G. G. Bain Metropolitan Opera baritone Giuseppe De Luca, New York 1920
On June 24, you will see pigs fly! Tusk wants Cameron to lose, I guess.
• Donald Tusk: Brexit Could Destroy Western Political Civilisation (BBC)
European Council president Donald Tusk has warned that a UK vote to leave the EU could threaten “Western political civilisation”. Mr Tusk said a vote to leave the EU would boost anti-European forces. “As a historian I fear Brexit could be the beginning of the destruction of not only the EU but also Western political civilisation in its entirety,” he told the German newspaper Bild. UKIP MP Douglas Carswell said the Remain campaign was “falling apart”. He tweeted: “Why hasn’t Western civilisation come to an end already seeing as how most countries are self governing?” The UK votes on whether to remain in the EU or leave on 23 June. Mr Tusk said everyone in the EU would lose out economically if Britain left.
“Every family knows that a divorce is traumatic for everyone,” he said. “Everyone in the EU, but especially the Brits themselves, would lose out economically.” In the interview he also said Turkey would not become a member of the European Union “in its current state”. Leave campaigners have regularly accused Remain of scaremongering after repeated warnings from high-profile figures against leaving the EU. Employment Minister Priti Patel said: “This is extraordinary language from the EU president, and serves only to reveal his own desperation. “The only thing that is destroying civilisations is the euro, which has ruined economies and led to youth unemployment soaring to nearly 50% in southern Europe.”
Not sure you could say anything less appropriate as a PM of a democracy. But he’ll keep trying.
• Dutch PM Says He’s ‘Totally Against Referendums’ (EuA)
Dutch Prime Minister Mark Rutte today (13 June) admitted a referendum called by eurosceptic groups on whether to back closer ties between Ukraine and the EU had been “disastrous” after voters soundly rejected the pact. “I’m totally against referenda, and I’m totally, totally, totally against referenda on multilateral agreements, because it makes no sense as we have seen with the Dutch referendum,” Rutte told a conference of European MPs. “The referendum led to disastrous results,” he added. His comments were his toughest since the 6 April Dutch referendum, which had been closely watched by eurosceptic groups in Britain, who hailed the results as a blow to EU unity.
Although the Dutch referendum only scraped past the 30% voter turnout to be valid, over 60% of those who cast ballots rejected the EU-Ukraine cooperation accord. The Netherlands, which currently holds the rotating presidency of the European Union, is the only country in the 28-nation bloc which has still not ratified the deal. Even though April’s vote is non-binding Rutte’s coalition government is now left with a dilemma of how to proceed. Although Rutte did not mention the June 23 referendum when British voters will choose whether to leave the EU, Britain’s eurosceptic parties have seized upon the Dutch results as supporting their own campaign to leave the European Union.
You heard it here first. Oil is such an integral part of so much of the economy that any large price swing will have outsize consequences.
• ECB Says Oil-Price Slump Not the Global Boon It Might Have Been (BBG)
Cheaper oil prices since 2014 have probably been of little net benefit to the global economy and may even have been a drag on growth, according to the ECB. “While most of the oil-price decline in 2014 could be explained by the significant increase in the supply of oil, more recently the lower price has reflected weaker global demand,” the ECB said on Monday in an article from its Economic Bulletin. “Although the low oil price may still support domestic demand through rising real incomes in net oil-importing countries, it would not necessarily offset the broader effects of weaker global demand.”
The analysis strikes at the ECB’s debate over whether it should be adding monetary stimulus to the euro-area economy as lower heating and fuel bills give consumers more spending power. President Mario Draghi has argued that as well as depressing inflation — the ECB’s main challenge – a drop in energy prices can be a sign of subdued economic activity that needs to be countered. “Assuming that, for example, 60% of the oil price decline since mid-2014 has been supply driven and the remainder demand driven, the models suggest that the combined impact of these two shocks on world activity would be close to zero, or even slightly negative,” the ECB report showed.
The economy can survive only by digging itself ever deeper into debt.
