Jun 162018
 
 June 16, 2018  Posted by at 9:08 am Finance Tagged with: , , , , , , , , , ,  


Paul Gauguin Nevermore 1897

 

Trump Sets Tariffs On $50 Billion In Chinese Goods; Beijing Strikes Back (R.)
Why The U.S.-China Trade Deficit Is So Huge (MW)
Wall Street Builds Immunity To Trade War Rhetoric (R.)
Nomi Prins: The Central Banking Heist Has Put The World At Risk (UH)
Some Of The ‘Most Systemically Important Banks’ In The World Are Tumbling (ZH)
Merger Mania (Lebowitz)
The Key Word In The Trump-Kim Show (Escobar)
Merkel’s Position As German Leader Under Threat Over Immigration Split (CNBC)
US Government Says 2,000 Child Separations At Mexico Border In 6 Weeks (R.)
French Police Cut Soles Off Migrant Children’s Shoes – Oxfam (G.)
In ‘Calais of Italy’ Tension Soars Over Migrant Crisis (AFP)
Greek Police Hunt Golden Dawn Lawmaker Faced with Charges of Treason (GR)

 

 

Negotiating.

Trump Sets Tariffs On $50 Billion In Chinese Goods; Beijing Strikes Back (R.)

U.S. President Donald Trump said he was pushing ahead with hefty tariffs on $50 billion of Chinese imports on Friday, and the smoldering trade war between the world’s two largest economies showed signs of igniting as Beijing immediately vowed to respond in kind. Trump laid out a list of more than 800 strategically important imports from China that would be subject to a 25 percent tariff starting on July 6, including cars, the latest hardline stance on trade by a U.S. president who has already been wrangling with allies.

China’s Commerce Ministry said it would respond with tariffs “of the same scale and strength” and that any previous trade deals with Trump were “invalid.” The official Xinhua news agency said China would impose 25 percent tariffs on 659 U.S. products, ranging from soybeans and autos to seafood. China’s retaliation list was increased more than six-fold from a version released in April, but the value was kept at $50 billion, as some high-value items such as commercial aircraft were deleted.

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Soybeans R Us.

Why The U.S.-China Trade Deficit Is So Huge (MW)

President Donald Trump will let tariffs on Chinese goods worth up to $50 billion take effect after talks between the two countries failed to appease White House demands on reducing huge U.S. trade deficits. The U.S. has run large deficits with China for years and in some cases no longer produces certain goods such as consumer electronics that are popular with Americans. It won’t be easy, and it might even be impossible, to reduce the gap much any time soon. In 2017, the U.S. posted a $375.6 billion deficit in goods with China.

Most glaring is the huge deficit in computers and electronics, but the U.S. is a net importer from China in most market segments except for agriculture. The U.S. is excluding Chinese-made cellphones and televisions from its tariffs. China has been a big buyer of American-grown soybeans and other crops. Planes made by Boeing also are a product in demand in China. What happens next? Trump has vowed to increase tariffs if China retaliates, but the Chinese promised to return the favor. A trade dispute between the two largest economies in the world could result in lasting damage to the global economy if it metastasizes.

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What happens when there is no price discovery.

Wall Street Builds Immunity To Trade War Rhetoric (R.)

Fears of tariffs and a potential global trade war have jostled U.S. stocks over the past few months, but there is a sense among investors that the market is taking the drum beat of rhetoric and statements more in stride. In the latest salvo, U.S. President Donald Trump announced hefty tariffs on $50 billion of Chinese imports on Friday, and Beijing threatened to respond in kind. But even as the developments threatened to ignite a trade war between the world’s two largest economies, the equity market largely shrugged it off. The benchmark S&P 500 index ended down only 0.1 percent on Friday.

That paled compared to losses earlier in the year that were sparked by fears of a U.S.-China trade war that would be detrimental to economic growth. “The market has gotten reasonably comfortably numb to this tariff stuff,” said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana. “They are becoming more accustomed to this being a first foray and negotiating tool.” The U.S. Customs and Border Protection is to begin collecting tariffs on an initial tranche of 818 Chinese product categories on July 6. “It’s kind of the cry-wolf syndrome,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia. “I think people fear the tariffs and the uncertainty about it, but think, ‘OK, this is just another negotiating point.’”

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“..a de facto heist that has enabled the most dominant banks and central bankers to run the world”.

Nomi Prins: The Central Banking Heist Has Put The World At Risk (UH)

Over the last decade, she tells me when we meet in London, “under the guise of QE, central bankers have massively overstepped their traditional mandates, directing the flow of epic sums of fabricated money, without any checks or balances, towards the private banking sector”. Since QE began, in the aftermath of the financial crisis, “the US Federal Reserve has produced a massive $4.5 trillion of conjured money, out of a worldwide QE total of around $21 trillion”, says Prins. The combination of ultra-low interest rates and vast monetary expansion, she explains, has caused “speculation to rage … much as a global casino would be abuzz if everyone gambled using everyone else’s money”.

Much of this new spending power, though, has remained “inside the system”, with banks shoring up their balance sheets. “So lending to ordinary firms and households has barely grown as a result of QE,” says Prins, “nor have wages or prosperity for most of the world’s population”. Instead, “the banks have gone on an asset-buying spree”, she explains, getting into her stride, “with the vast flow of QE cash from central banks to private banks ensuring endless opportunities for market manipulation and asset bubbles – driven by government support”. Prins describes “the power grab we’ve seen by the US Federal Reserve, the European Central Bank, the Bank of Japan and other central banks”.

Using QE, she argues, “these illusionists have altered the nature of the financial system and orchestrated a de facto heist that has enabled the most dominant banks and central bankers to run the world”.

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They run the world and they’re still failing. Follow the money.

Some Of The ‘Most Systemically Important Banks’ In The World Are Tumbling (ZH)

Since the Federal Reserve hiked rates, “big” US banks have dramatically underperformed “small” US banks, continuing a trend that has been going on since February… But it’s broader than that; this “big” bank blow-up is global. The stock prices of 16 of the most ‘Systemically Important Financial Institutions’ (SIFIs) in the world are now in bear market territory (down by 20% or more from their recent highs in dollar terms); and as the FT reports, this has caused Ian Hartnett, chief investment strategist at London-based Absolute Strategy Research, to issue his first “Black Swan” alert since 2009.

Of the 39 SIFIs, these are the 16 in bear market territory: Deutsche Bank, Nordea, ICBC, UniCredit, Crédit Agricole, ING, Santander, Société Générale, BNP Paribas, UBS, Agricultural Bank of China, AXA, Mitsubishi UFJ Financial Group, Bank of China, Credit Suisse and Prudential Financial. At some point, says Hartnett, central bankers will have to respond to bearish signals from almost half the global SIFIs, rather than continuing to tighten monetary policy: “The clue is in the name,” he said. “If these banks are supposed to be systemically important then policymakers ought to be watching them to see what is happening.” “The synchronised dips were a sign of global financial stress.”

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“..there has been $2 trillion in mergers in 2018, and its only June.”

Merger Mania (Lebowitz)

We have written numerous articles describing how cheap money and poorly designed executive compensation packages encourage corporate actions that may not be in the best interest of longer-term shareholders or the economy. The bottom line in the series of articles is that corporations, in particular shareholders and executives, are willing to forego longer term investment for future growth opportunities in exchange for the personal benefits of short-term share price appreciation. Buybacks and mergers, both of which are fueled by the Federal Reserve’s ultra-low interest rate policy have made these actions much easier to accomplish.

On the other hand, corporate apologists argue that buybacks are simply a return of capital to shareholders, just like dividends. There is nothing more to them. Instead of elaborating about the longer term ill-effects associated with buybacks or the true short-term motivations behind many mergers, the powerful simplicity of the following two graphs stands on their own. The first graph, courtesy Meritocracy, shows how mergers tend to run in cycles. Like clockwork, merger activity tends to peak before recessions. Not surprisingly, the peaks tend to occur after the Federal Reserve (Fed) has initiated a rate hike cycle. The graph only goes through 2015, but consider there has been $2 trillion in mergers in 2018, and its only June.

The following graph shows how corporate borrowing has accelerated over the last eight years on the back of lower interest rates. Currently, corporate debt to GDP stands at levels that accompanied the prior three recessions. There is a pattern here among corporate activities which seems similar to that which we see in investors. At the point in time when investors should be getting cautious and defensive as markets become stretched, they carelessly reach for more return. Based on the charts above, corporate executives do the same thing. The difference is that when an investor is careless, his or her net worth is at risk. A corporate executive on the other hand, loses nothing and simply walks away and frequently with a golden parachute.

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The statement does have substance.

The Key Word In The Trump-Kim Show (Escobar)

The Singapore joint statement is not a deal; it’s a statement. The absolutely key item is number 3: “Reaffirming the April 27, 2018, Panmunjom Declaration, the DPRK commits to work toward the complete denuclearization of the Korean Peninsula.” This means that the US and North Korea will work towards denuclearization not only in what concerns the DPRK but the whole Korean Peninsula. Much more than “…the DPRK commits to work toward the complete denuclearization of the Korean Peninsula”, the keywords are in fact “reaffirming the April 27, 2018, Panmunjom Declaration…” Even before Singapore, everyone knew the DPRK would not “de-nuke” (Trump terminology) for nothing, especially when promised just some vague US “guarantees”.

Predictably, both US neocon and humanitarian imperialist factions are unanimous in their fury, blasting the absence of “meat” in the joint statement. In fact there’s plenty of meat. Singapore reaffirms the Panmunjom Declaration, which is a deal between North Korea and South Korea. By signing the Singapore joint statement, Washington has been put on notice of the Panmunjom Declaration. In law, when you take notice of a fact, you can’t ignore it later. The DPRK’s commitment to denuclearize in the Singapore statement is a reaffirmation of its commitment to denuclearize in the Panmunjom Declaration, with all of the conditions attached to it. And Trump acknowledged that by signing the Singapore statement.

The Panmunjom Declaration stresses that: “South and North Korea confirmed the common goal of realizing, through complete denuclearization, a nuclear-free Korean Peninsula. South and North Korea shared the view that the measures being initiated by North Korea are very meaningful and crucial for the denuclearization of the Korean peninsula and agreed to carry out their respective roles and responsibilities in this regard. South and North Korea agreed to actively seek the support and cooperation of the international community for the denuclearization of the Korean Peninsula.”

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The risk is real.

Merkel’s Position As German Leader Under Threat Over Immigration Split (CNBC)

A split over immigration between Angela Merkel’s Christian Democratic Union (CDU) and its sister Christian Social Union (CSU) party is threatening to end her 12-year spell as Germany’s leader. Germany’s grand coalition government was formed in March after five months of political deadlock since an election the previous September. It resulted in Merkel’s fourth term as German chancellor. That vote saw a big upswing in support for the right-wing Alternative for Germany (AfD) party, who campaigned against Merkel’s open-door policy to refugees and migrants arriving from the Middle East and Africa.

Now the CSU, fearful of losing further support from its conservative base, is threatening to withdraw from the country’s grand coalition unless Merkel hardens her immigration stance. “My sources in Berlin say the situation is on a knife-edge right now, some are even giving it an 80 percent probability that Merkel will step down in the next two weeks,” said Nina Schick, director at political consultancy Rasmussen Global, in a telephone call to CNBC Friday. Schick, however, warned that writing Merkel off has long been a dangerous game. “The fundamental rule in German politics since 2006 is don’t underestimate Merkel,” she added.

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CUT IT OUT! Bunch of crazies.

US Government Says 2,000 Child Separations At Mexico Border In 6 Weeks (R.)

The government said on Friday that 1,995 children were separated from 1,940 adults at the U.S.-Mexico border between April 19 and May 31, as the Trump administration implements stricter border enforcement policies. The number represents a dramatic uptick from the nearly 1,800 family separations that Reuters reported had happened from October 2016 through February of this year. The official tally of separations is now nearly 4,000 children, not including March and the beginning of April 2018. In May, U.S. Attorney General Jeff Sessions announced a ‘zero tolerance’ policy in which all those apprehended entering the United States illegally would be criminally charged, which generally leads to children being separated from their parents.

