of almost Greek proportions. The boon from falling oil prices and launch of eurozone QE will still only see the economy expand at a paltry 0.8pc this year, worse only to Italy and Cyprus. Stagnating growth saw Finland stripped of its much coveted Triple-A sovereign debt rating last year. The IMF now recommends a cocktail of structural reforms and fiscal consolidation that would make officials in Athens bristle. “There is no sympathy for Greece any more, especially because our own economy is struggling,” says Jan von Gerich, strategist at Nordea bank in Helsinki.

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“Everyone believed that it would all work out OK. Then one day it didn’t.”

Australia, The Latest Country With Negative Interest Rates (Simon Black)

Let’s talk about idiots. Somewhere out there, some absurdly well-paid banker just placed his investors’ capital in yet another financial instrument which is guaranteed to lose money: Australian government debt. 47 investors participated in the Australian government’s $200 million bond tender; the participants typically bid the amount they’re willing to pay, and the highest bids win the auction. In this case, and for the first time in Australia, every single one of the 47 bidders offered a price so high that it implies a negative interest rate. Even the lowest bid in the auction, for example, implied a net loss… or an effective yield of NEGATIVE 0.015%. The highest price implied a yield of negative 0.085%. What’s really bizarre is that this particular issue was for ‘inflation-linked’ bonds.

Which means that if the government’s official monkey math shows that inflation is falling, the yield could actually become even MORE NEGATIVE. Insane? Of course. But here’s the thing. These bankers aren’t investing their own money. It’s not like some guy is taking his million dollar bonus and saying, “Hey I think I’ll go buy some government debt that guarantees I’ll lose money.” No. He buys a Maserati. Then he picks up this garbage debt with his customers’ money. Not only is this idiotic, it’s borderline criminal. At a minimum it’s seriously unethical. Banks and other money managers have a solemn obligation… a fiduciary responsibility that comes with the sacred charge of safeguarding other people’s money. Just like the golden rule, this obligation is very simple: take care for other people’s money even more than you care for their own.

But that went out the window a long time ago. Back in the 1500s, Renaissance-era merchant bankers risked their own capital alongside their customers, doing meaningful deals that financed exploration and the expansion of world trade. Now it’s all about commissions, obtuse regulations, and following the latest banking fad. This is officially now the latest banking fad—buying government bonds at negative yields. You’ll remember a few years ago when the latest banking fad was handing out no-money-down mortgages to dead people and unemployed bus drivers… or buying “AAA-rated” bonds which pooled these subprime loans together. That didn’t exactly work out so well. Neither will this. In fact there are plenty of similarities between today’s negative interest rates and the early 2000s housing bubble.

Back then, banks were essentially paying people to borrow money. They offered the least creditworthy borrowers absurd amounts of money which sometimes even exceeded the purchase price of the home they were buying. 102% loans were not uncommon back then, which financed the entire purchase along with the extra closing costs. We even saw 105% loans which allowed a little bit extra to make home improvements. It doesn’t take a rocket scientist to figure out that it’s criminally stupid to pay someone to borrow money. Yet that’s exactly what’s happening now. Instead of people, though, it’s governments who are effectively being paid to borrow. We all remember last time how much this impacted the global financial system. Everyone believed that it would all work out OK. Then one day it didn’t. Lehman Brothers went bust, and the entire banking system started to collapse.

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High time to pack up and go.

California’s New Drought Rules Would Require Cuts of Up to 36% (Bloomberg)

California issued proposed rules calling for mandatory reductions in water use by municipal agencies as a historic drought drags into a fourth year. The state’s 411 urban water suppliers would have to cut use by as much as 36%, with those that conserved less facing tougher restrictions and a daily penalty of as much as $500 for not complying, the California State Water Resources Control Board said in the proposed rules released Saturday. The board will meet May 5 and 6 to finalize the rules, which would take effect by June 1. “Some of these communities have achieved remarkable results with residential water use now hovering around the statewide target for indoor water use, while others are using many times more,” the Sacramento-based agency said in its proposal.

The emergency rules would be in effect for 270 days. The regulations are based on an executive order Governor Jerry Brown, a 77-year-old Democrat, issued April 1 calling for a mandatory 25% reduction in water use compared with 2013 levels and requiring 50 million square feet of lawns to be replaced by drought-tolerant landscaping. California, the most-populous U.S. state, and its $43 billion agriculture industry are experiencing the worst of the arid conditions moving across the western U.S., with 67% of the state in an extreme drought, according to the U.S. Drought Monitor.

The agency this week released nearly 300 comment letters from the public, businesses, water agencies and cities on an initial proposal. The planned 35% reduction in water use for Beverly Hills would “place a significant burden on our small permanent customer base” of 42,157 residents, Mahdi Aluzri, interim city manager, said in the letter. Beverly Hills’ daytime population, including commuters who work in the city, shoppers and visitors, can rise to more than 250,000 water users, Aluzri said. California’s residents in February reduced water use by 2.8% below 2013 levels, the worst monthly performance since June, the water board said.

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For this alone, the EU should be dismantled. “A new policy will be presented in May”. May? You should be out there on the water! Another boat with 650 people just capsized as I’m writing this.

Pope Francis Urges EU To Do More To Help Italy With Flood Of Migrants (CT)

Pope Francis on Saturday joined Italy in pressing the European Union to do more to help the country cope with rapidly mounting numbers of desperate people rescued in the Mediterranean during journeys on smugglers’ boats to flee war, persecution or poverty. While hundreds of migrants took their first steps on land in Sicilian ports, dozens more were rescued at sea. Sicilian towns were running out of places to shelter the arrivals, including more than 10,000 this week. The Coast Guard said 74 migrants were saved from a sailboat shortly before it sank Saturday about 100 miles east of the coast of Calabria in southern Italy. A Coast Guard plane and a Dutch aircraft, part of an EU patrol mission, spotted the boat. Passengers included 10 children and three pregnant women.

With his wide popularity and deep concern for social issues, the pope’s moral authority gives Italy a boost in its lobbying for Brussels and northern EU countries to do more. Since the start of 2014, nearly 200,000 people have been rescued at sea by Italy. “I express my gratitude for the commitment that Italy is making to welcome the many migrants who, risking their life, ask to be taken in,” said Francis, flanked by Italian President Sergio Mattarella. “It’s evident that the proportions of the phenomenon require much broader involvement.” “We must never tire of appealing for a more extensive commitment on the European and international level,” Francis said.

Italy says it will continue rescuing migrants but demands that the European Union increase assistance to shelter and rescue them. Since most of the migrants want to reach family or other members of their community in northern Europe, Italian governments have pushed for those countries to do more, particularly by taking in the migrants while their requests for asylum or refugee status are examined. “For some time, Italy has called on the EU for decisive intervention to stop this continuous loss of human life in the Mediterranean, the cradle of our civilization,” Mattarella said. The EU’s commissioner for migration, Dmitris Avramopoulos, says a new policy will be presented in May. Meanwhile, he has also called for member states to help.

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But it can get worse, believe it or not. The Abbott government quite literally has no shame. They send people back to countries they’re fleeing.

Australia Government In Secret Bid To Hand Back Asylum Seekers To Vietnam (SMH)

Vietnamese Australians and human rights activists have blasted the Abbott Government over a secret Navy-led mission to return a group of asylum seekers back to the Communist government of Vietnam. In a new milestone for the Coalition’s hard-line border policy, an Australian Navy ship was entering Vietnamese waters on Friday after what is believed to be a week-long journey to prevent boats reaching Australia. HMAS Choules was close to the the southern port city of Vung Tau, south of Ho Chi Minh City, Defence sources confirmed to Fairfax Media. The vessel was expected to hand over detainees to the Communist government some time after arriving late Friday or in the early hours of Saturday.

