Jun 182018
 
 June 18, 2018  Posted by at 8:15 am Finance Tagged with: , , , , , , , , , , , ,  


Paul Klee Pflanze und Fenster Stillleben 1927

 

The US Should Break The German Lock On The European Economy (CNBC)
Merkel Gets Extra Time To Reach Deal With EU Over Asylum Row (G.)
Eurozone Braces For Row With Greece Over Bailout Exit Terms (G.)
The Bigger Cryptocurrencies Get, The Worse They Perform: BIS (R.)
May’s NHS ‘Brexit Dividend’ Claim Draws Scepticism And Doubt (G.)
FARC Peace Deal At Risk As Conservative Duque Wins Colombia Presidency (AFP)
Bolivia’s Morales Condemns US Intervention in Venezuela, Latin America (TSur)
Russia-Syria Warnings of Coming False-Flag Attack Have Ring of Truth (MPN)
Refugee Camps Reopening On Greek Mainland (K.)
Scientists Scramble To Stop Bananas Being Killed Off (G.)
Losing The Buzz (ODT)
Where Have All Our Insects Gone? (G.)
Bringing Julian Assange Home (John Pilger)

 

 

There’s a thought.

The US Should Break The German Lock On The European Economy (CNBC)

Germany may only account for 3.4% of the world economy, but it is more than a quarter of the European Union’s demand and output. The EU, in turn, is close to 20% of the world economy, and, based on last year’s numbers, it takes $283.5 billion of U.S. exports, or 18.3% of America’s total goods sold overseas. What the U.S. sells to the EU is more than 40% of all the goods America exports to China and Japan. That shows that the damage caused to the U.S. economy transcends, by far, Germany’s surplus of $64.2 billion on American trades in 2017. Imagine, for example, what would happen to the EU economy, to the rest of the world — and to U.S. export sales in general — if Germany were not living off its fellow Europeans with a massive €164.4 billion trade surplus.

That German surplus is stifling the economic growth in the rest of Europe, because it is a deficit for countries trading with Germany. You can think of those €164.4 billion as a large wealth transfer to Germany. Indeed, it is a structural foundation of Germany’s export-driven economy, where sales to the rest of the world account for nearly a half of German GDP (compared with 14% in the U.S. case). What Europe, the U.S. and the rest of the world need here is a radical change of German economic policies. Germany should be generating more growth from domestic demand to give an opportunity to its trade partners to sell more of their goods and services on German markets. That would boost intra-European growth and create opportunities for more American sales to Europe — its largest overseas customer.

There is nothing new here. It’s a very old story Germans don’t even want to talk about. And why should they? France is meekly taking it on the chin with annual deficits of 36 to 41 billion euros on its German trades, and the rest of Europe does not dare question what it wrongly sees as a virtuously strong German economy.

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There will be no such deal. Not a comprehensive one.

Merkel Gets Extra Time To Reach Deal With EU Over Asylum Row (G.)

Germany’s interior minister, Horst Seehofer, has signalled he is open to giving Angela Merkel more time to reach a deal with Germany’s EU partners over an asylum row that has threatened to bring down her government. As the German chancellor met leaders of her Christian Democratic Union (CDU) on Sunday in an attempt to divert the collapse of her fledgling administration, Seehofer emerged from emergency talks with his Christian Social Union (CSU) saying he had no intention of toppling Merkel. Seehofer wants police stationed at borders to turn back refugees and migrants arriving from other EU countries but signalled he would give Merkel two weeks’ grace to reach migration agreements with EU partners.

“No one in the CSU is interested in bringing the chancellor down, or dissolving the CDU/CSU parliamentary partnership or destroying the coalition,” Seehofer told the Bild am Sonntag newspaper, adding that he did not want the asylum row to endanger the coalition government, which is less than 100 days old. Seehofer said his party was keen to find a way to limit the number of asylum seekers arriving in Germany. “We finally want to have a solution for the return of refugees at our borders which is fit for the future,” he added. But he was quoted in the Welt am Sonntag as having voiced his scepticism about the future of the CDU/CSU alliance in a meeting of the CSU’s leadership. “I cannot work with this woman any more,” he was quoted as saying.