The families were all separated so the parents could be criminally prosecuted, said a spokesman for the Department of Homeland Security, who declined to be named, on a call with reporters. “Advocates want us to ignore the law and give people with families a free pass,” said the official. “We no longer exempt entire classes of people.” The Department of Homeland Security did not immediately respond to a request to provide a breakdown of the age of children separated from their parents and held in custody, but the official said they do not separate babies from adults.

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I said: CUT IT OUT!

French Police Cut Soles Off Migrant Children’s Shoes – Oxfam (G.)

French border police have been accused of detaining migrant children as young as 12 in cells without food or water, cutting the soles off their shoes and stealing sim cards from their mobile phones, before illegally sending them back to Italy. A report released on Friday by the charity Oxfam also cites the case of a “very young” Eritrean girl, who was forced to walk back to the Italian border town of Ventimiglia along a road with no pavement while carrying her 40-day-old baby. The allegations, which come from testimony gathered by Oxfam workers and partner organisations, come two months after French border police were accused of falsifying the birth dates of unaccompanied migrant children in an attempt to pass them off as adults and send them back to Italy.

“We don’t have evidence of violent physical abuse, but many [children] have recounted being pushed and shoved or shouted at in a language they don’t understand,” Giulia Capitani, the report’s author, told the Guardian. “And in other ways the border police intimidate them – for example, cutting the soles off their shoes is a way of saying, ‘Don’t try to come back’.” Daniela Zitarosa, from the Italian humanitarian agency Intersos, said: “Police [officers] yell at them, laugh at them and tell them, ‘You will never cross here’. “Some children have their mobile phone seized and sim card removed. They lose their data and phonebook. They cannot even call their parents afterwards.”

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France’s role is not pretty. Macron’s criticism of Italy unveils it.

In ‘Calais of Italy’ Tension Soars Over Migrant Crisis (AFP)

Emmanuel Macron is not a welcome guest in the Italian border town of Ventimiglia, a flashpoint in Europe’s migration crisis. Residents are furious at the French president for charging Rome with “cynicism and irresponsibility” this week after it turned away a rescue boat carrying more than 600 asylum-seekers. “It’s bad what happened to the Aquarius (ship) but how dare Macron criticise Italy!” vented retired teacher Fulvia Semeria who volunteers for the Secours Catholique charity, a key aid group for migrants. “It’s unacceptable from a country that does nothing for migrants and even rejects them,” she said, calling his remarks “insulting and totally unfair”.

The pretty northern town at the gates of the French Riviera has received tens of thousands of asylum seekers pushed back by France since the eruption of Europe’s worst migration crisis three years ago. This is in addition to scores of desperate African refugees landing on its shores after undertaking the perilous journey across the Mediterranean. The influx has seen Ventimiglia dubbed the “Calais of Italy”, in reference to the French coastal town notorious for its sprawling migrant camps. [..] At least 16 migrants have died trying to cross from France into Italy since September 2016, falling off mountains, being hit by cars or electrocuted while hiding under train carriages.

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Pretty crazy. All over a name change.

Greek Police Hunt Golden Dawn Lawmaker Faced with Charges of Treason (GR)

A Golden Dawn lawmaker is on the run after Greece’s authorities issued an arrest warrant following his call in the parliament on Friday for the arrest of the country’s prime minister and president over the provisional ‘Macedonia’ name deal. According to reports, Konstantinos Barbarousis, who could face charges of high treason, escaped a police blockade late on Friday in the western region of Aetoloakarnania where he sought refuge. A huge police operation is under way to locate him and bring him to justice. Judicial authorities do not need Parliament’s approval to lift an MP’s immunity in the case of treason-related charges.

Speaking in Parliament, Barbarousis accused the government of “not legislating in the nation’s interests but in its own.” He called for a coup d’etat and asked on the Greek armed forces to “abide by their oath” and arrest Prime Minister Alexis Tsipras, Defense Minister Panos Kammenos and President Prokopis Pavlopoulos. His outburst led to his expulsion form the extremist party, as the speaker of the house barred any members of Golden Dawn speaking during the debate on a no-confidence motion against the government tabled after the Greece, FYROM agreement.

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Jul 202015
 
 July 20, 2015  Posted by at 9:05 am Finance Tagged with: , , , , , , , , , ,  


NPC Daredevil John “Jammie” Reynolds, Washington DC 1917

Schäuble Was Ready To Give Greece €50 Billion To Quit The Euro (HeardinEurope)
Greece’s Real Crisis Deadline Arrives With ECB Debt to Pay (Bloomberg)
Greek Banks to Open Monday as Tsipras Prepares for Another Vote (Bloomberg)
Portugal’s Debts Are (Also) Unsustainable (Tavares)
Grexit Remains The Likely Outcome Of This Sorry Process (Münchau)
Krugman’s Money Is On A Grexit (CNN)
Why Austerity Is Not a Sound Economic Policy (Forbes)
The Failed Project of Europe (Jayati Ghosh)
The Great Greek Bank Drama, Act II: The Heist (Coppola)
Greek Austerity May Be An Economic Tale But Children Are The Human Cost (Conv.)
The Euro – The ‘New’ Coke Of Currencies? (Guardian)
Disgraced Ex-IMF Chief Strauss-Kahn Slams New Greek Deal As ‘Deadly Blow’ (RT)
The Right -Greek- Poem (New Yorker)
Youth Unemployment in Europe (OneEurope)
Ukraine Extends Creditor Talks As Threat Of Default Looms (FT)
China Stock Resumptions Dwindle as 20% of Shares Stay Halted (Bloomberg)
Gold Bulls In Retreat After Spectacular Plunge (CNBC)
Commodities Crash Could Turn Australia Into A New Greece (Telegraph)
Interview With Julian Assange: ‘We Are Drowning In Material’ (Spiegel)
Beijing To Become Center of Supercity of 130 Million People (NY Times)
Tiny Ocean Phytoplankton are Brightening Up the Sky (Gizmodo)

“..it appears that the Commission is keen to put in place a procedure for countries to leave the EU..” Wait, Schäuble is not in the Commission.

Schäuble Was Ready To Give Greece €50 Billion To Quit The Euro (HeardinEurope)

German Minister of Finance Wolfgang Schäuble was prepared “to give Greece €50 billion” had Yanis Varoufakis, his Greek counterpart at the time, agreed to his country leaving the eurozone, a high level source who recently spoke to Schäuble has revealed. The German minister was described by the source like “a true European” who had nothing against Greece, but favoured harsh medicine for a good cause. Schäuble was reported to assume that the leftist Syriza government would favour leaving the eurozone, a move consistent with its ideology. And he was prepared to put money on the table to encourage it to take this step. Schäuble was quoted as asking how much Greece wants to leave the euro by France’s Mediapart.

This is said to taken place before the 5 July referendum, in which a vast majority of Greeks rejected the international creditors’ proposals. But according to the information obtained by Heard in Europe, Schäuble had in mind a concrete figure – €50 billion – had Syriza opted for Grexit. Schäuble apparently didn’t say where the money would come from. Part of such a package could be sourced from the €35 billion of EU money due to Greece until 2020, plus ECB profits from Greek debt sovereign bonds due to Athens. Had Greece opted for a Grexit, more than €300 billion of its debt would be lost to creditors, but €50 billion of fresh money would come handy to the Syriza government to build a new financial system.

Under the bailouts, billions are disbursed to Greece, but the money goes mainly for servicing debt. Regardless of his party’s ideology, at the extraordinary Eurozone summit on 12 July, Greek Prime Minister Alexis Tsipras chose to honour the wishes of the majority of Greeks, who want to keep the euro. Tsipras’ decision was even more surprising given the creditor’s conditions, which our source described as “much, much more brutal compared to any country historically speaking”.

Schäuble is known to be in favour of a five-year timeout of Greece from the eurozone. The idea was rejected at the recent Eurozone summit, but it appears that the Commission is keen to put in place a procedure for countries to leave the EU, similar to the enlargement negotiations, Heard in Europe was told. According to this logic, Greece or the UK, or any other country for that matter, would receive EU support if it leaves the family in an orderly way. And the exit procedure would be accompanied by benchmarks, like the accession path. The money Schäuble was prepared to give Greece could be seen as a precursor to such support, similar to pre-accession financing.

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The ECB pays itself.

Greece’s Real Crisis Deadline Arrives With ECB Debt to Pay (Bloomberg)

Greece has reached the deadline it couldn’t afford to miss, for a bill it can finally afford to pay. Monday is the day the country must reimburse the ECB €4.2 billion, including interest, as bonds bought during its last debt crisis mature. The impending reckoning may have been the factor that eventually forced Prime Minister Alexis Tsipras on July 13 to accept the austerity he and his electorate had previously rejected, in return for the funds needed to keep his nation from default. As Greece blew past multiple political and financial supposed end-dates over the past five months, July 20 always remained make-or-break. EU law bans the ECB from financing governments, meaning a default would probably require it to pull support from Greek lenders, leaving an exit from the single currency all but assured.

“The issue of repayment to the ECB was pivotal, because failure to make the payment would have had a knock-on impact on the ECB’s willingness to continue providing Emergency Liquidity Assistance to the Greek banks,” said Ken Wattret at BNP Paribas in London. “As the realization dawned that Greece was facing a very disorderly, painful exit from the monetary union, the government stepped back from the brink.” While Greece should now have the funds to make the payment, politicians cut it fine. Euro-area leaders agreed on a bailout package worth as much as €86 billion in an overnight summit that ended last Monday. The Greek parliament approved the austerity measures linked to the aid in the early hours of Thursday morning, and the currency bloc signed off on €7 billion of bridge financing the next day.

ECB President Mario Draghi signaled his approval on Thursday by persuading his Governing Council to increase the ELA that is keeping Greek lenders afloat. Banks will reopen for basic services on Monday, three weeks after they were shut to prevent their collapse. In a press conference after the ECB’s decision on ELA, Draghi said he was confident his institution would get its money back on its Greek bonds. “All my evidence and information leads me to say we will be repaid,” he said in Frankfurt. The idea that Greece might default “is off the table,” he said. The ECB hasn’t said if Greece is expected to pay its debt by a specific time.

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Nothing much changes, but perhaps the feeling will help a little.

Greek Banks to Open Monday as Tsipras Prepares for Another Vote (Bloomberg)

Greek banks reopen Monday three weeks after they were shut down to prevent their collapse, as Prime Minister Alexis Tsipras prepares for a second parliamentary vote crucial to securing a bailout. Greeks will regain access to some basic bank services, including the ability to deposit checks and access safe deposit boxes. Although customers will continue to face restrictions on cash withdrawals, the daily limit of €60 will be replaced by a cumulative maximum of €420 a week. The Athens Stock Exchange, which had also been closed during the month-long confrontation between Greece and its creditors, is expected to reopen, as trading was suspended only until the bank holiday ended.

Tsipras is seeking discussions with euro-zone governments on a third bailout after Greek lawmakers went along with their demands for more economic overhauls. Hours after the vote early Thursday, the European Central Bank approved emergency financing for the country’s lenders. The EU followed on Friday with €7 billion bridge loan to keep the country afloat during negotiations on a three-year rescue program worth as much as €86 billion. The loan will help cover a €3.5 billion payment to the ECB that falls due Monday. The Greek government still faces a parliamentary vote Wednesday on a second package of prerequisites for further financial assistance, including tax increases on farmers. Last week’s vote prompted some members of the Syriza party to rebel, forcing Tsipras to reshuffle his cabinet on Friday.