The vessel is carrying asylum seekers intercepted by customs and navy vessels earlier this month, north of Australia, the West Australian newspaper reported on Friday. Immigration Minister Peter Dutton’s office said no comment would be made on “operational matters” but human rights activists lashed the Coalition for another on-water action cloaked in secrecy. Daniel Webb, director of the Human Rights Law Centre, said: “Australia should never return a refugee to persecution. All governments – whatever their policy position – should respect democracy and should respect the rule of law. Continually operating behind a veil of secrecy is a deliberate subversion of both. “If the government truly believed its actions were humane, justified and legal, it wouldn’t go to such extraordinary lengths to hide them from view.” [..]

The Vietnamese community, many of whom arrived in Australia by boat after the fall of Saigon in 1975 as the Communist regime of Hanoi took control of the country, expressed horror at asylum seekers being handed back. Thang Ha, president of the Vietnamese Community in Australia, NSW Chapter, said the government should be aware it could be “throwing people back into hell”. He said returnees would likely be left alone initially but would be followed by party operatives and eventually harassed and likely jailed. “Human rights activists, democracy activists, Christians, Buddhists, artists and singers, they have all been harassed. Some people have been hunted down, their family members have been harassed. Some have been thrown in jail and never heard from again,” he said. “They are throwing them back into hell.”

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Yes, we are a smart animal.

Air-Pocalypse: Breathing Poison In The World’s Most Polluted City (BBC)

Saharan dust, traffic fumes and smog from Europe may be clogging up London’s air at present – and causing alarm in the newspapers – but in the world’s most polluted city London’s air would be considered unusually refreshing. That city is Delhi, the Indian capital, where air quality reports now make essential reading for anxious residents. In London last week, the most dangerous particles – PM 2.5 – hit a high of 57; that’s nearly six times recommended limits. Here in Delhi, we can only dream of such clean air. Our reading for these minute, carcinogenic particles, which penetrate the lungs, entering straight into the blood stream – is a staggering 215 – 21 times recommended limits. And that’s better than it’s been all winter. Until a few weeks ago, PM 2.5 levels rarely dipped below 300, which some here have described as an “air-pocalypse”.

Like the rest of the world, those of us in Delhi believed for years that Beijing was the world’s most polluted city. But last May, the World Health Organization announced that our own air is nearly twice as toxic. The result, we’re told, is permanent lung damage, and 1.3 million deaths annually. That makes air pollution, after heart disease, India’s second biggest killer. And yet, it’s only in the past two months as India’s newspapers and television stations have begun to report the situation in detail that we’ve been gripped, like many others, with a sense of acute panic. It’s a little bit like being told you’re living next to an active volcano that might erupt at any moment. At first, we simply shut all our doors and windows and sealed up numerous gaps. No more seductively cool Delhi breezes could be allowed in.

We began checking the air quality index obsessively. Then, we rushed out to buy pollution masks, riding around in our car looking like highway robbers. But our three-year-old wouldn’t allow one anywhere near her face. Our son only wore his for a day, and only because I told him he looked like Spider-Man. Despite our alarm, many Delhi-ites reacted with disdain. “It’s just dust from the desert,” some insisted. “Nothing a little homeopathy can’t solve,” others said. But we weren’t convinced. When we heard that certain potted plants improve indoor air quality, we rushed to the nursery to snap up areca palms, and a rather ugly, spiky plant with the unappealing moniker, mother-in-law’s tongue. But on arrival, the bemused proprietor informed us that the American embassy had already purchased every last one. In any case, we calculated that to make a difference, we needed a minimum of 50 plants. “We could get rid of the sofa to make room for them,” my husband offered.

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Apr 172015
 
 April 17, 2015  Posted by at 9:21 am Finance Tagged with: , , , , , , , , , , ,  


Jack Delano Myrtle Beach, S.C. Air Service Command Technical Sergeant Choken 1943

The REAL Issue With a Grexit/Greek Default is Derivatives (Phoenix)
Grexit Dangers Mount: Yanis Varoufakis Warns Of ‘Liquidity Asphyxiation’ (AEP)
Germany: Has Any Country Ever Had It So Good? (Bloomberg)
Greece To Raid Coffers As IMF Dashes Hopes Of Resolving Crisis (Telegraph)
Greece Deal Appears Distant Amid Deadlock In Reform Talks (Kathimerini)
Finland: ‘Not As Bad As Greece, Yet, But It’s Only Matter Of Time’ (Guardian)
China’s Incredible Shrinking Factory (Reuters)
‘Beijing Put’ May Be Driving China’s Stock-Market Fever (MarketWatch)
China’s Smart Money Is Riding the Stock Boom as Amateurs Rush In (Bloomberg)
China’s Kaisa Keeps Creditors Guessing as Dollar Default Looms (Bloomberg)
Australia Steeled For China Slowdown As Iron Ore Prices Fall (FT)
New Zealand Housing: Human Rights Commisioner Calls For Drastic Action (NZH)
New Zealand Government, Central Bank Clash On Housing (CNBC)
5 Financial Crisis Regulators Cashing In On New Careers (Fortune)
Stephen F. Cohen: U.S./Russia/Ukraine History The Media Won’t Tell You (Salon)
Why A Greek Call For German War Reparations Might Make Sense (MarketWatch)
BP Dropped Green Energy Projects Worth Billions, Prefers Fossil Fuels (Guardian)
Saudi Arabia Adds Half a Bakken to Oil Market in a Month (Bloomberg)
Italy Calls For Help Rescuing Migrants As 40 More Reportedly Drown (Guardian)

It’s all derivatives all the way down.

The REAL Issue With a Grexit/Greek Default is Derivatives (Phoenix)

The situation in Greece boils down to the single most important issue for the financial system, namely collateral. Modern financial theory dictates that sovereign bonds are the most “risk free” assets in the financial system (equity, municipal bond, corporate bonds, and the like are all below sovereign bonds in terms of risk profile). The reason for this is because it is far more likely for a company to go belly up than a country. Because of this, the entire Western financial system has sovereign bonds (US Treasuries, German Bunds, Japanese sovereign bonds, etc.) as the senior most asset pledged as collateral for hundreds of trillions of Dollars worth of trades. Indeed, the global derivatives market is roughly $700 trillion in size. That’s over TEN TIMES the world’s GDP. And sovereign bonds… including even bonds from bankrupt countries such as Greece… are one of, if not the primary collateral underlying all of these trades.

Lost amidst the hub-bub about austerity measures and Debt to GDP ratios for Greece is the real issue that concerns the EU banks and the EU regulators: what happens to the trades that EU banks have made using Greek sovereign bonds as collateral? This story has been completely ignored in the media. But if you read between the lines, you will begin to understand what really happened during the previous Greek bailouts. Remember: 1) Before the second Greek bailout, the ECB swapped out all of its Greek sovereign bonds for new bonds that would not take a haircut. 2) Some 80% of the bailout money went to EU banks that were Greek bondholders, not the Greek economy. Regarding #1, going into the second Greek bailout, the ECB had been allowing European nations and banks to dump sovereign bonds onto its balance sheet in exchange for cash.

This occurred via two schemes called LTRO 1 and LTRO 2 which happened in December 2011 and February 2012 respectively. Collectively, these moves resulted in EU financial entities and nations dumping over €1 trillion in sovereign bonds onto the ECB’s balance sheet. Quite a bit of this was Greek debt as everyone in Europe knew that Greece was totally bankrupt. So, when the ECB swapped out its Greek bonds for new bonds that would not take a haircut during the second Greek bailout, the ECB was making sure that the Greek bonds on its balance sheet remained untouchable and as a result could still stand as high grade collateral for the banks that had lent them to the ECB. So the ECB effectively allowed those banks that had dumped Greek sovereign bonds onto its balance sheet to avoid taking a loss… and not have to put up new collateral on their trade portfolios.

