The Automatic Earth

DPC Unloading bananas, New Orleans 1903

“..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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