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And Italy’s, and Spain’s, and Ireland’s, and…

Portugal’s Debts Are (Also) Unsustainable (Tavares)

Everyone seems to be focusing on Greece these days – a country so indebted that it needs even more loans to repay just a fraction of its gigantic credits. Clearly this is unsustainable and something has to give. Even the IMF agrees. But what about the other Southern European countries? Actually, Portugal’s financial situation is looking particularly shaky, and any hiccups could have serious cross-border repercussions from Madrid all the way to Berlin. The prevailing narrative is that Portugal has been a star pupil compared to Greece, with austerity delivering much better results:

• The government, a coalition of a center party and center-right party that together have held the majority of parliamentary seats since the 2011 election, pretty much followed all the major guidelines demanded by its creditors (the famous “Troika”) pursuant to the 2010 bailout, and was even praised for it.
• Exports have performed exceedingly well given everything that was going on domestically and abroad; the managers of small and medium enterprises in Portugal are true heroes, operating in difficult conditions and with limited access to credit.
• Portugal has recently become a darling of international real estate investors and tourists.
• The country’s citizens have stoically endured a range of tough austerity measures with surprisingly little social disruption.

So it is understandable that hopes for Portugal’s future are much rosier than in Greece… AND YET ITS FINANCIAL SITUATION IS ALSO UNSUSTAINABLE! We realize that this is quite a bold statement. So to support our argument we will use some simple math to show where government finances stand after five years of austerity. The Bank of Portugal (“BdP”), Portugal’s central bank, publishes debt statistics of key sectors in the economy on a quarterly basis. As of March 2015, non-financial public sector debt stood at €288 billion, or 166% of GDP. You may think that there’s something odd right there because you are used to hearing that the Portuguese government “only” owes 130% of its GDP. That’s because the media generally uses Maastricht treaty calculations, not the total amount that the government owes as a whole (which includes public companies, for instance). But what’s 36 %age points of GDP among friends?

OK, let’s do some math: We start by dividing €288 billion by 166% to find out what nominal GDP the BdP used in its calculation: about €174 billion; Next, let’s assume that the cost of debt on all that government debt is only 1%. In this case, the annual interest expense for the government should be 1% x €2.88 billion, or €2.88 billion. We know that this is very low as the actual interest expense in 2014 was almost €7 billion (and likely not all of it, but government accounts can get quite murky); Then we assume that Portugal’s nominal GDP grows at 1%, which is not stellar but certainly better than recent years – from December 2011 to December 2014, the average nominal growth rate was actually -0.6% (BdP figures). So that’s 1% x €174 billion, or €1.74 billion;

Finally, we compare the assumed interest costs with the nominal GDP growth: €2.88 billion vs €1.74 billion. See what we are getting at here? USING FAIRLY OPTIMISTIC ASSUMPTIONS, THE PORTUGUESE ECONOMY IS UNABLE TO GROW ENOUGH TO COVER THE INTEREST ON ITS GOVERNMENT DEBTS, LET ALONE AFFORD ANY PRINCIPAL REPAYMENTS!

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If Tsipras implements all austerity measures, it’s impossible for the economy to grow.

Grexit Remains The Likely Outcome Of This Sorry Process (Münchau)

Alexis Tsipras should never have hired Yanis Varoufakis as his finance minister. Or he should have listened to him, and kept him on. But instead the Greek prime minister chose the worst of all options. He followed Mr Varoufakis’ advice of rejecting the offer of the creditors — until last week. But having done this, Mr Tsipras committed a critical error by rejecting Mr Varoufakis’ plan B for the moment when the country’s banks closed down: the immediate introduction of a parallel currency — IOUs issues by the Greek state but denominated in euros. A parallel currency would have allowed the Greeks to pay for their daily transactions when cash withdrawals were limited to €60 a day. A total economic collapse would have been avoided. But Mr Tsipras did not go for this, or indeed any other plan B.

Instead he capitulated. At that point, he was no longer even in a position to choose a Grexit — a Greek exit from the eurozone. The economic precondition for a smooth departure would have been a primary surplus — before debt service — and an equivalent surplus in the private sector. Greece has no foreign exchange reserves. If the Greeks were to reintroduce the drachma, they would have had to pay for all of their imports with the foreign exchange earnings of their exports. These minimum preconditions were in place in March but not in July. So, like his predecessors, Mr Tsipras ended up with another very lousy bailout deal. And this one suffers from the same fundamental flaws as its predecessors. This leads me to conclude that Grexit remains the most likely ultimate outcome after all.

There are three principal ways in which this can happen. The first is that a deal is simply not concluded. All that was agreed last week is for negotiations to start, plus some interim financing. A deal might fail because principal participants themselves are sceptical. Wolfgang Schäuble, the German finance minister, says he will keep up his offer of a Grexit in his drawer, just in case the negotiations fail. Mr Tsipras denounced the agreement on several occasions last week. And the International Monetary Fund is telling us that the numbers do not add up, and that it will not sign unless the European creditors agree to debt relief. The Germans refuse any discussion on this subject, citing some trumped-up rules according to which eurozone countries are not allowed to default.

This is legal hogwash, but I suppose the purpose is to describe new red lines in the negotiations. My hunch is that they will ultimately fudge a deal, but that will come — as it always does — with overwhelming collateral damage: less debt relief than needed, and more austerity than Greece can bear. A more likely Grexit scenario is that a programme is agreed and then fails. The Athens government may implement all the measures the creditors demand, but the economy fails to recover and debt targets remain elusive. Mr Tsipras already agreed last week that if this situation arose, he would pile on more austerity. So, unless the economy behaves in future in a very different way from the way it behaved in the past, it will remain trapped in a vicious circle for many years to come.

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“My money is on exit one way or another.”

Krugman’s Money Is On A Grexit (CNN)

Nobel Prize-winning economist Paul Krugman says Greece’s hard times are far from over – and a Grexit is not out of the question. Eurozone leaders are set to offer new bailout terms for the deeply-indebted Greeks this week. And the country’s banks will also reopen on Monday. Krugman, however, is not convinced the situation in Greece is any less concerning. “My guess is either in the end they will get this sort of enormous debt relief…or they will have to exit,” Krugman told CNN’s Fareed Zakari Sunday. “My money is on exit one way or another.”

And Krugman agreed with some other economists who have said a Grexit shouldn’t be underestimated. Even if forgiving the country’s debt does not lead to “Lehman-like” bank failures, it would affect the stability of the Eurozone. “If Greece exits and then starts to recover, which it probably would, that would be, in a way, encouragement for other political movements to challenge the euro,” Krugman said. “This is not trivial.”

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Not a balanced assessment in any sense, but she hits some valid points.

Why Austerity Is Not a Sound Economic Policy (Forbes)

Austerity is a dubious measure that creditors, such as the IMF like to enforce on poor and politically weak countries aiming to get their money back faster. Unfortunately, austerity creates zombie economies which may have low debt, but unfortunately also end up with low prosperity. Bulgaria, for example is a country that Madam Merkel praised as ”disciplined” with very little government debt that has been able to implement austerity policies effectively. Yet, Bulgaria has the lowest GDP per capita in the EU and remains one of the poorest economies in Europe with little prospects for growth. It is not surprising then that Greece refuses to play ball. The restructuring discussion would have been far more appealing to the Greeks and far more believable if more emphasis was paid to creative ideas of how to jumpstart the Greek economy.

Young and unemployed, the Greeks are not willing to hear about austerity, but would love to hear about how to get a job. At the latest GAIM Conference in Monaco, I participated in a simulation of the Greek crisis. Some of my colleagues suggested interesting ideas focused on Greek economic growth ranging from a Russian natural gas pipeline going through Greece, to Germany relocating manufacturing to Greece and Greeks providing cheap labor, to a free economic zone in the Mediterranean with an infusion of Chinese capital. While each idea may or may not be viable, what was more striking to me is that rarely if ever in the real Greek economic and political debate, do I hear much about stimulating growth and productivity.

Secondly, in addition to economic growth, an innovative approach to debt restructuring is needed not only for Greece but also as a precedent for the world. The global debt including government, corporate and household debt, currently stands at $200 trillion with $57 trillion added since 2007. Current debt levels are likely unsustainable and unlikely to be repaid not just in Greece. A combination of currency devaluation, significant debt forgiveness and creation of new debt instruments that act more like equity and link to GDP growth, for example, will better align incentives between the creditors and the borrowers and ultimately could lead to faster economic recoveries.

Referring to the Greek plan or lack there off, Ian Bremmer, president of Eurasia Group, a political-risk consulting firm said: “It’s clearly a Band-Aid solution. I’d love to say we’ll be back here in a year or two. It’s more likely to be a few months.” I could not agree more with Mr. Bremmer. Much more is needed than bridge loans and austerity.

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“There was clearly a need to punish both the Syriza-led government and the Greek voters for daring to protest, by forcing upon them the most appalling and humiliating terms that have been seen in a non-war situation for a European nation..”

The Failed Project of Europe (Jayati Ghosh)

There is a stereotypical image of an abusive husband, who batters his wife and then beats her even more mercilessly if she dares to protest. It is self-evident that such violent behaviour reflects a failed relationship, one that is unlikely to be resolved through superficial bandaging of wounds. And it is usually stomach-churningly hard to watch such bullies in action, or even read about them. Much of the world has been watching the negotiations in Europe over the fate of Greece in the eurozone with the same sickening sense of horror and disbelief, as leaders of Germany and some other countries behave in similar fashion. The extent of the aggression, the deeply punitive conditionalities being imposed as terms of a still ungenerous bailout and the terrible humiliation and pain being wrought upon the Greek people are hard to explain in purely economic or even political terms.

Instead, all this seems to reflect some deep, visceral anger that has been awakened by the sheer effrontery of a government of a small state that dared to consult its people rather than immediately bowing to the desires of the leaders of larger countries and the unelected technocrats who serve them. There was also anger directed at the people themselves, who dared to vote in a referendum against the terms of a bailout package that offered them only more austerity, less hope and continued pain in the foreseeable future, just so that their country can continue to pay the foreign debts that everyone (even the IMF!) knows simply cannot be paid. The response went beyond completely ignoring the will of the Greek people as expressed in the referendum, to insist on pushing even worse conditions on them for their resistance.

There was clearly a need to punish both the Syriza-led government and the Greek voters for daring to protest, by forcing upon them the most appalling and humiliating terms that have been seen in a non-war situation for a European nation, for the increasingly dubious advantage of staying within the eurozone. Greece will become an economic protectorate, indeed little more than a colony of Germany within the eurozone. It will have no control over its fiscal policies, forced to sell valuable public assets that amount to more than a third of annual national income just to keep trying to pay its creditors. It will have to reverse decisions made in the recent past to preserve some public employment such as of cleaning and sanitation workers and security guards, whom it will now have to fire again, and will have to cut pensions of elderly people who have already seen their pensions fall by 40%.

It will have to increase indirect taxes that will hit the poor most. It will have to accept the constant presence of the external rulers, in the form of an IMF team that will monitor the budget and the activities of the Greek government, who are not any more to be trusted by the European leaders. Since the troika has thus far not been able to push Syriza out of power, they are now seeking the alternative of a much weakened party in government (soon no doubt to become a “government of national unity” with the support of centrist and right wing MPs) under the direct political control of the (mostly unelected) European bosses.

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The Greek banking system was bled to death intentionally.

The Great Greek Bank Drama, Act II: The Heist (Coppola)

Back in the autumn of 2014, the ECB & EBA conducted stress tests on European banks, including all four of Greece’s large banks (which together make up about 90% of its banking sector). The Greek banks at that time passed the stress tests and were deemed solvent. They are now supervised not by Greek regulatory bodies, but directly by the ECB under the Single Supervisory Mechanism (SSM). Yet now, eight months later, sufficient damage has apparently been done to Greece’s banks to render them collectively insolvent. What on earth has gone wrong? Greece’s banks have suffered a continual deposit drain since the beginning of the year. This is how they became dependent on emergency liquidity assistance (ELA) funding from the Bank of Greece.

But liquidity shortfalls do not cause insolvency unless they are covered by means of asset fire sales. In this case, the liquidity drain was until 28th June covered by ELA. Collateral has to be pledged for ELA funding, and Greek banks consequently found their balance sheets becoming more and more encumbered. To make matters worse, the ECB recently increased collateral haircuts for Greek banks. Now the banks are reopening, it is not clear how much collateral they have left for ELA funding. Whether the ECB will relax collateral requirements to allow a wider range of assets to be pledged remains to be seen. It is probably conditional on good behaviour by the Greek sovereign. But it is not the funding side of Greek banks that is the real problem. It is the asset base.