Which brings us to the other issue surrounding the second Greek bailout: the fact that 80% of the money went to EU banks that were Greek bondholders instead of the Greek economy. Here again, the issue was about giving money to the banks that were using Greek bonds as collateral, to insure that they had enough capital on hand. Piecing this together, it’s clear that the Greek situation actually had nothing to do with helping Greece. Forget about Greece’s debt issues, or protests, or even the political decisions… the real story was that the bailouts were all about insuring that the EU banks that were using Greek bonds as collateral were kept whole by any means possible. This is why the current negotiations in Greece boil down to one argument: whether or not it will involve an actual restructuring of Greek debt that will affect bondholders across the board.

Greece wants this. The ECB and EU leaders don’t for the obvious reasons that any haircut of Greek debt that occurs across the board will: 1) Implode a small, but significant amount of EU bank derivatives trades. 2) Be immediately followed by Spain, Italy and ultimately France asking for similar deals… at which point you’re talking about over $3 trillion in high grade collateral being restructured (collateral that is likely backstopping well over $30 trillion in derivatives trades at the large EU banks). Remember, EU banks as a whole are leveraged at 26-to-1. At these leverage levels, even a 4% drop in asset prices wipes out ALL of your capital. And any haircut of Greek, Spanish, Italian and French debt would be a lot more than 4%. The next round of the great crisis is coming. The ECB bought two years of time with its pledge to do “whatever it takes,” but the global bond bubble is still going to burst. And when it does, it’s going to make 2008 look like a joke.

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“I would willingly, eagerly, accept any terms offered to us if they made sense.”

Grexit Dangers Mount: Yanis Varoufakis Warns Of ‘Liquidity Asphyxiation’ (AEP)

Greek finance minister Yanis Varoufakis has acknowledged that his country is desperately short of funds, accusing Europe’s creditor powers of trying to force his country to its knees by “liquidity asphyxiation”. “Liquidity is drying up in Greece. It is true,” he told a gathering at the Brookings Institution in Washington. Mr Varoufakis said a conspiracy of forces was trying to “snuff out” Greece’s Syriza government but warned that this could have devastating effects. “Toying with Grexit, or amputating Greece, is profoundly anti-European. Anybody who says they know what will happen if Greece is pushed out of the euro is deluded,” he said.

The warnings were echoed by Eric Rosengren, head of the Boston Federal Reserve, who said Europe risks sitting off uncontrollable contagion if it mishandles the Greek crisis, even though Greece may look too small to matter. “I would say to some European analysts who assume that a Greek exit would not be a problem, people thought that Lehman wouldn’t be a problem. If you measured the size of Lehman relative to the size of the US economy it was quite small,” he told a group at Chatham House. “I wouldn’t be overly confident that just because the Greek economy is small relative to the size of the European economy that something like that wouldn’t be a major dislocation. I think everybody should be a little bit concerned,” he said.

Christine Lagarde said the IMF is worried about the “liquidity situation” in Greece but made it clear that the institution would not give the country any leeway on €1bn of debt repayments coming due in early May. “We have never had an advanced economy asking for payment delays. It is clearly not a course of action that would be fit or recommended,” she said. Mrs Lagarde insisted that the the Fund would defend the interests of its contributors, many of them much poorer countries than Greece. Mr Varoufakis said the ECB and the EMU authorities were deliberately tightening the tourniquet on Greece until the arm was “gangrenous” in order to pressure his Syriza government to give in.

“I would willingly, eagerly, accept any terms offered to us if they made sense. Insisting on a primary budget surplus of 4.5pc in a depressed economy with no functioning banking system is absurd. We have the right to challenge the logic of a programme that has failed,” he said. He was speaking before a reception to celebrate Greek independence at the White House. It is understood that he spoke privately with President Barack Obama, though not at the Oval Office.

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Greece’s almost nieghbor lives off the fat of the rest of Europe’s land.

Germany: Has Any Country Ever Had It So Good? (Bloomberg)

How much good news can one country handle? If you work in the German Ministry of Finance—the Bundesfinanzministerium—you might be wondering that at the moment. This morning the average yield on German sovereign debt turned negative for the first time ever. This wasn’t the only good news today. The German economy is built on manufacturing, and it is by far the largest car builder in the euro area. So data released this morning showing that European car sales were up 11% in March, the fastest growth in 15 months, is certainly welcome. That is not to say the German export sector has been waiting on tenterhooks for an increase in European car sales for a boost; Germany has been running a positive trade balance for decades.

Unemployment is at an all-time low, and employment in the economy has never been higher. Which is great for the German economy. Even better, it has the added benefit of a falling currency. Importantly for Germany, it has managed all this without stoking inflation. With this background, it should come as no surprise that Germany is determined (and able) to balance its budget. So no shortage of customers, no shortage of jobs for its citizens, and no shortage of revenue. Has any country ever had it so good? In fact, as projections released by Eurostat this morning show that the only thing Germany is likely to have a shortage of soon is Germans. Germany currently has the lowest proportion of population under the age of 15 of any country in the European Union, and Eurostat’s projections indicate that will continue to be the case for the foreseeable future.

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“..labour relations, the social security system, the VAT increase and the rationale regarding the development of state property.”

Greece To Raid Coffers As IMF Dashes Hopes Of Resolving Crisis (Telegraph)

Cash-strapped Greece is planning to resort to drastic measures to stay afloat, as the country’s bail-out drama moves to Washington today. Finance minister Yanis Varoufakis is due to drum up support for his debt-stricken nation when he meets with President Obama at the White House later today. The meeting with the world’s most powerful leader comes as a desperate Athens could raid the country’s pensions funds in order to continue paying out its social security bill. Greece’s deputy finance minister Dimitris Mardas hinted that state-owned enterprises may have to transfer their cash balances to the Bank of Greece if the state was to avoid going bankrupt. The government has long protested it will run out of funds to continue paying out a €1.7bn monthly wage and pension bill if a release of cash is not arranged in the next few days.

With their coffers running dry, Greek officials reportedly made an informal request to delay loan repayments to the IMF, but were rebuffed, according to reports in the Financial Times, However, the Fund’s managing director Christine Lagarde said a moratorium on repayments was “not a course of action that would be fit or recommended”. “We have never had an advanced economy asking for payment delays,” Ms Lagarde said today, adding that any period of clemency would constitute additional financial aid to a debtor economy. “This would mean additional contributions by the international community and some of these countries are in a dearer situation than those seeking the delays,” said Ms Lagarde, who will meet with Mr Varoufakis today. “We will do everything we can so lending to the Fund remains the safest lending route any debtor can adopt.”

Greece came to the brink of falling into an arrears process with its senior creditor last month, but avoided the ignominy of becoming the first developed country to ever fall into an IMF default. The debtor nation, which has received no emergency cash since August 2014, faces a €2.5bn IMF loan bill over May and June. Hinting at the gulf between Greece and its creditors, Greek Prime Minister Alexis Tsipras said “political disagreements” were continuing to block a bail-out extension. Mr Tsipras said there were four areas of disagreement over its reform programme. These were ” labour relations, the social security system, the VAT increase and the rationale regarding the development of state property.” However, the Leftist premier added he was confident Europe would not “choose the path of an unethical and brutal financial blackmail” and ensure Greece remained in the monetary union.

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They just throw everything out that Greece proposes.

Greece Deal Appears Distant Amid Deadlock In Reform Talks (Kathimerini)

With negotiations between Greece and its creditors effectively deadlocked, a potential deal that could unlock crucially needed funding appeared more distant than ever on Thursday with doubts appearing about whether an agreement can be reached in time for a Eurogroup planned for May 11, well after the next scheduled eurozone finance ministers’ summit in Riga next Friday, which had been the original deadline. Even representatives of the European Commission, which has been Greece’s closest ally in the talks, appeared to be losing their patience. In comments on Thursday spokesman Margaritis Schinas said the EC was “not satisfied” with the level of progress in talks and called for work to “intensify” ahead of next week’s Eurogroup summit.