• What American Consumers Owe Uncle Sam (BBG)
U.S. consumers have long had an impressive propensity to get into debt. Lately, though, one lender has been playing a much bigger role in enabling them: Uncle Sam. Total U.S. consumer credit – which includes credit cards, auto loans and student debt, but not mortgages – stood at $3.54 trillion at the end of March, according to the latest data from the Federal Reserve. That’s the most on record, both in dollar terms and as a share of GDP. What’s really unusual, though, is the source of the money: The federal government accounted for almost 28% of the total. That’s up from less than 5% before the 2007-2009 recession, thanks in large part to the government’s efforts to promote education by making hundreds of billions of dollars in student loans directly, rather than going through banks. Here’s how that looks:
To some extent, the government’s growing role makes sense. Amid a deep economic slump and slow recovery, it was best equipped to satisfy the demand for credit among Americans looking to improve their job prospects through education. Without the government’s involvement, consumer credit as a share of gross domestic product would still be well below the pre-recession level (all else equal). Here’s how that looks:
That said, the government assist has helped push total student debt to a record $1.3 trillion, much of which has been spent on rising tuition costs or on courses that didn’t do much to improve people’s earning potential. Because student debt is extremely difficult to discharge through bankruptcy, it will weigh on the borrowers – and on the U.S. economy – for many years to come.
Seismic? A Libor successor?
• There’s a Seismic Change Coming to Money Markets (BBG)
Bankers seeking to manipulate the London Interbank Offered Rate with a flurry of tactless messages probably had little idea that the impact of their actions would be felt all the way to the Federal Reserve target rate. But—like bubbles from a bottle of Bollinger champagne—the effects of the Libor scandal are still emanating across money markets many years later. In 2014, the Financial Stability Oversight Council (FSOC) asked U.S. regulators to look into creating a replacement for Libor—one that would prove more immune to the subjective, scandalous, scurrilous whims of traders. The Alternative Reference Rates Committee (ARRC), as the resulting body is known, last month suggested two potential replacements for the much-maligned Libor.
While the new reference rate would be important simply by dint of underpinning trillions of dollars worth of derivatives contracts, its significance could go much further. Fresh research from Credit Suisse Securities USA LLC suggests the chosen rate could also become the new target rate for the Federal Reserve, replacing the federal funds rate that has dominated money markets for decades but has been neutered by recent regulation and asset purchase programs. “The question of alternative reference rates and alternative policy rates are [sic] intertwined: ideally, they would be the same,” writes Zoltan Pozsar, director of U.S. economics at the Swiss bank. “So it is likely that the rate the ARRC will ultimately choose will also be the Fed’s new target rate. But there are problems with both alternatives.”
“..compensation plans designed to make sure executive pay is not tied to short-term stock performance..”
• Silicon Valley’s Audacious Plan to Create a New Stock Exchange (BBG)
Five years ago, when Eric Ries was working on the book that would become his best-selling entrepreneurship manifesto “The Lean Startup,” he floated a provocative idea in the epilogue: Someone should build a new, “long-term” stock exchange. Its reforms, he wrote, would amend the frantic quarterly cycle to encourage investors and companies to make better decisions for the years ahead. When he showed a draft around, many readers gave him the same piece of advice: Kill that crazy part about the exchange. “It ruined my credibility for everything that had come before,” Ries said he was told. Now Ries is laying the groundwork to prove his early skeptics wrong.
To bring the Long-Term Stock Exchange to life, he’s assembled a team of about 20 engineers, finance executives and attorneys and raised a seed round from more than 30 investors, including venture capitalist Marc Andreessen; technology evangelist Tim O’Reilly; and Aneesh Chopra, the former chief technology officer of the United States. Ries has started early discussions with the U.S. Securities and Exchange Commission, but launching the LTSE could take several years. Wannabe exchanges typically go through months of informal talks with the SEC before filing a draft application, which LTSE plans to do this year. Regulators can then take months to decide whether to approve or delay applications. If all goes according to plan, the LTSE could be the stock exchange that fixes what Ries sees as the plague of today’s public markets: short-term thinking that squashes rational economic decisions.
It’s the same stigma that’s driving more of Silicon Valley’s multi-billion-dollar unicorn startups to say they’re not even thinking of an IPO. “Everyone’s being told, ‘Don’t go public,'” Ries said. “The most common conventional wisdom now is that going public will mean the end of your ability to innovate.” [..] A company that wants to list its stock on Ries’s exchange will have to choose from a menu of LTSE-approved compensation plans designed to make sure executive pay is not tied to short-term stock performance. Ries complains that it’s common to see CEOs or top management getting quarterly or annual bonuses tied to certain metrics like earnings per share, which pushes them to goose the numbers. Ries wants to encourage companies to adopt stock packages that continue vesting even after executives have left the company, which will push them to make healthy long-term moves.
It’s a really bright idea for a government to control its markets whenever it doesn’t like what they do. Kill price discovery. Why should anyone want to know what things are really worth?
• How China Tamed Stocks (WSJ)
Chinese stocks are at an odd crossroads this week: A key decision by index provider Morgan Stanley Capital International could make them a bigger part of international investors’ portfolios, even as a regulatory clampdown drives local traders away. Average daily trading turnover of shares on China’s two main markets, in Shanghai and Shenzhen—so-called A-shares—plunged last month to less than one-third of its level at its peak in June 2015. The amount of money that investors are borrowing from brokers to trade, known as margin debt, has dropped to its lowest level since December 2014.