Greece went into recession in Q4 2014 (yes, BEFORE Syriza came to power). Since then, there has been a considerable fall in output caused mainly by lack of confidence. On top of this, the Greek sovereign has been running substantial primary surpluses all year in order to maintain payments to creditors in the absence of bailout funding. It has done this not by collecting more taxes but by a considerable squeeze on public spending: this has mainly taken the form of delaying payments to the private sector. Additionally, the private sector itself has cut back spending and investment. The result is that real incomes have tumbled, unemployment has risen and loan defaults have increased. Non-performing loans in the Greek banking sector were already high at the beginning of the year but are now believed to have risen substantially. This is the principal cause of the possible insolvency of Greek banks.

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All young people are victims.

Greek Austerity May Be An Economic Tale But Children Are The Human Cost (Conv.)

Many perspectives have been shared about the social and economic repercussions that the third EU bailout proposal for Greece may have. The impact of these tough austerity measures is yet to unfold for the country, for the other southern states, or indeed Europe as a whole. But moving beyond a purely economic lens, there is already evidence about the extent of deprivation and youth unemployment of more than 50% during the past five years of the first and second bailout programmes, meaning that the likely effects of the third are easier to predict, at least for this generation. The links between poverty and a range of risk factors for child mental health problems and related outcomes is well established.

Nevertheless, the reality hit home a few weeks ago when I joined the Children’s SOS Villages in Greece in training their prospective new carers, or “mothers” and “aunts” as they are widely called. These carers work in a similar way to foster carers and residential care staff in other welfare systems. The villages were established in Austria after World War II to care for orphan children and since then their model has successfully spread across more than 120 countries. Their model may slightly vary, but their target groups are typically children without parents, for a range of reasons, or those who have been abused and/or neglected. Consequently, it came as a surprise to realise the extent of child abandonment (neglect, an inability to care for them or even asking social services to look after them) for predominantly financial reasons since the beginning of the Greek crisis.

The organisation has responded by diversifying its remit in Greece. In the absence of an increasingly stretched health and social care sector, they have now extended their services beyond the traditional villages to support, relieve and prevent abuse and neglect, running eight social centres in Greece’s major cities to help keep families together. A 2014 UNICEF report said that child poverty in Greece had almost doubled from 23% in 2008 to 40.5% in 2012, with migrant children particularly vulnerable. It found average family incomes were at 1998 levels, and 18% of households with children unable to afford a meal with meat, chicken, fish or a vegetable equivalent every second day.

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At least with Coke, the people got to vote.

The Euro – The ‘New’ Coke Of Currencies? (Guardian)

The date 23 April 1985 was a momentous day in the life of the Coca-Cola corporation. For years, the company had been planning a new drink to see off the challenge from Pepsi. There was no expense spared for Project Kansas. “New” Coke (as it was dubbed) bombed. The company responded with alacrity. It didn’t say consumers were wrong. It didn’t say that given time New Coke would be a success. It didn’t plough on simply because it had invested heavily in Project Kansas. Instead, it recognised that there was only one option: to go back to the traditional formula. This returned to the shelves on 11 July 1985, within three months of “New” Coke’s launch. There is a lesson here for both businesses and policymakers – and European policymakers in particular.

Sixteen years after its launch, it should be clear even to its most die-hard supporters that the euro is New Coke. European politicians took a formula that was working and messed around with it. They changed the ingredients that made the EU a success, thinking it would be an improvement. Coca-Cola thought New Coke would see off the challenge from Pepsi. Europe thought the euro would see off the challenge from the US. Both were wrong. The only difference is that Coke quickly saw the writing on the wall, and that Europe still hasn’t. It is not hard to see why the pre-euro European Union was popular. The EU was seen as a symbol of peace and prosperity after a period when the continent had been beset by mass unemployment, poverty, dictatorship and war.

Growth rates were spectacularly high in the 1950s and 1960s, a period when Europe caught up rapidly with the US. Britain’s decision to join what was then the European Economic Community in 1973 was mainly due to the feeling that Germany, France and Italy had found the secret of economic success. Other countries felt the same. They believed access to a bigger market would improve their economic prospects. In the last quarter of the 20th century, output per head in Greece, Portugal, Spain and – most spectacularly – Ireland, rose more rapidly than it did in core countries such as Germany and France. The gap in incomes per head did not entirely disappear but it certainly narrowed. As such, it was no surprise that countries in eastern Europe wanted to join the EU after the collapse of communism: Europe was associated with democracy and prosperity, a winning combination.

Since the birth of the euro, it has been a different story. The crisis in Greece has highlighted the problems that a one-size-fits-all interest rate can cause for countries on the periphery. In the good times, monetary policy is too loose for their needs, leading to asset bubbles, inflationary pressure and the loss of competitiveness. In the bad times, there are no shock absorbers other than wage cuts and austerity. Devaluation of the currency is not possible and there is no system to tio transfer resources from rich to poor parts of the union. Without a common social security system, the result is higher unemployment, rising poverty and political disaffection. What’s less remarked on is that the single currency has not been wonderful for ordinary workers in core Europe either. That’s not just true of Italy, a founder member, where living standards are no higher now than they were in the late 1990s, but also of Germany.

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The big wigs had solid reasons to want him out of the way.

Disgraced Ex-IMF Chief Strauss-Kahn Slams New Greek Deal As ‘Deadly Blow’ (RT)

The former head of the IMF, Dominique Strauss-Kahn, has decried the latest deal reached on a new Greek bailout as “profoundly damaging.” While admitting that the deal removed the risk of a Grexit, he stressed that “the conditions of the agreement, however, are positively alarming for those who still believe in the future of Europe.” “What happened last weekend was for me profoundly damaging, if not a deadly blow,” he wrote in the open letter entitled “To my German friends” published on Saturday. Strauss-Kahn referred to the deal as a “diktat” and accused European leaders of putting ideology and political gains ahead of real problems, and thus risking the integrity of the European Union.

“Political leaders seemed far too savvy to want to seize the opportunity of an ideological victory over a far left government at the expense of fragmenting the Union,” he said, adding that negotiations had ended up in a “crippling situation” due to this. He also accused the creditors of adopting ineffective strategies towards Greece, more intended to “punish,” than to promote the future of Europe. “In counting our billions instead of using them to build, in refusing to accept an albeit obvious loss by constantly postponing any commitment on reducing the debt, in preferring to humiliate a people because they are unable to reform, and putting resentments – however justified – before projects for the future, we are turning our backs on what Europe should be, we are turning our backs on (…) citizen solidarity,” Strauss-Kahn said in his letter.

He also emphasized the necessity of reforming the whole currency union calling it “an imperfect monetary union forged on an ambiguous agreement between France and Germany,” adding that neither Germany nor France had a “true common vision of the Union,” being “trapped in misleading and inconsistent” concepts. He stressed that Europe could not be saved “simply by imposing rules of sound management,” but only by mutual respect built “through democracy and dialogue, through reason, and not by force.” He also cautioned European leaders against taking measures that created division in Europe and being overly dependent on their perceived “friend” – the USA. “An alliance between a few European countries, even led by the most powerful among them, will be subjugated by our friend and ally the United States in the maybe not so distant future,” he said.

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A rich culture through the ages.

The Right -Greek- Poem (New Yorker)

When Greeks want to gesture “No,” they nod: a little upward snap of the head. The confusion that this can produce in visitors has long been an object of amusement for the locals—and the source of rueful anecdotes by tourists who have found themselves inadvertently refusing bellhops or a sweating glass of frappé after a hot afternoon on the Acropolis. Lately, you’d be forgiven for thinking that the Greeks themselves have been having a hard time understanding the difference between “yes” and “no.” On July 5th, at the ostensible encouragement of the Prime Minister, Alexis Tsipras, an overwhelming majority voted no to punishing new austerity measures in return for continued membership in the euro zone—“a bed of Procrustes,” as The American Interest described the dilemma.

A week later, however—after an escalating struggle between Tsipras’s government and European creditors that the Telegraph compared to “a tragedy from Euripides”—the same electorate was being called upon by Tsipras to say yes to a bailout offer more “draconian” (CNBC) than the last one. “Draconian,” “procrustean,” “Euripides”: however confusing the state of affairs in Athens and Brussels right now, it’s clear that the temptation to invoke the glories of ancient Greece in connection with the current Greek economic crisis is one that journalists have found impossible to resist. Most of the allusions are unlikely to send readers racing to Wikipedia. “ ‘Grexit’ Brinkmanship Is Classic Greek Tragedy,” went one headline, on Breitbart.com. (The article contained a link to the Web page for a Greek-tragedy course at Utah State University.)

Some betray a sentimental high-mindedness about Greece’s position in the history of civilization: “In Greece, A Vote Befitting The Birthplace Of Democracy?” Reuters mused. Of the more substantive attempts to link Greece’s grandiose past to its humbled present, nearly all have focussed on a notorious incident from the Peloponnesian War—the ruinous, three-decade-long conflict between Athens and Sparta. In 416 B.C., the Athenians brutally punished the tiny island state of Melos for trying to preserve its neutrality. In a famous passage of Thucydides’ history of the war, known as the Melian Dialogue, the Athenian representatives blithely tell their Melian counterparts, “The strong do what they can and the weak suffer what they must,” before killing all the adult males of the city and enslaving the women and children.

Perceived similarities between the Athenians of the fifth century B.C. and today’s Germans have provoked a flurry of think pieces. “What Would Thucydides Say About the Crisis in Greece?” an Op-Ed in the Times asked. Yet, despite the baggy analogizing and the rhetoric about eternal verities, attempts to use Pericles’ Athens to explain Tsipras’s Greece often obscure important differences. “Melos was a neutral state,” the Times Op-Ed tartly observed, “while modern Greece not only joined the European Union but over the years merrily plundered its treasury.”

It’s easy to see where the impulse to conflate “Greek history” with “Classical Greek history” comes from: appeals to Thucydides or Plato can confer authority in real-world decision-making. (In 2001, some conservatives cited the Athenians’ take-no-prisoners rhetoric at Melos to justify the invasion of Afghanistan.) But the presumption that nothing much of interest happened in Greece between the end of the Classical era, in 323 B.C., and the founding of the modern nation, in the early nineteenth century, has long irritated both Greeks and students of Greek history.

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Shameful.

Youth Unemployment in Europe (OneEurope)

According to this infographic made by Statista (Statista.com) youth unemployment is still a huge problem in many European countries. In March 2015 Spain, Greece, Croatia and Italy had the worst unemployment rate for people under 25 years of age. How could you explain these different%ages of youth unemployment across Europe? What are the main responsible factors for this issue? In which way do you think the European Union should work to solve it?

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Let’s see what the IMF has left in its warchest.

Ukraine Extends Creditor Talks As Threat Of Default Looms (FT)

Ukraine has extended hastily assembled talks with creditors amid predictions that the country could default as early as Friday if an agreement is not reached. Kiev’s desire to avoid the fate of Greece has encouraged both sides to tone down the combative rhetoric that has dogged negotiations over the past three months. However a principal-to-principal meeting held in Washington last week failed to elicit a deal to restructure Ukraine’s $70bn debt burden, although a joint statement declared that progress had been made. Bridging the gap between Ukraine and the international creditors who hold its sovereign debt will not be easy. Following Russia’s annexation of Ukraine’s Crimean region and the conflict with pro-Russian separatists in the east that has wrecked its economy, Ukraine’s debt is widely expected to top 100% of GDP this year.