Sources indicated that the so-called Brussels Group, comprising officials from the government and Greece’s creditors, was to convene in the Belgian capital on Saturday. But a European official told Kathimerini he had no such information and that talks were likely to resume on Monday. The aim is for that meeting to yield a detailed list of reforms that could form the basis for a staff-level agreement and potentially lead to the disbursement of much-needed aid. But the two sides remain far apart. In a statement to Reuters on Thursday Tsipras highlighted several points of agreement – on areas such as tax collection, corruption and redistributing the tax burden – but also conceded that the two sides disagreed on four major issues: labor rules, pension reform, a hike in value-added taxes and privatizations, which he referred to as “development of state property” rather than asset sales.

Despite the differences and “the cacophony and erratic leaks and statements in recent days from the other side,” Tsipras said he was “firmly optimistic” his government would reach an agreement with its creditors by the end of April. “Because I know that Europe has learned to live through its disagreements, to combine its parts and move forward.” Finance Minister Wolfgang Schaeuble, who has leveled some of the harshest criticism against Greece in recent days, indicated that creditors remained ready to help but expected concessions. “If Greece wants support, we will give this support as in recent years, but of course within the framework of what we agreed,” he told Bloomberg. “Whatever happens, we know that Greece is part of the European Union and that we also have a responsibility for Greece and we will never disregard this solidarity.”

In a speech at the Brookings Institution in Washington on Thursday, Schaeuble said Greece was welcome to seek other sources of funding but might have difficulties. “If you find someone else, whether it’s in Beijing, in Moscow, in Washington DC, or in New York who will lend you money, OK, fine, we would be happy. But it’s difficult to find someone who is lending you in this situation amounts [of] 200 billion euros.” He added that Greece must seek to boost competitiveness and its primary surplus.

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“The public finances are completely screwed, it can’t go on like this..”

Finland: ‘Not As Bad As Greece, Yet, But It’s Only Matter Of Time’ (Guardian)

A sudden flurry of spring snow has dusted the steps of an evangelical church in central Oulu, northern Finland, where about 100 people are crowded together for a Friday sermon. But perhaps the true object of their devotion is inside black binliners by the door. Once a week, food parcels and a free meal attract a mix of unemployed men, single mothers and pensioners to the church. The most highly prized items are packs of sausages just within their sell-by date. Shops used to donate meat, but now they too are feeling the pinch. “There is a group of people in Finland that has dropped out of the employment market,” says pastor Risto Wotschke, whose example has encouraged other churches to offer food handouts.

The weakest economy in the eurozone this year might not prove to be Greece or Portugal, but Finland. The Nordic country is entering its fourth year of recession, with output still well below its 2008 peak. The north of Finland, home to the “Oulu miracle” that was built on the twin pillars of plentiful timber and mobile phone technology, has been hit in particular. Although a paper mill still dominates Oulu’s skyline, jobs in pulp and cellulose have moved abroad, while the collapse of Nokia’s handset business knocked the guts out of the local economy. With unemployment officially at more than 17% – almost twice the Finnish average – this once-booming city of 200,000 people has gone from a poster child of prosperity to a symbol of deepening cracks in the Nordic model.

“It’s not yet as bad here as Greece, but that’s only a matter of time,” says Seppo, a 43-year-old software engineer who lost job along with 500 others last summer after Microsoft, the new owner of Nokia’s mobile devices and services division, abandoned Oulu. Seppo, who asked that his full name not be used, has since found work, but it is 375 miles (600km) away. Every Sunday night he leaves his family for a rented room. “The public finances are completely screwed, it can’t go on like this,” he says, as he stands outside a polling booth on the outskirts of Oulu, where people are already queuing to vote early in Finland’s general election on Sunday. “The politicians are promising everything to everybody, but they won’t take any hard decisions until we are in a really deep crisis.”

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Their markets have dried up.

China’s Incredible Shrinking Factory (Reuters)

Eight years ago, Pascal Lighting employed about 2,000 workers on a leafy campus in southern China. Today, the Taiwanese light manufacturer has winnowed its workforce to just 200 and leased most of its space to other companies: lamp workshops, a mobile phone maker, a logistics group, a liquor brand. “It used to be as long as you had more orders, you could get everything you needed to expand your factory, and you could expand,” says Johnny Tsai, Pascal’s general manager. No longer. The Chinese factory – an institution that was once so large, it was measured in football fields – is shrinking. Rising labor costs, higher real estate prices, less favorable government policies and smaller order volumes are forcing Chinese plants to downsize just to survive.

Their contraction suggests a new model of light manufacturing emerging from China’s economic slowdown: smaller plants are replacing the vertically integrated behemoths that defined Chinese manufacturing in the early 2000s. Cankun, an appliances factory in southern China featured in the documentary Manufactured Landscapes, had more than 22,000 manufacturing employees in 2005, according to its annual report. Today, that number has shrunk to just 3,000. Some Hong Kong-owned factories in southern China have cut their staff numbers by 50-60%, according to Stanley Lau, chairman of the Federation of Hong Kong Industries. To be sure, the giant Chinese factory is hardly extinct. Taiwan’s Foxconn still employs about 1.3 million people during peak production times, many of them piecing together Apple iPhones.

And factories that can afford to, including Foxconn, are increasing automation. But for industries where the product design changes frequently, such as lighting, robots add little value. Chinese factories’ contraction illustrates how much the advantages they once enjoyed have eroded. In the 1990s and early 2000s, cities in Chinese coastal regions competed to offer investors discounted land. Today, the same land is scarce, and dear. New labor and environmental laws have been introduced, too, making life tougher for employers. And the workforce has changed. China’s working age population began to contract in 2012.

The number of strikes more than doubled last year compared to 2013. Jobs have shifted into the services sector. And labor costs have more than quadrupled in US dollar terms since 2005. Nor are orders what they used to be. On Monday, China announced that export volumes fell 15% in March compared to the same period the year before. China’s manufacturing PMI, which measures activity in the industrial sector, has been hovering around 50, the inflection point between expansion and contraction, for nearly two years.

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Beijing is playing with pitchforks. From housing bubble to stock bubble to..?

‘Beijing Put’ May Be Driving China’s Stock-Market Fever (MarketWatch)

China’s stock markets are climbing to feverish heights as a record number of ordinary Chinese, including teenagers, flood into equities. But in the eyes of many, the share-buying frenzy and wild bull market are all due to one thing: The Chinese government wants it that way. Like the “Greenspan put” of the dot-com era, in which U.S. investors believed then Federal Reserve chairman Alan Greenspan was backstopping the market, Shanghai now seems to be surging on the belief in a “Beijing put.” Although emerging markets have been doing quite well recently — the MSCI EM Index has risen by more than 10% so far this year – the surge in China markets is particularly prominent.

By the close of Thursday trade, the benchmark Shanghai Composite Index was up 30% year-to-date, and it has more than doubled in just the past 10 months. The boom has also spilled over to the nearby Hong Kong equity market, where the city’s benchmark Hang Seng Index has surged nearly 18% since the start of January, while the mainland-China-tracking Hang Seng China Enterprises Index has climbed by 22% over the same period. Emboldened by the astounding advance, an increasing number of ordinary Chinese have joined what the state-run China News Service has called the “great army of stock investors,” lining up outside of brokerage firms to open new trading accounts.

The sharp increase in new investors and market volume has even caused system breakdowns for China Securities Depository and Clearing Corp. (CSDC) — the national clearing house — as well as individual securities firms. Statistics from CSDC show that last week the number of new stock-trading accounts opened hit a fresh all-time high of 1.68 million, beating the previous 1.67 million recorded for the week of March 27. In only the past month, mainland Chinese investors opened more than 6 million such accounts, according to the data. The CSDC said that this “steep rise” in new stock-account applications left it unable for a while on Tuesday to handle the barrage of requests, while Haitong Securities, the second-largest securities firm in the country, also encountered “a system breakdown” the same day, according to a report in the Beijing Youth Daily.