And despite a 3.2% drop on Monday, the Shanghai stock market has just passed one of its least-eventful months ever, having moved less than 1% either way on all but two trading days in the past three weeks. Observers attribute the calm to heavy-handed intervention by Chinese officials who have tried to tame the country’s roller-coaster stock markets with support from state funds, curbs on some trading and direct hints to investors. All of that presents a forbidding backdrop for global investors ahead of MSCI’s decision, due Tuesday evening in New York, on whether to include mainland-listed shares in a key index tracked by international fund managers.
French protests are not over.
• Bringing the Troika to Paris (Weisbrot)
I have argued for years, and in my last post on this blog, that a big part of the story we have seen in Europe over the past eight years is a result of social engineering. This has involved a major offensive by the European authorities, taking advantage of an economic crisis, to transform Europe into a different kind of society, with a smaller social safety net, lower median wages, and – whether intended or not – increasing inequality as a result. In recent weeks France has faced strikes and protests as the battle has come to their terrain, over a new, sweeping labor law. Among other provisions, the law would weaken workers’ protections regarding overtime pay, the length of the work week, and job security. But most damaging of all are the provisions that would structurally weaken unions and undermine their bargaining power.
These would push collective bargaining away from the sectoral level, and toward the level of individual companies, thus making it more difficult for unions to establish industry standards for wages, hours and working conditions. Such structural “reforms” have been promoted by the European authorities (including the IMF) for years, and the ostensible rationale is to reduce unemployment. Economist Thomas Piketty succinctly sums up the major flaw in that argument: In the labor law you find the same mixture of lack of preparation and cynicism. If unemployment hasn’t stopped climbing since 2008, with an additional 1.5 million unemployed workers (and 2.1 million category A jobseekers in mid 2008, 2.8 million in mid 2012, 3.5 million in mid 2016) it’s not because the [current] labor law has suddenly become more rigid.
It’s because France and the Eurozone have provoked, through excessive austerity, an absurd slowdown of activity from 2011 to 2013, contrary to the U.S. and to the rest of the world, thereby transforming the financial crisis that came from the other side of the Atlantic into an interminable European recession. In a recent discussion, economist Yanis Varoufakis recounts a conversation that he had with his German counterpart Wolfgang Schäuble. It was at the height of the conflict between Greece and the European authorities last summer: “I had many interesting conversations with the Finance Minister of Germany, Dr. Wolfgang Schäuble. At some point, when I showed him this ultimatum, and I said to him… “Would you sign this? Just, let’s take off our hats as Finance Ministers for a moment. I’ve been in politics for five months. You’ve been in politics for 40 years.
You keep barking in my ear that I should sign it. Stop telling me what to do. As human beings, you know that my people, now, are suffering a Great Depression. We have children at school that faint as a result of malnutrition. Can you just do me the favor and advise me on what to do? Don’t tell me what to do. As somebody with 40 years, a Europeanist, somebody who comes from a democratic country, just Wolfgang to Yanis, not Finance Minister to Finance Minister.” And to his credit, he looked out of the window for a while. .. and he turned around and he said, “As a patriot I wouldn’t.” Of course the next question was, “so why are you forcing me to do it?” He said, “Don’t you understand?! I did this in the Baltics, in Portugal, in Ireland, you know, we have discipline to look after. And I want to take the Troika to Paris.” The Troika has arrived.
Shock doctrine in the UK.
• Executive Pay Is Obscene (Mason)
[..] if you want to prevent wealth flowing from productive people to the elite, you have to restructure the economy. You have to stop believing £24m annual paydays are the result of an accident. You have to make property speculation a crime and pursue policies that can suppress boom and bust, whether it is in the property market, the stock market or any other market. And you have to tax assets, not just income. Executive pay is structured around share options, not just salaries and bonuses, because it is more “tax efficient”. A tax on shares held; a tax on the value of property designed to stop it rising faster than GDP – these are the measures that would actually work. Plus, make a positive case for rent controls.
If Jeremy Corbyn’s Labour can become the first advanced-country government to suppress the causes of obscene executive pay, it will reap a massive first-mover advantage. The property market will stabilise; housing will become affordable as billionaires – foreign and domestic – take their money elsewhere. The stock market then will move in line with the real economy, not the fantasy economy created by a shortage of housing and a glut of money. Finally, the overpaid elite will drag their sorrows through the world to another jurisdiction. Personally, I cannot wait to see them go.