Kiev hopes for a 40% debt writedown on bonds worth a little more than $15bn in order to make the debt sustainable. But a group of four creditors holding around $9bn of Ukrainian bonds, led by US asset manager Franklin Templeton, disagree that a haircut is needed and have put forward an alternative proposal for maturity extensions and coupon reductions. The only concrete example of progress so far has been the suggestion of swapping part of Ukraine’s debt for GDP-linked bonds, which both sides support, and which would offer equity-like returns if the country’s economy outperforms. So far, Ukraine has met all of its debt obligations, including a $75m coupon payment to Russia, and has successfully negotiated maturity extensions on a number of other payments.
However, Goldman Sachs has warned that default looks “likely” in July when a payment of $120m comes due on a Ukrainian government bond.

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Good lord: “The halted firms are valued at an average 243 times reported earnings…”

China Stock Resumptions Dwindle as 20% of Shares Stay Halted (Bloomberg)

A fifth of China’s stock market remains frozen as the number of companies resuming trading slows to a trickle. A total of 576 companies were suspended on mainland exchanges as of the midday break on Monday, equivalent to 20% of total listings, and down from 635 at the close on Friday. The halted firms are valued at an average 243 times reported earnings, compared with 164 times for all companies traded in Shanghai and Shenzhen. The ongoing suspensions are raising doubts about the sustainability of a rebound in Chinese stocks. The Shanghai Composite Index has climbed about 14% from its July 8 low, following a 32% plunge that helped erase almost $4 trillion of value.

The number of companies with trading halts exceeded 1,400, or around 50% of listings, during the height of the rout as the government took increasingly extreme measures to shore up equities. “When half the market becomes illiquid, that was a sign that China had regressed, they’re not willing to accept the ups and downs of a capital market,” Roshan Padamadan, the founder and manager of Luminance Global Fund, said in an interview on Bloomberg Television from Singapore. Researching companies becomes “pointless” when the government allows them to halt trading without reason, he said. The suspended companies have a combined value of 4 trillion yuan ($644 billion), equivalent to about 9% of China’s total market capitalization. The majority of halts were by shares listed on the Shenzhen Composite Index, the benchmark gauge for the smaller of China’s two exchanges.

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The trend must be worrying to some. Looks like gold goes the way of other commodities.

Gold Bulls In Retreat After Spectacular Plunge (CNBC)

Gold got whacked in the Asian trading session on Monday, plunging below $1,100 in for the first time since March 2010, and strategists say the precious metal is only headed lower from here. The precious metal’s latest leg down was reportedly triggered by speculative selling in the Shanghai Gold Exchange, catching investors off guard. “It was down to speculation here, someone taking advantage of the low liquidity environment,” Victor Thianpiriya, commodity strategist at ANZ, told CNBC. “Around 5 tonnes of gold was sold on the Shanghai Gold Exchange within the space of two minutes between 09:29 and 09:30. The daily volume last week was about 25 tonnes,” he noted. Gold slid over 4% to as low as $1,086 an ounce in early trade on Monday, before paring back some losses over the course of the day.

It was down 2.3% at $1,107 at around 12:00 SG/HK time. “It clearly wasn’t driven by fundamentals, because the U.S. dollar didn’t move at that time,” Thianpiriya said. The disappointing performance of the yellow metal, which is down 6.4% on a year-to-date basis, has sent gold bulls into retreat. Jonathan Barratt, chief investment officer at Ayers Alliance, a longtime gold bug, says he’s turned “neutral” on the metal. “As you know I’ve been a bull, [but] I’ve got to go neutral now. Gold’s broken through some very critical areas. From a technical perspective it doesn’t look hot,” said Barratt, who expects price could fall back to $1,100 or lower.

Technical analyst Daryl Guppy also warned of “bearish features” on the gold chart: “There is a higher probability of a future fall below $1,150 and a continuation of the downtrend towards historical support near $980.” With the Federal Reserve’s first rate hike looming and the prospect of a stronger greenback, the odds remained stacked against gold, say analysts. “I think there’s further downside on the price once the dust settles and the focus shifts back to U.S. dollar strength and the interest rate outlook,” said Thianpiriya. “The risk of it hitting $1,050 is clearly elevated.”

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Too many bets on too few horses. Both Australia and New Zealand look to get hit hard.

Commodities Crash Could Turn Australia Into A New Greece (Telegraph)

Last month Gina Rinehart, Australia’s richest woman and matriarch of Perth’s Hancock mining dynasty delivered an unwelcome shock to her workers in Western Australia: accept a possible 10pc pay cut or face the risk of future redundancies. Ms Rinehart, whose family have accumulated vast wealth from iron ore mining, has seen her fortune dwindle since commodity prices began their inexorable slide last year. The Australian mining mogul has seen her estimated wealth collapse to around $11bn (£7bn) from a fortune that was thought to be worth around $30bn just three years ago. This colossal collapse in wealth is symptomatic of the wider economic problem now facing Australia, which for years has been known as the lucky country due to its preponderance in natural resources such as iron ore, coal and gold.

During the boom years of the so-called commodities “super cycle” when China couldn’t buy enough of everything that Australia dug out of the ground, the country’s economy resembled oil-rich Saudi Arabia. While the rest of the world suffered from the aftermath of the global financial crisis, Australia’s economy – closely tied to China – appeared impervious, with full employment and a healthy trade surplus. However, a collapse in iron ore and coal prices coupled with the impact of large international mining companies slashing investment has exposed Australia’s true vulnerability. Just like Saudi Arabia, which is now burning its foreign reserves to compensate for falling oil prices, Australia faces a collapse in export revenue. Recently revised figures for April show that the country’s trade deficit with the rest of the world ballooned to a record A$4.14bn (£2bn).

That gap between the value of exports and imports is expected to increase as the value of Australia’s most important resources reaches new multi-year lows. Iron ore is now trading at around $50 per tonne, compared with a peak of around $180 per tonne achieved in 2011. Thermal coal has also suffered heavy losses, now trading at around $60 per tonne compared with around $150 per tonne four years ago. For an economy which in 2012 depended on resources for 65pc of its total trade in goods and services these dramatic falls in prices are almost impossible to absorb without inflicting wider damage. The drop in foreign currency earnings has seen Australia forced to borrow more in order to maintain government spending.

The respected Australian economist Stephen Koukoulas recently wrote of the dangers that escalating levels of foreign debt could present for future generations. Could a prolonged period of depressed commodity prices even turn Australia into Asia’s version of Greece, with China being its banker of last resort instead of the European Union. Mr Koukoulas points out that by the end of the first quarter this year, Australia’s net foreign debt had climbed to a record $955bn, equal to almost 60pc of gross domestic product. Although this is far behind the likes of Greece, which boasts an unenviable ratio of over 175pc, it is nevertheless unsustainable, especially if it is allowed to widen further.

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Long interview. Assange is a clever man.

Interview With Julian Assange: ‘We Are Drowning In Material’ (Spiegel)

SPIEGEL: Mr. Assange, WikiLeaks is back, publishing documents which prove the United States has been surveilling the French government, publishing Saudi diplomatic cables and posting evidence of the massive surveillance of the German government by US secret services. What are the reasons for this comeback?
Assange: Yes, WikiLeaks has been publishing a lot of material in the last few months. We have been publishing right through, but sometimes it has been material which does not concern the West and the Western media — documents about Syria, for example. But you have to consider that there was, and still is, a conflict with the United States government which started in earnest in 2010 after we began publishing a variety of classified US documents.

SPIEGEL: What did this mean for you and for WikiLeaks?
Assange: The result was a series of legal cases, blockades, PR attacks and so on. With a banking blockade, WikiLeaks had been cut off from more than 90% of its finances. The blockade happened in a completely extra judicial manner. We took legal measures against the blockade and we have been victorious in the courts, so people can send us donations again.

SPIEGEL: What difficulties did you have to overcome?
Assange: There had been attacks on our technical infrastructure. And our staff had to take a 40% pay cut, but we have been able to keep things together without having to fire anybody, which I am quite proud of. We became a bit like Cuba, working out ways around this blockade. Various groups like Germany’s Wau Holland Foundation collected donations for us during the blockade.

SPIEGEL: What did you do with the donations you got?
Assange: They enabled us to pay for new infrastructure, which was needed. I have been publishing about the NSA for almost 20 years now, so I was aware of the NSA and GCHQ mass surveillance. We required a next-generation submission system in order to protect our sources.

SPIEGEL: And is it in place now?
Assange: Yes, a few months back we launched a next-generation submission system and also integrated it with our publications.

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A city the size of Kansas.

Beijing To Become Center of Supercity of 130 Million People (NY Times)

For decades, China’s government has tried to limit the size of Beijing, the capital, through draconian residency permits. Now, the government has embarked on an ambitious plan to make Beijing the center of a new supercity of 130 million people. The planned megalopolis, a metropolitan area that would be about six times the size of New York’s, is meant to revamp northern China’s economy and become a laboratory for modern urban growth. “The supercity is the vanguard of economic reform,” said Liu Gang, a professor at Nankai University in Tianjin who advises local governments on regional development. “It reflects the senior leadership’s views on the need for integration, innovation and environmental protection.”

The new region will link the research facilities and creative culture of Beijing with the economic muscle of the port city of Tianjin and the hinterlands of Hebei Province, forcing areas that have never cooperated to work together. This month, the Beijing city government announced its part of the plan, vowing to move much of its bureaucracy, as well as factories and hospitals, to the hinterlands in an effort to offset the city’s strict residency limits, easing congestion, and to spread good-paying jobs into less-developed areas. Jing-Jin-Ji, as the region is called (“Jing” for Beijing, “Jin” for Tianjin and “Ji,” the traditional name for Hebei Province), is meant to help the area catch up to China’s more prosperous economic belts: the Yangtze River Delta around Shanghai and Nanjing in central China, and the Pearl River Delta around Guangzhou and Shenzhen in southern China.

But the new supercity is intended to be different in scope and conception. It would be spread over 82,000 square miles, about the size of Kansas, and hold a population larger than a third of the United States. And unlike metro areas that have grown up organically, Jing-Jin-Ji would be a very deliberate creation. Its centerpiece: a huge expansion of high-speed rail to bring the major cities within an hour’s commute of each other. But some of the new roads and rails are years from completion. For many people, the creation of the supercity so far has meant ever-longer commutes on gridlocked highways to the capital.

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“The Southern Ocean, isolated from human pollution, offers us a glimpse into what skies around the world might have looked like in pre-industrial times.”

Tiny Ocean Phytoplankton are Brightening Up the Sky (Gizmodo)

Phytoplankton may be microscopic, but that doesn’t mean we can’t see them. Just look up: These little critters are brightening up cloudy days around the world. That’s according to research published Friday in the open-access journal Science Advances, which highlights the surprisingly large role microbes in the Southern Ocean play in cloud formation. Tiny phytoplankton can be swept out of their watery homes by gusts of wind. And once airborne, they help encourage water condensation, forming brighter clouds that reflect additional sunlight. “The clouds over the Southern Ocean reflect significantly more sunlight in the summertime than they would without these huge plankton blooms,” said study co-author Daniel McCoy of the University of Washington in a statement.

“In the summer, we get about double the concentration of cloud droplets as we would if it were a biologically dead ocean.” It’s a well-known fact that phytoplankton play a huge role in managing Earth’s climate by drawing down CO2 for photosynthesis every year. The new study suggests another fascinating way that these little critters are shaping our planet—by making it a tad brighter. Averaged over the year, the researchers find that phytoplankton reflect an extra 4 watts of incoming solar radiation per square meter in the Southern Ocean skies. Clouds form when droplets of water condense out of the air around tiny particles— specks of salt, dust, dead organic matter, and even living microorganisms.

Turns out, particle size has a direct impact on cloud brightness: Smaller particles form smaller droplets, creating more surface area within the cloud to reflect back incoming sunlight, which in turn helps keep the Earth’s surface cooler. The researchers stumbled upon cloud-forming microbes somewhat by accident, while they were looking at cloud cover data captured by NASA’s Earth-orbiting MODIS satellite over the Southern Ocean in 2014. The team discovered that Southern Ocean clouds were reflecting more sunlight in the summer, suggesting a greater abundance of small cloud-forming particles. This was a bit weird, because the Southern Ocean surface waters are actually much calmer in the summer and send up less salt spray into to the atmosphere.