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For professionals, it’s fish in a barrel. Clean out grandma.

China’s Smart Money Is Riding the Stock Boom as Amateurs Rush In (Bloomberg)

Individual investors aren’t the only ones pouring cash into Chinese stocks after they surged faster than any other market worldwide. Five of the 11 professional money managers from mainland China, Hong Kong and Taiwan surveyed by Bloomberg from April 8 to 16 said they plan to boost holdings of yuan-denominated A shares this quarter, while four will maintain positions and just two will reduce their stakes. Technology, consumer, health-care and financial shares were preferred industries among the managers, who oversee a combined $41 billion. The responses show the Shanghai Composite Index’s 99% surge over the past year, driven by a record pace of new stock-account openings, still has support outside the Chinese individuals who comprise at least 80% of trading.

Institutional investors are betting that sustained inflows, interest rate cuts and prospects for an improving economy will keep the rally going. “New funds have been continuing to flow into the market and I need to follow the trend,” Dai Ming, a money manager at Hengsheng Asset Management said in Shanghai. “Furthermore, China’s economy will make headway going forward.” Mainland investors have opened a record 10.8 million new stock accounts this year, more than the total number for all of 2012 and 2013 combined, data from China Securities Depository and Clearing show.

The flood of money from these rookie stock pickers has helped feed market momentum after policy makers stepped up efforts to bolster an economy expanding at the slowest pace since the global financial crisis six years ago. The government won’t allow growth to fall below this year’s target of 7%, said Hao Hong, head of China research at Bocom International in Hong Kong, who forecasts at least three more interest-rate cuts in 2015 following reductions in November and March. Premier Li Keqiang said this week that China will accelerate targeted measures to support the economy after it expanded at the slowest pace since 2009 in the first quarter.

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Yeah, let the no. 1 developer default, see what happens then.

China’s Kaisa Keeps Creditors Guessing as Dollar Default Looms (Bloomberg)

Kaisa has until Monday to find $52 million for missed payments on two of its dollar bonds as it seeks to avoid default. The troubled developer must pay the interest on its 2017 and 2018 notes that was due on March 18 and March 19 respectively after the expiry of a 30-day grace period. The delay is the latest twist in a saga that has seen Kaisa’s founder Kwok Ying Shing make an unexpected return to the company, projects in Shenzhen blocked, a near default on a loan in December and a takeover offer from Sunac. Standard & Poor’s doesn’t expect Kaisa to pay and downgraded it to default last month. “Kaisa in the last four months has been mysterious and unpredictable, and Kwok coming back is equally surprising,” said Ashley Perrott at UBS. “It wouldn’t be a good signal if they didn’t pay the coupon.”

The mishaps threaten to make Kaisa the first Chinese developer to default on its dollar-denominated bonds as it seeks ways to service interest-bearing debt to onshore and offshore lenders that totaled 65 billion yuan ($10.5 billion) as of Dec. 31. Kaisa has also been tied to a corruption probe amid President Xi Jinping’s crackdown on graft, called the harshest since the 1949 founding of the People’s Republic of China by official Chinese media. Kwok exited the company he founded more than 15 years ago on Dec. 31, citing health reasons. Kaisa said in a Hong Kong stock exchange filing April 13 that he’d been appointed chairman and executive director.

In the interim, Sunac agreed to buy a controlling 49.3% stake from the Kwok family on Jan. 30, subject to a debt restructuring that would require investors to accept lower coupons and defer repayment by up to five years. Kaisa has said offshore creditors would stand to recover just 2.4% in a liquidation. Independent research firm CreditSights said Kwok’s reappointment should boost confidence and may be good news for debt investors, while Citigroup Inc. said he’s likely to regain control of the builder. Sunac Chairman Sun Hongbin said on April 15 his company’s takeover of Kaisa is still proceeding. Kaisa was to pay $16.1 million of interest on its $250 million of 2017 notes on March 18 and $35.5 million on its $800 million of 2018 securities March 19. Given the end of the 30-day grace period falls over a weekend, Kaisa technically has until Monday.

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Steeled my ass.

Australia Steeled For China Slowdown As Iron Ore Prices Fall (FT)

The last time Western Australia was engaged in a dispute with Canberra of this magnitude, it threatened to secede during a financial crisis sparked by the 1930s Depression. The current friction is linked to China’s slowdown — a sign of how closely Australia’s fortunes are tied to Beijing’s appetite for its commodity exports. “It’s not secession but it is tension and disengagement,” Colin Barnett, Western Australia’s premier, said this week when Canberra and other states rejected a request to help plug a widening hole in the state budget caused by plunging iron ore prices. Western Australia is a mining state that enjoyed a decade-long boom selling iron ore — a key ingredient in steel — to China. Known by some as “China’s quarry”, the state hosts BHP Billiton, Rio Tinto and Fortescue, which have spent billions of dollars building mines, railways and ports to almost double iron ore production to 717 million tons over the past five years.

But just as global supply hits record levels, China’s economy is slowing and its desire for the reddish-brown ore may have plateaued. Since peaking at US$190 in 2011, iron ore prices have slid more than 70% to about US$50 a ton. This is denting tax revenues, forcing smaller mining companies to close and lay off thousands of employees. “Western Australia was the big beneficiary of the China boom,” says Chris Richardson at Deloitte. “But it is suffering now as the mine construction phase ends and commodity prices fall amid a surge in iron ore supply and faltering demand.” In 2013 the state lost its triple-A credit rating. On Tuesday, Standard & Poor’s warned it may face a further downgrade because of its budget problems.

Western Australia says that if iron ore prices stay at US$50 per ton it would wipe out A$4 billion (US$3 billion) in projected royalty revenues in 2015-16, 12% of the state budget. Unemployment in the state, although still modest at 5.8%, has risen from 3.8% when iron ore prices peaked. House prices have started to fall in the state capital Perth, while they continue to grow in Sydney and Melbourne. Mr Barnett wants other states to give Western Australia a greater share of revenues from a nationwide goods and services tax. But so far Canberra and other states have rejected his pleas. On Friday, state premiers will discuss the dispute. Weak Chinese data are fueling concerns that Western Australia’s problems could spread across a country that has avoided recession for two decades by riding China’s commodities boom.

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Smart guy. But why doesn’t he know it’s the – Australian-owned – banks that control the country, and they want to continue as is?

New Zealand Housing: Human Rights Commisioner Calls For Drastic Action (NZH)

New Zealand’s human rights watchdog has added its voice to those calling for drastic action to tackle New Zealand’s housing problems. Chief human rights commissioner David Rutherford said today all political parties should make a cross-party accord to tackle the “very serious” issues of adequate housing in this country. His comments followed a warning by the Reserve Bank this week that Government needed to do more to dampen demand in the face of increasing housing pressures. Mr Rutherford said the housing issues in New Zealand were “many and varied” and there was no co-ordinated plan to address them.

“We’re seeing housing issues being talked about as separate issues when in fact they need to be addressed as a whole: housing affordability in Auckland and Canterbury, the provision of adequate housing in Northland, South Auckland and other places throughout the country, which would reduce the incidence of childhood illnesses due to cold, damp, overcrowded accommodation, and the call for more of our elderly to be cared for in homes which are in many cases likely to be unsuitable for elderly habitation to name just a few of the issues.” He said the human right to adequate housing was a binding legal obligation for the state, which meant the Government had a duty to protect this right and a responsibility to provide remedies.

Mr Rutherford said it would take decades to solve myriad problems but immediate action was needed, beginning with a cross-party accord. “We have had a talkfest about these issues for over 30 years, mainly centred on how many State-owned houses should or should not be built. “In that time, a state like Singapore has surpassed New Zealand in providing adequate housing and that in turn has led to higher levels of wealth and health in Singapore than New Zealand.” The Green Party hailed the Chief Commissioner’s message, saying a lack of action was denying New Zealanders the basic human right of adequate housing. “The Government’s do-nothing approach hasn’t worked,” housing spokesman Kevin Hague said. “It is time for all parties to put their political colours aside and work together to find enduring solutions to the housing crisis.”