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A row with the IMF, you mean.

Eurozone Braces For Row With Greece Over Bailout Exit Terms (G.)

Eurozone finance ministers are braced for a row this week with the Greek government over the terms of a “golden goodbye” as the country prepares to exit its third bailout programme. Concerns that Greece will suffer a fourth financial collapse unless an agreement is signed with the EU to write off some of its debt mountain are likely to surface before a showdown in Brussels on Thursday. The IMF, which has lent Greece several billion euros and has taken part in a tripartite monitoring of reforms with the European commission and ECB, is expected to pull out of the arrangement unless Brussels reduces Greece’s debt burden. Without the IMF on board, Germany and other hardline countries such as Finland and Austria could demand stricter clauses in the reform programme due to be imposed on Greece as the price of its final bailout payoff.

“Everyone has an interest to alleviating the burden, for Greece and the rest of the creditors,” said Olivier Bailly, the chief adviser to the EU’s finance commissioner, Pierre Moscovici. “If we leave too much burden, this will slow down Greece’s recovery.” He played down the impact of the IMF pulling out of the first stage of surveillance that will last until at least 2022. “What is important is that the IMF give its view on debt measures. What the markets expect is that it says they are credible enough,” he said, admitting that the lack of involvement by the Washington-based lender of last resort puts pressure on Germany. Finance ministers from the 19-member currency bloc will meet on Thursday to agree a package of measures that will include a final loan payment of between €10bn and €12bn and a cash buffer of up to €20bn. The payments are due to be the last of the €86bn bailout agreed in 2015.

[..] Hans Vijlbrief, the top EU official advising eurogroup ministers, said: “It’s very important that Greece can stand on its own feet. If it’s not credible, we won’t come out. This is the first condition.” The Eurogroup is seeking to reduce Greek debt payments by extending loans until beyond 2040 and reducing the interest rate to near 1%, well below the rate Greece would need to pay international investors. The IMF, however, has insisted that reducing the overall debt mountain from the outset is the only way to stabilise Athens’ public finances. Vijlbrief said the EU charter prevented the Eurogroup from offering debt write-offs, but this assertion has never been tested and is still the basis for IMF involvement in the next stage of Greece’s recovery.

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The bank of banks feels threatened.

The Bigger Cryptocurrencies Get, The Worse They Perform: BIS (R.)

Cryptocurrencies are not scalable and are more likely to suffer a breakdown in trust and efficiency the greater the number of people using them, the Bank of International Settlements (BIS)said on Sunday in its latest warning about the rise of virtual currencies. For any form of money to work across large networks it requires trust in the stability of its value and in its ability to scale efficiently, the BIS, an umbrella group for the world’s central banks, said in its annual report. But trust can disappear instantly because of the fragility of the decentralized networks on which cryptocurrencies depend, the BIS said.

Those networks are also prone to congestion the bigger they become, according to the BIS, which noted the high transaction fees of the best-known digital currency, bitcoin, and the limited number of transactions per second they can handle. “Trust can evaporate at any time because of the fragility of the decentralised consensus through which transactions are recorded,” the Switzerland-based group said in its report. “Not only does this call into question the finality of individual payments, it also means that a cryptocurrency can simply stop functioning, resulting in a complete loss of value.”

The BIS’ head of research, Hyun Song Shin, said sovereign money had value because it had users, but many people holding cryptocurrencies did so often purely for speculative purposes. “Without users, it would simply be a worthless token. That’s true whether it’s a piece of paper with a face on it, or a digital token,” he said, comparing virtual coins to baseball cards or Tamagotchi. [..] Agustin Carstens, general manager of the BIS, has described bitcoin as “a combination of a bubble, a Ponzi scheme and an environmental disaster”.

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The claim is so out there it’s funny.

May’s NHS ‘Brexit Dividend’ Claim Draws Scepticism And Doubt (G.)