Still surprised Britain will vote against anything Cameron does or says?
• More Freeloaders Than Free Market (G.)
On Wednesday, two very different men will have to explain themselves. Both appear in London, to a room full of authority figures – but their finances and their status place them at opposite ends of our power structure. Yet put them together and a picture emerges of the skewedness of today’s Britain. For the Rev Paul Nicolson, the venue will be a magistrate’s court in London. His “crime” is refusing to pay his council tax, in protest against David Cameron’s effective scrapping of council tax benefit, part of his swingeing cuts to social security. In order to pay for a financial crisis they didn’t cause, millions of families already on low incomes are sinking deeper into poverty. In order to pay bills they can’t afford, neighbours of the retired vicar are going without food.
The 84-year-old faces jail this week, for the sake of £2,831. Meanwhile, a chauffeur will drive Philip Green to parliament, where he’ll be quizzed by MPs over his part in the collapse of BHS. A business nearly as old as the Queen will die within a few weeks, leaving 11,000 workers out of a job and 22,000 members of its pension scheme facing a poorer retirement. There the similarities peter out. Nicolson was summoned to court; Green wasn’t going to bother showing up at Westminster. When the multibillionaire was invited by Frank Field to make up BHS’s £600m pension black hole, he demanded the MP resign as chair of the work and pensions select committee.
But then, Green is used to cherry-picking which rules he plays by. Take this example: he buys Arcadia, the company that owns Topshop, then arranges for it to give his wife a dividend of £1.2bn. Since Tina Green is, conveniently, a resident of Monaco, the tax savings on that one payment alone are worth an estimated £300m. That would fund the building of 10 large secondary schools – or two-thirds of the annual cut to council tax benefits.
Sorry Angus, but “cosmopolitan prioritarianism” sounds like a real silly term. Maybe you should talk to people in words they can understand.
• Rethinking Robin Hood (Angus Deaton)
International development aid is based on the Robin Hood principle: take from the rich and give to the poor. National development agencies, multilateral organizations, and NGOs currently transfer more than $135 billion a year from rich countries to poor countries with this idea in mind. A more formal term for the Robin Hood principle is “cosmopolitan prioritarianism,” an ethical rule that says we should think of everyone in the world in the same way, no matter where they live, and then focus help where it helps the most. Those who have less have priority over those who have more. This philosophy implicitly or explicitly guides the aid for economic development, aid for health, and aid for humanitarian emergencies.
On its face, cosmopolitan prioritarianism makes sense. People in poor countries have needs that are more pressing, and price levels are much lower in poor countries, so that a dollar or euro goes twice or three times further than it does at home. Spending at home is not only more expensive, but it also goes to those who are already well off (at least relatively, judged by global standards), and so does less good. I have thought about and tried to measure global poverty for many years, and this guide has always seemed broadly right. But I currently find myself feeling increasingly unsure about it. Both facts and ethics pose problems. Huge strides have undoubtedly been made in reducing global poverty, more through growth and globalization than through aid from abroad.
The number of poor people has fallen in the past 40 years from more than two billion to just under one billion – a remarkable feat, given the increase in world population and the long-term slowing of global economic growth, especially since 2008. While impressive and wholly welcome, poverty reduction has not come without a cost. The globalization that has rescued so many in poor countries has harmed some people in rich countries, as factories and jobs migrated to where labor is cheaper. This seemed to be an ethically acceptable price to pay, because those who were losing were already so much wealthier (and healthier) than those who were gaining.
• Wikileaks To Publish ‘Enough Evidence’ To Indict Hillary – Assange (RT)
Wikileaks co-founder Julian Assange warns more information will be published about Hillary Clinton, enough to indict her if the US government is courageous enough to do so, in what he predicts will be “a very big year” for the whistleblowing website. Expressing concerns in an ITV interview about the Democratic presidential candidate, who he claims is monitoring him, Assange described Republican presumptive nominee Donald Trump as an “unpredictable phenomenon”, but predictably, given their divergent political views, didn’t say if he preferred the billionaire to be president.
“We have emails relating to Hillary Clinton which are pending publication,” Assange told Peston on Sunday when asked if more of her leaked electronic communications would be published. About 32,000 emails from her private server have been leaked by Wikileaks so far, but Assange would not confirm the number of emails or when they are expected to be published. Speaking via video link from the Ecuadorian Embassy in London, Assange said that there was enough information in the emails to indict Clinton, but that was unlikely to happen under the current Attorney General, Obama appointee Loretta Lynch. He does think “the FBI can push for concessions from the new Clinton government in exchange for its lack of indictment.”
Well done, boys. Next!