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Politicians want bubbles to keep going.

New Zealand Government, Central Bank Clash On Housing (CNBC)

Increasing supply is the only way to cool off New Zealand’s red-hot housing market, the country’s deputy prime minister told CNBC, ignoring the central bank’s call for a capital gains tax. Property markets across New Zealand’s major cities are steadily climbing, prompting fears of a sharp correction. Sales volume in March rose to an eight-year high, with median prices in the capital city of Auckland soaring 13% on year, nearly double the nation’s 8% gain, the Real Estate Institute of New Zealand (REINZ) said on Tuesday. New Zealand is one of the few advanced economies that hasn’t experienced a major price correction in the past 45 years. Those statistics prompted an unusually aggressive warning from the Reserve Bank of New Zealand (RBNZ).

In a speech on Wednesday, deputy governor Grant Spencer said he “would like to see fresh consideration of possible policy measures to address the tax-preferred status of housing, especially investor related housing.” That’s a clear reference to a capital gains tax on the sale of investment properties, economists widely agreed. However, Bill English, deputy prime minister & minister of finance of New Zealand, told CNBC on Thursday that he believes increased housing supply is the best way to fix the issue. “We just need more houses on the ground faster to deal with the inflows from migration and the positive attitudes of many New Zealand households in a world of lower interest rates,” adding that the government is going through a deliberate, long and complicated process to improve supply.

But the RBNZ believes supply-side solutions are unlikely to yield quick results, noting that increased supply will take a number of years to eliminate the housing shortage. Waiting that long has severe risks, the bank said: “Rising house price inflation, particularly in Auckland, represents a risk to financial and economic stability. The longer excess demand persists, the further prices will depart from their underlying fundamental determinants and the greater the potential for a disruptive correction.”

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More revolving doors. They want the Bernank for who he knows, not his brilliant insights.

5 Financial Crisis Regulators Cashing In On New Careers (Fortune)

The man who occupied one of the most important economic posts in the U.S. during the financial crisis will soon be collecting his paychecks from one of the largest hedge funds on Wall Street. Former Federal Reserve board chairman Ben Bernanke, who oversaw the country’s central bank from 2006 until last year, will be a senior adviser to Citadel, the hedge fund announced Thursday morning. Founded by billionaire Kenneth Griffin, Citadel manages $25 billion in assets. Bernanke, a former economics professor at Princeton University, left the Fed more than a year ago at which point he was succeeded by current chair Janet Yellen. Bernanke’s new role will find him advising Citadel on global economic and financial matters and monetary policy.

Speaking with The New York Times about his new career path, Bernanke said he had spent the past year scouting job opportunities, and that Citadel represented the prudent choice due to the fact that the asset manager is not regulated by the Fed. Bernanke also told the Times that he is well aware of the public’s poor reception to the so-called “revolving door” that escorts so many Washington regulators to cushy Wall Street positions. That is exactly why he chose Citadel over various banking and lobbying positions he was offered elsewhere in the industry, Bernanke said.

After all, Bernanke’s tenure at the Fed will primarily be remembered for his role helping to engineer the government bailout of the financial industry, as well as for implementing the Fed’s economic stimulus program. As the former Fed chair alluded to, though, Bernanke is far from the only high-profile government employee to have spent the late-2000’s fiscal crisis trying to right the Wall Street ship only to eventually land a lucrative gig in the financial industry. Here are five former regulators from the financial crisis who left the government to make millions.

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Fascinating read.

Stephen F. Cohen: U.S./Russia/Ukraine History The Media Won’t Tell You (Salon)

Salon: What is your judgment of Russia’s involvement in Ukraine? In the current situation, the need is for good history and clear language. In a historical perspective, do you consider Russia justified?

Cohen: Well, I can’t think otherwise. I began warning of such a crisis more than 20 years ago, back in the ’90s. I’ve been saying since February of last year [when Viktor Yanukovich was ousted in Kiev] that the 1990s is when everything went wrong between Russia and the United States and Europe. So you need at least that much history, 25 years. But, of course, it begins even earlier. As I’ve said for more than a year, we’re in a new Cold War. We’ve been in one, indeed, for more than a decade. My view [for some time] was that the United States either had not ended the previous Cold War, though Moscow had, or had renewed it in Washington. The Russians simply hadn’t engaged it until recently because it wasn’t affecting them so directly. What’s happened in Ukraine clearly has plunged us not only into a new or renewed—let historians decide that—Cold War, but one that is probably going to be more dangerous than the preceding one for two or three reasons.

The epicenter is not in Berlin this time but in Ukraine, on Russia’s borders, within its own civilization: That’s dangerous. Over the 40-year history of the old Cold War, rules of behavior and recognition of red lines, in addition to the red hotline, were worked out. Now there are no rules. We see this every day—no rules on either side. What galls me the most, there’s no significant opposition in the United States to this new Cold War, whereas in the past there was always an opposition. Even in the White House you could find a presidential aide who had a different opinion, certainly in the State Department, certainly in the Congress. The media were open—the New York Times, the Washington Post—to debate. They no longer are. It’s one hand clapping in our major newspapers and in our broadcast networks. So that’s where we are.

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“The Hague ruled that the Greek party’s right for reparations remains intact but the capacity to execute that right against German property was rejected..”

Why A Greek Call For German War Reparations Might Make Sense (MarketWatch)

German officials have dismissed the Greek war reparations claim for Nazi atrocities as a “dumb” attempt to distract from Greece’s looming debt crisis. However, the truth is that a group of Greek citizens, all relatives of people murdered by the Nazis in 1944, have been seeking war reparations from the German government for almost 20 years – and have won rulings in Greek and Italian courts. Germany fought the claims, bringing the case in 2012 all the way to the International Court of The Hague, where the Greek side scored a hollow victory.

The Hague ruled that the Greek party’s right for reparations remains intact but the capacity to execute that right against German property was rejected, due to a legal principle called “sovereign immunity,” which protects one sovereign country from being sued before the court of another country. It is important to note that Germany brought its case against Italy, not Greece, invoking “sovereign immunity.” Germany argued that Italy should not have allowed Greeks to foreclose against property of the German government on Italian soil. Ultimately, The Hague agreed. It ruled in favor of Germany, stating that Italy had in fact violated international law. But the international court never resolved the underlying issue of reparations – it merely issued a judgment on sovereign immunity.

Even as that case was pending in The Hague, Italian Prime Minister Silvio Berlusconi issued a decree that suspended all civil-enforcement procedures against foreign countries on Italian territory. Almost three years have elapsed since the case was closed in The Hague, and as the Greek bailout negotiations continue to drag on and tensions build, the war reparations issue is coming into focus again. Germany’s counterargument has more or less remained the same over the years. Berlin claims the issue was settled in 1960 when West Germany paid 115 million Deutschmarks to Athens in compensation and was finally closed in 1990 with a final settlement, when West and East Germany reunified.

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It’s about the bottom line. Companies are supposed to be in the way we set them up.

BP Dropped Green Energy Projects Worth Billions, Prefers Fossil Fuels (Guardian)

BP pumped billions of pounds into low-carbon technology and green energy over a number of decades but gradually retired the programme to focus almost exclusively on its fossil fuel business, the Guardian has established. At one stage the company, whose annual general meeting is in London on Thursday, was spending in-house around $450m (£300m) a year on research alone – the equivalent of $830m today. The energy efficiency programme employed 4,400 research scientists and R&D support staff at bases in Sunbury, Berkshire, and Cleveland, Ohio, among other locations, while $8bn was directly invested over five years in zero- or low-carbon energy. But almost all of the technology was sold off and much of the research locked away in a private corporate archive.