The new study took a closer look at what else could be making the clouds more reflective. Using ocean biology models and data on cloud droplet concentrations, the team identified marine life as the likely culprit. Phytoplankton emit gases such as dimethyl sulfide (the stuff that gives the ocean its distinctly sulfurous smell), which, once airborne, can also help condense water droplets. What’s more, summertime plankton blooms form a bubbly scum of tiny organic particles that are easily whipped up into the air. Taken together, these two biological pathways double the number of tiny droplets in Southern Ocean skies during the summer. The Southern Ocean, isolated from human pollution, offers us a glimpse into what skies around the world might have looked like in pre-industrial times. How much of an impact biological cloud seeding has on Earth’s global climate remains to be seen.

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Oct 122014
 
 October 12, 2014  Posted by at 12:09 pm Finance Tagged with: , , , , , , , , , , , ,  


John Vachon Michigan Avenue, Chicago July 1941

IMF: Get Bold On Economy, Ease Up On Budget Cuts (Reuters)
Financial Storm Clouds Cast A Deep Shadow Over IMF Summit (Observer)
Fed’s Evans: Stronger Dollar Will Hurt Growth, Inflation Fight (MarketWatch)
Fed’s Williams: What Emerging Markets Should Fear (MarketWatch)
Fed’s Tarullo: Banking Scandals More Than Just A Few Bad Apples (MarketWatch)
Europe Growth Pact Floated As Euro Zone Recession Fears Mount (Reuters)
Italy’s Beppe Grillo Prepares Referendum On Leaving The Eurozone (RT)
Italian PM Stakes His Credibility On Passage Of Big Reforms (Economist)
Grillo’s M5S Stages 3-Day Gathering In Rome To Protest Reform Bill (PressTV)
Irish Voters Take To The Streets In Anti-Austerity Protests (Reuters)
US Seeks ‘Total Cooperation’ From Swiss On Tax Dodging (Reuters)
An ISIS/Al-Qaeda Merger Could Cripple the Civilized World (Fiscal Times)
IMF: Price Drop Shouldn’t Disrupt Oil Producers’ Government Spending (Reuters)
Hackers Plan $1 Billion ‘Cyber-Heist’ On Global Bank (ES)
Banks Accept Derivatives Rule Change To End ‘Too Big To Fail’ (Reuters)
New China Import Tariffs Mean ‘Game Is Over For Australian Coal’ (Reuters)
One In Seven Australians Living Below The Poverty Line (Guardian)
Fracking Firms Get Tested by Oil’s Price Drop (WSJ)
‘The Overnighters’ Shows Dark Side Of North Dakota Oil Boom (Reuters)
Health Care Worker Who Treated Texas Victim Tests Positive For Ebola (BBC)
Second Leaker In US intelligence, Says Glenn Greenwald (Guardian)

We should dissolve the IMF. They’ve become even more dangerous than they are useless.

IMF: Get Bold On Economy, Ease Up On Budget Cuts (Reuters)

The IMF’s member countries on Saturday said bold action was needed to bolster the global economic recovery, and they urged governments to take care not to squelch growth by tightening budgets too drastically. With Japan’s economy floundering, the euro zone at risk of recession and the U.S. recovery too weak to generate a rise in incomes, the IMF’s steering committee said focusing on growth was the priority. “A number of countries face the prospect of low or slowing growth, with unemployment remaining unacceptably high,” the International Monetary and Financial Committee said on behalf of the Fund’s 188 member countries. The Fund this week cut its 2014 global growth forecast to 3.3% from 3.4%, the third reduction this year as the prospects for a sustainable recovery from the 2007-2009 global financial crisis have ebbed, despite hefty injections of cash by the world’s central banks.

The IMF has flagged Europe’s weakness as the top concern, a sentiment echoed by many policymakers, economists and investors gathered in Washington for the Fund’s fall meetings, which wrap up on Sunday. European officials have sought to dispel the gloom, with European Central Bank President Mario Draghi on Saturday talking about a delay, not an end, to the region’s recovery. But efforts to provide more room for France to meet its European Union deficit target looked set to founder on Germany’s insistence that the agreement on fiscal rectitude was set in stone. The IMF panel urged countries to carry out politically tough reforms to labor markets and social security to free up government money to invest in infrastructure to create jobs and lift growth. It called on central banks to be careful when communicating changes in policy in order to avoid financial market shocks. While not naming any central banks, the warning appeared aimed at the U.S. Federal Reserve, which will end its quantitative easing policy this month and appears poised to begin raising interest rates around the middle of next year.

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And dissolve the World Bank, too. These institutions serve only special interests, they’re an insurance policy for a world order gone haywire.

Financial Storm Clouds Cast A Deep Shadow Over IMF Summit (Observer)

Six years ago, finance ministers and central bank governors gathered in Washington for the annual meeting of the International Monetary Fund with the global financial system teetering on the brink. It was less than a month since the collapse of the US investment bank Lehman Brothers and in the aftermath no institution, however big and powerful, looked safe. After staring into the abyss, they put together a co-ordinated plan to rescue ailing banks. This was followed by further joint moves when the drying up of credit flows plunged the world economy into recession. A second Great Depression was averted, but only just – and at a price. Last week, the IMF and World Bank celebrated their 70th birthdays, but there was a distinct lack of party atmosphere in Washington. While not as tense as during the dark days of October 2008, the mood was distinctly sombre as the two organisations –created at the 1944 Bretton Woods conference – worked their way through a packed agenda that was dominated by six big themes.

Ever since the global economy bottomed out in the spring of 2009, the hope has been that the world would return to the robust levels of growth seen in the years leading up to the financial crash. Time and again, the optimism has proved misplaced, with the IMF repeatedly revising down its forecasts. This year was no exception. “The recovery continues but it is weak and uneven,” said the IMF’s economic counsellor, Olivier Blanchard, as he announced that at 3.3%, growth rates would be 0.4 points lower than anticipated in the spring. What concerns the IMF is that the slowdown – particularly in the advanced countries of the west – may be permanent. The phrase being bandied around in Washington was “secular stagnation”, the notion that there has been a structural decline in potential growth rates. Blanchard said it was entirely possible that developed countries would never return to their pre-crisis growth levels, and that even achieving the lower rates of expansion now expected would require interest rates to be maintained at historically low levels.

Having failed spectacularly to spot the last financial crisis coming, the IMF is now alert to the possibility that a long period of ultra-low interest rates is storing up problems for the future. José Viñals, the IMF’s financial counsellor, said: “Policymakers are facing a new global imbalance: not enough economic risk-taking in support of growth, but increasing excesses in financial risk-taking posing stability challenges.” This is not what the central banks intended when they cut the cost of borrowing and cranked up the electronic-money printing presses in the process known as quantitative easing. They expected cheap and plentiful money to rouse the animal spirits of entrepreneurs, encouraging them to invest. Instead, they have provided the casino chips for speculators.

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Part of a carefully planned spin.

Fed’s Evans: Stronger Dollar Will Hurt Growth, Inflation Fight (MarketWatch)

A stronger U.S. dollar is an obstacle to the Federal Reserve’s ability to meet its inflation mandate and will impede growth, Charles Evans, the president of the Chicago Fed, said on Saturday. “It’s a headwind,” Evans told reporters after giving a speech on the sidelines of the International Monetary Fund’s annual meeting. “[A] Higher dollar is going to have an effect on our net exports, it is going to reduce it a bit. And it is also going to lead to lower import prices and likely have an effect that our inflation data will be lower,” Evans said. Earlier, in his speech, Evans said there is “more uncertainty” in the global economic outlook than the Fed had expected. Evans said he was restricting his comments to the effects of the stronger dollar on the U.S. economy and had no comment on U.S. dollar policy. Evans said that he expects the economy to growth at a 3% pace, but because housing isn’t acting as its typical engine of growth, a lot of things have to go right to get that growth rate.

“It is in that context that as I see the global uncertainties at a fairly high level it makes me a little concerned about the forecast,” he said. “It is much too soon to take on any headwinds from around the world,” he added. Experts said the U.S. government would only tolerate a stronger dollar versus the euro as long as European officials follow through with structural reforms. Evans is one of the most dovish of the regional Fed presidents, and said the Fed should wait until early 2016 to raise interest rates. He will be a voting member of the Fed policy committee next year. Evans suggested he would support altering the Fed’s guidance to give some quantitative sense that the central bank would tolerate inflation above 2% for some time, as long as projections did not show prices spiking higher.

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‘It’s not only rising rates’ …

Fed’s Williams: What Emerging Markets Should Fear (MarketWatch)

Emerging markets face more risks than from the Federal Reserve, John Williams, the president of the San Francisco Fed, said on Saturday. Many experts, including Reserve Bank of India Governor Raghuram Rajan, have urged the Fed to be sensitive to the impact that the timing of its increase in interest rates will have on the developing world. Williams said that market volatility may stem more from the fact that major global central banks are moving in different directions. “Everyone is talking about the Federal Reserve. quite honestly, unconventional policy is going on in Japan and the European Central Bank, so to me it is really the cross currents that really, to my mind, drive the uncertainty and some of that risk out there in global markets.

It is not just what the Fed is doing, it is that fact that different central banks are moving in different directions for appropriate reasons,” Williams said at the Institute of International Finance meeting, taking place on the sideline of the International Monetary Fund’s annual meeting. Higher interest rates are expected to draw back money from riskier markets. Last year, just the suggestion by the Fed that it was thinking about ending its quantitative easing program sparked a selloff in currencies and assets in emerging markets. Andrew Colquhoun, head of Asia Pacific Sovereigns at Fitch Ratings, said recent research by his firm shows that Indonesia, India, Turkey and Brazil might be vulnerable if there were a shock to financial market conditions as a result of the Fed raising rates.

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So what are you going to do about it?

Fed’s Tarullo: Banking Scandals More Than Just A Few Bad Apples (MarketWatch)

The plethora of banking scandals cannot be written off as just the work of a few bad actors, Federal Reserve Governor Daniel Tarullo said Saturday. In remarks to the Institute of International Finance, Tarullo said that the average U.S. citizen reading the newspaper would be understandably upset after reading stories about bank mortgage fraud, and more recent scandals involving efforts to manipulate the Libor reference rate and allegations of manipulation of foreign exchange rates. “The problem at this juncture is that there are so many problems,” Tarullo said. The institute is meeting on the sidelines of the annual meeting of the International Monetary Fund.

“You can’t just be telling yourself that there are a few apples. There is something about the structure of incentives and expectations within firms that needs to be addressed,” Tarullo said. “ I think a lot of boards, and management, know it needs to be addressed.” Tarullo is the Fed’s point man on bank regulation. In other remarks, Tarullo said it was premature to declare that the problem of too-big-to-fail banks has been solved, noting that cross-border complications remain. As the Fed puts higher liquidity and capital standards on the biggest banks, Tarullo said the central bank will be watching closely to see if any activities move into the shadow banking sector. “That is something we are all going to need to keep a watch on and make sure risk is not building up in other places in the system.”

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Could have been a headline in any of the past 8 years. The more things change …

Europe Growth Pact Floated As Euro Zone Recession Fears Mount (Reuters)

Heeding global calls for action to shore up Europe’s sagging economy, euro zone’s top finance official proposed a new growth pact on Friday to break a policy logjam and spur reforms by rewarding countries with cheap funds and leeway on budget targets. The International Monetary Fund, which cut its global growth forecasts for the third time this year this week, flagged Europe’s weakness as the top concern, a sentiment echoed by many policymakers, economists and investors. European officials in Washington for the IMF and World Bank annual meetings sought to dispel the gloom, with European Central Bank President Mario Draghi talking about a delay, not an end, to the region’s recovery. Jeroen Dijsselbloem, the chairman of euro zone’s finance ministers, used the forum to propose a new “growth deal” for Europe offering nations embarking on ambitious economic reforms more fiscal wiggle room and low-interest EU funds.