• First Mammal Species Wiped Out By Human-Induced Climate Change (G.)
The Bramble Cay melomys has become extinct, Australian scientists say (/span)
Human-caused climate change appears to have driven the Great Barrier Reef’s only endemic mammal species into the history books, with the Bramble Cay melomys, a small rodent that lives on a tiny island in the eastern Torres Strait, being completely wiped-out from its only known location. It is also the first recorded extinction of a mammal anywhere in the world thought to be primarily due to human-caused climate change. An expert says this extinction is likely just the tip of the iceberg, with climate change exerting increasing pressures on species everywhere. The rodent, also called the mosaic-tailed rat, was only known to live on Bramble Cay a small coral cay, just 340m long and 150m wide off the north coast of Queensland, Australia, which sits at most 3m above sea level.
It had the most isolated and restricted range of any Australian mammal, and was considered the only mammal species endemic to the Great Barrier Reef. When its existence was first recorded by Europeans in 1845, it was seen in high density on the island, with sailors reporting they shot the “large rats” with bows and arrows. In 1978, it was estimated there were several hundred on the small island. But the melomys were last seen in 2009, and after an extensive search for the animal in 2014, a report has recommended its status be changed from “endangered” to “extinct”.
Led by Ian Gynther from Queensland’s Department of Environment and Heritage Protection, and in partnership with the University of Queensland, the survey laid 150 traps on the island for six nights, and involved extensive measurements of the island and its vegetation. In their report, co-authored by Natalie Waller and Luke Leung from the University of Queensland, the researchers concluded the “root cause” of the extinction was sea-level rise. As a result of rising seas, the island was inundated on multiple occasions, they said, killing the animals and also destroying their habitat.
It’s starting to look like Merkel no longer understands the limits of her powers.
• Merkel Ready To Give In To ‘Blackmail’ Over Turkish Visas (BB)
According to a British diplomat, Chancellor Angela Merkel is ready to give visa-free travel in the Schengen zone to 75 million Turkish citizens despite the failure to meet key EU conditions. In starkly undiplomatic language, British Ambassador to Germany Sir Sebastian Wood has said that Chancellor Merkel’s officials are ready to strike a “compromise formulation” on the Turkish terrorism law which was a sticking point to the proposed EU-Turkey migrant deal. The Turkish leader, President Erdogan, recently said that telling his country to soften its counter-terror laws was tantamount to asking it to give up its struggle against terrorism. In saying so he was threatening to scupper the deal which is designed to give Turks visa-free travel to Europe in return for stemming the flow of illegal migrants to the continent.
At first the EU said it would not give in to Turkish pressure, but now The Daily Telegraph reports that a leaked diplomatic telegram (‘DipTel’) written last month by Sir Sebastian suggests otherwise. In the May 13 memo, Sir Sebastian said President Erdogan’s pursuit of German satirist Jan Böhmermann “only strengthened the view that he is an authoritarian bully who is trying to blackmail Europe.” He also wrote, regarding the migrant deal: “Despite the tough public line, there are straws in the wind to suggest that in extremis the Germans would compromise further to preserve the EU-Turkey deal. “Merkel has begun to paint the deal in humanitarian terms, (pointing out that since it came into force, only 9 people have drowned), to pre-empt human rights opposition. Officials here have shown some interest, behind the scenes, about possible compromise formulations on the anti-terror law.”
As I said before: the plan is to leave them all stranded in Greece.
• Stranded Refugees Line Up For Greek Asylum Cards (Kath.)
Greece aims to register 1,400 people a day in its new asylum access system in a bid to expedite asylum applications by refugees, to relocate them to other EU member-states or reunite them with their families. The operation, which began last Wednesday, seeks to deal with the some 48,000 migrants – many with expired papers – who got stranded on the Greek mainland after the Balkan route into Europe was closed. So far, 1,200 people have been “pre-registered” – as the process has been dubbed – in Athens and Thessaloniki. Pre-registration will grant refugees and migrants the legal right to stay in Greece for one year and access to basic services.
According to the head of Greece’s asylum service, Maria Stavropoulou, “pre-registration” will be “a first step either for relocation to other member-states, or for family reunification, or to apply for international protection in Greece.” Once they are registered, refugees receive an asylum applicant’s card which means they will get an interview in the next few months with the asylum service. The program will last for two months and aims to pre-register all applicants that arrived in Greece from January 1 2015 until March 19, 2016, the day before the treaty between the EU and Turkey to stem their flow went into effect. The process is open to three different groups: those with the right to move to EU countries where they have relatives as part of the family reunion program, those that will be part of the resettlement program (Syrians and Iraqis), and those who want to apply for asylum in Greece.