Facing shareholders at its AGM, company executives will insist they are playing a responsible role in a world facing dangerous climate change, not least by supporting arguments for a global carbon price. But the company, which once promised to go “beyond petroleum” will come under fire both inside the meeting and outside from some shareholders and campaigners who argue BP is playing fast and loose with the environment by not making meaningful moves away from fossil fuels. In 2015, BP will spend $20bn on projects worldwide but only a fraction will go into activities other than fossil fuel extraction. An investigation by the Guardian has established that the British oil company is doing far less now on developing low-carbon technologies than it was in the 1980s and early 1990s. Back then it was engaged in a massive internal research and development (R&D) programme into energy efficiency and alternative energy.

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Jeffrey Brown’s Export Land Model in action.

Saudi Arabia Adds Half a Bakken to Oil Market in a Month (Bloomberg)

Saudi Arabia boosted crude production to the highest in three decades in March, with a surge equal to half the daily output of the Bakken formation in North Dakota. The kingdom boosted daily crude output by 658,800 barrels in March to an average of 10.294 million, according to data the country communicated to OPEC’s secretariat in Vienna. The Bakken formation, among the fastest-growing shale oil regions in the U.S., pumped 1.1 million barrels a day in February, according to data from the North Dakota Industrial Commission. Oil prices have rallied about 16% in New York this month on stronger fuel demand and as a record decline in U.S. rigs fanned speculation that the nation’s production will slow from its highest pace in three decades.

Prices collapsed almost 50% last year as Saudi Arabia led OPEC in maintaining production in the face of a global glut rather than make way for booming U.S. output. “It confirms the new strategy of the Saudis,” Giovanni Staunovo at UBS said. “If OPEC isn’t balancing the market any more, why should the Saudis hold so much spare capacity when they can use it to make money? Production is still likely to increase in the near term as domestic demand will increase.” In the space of 31 days, Saudi Arabia managed a production boost that took drillers in North Dakota’s Bakken almost 3 years to achieve, according to data compiled by Bloomberg. Output from the Bakken shale increased by about 668,000 barrels a day from February 2012 to December 2014, according to data from the state’s industrial commission.

The increase reflects Saudi Arabia’s own growing requirements rather than an attempt to defend market share, according to Harry Tchilinguirian at BNP Paribas in London. “It’s a big jump in Saudi production but it is commensurate with the increase in their domestic needs,” Tchilinguirian said by e-mail. “Saudi Arabia has made large capacity additions in refining, and they’ll probably want to build up crude stocks before demand from local utilities peaks in the summer.” The output figure for Saudi Arabia is in line with a level of 10.3 million a day announced by Oil Minister Ali Al-Naimi in Riyadh on April 7.

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“..this year’s death toll has already reached 909, compared with about 50 deaths in the same period in 2014, when Italy’s Mare Nostrum rescue mission was still in effect. That programme has since been replaced by Europe’s Triton, a far less ambitious border patrol..”

Italy Calls For Help Rescuing Migrants As 40 More Reportedly Drown (Guardian)

Italy has called on the rest of Europe to share the burden of the growing migration crisis in the Mediterranean as news of yet another tragedy emerged, with 41 migrants feared dead after their boat capsized just off the Sicilian coast. Four people survived the disaster, according to witnesses who interviewed them. The demand for Europe-wide action comes just days after 400 people were killed after a boat capsized on its way from Libya, and as the Italian coastguard brought two vessels with an estimated 1,100 rescued migrants on board to Sicily. There were also unconfirmed reports that Italian authorities had arrested 15 people following allegations that 12 migrants had intentionally been killed after a fight broke out on one of the ships.

According to interviews with the four survivors of the most recently capsized boat conducted by the Organisation for Migration (OIM), which follows the issue closely, the inflatable boat left Libya on Sunday with 45 people on board and was at sea for four days when the boat capsized. A spokesperson for OIM said it was likely that the vessel had trouble finding the correct route to Italy, given how long they were at sea. According to the men, who were picked up by the Italian navy vessel Foscari after they were spotted by an aircraft, the boat quickly began losing air forcing the migrants into the water.

Italy’s foreign minister, Paolo Gentiloni, appealed for help in coming to grips with the humanitarian crisis, saying that 90% of the rescue effort in recent weeks had fallen on the Italian navy, which responds to calls for help from migrant boats in international waters close to Libya. “The emergency is not just about Italy,” he said. “We have a duty to save lives and welcome people in a civilised manner, but we also have a duty to seek international engagement.” Another Italian ship, the Fiorillo, arrived in Sicily with about 301 people on board following the rescue of a vessel in distress, and the Dattilo had at least 592 following six separate rescue operations that took place over two days.

Survivors of the disaster earlier this week in which 400 people died said the vessel sank after passengers surged to one side to catch the attention of a passing commercial ship. About 8,500 migrants were rescued in the Mediterranean between Friday and Monday alone. The warm weather and good sea conditions have led to a sharp increase in attempted crossings. According to some estimates, this year’s death toll has already reached 909, compared with about 50 deaths in the same period in 2014, when Italy’s Mare Nostrum rescue mission was still in effect. That programme has since been replaced by Europe’s Triton, a far less ambitious border patrol that monitors incoming vessels within 30 miles of the Italian coast.

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Apr 142015
 
 April 14, 2015  Posted by at 9:41 pm Finance Tagged with: , , , , , , , ,  


DPC French Market, New Orleans 1910

From southern Europe to the far north, matters are shifting, sometimes slowly, sometimes faster. There are moments when it seems all that goes on is the negotiations over the Greek dire financial situation and its bailout conditions, but even there nothing stands still. The Financial Times ran a story claiming Greece is about to default on is debt(s), and many a pundit jumped on that, but there was nothing new there. Of course they are considering such options, but they are looking at many others as well. That doesn’t prove anything, though.

Yanis Varoufakis’ publisher, Public Affairs Books, posted a promo for an upcoming book by the Greek Finance Minister, due out only in 2016, mind you, that reveals a few things that haven’t gotten much attention to date. It’s good to keep in mind that most of the book will have been written before Yanis joined the new Greek government on January 26, and not see it as a reaction to the negotiations that have played out after that date.

Varoufakis simply analyzes the structure of the EU and the eurozone, as well as the peculiar place the ECB has in both. Some may find what he writes provocative, but that’s beside the point. It’s not as if Europe is beyond analysis; indeed, such analysis is long overdue.

Indeed, it may well be the lack of it, and the idea in Brussels that it is exempt from scrutiny, even as institutions such as the ECB build billion dollar edifices as the Greek population goes hungry, that could be its downfall. It may be better to be critical and make necessary changes than to be hardheaded and precipitate your own downfall. Here’s the blurb for the book:

And The Weak Suffer What They Must
Europe’s Crisis and America’s Economic Future

“The strong do as they can and the weak suffer what they must.” —Thucydides

The fate of the global economy hangs in the balance, and Europe is doing its utmost to undermine it, to destabilize America, and to spawn new forms of authoritarianism. Europe has dragged the world into hideous morasses twice in the last one hundred years… it can do it again. Yanis Varoufakis, the newly elected Finance Minister of Greece, has a front-row seat, and shows the Eurozone to be a house of cards destined to fall without a radical change in direction. And, if the EU falls apart, he argues, the global economy will not be far behind.

Varoufakis shows how, once America abandoned Europe in 1971 from the dollar zone, Europe’s leaders decided to create a monetary union of 18 nations without control of their own money, without democratic accountability, and without a government to support the Central Bank.

This bizarre economic super-power was equipped with none of the shock absorbers necessary to contain a financial crisis, while its design ensured that, when it came, the crisis would be massive. When disaster hit in 2009, Europe turned against itself, humiliating millions of innocent citizens, driving populations to despair, and buttressing a form of bigotry unseen since WWII.