“There is no reason for this gloominess about Europe,” Dijsselbloem told Reuters. “Those countries that have actually implemented the strategy and done the reforms, have returned to growth, in southern Europe, in the Baltics, in Ireland. Which once again proves that reforms do not hurt growth, but help recovery quite quickly.” It would take months of political negotiations for the proposed pact to take shape. In the meantime, a steady stream of poor economic data looks set to keep Europe’s partners on edge. “The biggest risk to the global economy at the moment … is the risk of the euro zone falling back into recession and into crisis,” British finance minister George Osborne told reporters.

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It’s been three years since Nicole and I went to visit Beppe. Good to see he’s still at it. Best chance Italians have.

Italy’s Beppe Grillo Prepares Referendum On Leaving The Eurozone (RT)

The leader of an influential Italian Eurosceptic political party, the Five Star Movement (M5S), says he will collect one million signatures required to petition the Parliament to conduct a referendum on Italy leaving the Eurozone as soon as possible. The Italian government is not effective in restoring jobs and helping people, said Beppe Grillo, the leader of Italy’s anti-establishment M5S, which burst onto the political scene last year winning 25% of the vote in its first parliamentary election in 2013. “Leave the euro and defend the sovereignty of the Italian people from the European Central Bank,” Grillo told his supporters at a M5S event in Rome. “We have to leave the euro as soon as possible,” he said. “We will collect one million signatures in six months and bring them to the Parliament to ask for a referendum to express our opinion.” Grillo hopes his party’s recent success and growing support will allow them to gather enough signatures and push the idea through the Parliament by December 2015.

“This time, we have 150 parliamentarians and senators, and we have time to submit [the signatures] to the Parliament and adopt a law on the referendum,” Grillo said referring to 109 seats out of 630 in the Chamber of Deputies and 54 seats out of 315 in the Senate that his party holds. The constitution of Italy prohibits popular referendums on financial laws and ratifications of international treaties, but in any case the move will send a clear message to the government, Grillo believes. The Five Star Movement was started by Grillo in 2010 and has made a splash at local elections, receiving the third highest number of votes overall and winning the mayoral election for Parma before the success in general election. In the 2014 European election, M5S came in second place nationally, taking 17 of Italy’s seats in the European Parliament.

Beppe Grillo was a popular comedian on Italian television in 80s, but he disappeared from the screen in the 90s, with many suggesting that his harsh satire was too much to handle for Italian politicians. After that he mainly performed in theatres and staged a series of mass rallies, protesting against the criminal activities of the Italian political elite. At a time when unemployment in the Eurozone’s third largest economy is running above 12% and all-time high of 44% for Italians under the age of 25, Grillo’s belief in direct participation through forms of digital democracy might be the only way to get Italian frustration across. Although the IMF predicts Italy’s recession will break in 2015, when the growth is expected to reach 1.1%, the country is struggling to keep its budget deficit below the EU’s cap of 3% of GDP.

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Renzi resorts to sneaky methods to push his ‘reforms’ through. Never a good sign.

Italian PM Stakes His Credibility On Passage Of Big Reforms (Economist)

THE Sala Verde (green room) in the prime minister’s official residence, Palazzo Chigi, in Rome has in the past been the scene of three-way talks between the government, the unions and employers that lasted for days. It was to this chamber that Matteo Renzi, the present prime minister, invited representatives of both sides on October 7th to discuss a revamped employment bill crucial to his government’s credibility as a liberalising administration. He gave them each 60 minutes, starting at 8am. “Only once before has [such] an absence of social dialogue been seen in Europe,” spluttered Susanna Camusso, leader of the biggest trade union federation. “With Thatcher.” But in Italy, where “face” can be as important as it is in several East Asian countries, appearances are one thing and substance another. The employment bill, which passed its first test in the Senate a day later, is far from Thatcherite. It aims to give most new employees gradually increasing job security, potentially improving the lot of young Italians who now often work only on short-term contracts.

But it leaves to enabling legislation the fate of Article 18, an emblematic provision in Italian labour law that makes it almost impossible for companies with more than 15 staff to dismiss workers on open-ended contracts (even if, in practice, most employees are willing to negotiate a settlement). It is too early to assess the likely impact of the bill. It will be heavily conditioned by further legislation, some of it not due for approval until next year. But it is nevertheless Mr Renzi’s first big structural economic reform, and as such it is a much-needed prize for the euro zone’s austerity hawks. With Italy mired yet again in recession and GDP in real terms below its level in 2000, never mind 2008 (see chart), Mr Renzi is desperate for the hawks to take a more flexible view of his budget deficit so as to sustain demand. “Either we promote growth, or the euro is finished,” he says.

This week the IMF reduced its forecast for Italian GDP growth this year to minus 0.2%, from plus 0.3% previously. Not even Italy’s innately optimistic prime minister expects it to get above 1% in 2015. His country’s public debt, already 135% of GDP, continues to grow despite relatively tight fiscal policy. One reason for the brevity of Mr Renzi’s talks with the unions and employers was that he wanted them out of the way before racing his employment bill into the Senate so as to coincide with a one-day European Union jobs summit that he was hosting in Milan on October 8th (Italy occupies the rotating EU presidency until the end of the year). To get the bill approved in the face of misgivings on the left of his Democratic Party (PD) and in other parties, Mr Renzi staked the fate of his government, turning the vote into one of confidence. The result was a tumultuous session in the upper house. No fewer than 26 PD senators put their names to a document criticising the lack of detail in the bill.

Beppe Grillo’s Five Star Movement (M5S) also objected to the government’s being given such wide powers to frame the enabling legislation. Some M5S senators threw coins at the government benches; their leader was expelled from the chamber. A lengthy break in the proceedings failed to calm the mood. At one point, a book was hurled at the speaker after he refused to postpone the vote. The bill eventually passed with 165 in favour and 111 against. The passage of this and other reforms is vital if Mr Renzi is to convince Germany and other euro-zone austerians to cut him enough budgetary slack in order to boost growth. For the time being, and unlike France’s leaders, he says he is prepared to stick to the euro zone’s deficit ceiling of 3% of GDP: “An absolute must, for reasons of credibility,” he insists. Yet Italy was originally meant to get the deficit this year down to 2.6%. It stands to lose some EU co-financing if its deficit rises above 3%.

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44% long-term youth unemployment.

Grillo’s M5S Stages 3-Day Gathering In Rome To Protest Reform Bill (PressTV)

Italy’s opposition party, the Five Star Movement has launched a three-day gathering in Rome, attended by thousands of people from across the country. As discontent and disillusion continue to grow in the country, an increasing number of Italians are opting to line up with the Five Star Movement which has taken a hard-line on Italy’s old guard of politicians. Many hold traditional politics responsible for the country’s high level of corruption and skyrocketing unemployment rate. The 5-Star Movement is well known for its anti-establishment agenda. The movement has announced that it would use obstructionism in the parliament against all government measures after an executive’s controversial labor market reform bill recently won a confidence vote in the Senate. During the gathering, the movement leader Beppe Grillo has once again accused Italian media of staging disinformation campaigns against his movement. Also, the 5-Star Movement members of the parliament are currently not attending TV shows as a sign of protest.

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To think that Ireland was presented as an austerity poster child earlier this year…

Irish Voters Take To The Streets In Anti-Austerity Protests (Reuters)

Tens of thousands of people rallied against new water bills in Dublin on Saturday in Ireland’s biggest anti-austerity protest for years as a candidate calling for a boycott of the charges was elected to parliament in a by-election. After years of free water services, the centre-right coalition has decided to charge households hundreds of euros from the start of next year, an unpopular move just 18 months before the next election where the government parties hope to be rewarded by voters for an economic upturn. Ireland has seen relatively few protests compared to other bailed-out euro zone members such as Greece and Portugal, but Saturday’s protesters said the water charges were a step too far. “There is absolute fury against what the government has imposed on the people,” said Martin Kelly, 50, a rail worker holding a placard calling for the government to “stop the great water heist.” “They say this is the last bit, but it’s the hardest. People can’t take any more,” he said.

Since completing an international bailout last year, Ireland has been bucking the trend in Europe’s stalled economic recovery, with the government forecasting gross domestic product to grow by 4.7% this year. The improvement has allowed the government to promise its first budget without any new austerity measures in seven years on Tuesday, but opposition groups say working people are not feeling the upturn. More than one in 10 are unemployed and more than 100,000 mortgage holders in arrears in a population of 4.6 million. Paul Murphy from the Anti-Austerity Alliance, whose campaign was dominated by a call to boycott the water charges, won the parliamentary seat in the Dublin South West constituency that was vacated by a member of the governing Fine Gael party who was elected to the European Parliament. Murphy, told supporters: “Recovery is for the rich, it’s for the 1% … it’s not for the working class people.” His supporters chanted: “No way, we won’t pay.”

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And why not?

US Seeks ‘Total Cooperation’ From Swiss On Tax Dodging (Reuters)

The U.S. Department of Justice (DOJ) is seeking “total cooperation” from Swiss banks in a draft agreement aimed at allowing the banks to make amends for aiding tax evasion by wealthy Americans, a Swiss newspaper reported on Saturday. About 100 Swiss banks signed up to work with U.S. authorities at the end of last year in a program brokered by the Swiss government. That followed criminal investigations of roughly a dozen Swiss banks in the United States. Under the program so-called category two banks – those that have reason to believe they may have committed tax offenses – will escape prosecution if they detail their wrongdoing with U.S. clients and pay fines.

These banks have now received a draft non-prosecution agreement from the United States, which would require them to report in full to U.S. authorities any information or knowledge of activity relating to U.S. tax, the the Neue Zuercher Zeitung (NZZ) said, citing unnamed banking sources. These requirements would also apply to parent companies, subsidiaries, management, workers and external advisors, the NZZ reported. This total cooperation would, in addition, not only apply with respect to the DOJ and the Internal Revenue Service, but also to anyone, even foreign law enforcement agencies, that the DOJ is supporting in its investigations,” the NZZ reported. It said that no end date for this cooperation was given in the draft.

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One would think so.

An ISIS/Al-Qaeda Merger Could Cripple the Civilized World (Fiscal Times)

As ISIS continues to advance on the Syrian town of Kobani and close in on Turkey’s border, experts in Islamic radical movements think the terror group may merge with its al-Qaeda mother organization soon. Together, the group would represent the greatest terror threat to the civilized world. “I think Britain, Germany and France will witness significant attacks in their territories by the Islamic State. Al-Baghdadi [the leader of the Islamic State of Iraq and Syria, otherwise known as ISIS] may reconcile with al-Zawhiri [the leader of the al-Qaeda central organization] to fight the crusader enemy. The attacks by the United States and her allies will unite the two groups,” said Hisham al-Hashimi, an Iraqi researcher who just finished writing a book about ISIS based on his unique access to the organization’s documents and years of research and advising Iraqi security forces.

“I have been monitoring al-Qaeda’s leaders’ rhetoric towards Baghdadi. They are getting softer and softer….The Islamic State, regardless of how big or small it becomes, will come back to its mother: al-Qaeda,” he added. ISIS and al-Qaeda have a long, tangled history with one another. ISIS was the al-Qaeda official branch in Iraq until last February. However, they finally split after disagreements over operations in Syria. The recent US intervention in the region along with the new US-led airstrike campaign against ISIS has actually forced the two groups to renew negotiations. For example, recent reports suggested that ISIS and al-Nusra Front are together planning the war against the US-led alliance. The al-Qaeda affiliated Khorasan group in Syria that was also targeted in the recent air attacks declared a few days ago in an audio message that it had joined ISIS. Add to that the Taliban in Pakistan who are hopping on board the ISIS train and you have a potential jihadi World War III.

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Collateral damage of US/Saudi policies.