In the epic battle for Europe’s integrity and soul, the forces of reason and humanism will have to face down the new forms of authoritarianism. Europe’s crisis is pregnant with radically regressive forces that have the capacity to cause a humanitarian bloodbath while extinguishing the hope for shared prosperity for generations to come. The principle of the greatest austerity for the European economies suffering the greatest recessions would be quaint if it were not also the harbinger of misanthropy and racism.

Here, Varoufakis offers concrete policies that the rest of the world can take part in to intervene and help save Europe from impending catastrophe, and presents the ultimate case against austerity. With passionate, informative, and at times humorous prose, he warns that the implosion of an admittedly crisis-ridden and deeply irrational European capitalism should be avoided at all cost. Europe, he argues, is too important to be left to the Europeans.

How dire the situation is in Greece becomes obvious from the following article by documentary film maker Constantin Xekalos, posted on Beppe Grillo’s site. It makes you wonder how Europe dare let this happen. How it could possibly have insisted prior to the January elections that the Greeks should vote for the incumbent government, and how someone like Eurogroup head Dijsselbloem could ever have had the gall to point to “all the progress we’ve made”.

Greece, The Euro’s Greatest “Success”

Greece is a social disaster zone. 3 million people are without guaranteed healthcare, 600,000 children are living under the breadline and more than half of them are unable to meet their daily nutritional needs. 90% of families living in the poorer areas rely on food banks and feeding schemes for survival, and unemployment is approaching 30%, with youth unemployment approaching 60%. These are not just numbers, they are real people. In order to show their faces and tell their stories, writer and documentary film maker from Crete and now living in Florence, Constantin Xekalos, decided to make a documentary film entitled: “Greece, the Euro’s greatest success “. In today’s Passaparola he talks about this documentary film and about the suffering of the Greek people that he has encountered in his personal experience. Today it is all happening, but is Italy next?

The healthcare tragedy in Greece When we made this documentary it was said that 1/3 of the Greek population, (more than 3 million people,) were without any guaranteed healthcare. In the interim that number has grown. They have been abandoned. If you go to a hospital, obviously a public one, they will treat you and they will accept you if it is an emergency, but if you are admitted, you then have to pay. If you are unable to pay, they send the bill to the Receiver of Revenue’s office and they take it from there. If you have no money, they start with foreclosure, even your home , even if it is your only home!

This is crime against society that is totally unacceptable. In an advanced and so-called democratic Country that is part of the western world, things like this are totally inconceivable, absurd and unacceptable. I repeat, this is crime against society that we absolutely cannot accept! If you are ill, democracy guarantees the treatment you need, otherwise it should be called by some other name. When a child is not guaranteed the nutrition he/she needs, a mere helpless child, or elderly people that are no longer able to look after themselves, then that is no longer democracy. Some of the older Greeks were telling me that when the Germans were there during the occupation in the Second World War, the people lived exactly like they are living now.

The Greeks are dying of hunger 90% of Greek families living in the poorer areas are obliged to rely on food banks and feeding schemes in order to survive. Unfortunately there are many in this situation. We toured a number of Athens’ districts and in each and every district there is a square where good people, people who care about others and truly have a sense of community have rolled up their sleeves and, with the help of the Church, are providing meals for those who would otherwise have nothing to eat. Every district has its own square. I saw children passing out because of lack of food, but are too embarrassed to admit it. We simply cannot accept this kind of thing. It’s a crime when children go without food to eat. I will shout that from the rooftops until I burst and I hope that they lay charges against me: it is a crime when a child cannot get enough to eat!

The disappearance of the Greek middle-class Many good people found themselves unemployed from one day to the next, not through any fault of their own and not by choice, not lazy people as they would have us believe. They want to work but at this point there simply are no jobs any more. The social fabric is gone, there is no more middle-class, it is virtually nonexistent. All there is is an ever-shrinking oligarchy of very wealthy people and then the rest of the people who are becoming ever poorer. Very real poverty! Currently, and here I’m talking about the latest data from a month ago now, someone who does indeed find a job has to accept a salary of €300 a month . Take into account that Athens is a very expensive city to live in, even more so than Florence. I happen to live in Florence so this is just by way of example, but I was horrified at the thought. How on earth do these people manage to live? There is no way that they can live decently, there is no longer any dignity and therefore they cannot be free: they are destroying your soul as well as you body!

Over 50% of young people are unemployed Youth unemployment is now standing somewhere between 50% and 60% . The young people do whatever they can, they accept any kind of position, even things that not right and unfair, simply because necessity forces them to accept job offers that should not even be made. I saw jobs offered at €100 a month . This sort of thing is now happening here in Italy as well.

What all this will eventually lead to, inevitably so, becomes clear from the following. Anti-euro, anti-immigrant, anti-bailout and down the line anti anything to do with the failed European project. In Finland, of all places, the anti-euro party looks certain to get into the next government. Finland’s economy is in tatters, despite its AAA rating, and people increasingly choose to see the world through blinders.

Anti-Euro Finnish Party Gets Ready to Rule as Discontent Brews

The anti-euro The Finns party, which eight years ago got just 4% of the vote, is now dressing itself up for Cabinet seats as Finnish voters are set to oust the government after four years of economic failure. The Finns, whose support is based on equal parts of anti-euro, anti-immigrant and anti-establishment sentiment, have captured voters on the back of the euro-area’s economic crisis and a home-grown collapse of key industries. In the 2011 election, during the height of the euro crisis, it shocked the traditional parties by winning 19% of the vote. “We can’t be ignored, because a strong majority government won’t be possible without us,” Timo Soini, the party leader, said [..]

The country is struggling to emerge from a three-year recession after key industries such as its papermakers have buckled amid slumping demand and Nokia Oyj lost in the smartphone war, cutting thousands of jobs. The government has raised taxes and lowered spending, adding to unpopularity, and on top of that have been bailout costs for Greece and Portugal, among others, which have eroded finances for Finland, still top-rated at Fitch Ratings and Moody’s Investors Service. “Our stance will be very tight, no matter what,” Soini said. “Nothing is forcing Finland to participate in these bailout policies. If we don’t want to take part, we can refuse.”

Soini’s recipe for fixing the economy includes encouraging exports, backing entrepreneurship, investing in road infrastructure and cutting red tape. The party seeks to balance public finances through budget cuts of as much as €3 billion and higher taxes for the wealthy. The euro-skeptic group will probably join a three-party coalition. Polls predict more than 50 seats out of 200 for the opposition Center Party.

The Center Party backed bailouts and loans for Greece, Portugal and Ireland while in government in 2010 and 2011 and was then ousted. It has since opposed further help, alongside The Finns party. The Center Party and us will have a majority within the government, if it keeps the stance it has had,” Soini said. His group isn’t currently pushing for Finland to exit the euro. Still, “Finland should under no circumstances declare it will always and forever stay,” he said.

The party first negotiated joining government after the 2011 elections, after catapulting to third place with 39 lawmakers. Its opposition to euro-area bailouts in the height of the crisis meant the door to government was closed. In 2007, its five seats didn’t qualify for an invitation to join talks to form a ruling coalition. “We’ve grown, we’ve moved forward, we’ve stabilized,” Soini said. “It’s a key goal for us to consolidate our backing and be one of the big parties, so that we’re not just a one-vote wonder.”

Of course, there are worse options than the True Finns. You can get from anti-immigrant to downright extreme right wing, where Greece may be headed if Europe doesn’t adapt to Syriza’s view of what the eurozone might be.

The prevailing views amongst Europe’s richer nations, and its domestic banking sectors, don’t look promising. And when the European project crashes to a halt, things are not going be pretty. The wisest thing for Brussels to do may well be to try and dismantle itself as peacefully as it can. But Brussels is far too loaded with people seeking to hold on to the power they have gathered.

Still, there’s no denying they have held sway over rapidly deteriorating conditions on the ground (though they will prefer to lay the blame elsewhere), which will down the line lead to their own downfall. They better listen to Yanis now.