IMF: Price Drop Shouldn’t Disrupt Oil Producers’ Government Spending (Reuters)

The drop in global oil prices should not affect the spending plans of oil-producing countries in the Middle East in the near-term given their large financial reserves, the head of the IMF’s Middle East and Central Asia Department said on Friday. The official, Masood Ahmed, told reporters that every oil producer in the region outside of the Gulf Cooperation Council and Bahrain were running fiscal deficits, and that the drop in prices would push those budget gaps even wider. However, he said their sizable financial reserves would allow those countries to continue with their spending plans in the short-term, although the price drop has raised a longer-term issue.

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Criminals targeting criminals?!

Hackers Plan $1 Billion ‘Cyber-Heist’ On Global Banks (ES)

Criminal gangs are plotting a $1 billion (£618 million) cyber-heist on global financial institutions, Europol has warned, as they ratchet up the pressure on banks reeling from the record-breaking hit on JPMorgan Chase. Secret listening on internet chatrooms by the European police investigative body has discovered planning by sophisticated Russian cyber-criminals aimed at pulling off one massive hit on a bank. “We have intelligence and information about planning in this direction,” Troels Oerting, pictured, head of Europol’s European Cybercrime Centre in The Hague, said. Bank insiders are being groomed, says Europol, to put in place programs that will override monitoring apparatus. These insiders will close down alarm systems designed to alert staff when large amounts are unexpectedly transferred out of a bank. “The criminals don’t want to make thousands of small thefts,” said Oerting. “Instead they want one big one on a financial institution.”

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Never trust anything the banks readily accept.

Banks Accept Derivatives Rule Change To End ‘Too Big To Fail’ (Reuters)

The $700 trillion financial derivatives industry has agreed to a fundamental rule change from January to help regulators to wind down failed banks without destabilizing markets. The International Swaps and Derivatives Association (ISDA) and 18 major banks that dominate the market will now allow financial watchdogs to apply temporary stays to prevent a rush to close derivatives contracts if a bank runs into trouble, the ISDA said on Saturday. A delay would give regulators time to ensure that critical parts of a bank, such as customer accounts, continue smoothly while the rest is wound down or sold off in an orderly way. That would help to avoid the type of market chaos sparked by the collapse of Lehman Brothers in 2008 and also end the problem of banks being considered too big to fail. The Financial Stability Board (FSB), a regulatory task force for the Group of 20 economies (G20), had asked the ISDA to make the changes with the aim of ending the too-big-to-fail scenario in which banks are propped up with taxpayer money to avoid market disruption.

Under the new contract terms, default clauses in derivatives contracts such as interest rate or credit default swaps would be suspended for a maximum of 48 hours. “Ending too-big-to-fail is going to be an evolutionary process, but the agreement of the first wave of banks to sign the protocol is a big step forward,” ISDA Chief Executive Scott O’Malia said. The ISDA template for millions of derivatives trades will now include the possibility of stays on both new and existing contracts, with the 18 leading players—including the likes of Credit Suisse and Goldman Sachs —agreeing to change their contracts from January. Many derivatives are traded among banks. “Well over 90% of the outstanding derivatives notionally held by the G18 banks will be covered with stays, which will give regulators some time to deal with a resolution of a bank in an orderly way,” O’Malia said.

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The big one.

New China Import Tariffs Mean ‘Game Is Over For Australian Coal’ (Reuters)

China, the world’s top coal importer, will levy import tariffs on the commodity after nearly a decade, in its latest bid to prop up ailing domestic miners who have been buffeted by rising costs and tumbling prices. The sudden move by China to levy import tariffs of between 3% and 6% from October 15 is set to hit miners in Australia and Russia – among the top coal exporters into the country. Traders said Indonesia, the second-biggest shipper of the fuel to China, will be exempt from the tariffs since a free trade agreement between China and the Association of Southeast Asian Nations (ASEAN) means Beijing has promised the signatory nations zero import tariffs for some resources. A 3% import tariff imposed on lignite last year did not include Indonesia. “China is clearly moving to protect its local miners. Given that the tariff also covers coking coal, Australia, being the top supplier to China, is likely going to be the most affected,” said Serene Lim, an analyst at Standard Chartered.

The Ministry of Finance said in a statement on Thursday that import tariffs for anthracite coal and coking coal will return to 3%, while non-coking coal will have an import tax of 6%. Briquettes, a fuel manufactured from coal, and other coal-based fuels will see their import tariffs return to 5%. Import taxes for all coals, with the exception of coking coal, was at 6% prior to 2005 before they were scrapped in 2007. Coking coal import taxes were set at 3% before being abolished in 2005. News of the tariff lifted China’s thermal coal futures by 1.9% to 529.2 yuan ($86.33) a tonne, while China-listed shares in top miners such as Shenhua Energy and China Coal Energy also rose. Chinese traders were only willing to pay about $65 a tonne for coal with heating value of 5,500 kcal/kg (NAR) on a landed basis before the tariff was announced, against offers of about $66 a tonne by Australians, traders said. “With the latest tax, Chinese can only offer around $62, which means Australian sellers will need to cut prices by about $3.50-$4 a tonne,” said a senior trader at major international trading house. “It is game over for Australian coal.”

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The scandal that happens all over the western world, and will end up tearing it apart.

One In Seven Australians Living Below The Poverty Line (Guardian)

Four in 10 Australians who rely on social welfare payments – and nearly half of people on the disability support pension – are living below the poverty line, according to a major new report. The research, published by the Australian Council of Social Services (Acoss), found that more than 2.5 million – or one in seven – Australians were living in poverty in 2012, a slight increase on the same survey two years earlier. Nearly 18% of children live beneath the poverty line, one-third of them in sole-parent families, Acoss found. The governor general, Peter Cosgrove, said the report revealed the problem of poverty in Australia to be “insidious and all-encompassing”. “It deprives [the poor] of their freedom and assaults their dignity. As a nation we can’t allow it to continue,” he told the launch of Anti-Poverty Week in Sydney.

The chief executive of Acoss, Dr Cassandra Goldie, said the findings were “deeply disturbing and highlight the need for a national plan to tackle the scourge of poverty which diminishes us all in one of the wealthiest countries in the world”. Single adults on less than $400 per week, and families with two children on less than $841 each week, were deemed as living below the poverty line. More than half of Australians on the Newstart Allowance, 48% of disability pensioners and 15% of aged pensioners struggle to meet basic living costs, the report says. “This finding brings into focus the sheer inadequacy of these allowance payments which fall well below the poverty line,” Goldie said. The maximum payment for a single person on Newstart is $303 per week, nearly 25% less than what is required to stay out of poverty.

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Lots of positivism from the Wall Street Journal. Must be hard to find reporters who can think for themselves.

Fracking Firms Get Tested by Oil’s Price Drop (WSJ)

Tumbling oil prices are starting to frighten energy companies around the globe, especially drillers in North America, where crude is expensive to pump. Global oil prices have fallen about 8% in the past four weeks. The European oil benchmark closed Thursday at $90.05 a barrel, its lowest point in 29 months. The price of a barrel in the U.S. closed at $85.77, its lowest since December 2012. Weakening oil prices could put a crimp in the U.S. energy boom. At $90 a barrel and below, many hydraulic-fracturing projects start to become uneconomic, according to a recent report by Goldman Sachs Group Inc. While fracking costs run the gamut, producers often break even around $80 to $85.

Paul Sankey, an energy analyst with Wolfe Research LLC, said the first drillers to react to declining crude prices would be some in the least productive fringes of North Dakota’s Bakken Shale. “We’re not quite there yet,” he said, but a further drop of $4 or $5 a barrel will force companies to begin trimming their capital budgets. Shares of Continental Resources and Whiting Petroleum, which are focused in the Bakken, fell by more than 5% each on Thursday. Shares of major shale-oil and gas developer Chesapeake Energy fell 7%. Jim Noe, executive vice president at Hercules Offshore, a Houston-based drilling-services company with rigs in the Gulf of Mexico, the Mideast, India and West Africa, said companies such as his are monitoring weak oil prices closely. Hercules said its business was affected by a slowdown in drilling activity in the second quarter. Hercules’s stock fell 6.3%.

The fundamental problem is that the world is awash with oil, but demand for energy is growing more slowly amid tepid economic growth around the globe, especially in China. Companies are always reluctant to be the first to cut their energy output, hoping that others flinch first. And hedging can help companies weather temporary drops. The overall U.S. economy, and especially industries such as refining and air travel, would benefit from lower oil prices. Some U.S. oil fields, including the Eagle Ford Shale and Permian Basin in Texas, would remain attractive for drillers even at much lower oil prices.

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“Variety magazine compared it to a John Steinbeck tale from the Great Depression”.

‘The Overnighters’ Shows Dark Side Of North Dakota Oil Boom (Reuters)

Desperate for a fresh start, unemployed workers from all over the world have converged on North Dakota’s burgeoning oil patch, seeking six-figure salaries and the rewards of living in the fastest-growing economy in the nation. But award-winning documentary “The Overnighters,” opening in New York on Friday before expanding nationally, shows the bleak side of that American Dream and the complex efforts of one man to be a Good Samaritan. “The film does show how much harder it is to survive here than people think,” filmmaker Jesse Moss told Reuters. “The Overnighters” tracks the men, and a handful of women, whose dreams of wealth and redemption from past mistakes collide with unwelcoming residents and limited housing in Williston, the epicenter of the energy boom in North Dakota, where more than 1 million barrels of oil are produced monthly.

Lutheran pastor Jay Reinke offers down-on-their luck emigrants a place to sleep inside his church while they acclimate, labeling the newcomers as “overnighters.” About 1,000 took up his offer over a period of about two years. That decision quickly becomes unpopular with the Williston establishment and nearly tears Reinke’s church and family apart. “The people arriving on our doorsteps are gifts to us,” Reinke says in the film. “Not only are these men my neighbors, the people who don’t want them here are also my neighbors,” adds Reinke, a tall, effusive man who spent 20 years pastoring to the community in obscurity. The film won a special jury prize at the Sundance Film Festival in January and has generated widespread acclaim. Variety magazine compared it to a John Steinbeck tale from the Great Depression of the 1930s, and The Hollywood Reporter called it “a sobering illustration of the tenuousness of stability in 21st-Century America.”

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The same as happened with the Spanish nurse in Madrid. The apparent lack of precautions is scary.

Health Care Worker Who Treated Texas Victim Tests Positive For Ebola (BBC)

A Texas health care worker who treated US Ebola victim Thomas Duncan before his death has tested positive for the virus, officials say. “We knew a second case could be a reality, and we’ve been preparing for this possibility,” said Dr David Lakey, commissioner of the Texas Department of State Health Services. Mr Duncan, who caught the virus in his native Liberia, died at a Dallas hospital on Wednesday. The health worker has not been named.

Mr Duncan tested positive in Dallas on 30 September, 10 days after arriving on a flight from Monrovia via Brussels. He became ill a few days after arriving in the US, but after going to hospital and telling medical staff he had been in Liberia, he was sent home with antibiotics. He was later put into an isolation unit at Texas Health Presbyterian Hospital in Dallas but died despite being given an experimental drug. It is not clear at which point the health worker, who has tested positive in a preliminary test, came into contact with Mr Duncan.

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1.2 million people are on the US government’s watchlist of people under surveillance as a potential threat or as a suspect.

Second Leaker In US intelligence, Says Glenn Greenwald (Guardian)

The investigative journalist Glenn Greenwald has found a second leaker inside the US intelligence agencies, according to a new documentary about Edward Snowden that premiered in New York on Friday night. Towards the end of filmmaker Laura Poitras’s portrait of Snowden – titled Citizenfour, the label he used when he first contacted her – Greenwald is seen telling Snowden about a second source. Snowden, at a meeting with Greenwald in Moscow, expresses surprise at the level of information apparently coming from this new source. Greenwald, fearing he will be overheard, writes the details on scraps of paper.

The specific information relates to the number of the people on the US government’s watchlist of people under surveillance as a potential threat or as a suspect. The figure is an astonishing 1.2 million. The scene comes after speculation in August by government officials, reported by CNN, that there was a second leaker. The assessment was made on the basis that Snowden was not identified as usual as the source and because at least one piece of information only became available after he ceased to be an NSA contractor and went on the run.

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