Theresa May’s promise of £400m extra in weekly NHS spending within five years has been overshadowed by scepticism among experts and her own backbenchers over her claim it can be financed through a windfall delivered by Brexit. Ahead of a major speech by the prime minister in which she will pledge a £20bn annual real-terms NHS funding increase by 2023-24, May was ridiculed for arguing that some of the money would come from a so-called Brexit dividend. “At the moment, as a member of the European Union, every year we spend significant amounts of money on our subscription, if you like, to the EU,” she said in an interview on BBC One’s Andrew Marr show.

“When we leave we won’t be doing that. It’s right that we use that money to spend on our priorities, and the NHS is our number-one priority.” The Institute for Fiscal Studies (IFS) said, however, that even the government had accepted the idea of an immediate post-Brexit boost to coffers would not happen. The decision to announce extra spending for the NHS and to frame it specifically as a benefit of leaving the EU has been widely seen as a sop by May to hardline Brexiters in her cabinet and on the Tory backbenches ahead of some potentially crucial votes this week on the EU withdrawal bill.

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Finally there’s peace, and now this. Colombia is set to become a NATO member.

FARC Peace Deal At Risk As Conservative Duque Wins Colombia Presidency (AFP)

Conservative Ivan Duque won Colombia’s presidential election Sunday after a campaign that turned into a referendum on a landmark 2016 peace deal with FARC rebels that he pledged to overhaul. Duque, 41, polled 54 percent to his leftist rival Gustavo Petro’s 42 percent with almost all the votes counted, electoral authority figures showed. Petro, a leftist former mayor and ex-guerrilla, supports the deal. Tensions over the deal became apparent in the immediate aftermath of Duque’s victory, after the president-elect lost no time in pledging “corrections” to the peace deal. “That peace we long for — that demands corrections — will have corrections, so that the victims are the center of the process, to guarantee truth, justice and reparation,” Duque told supporters in his victory speech at his campaign headquarters.

“The time has come to build real change,” Duque said, promising a future for Colombians “of lawfulness, freedom of enterprise and equity,” after decades of conflict. His vanquished opponent Petro promised to resist any fundamental changes to the deal. “Our role is not to be impotent and watch it being destroyed,” he said. FARC, which disarmed and transformed into a political party after the peace deal but did not contest the election, immediately called on Duque to show “good sense” in dealing with the agreement. “What the country demands is an integral peace, which will lead us to the hoped-for reconciliation,” the FARC said in a statement after Duque’s presidential win. The former rebels also called for an early meeting with Duque.

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A US supported coup soon?

Bolivia’s Morales Condemns US Intervention in Venezuela, Latin America (TSur)

Bolivian President Evo Morales said Saturday that Latin America “is no longer the United States’ backyard” while denouncing the United States’ attempt to convince its South American allies to help it orchestrate a military intervention or coup in Venezuela. In an interview with news agency EFE, Morales explained that several Latin American leaders have confided in him that U.S. Vice president Mike Pence is “trying to convince some United States-friendly countries” help them seize control of the South American country and replace the current government led by Nicolas Maduro. The real target, Morales explained, is not the Venezuelan president but “Venezuelan oil, and Venezuelans know that.”

Drawing parallels to 2011 military intervention in Libya, Morales said the U.S. isn’t interested in helping with alleged humanitarian crisis since, despite the current political and social turmoil in Libya, the U.S. will not intervene there since “the country’s oil is now owned by the U.S. and some European oil companies,” Morales asserted. “One military intervention (in the region) would only create another armed conflict,” he added pointing to Colombia’s membership in the North Atlantic Treaty Organization (NATO) as a general sign of an escalation of “military aggression to all Latin America and the Caribbean” region. Morales explained, however, that U.S. interventionism is not only militaristic.

“When there are no military coups, they seek judicial or congressional coups” as in the case of former Brazilian President Dilma Rousseff’s impeachment and the Luiz Inacio Lula da Silva’s imprisonment, which is barring him from running in the upcoming 2018 elections.

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They warned of the last one as well.

Russia-Syria Warnings of Coming False-Flag Attack Have Ring of Truth (MPN)

In recent days, speculation has swirled regarding whether another chemical-weapons attack will soon take place in Syria, as sources in both Syrian intelligence and the Russian military have warned that U.S.-backed forces in the U.S.-occupied region of Deir ez-Zor are planning to stage a chemical weapons attack to be blamed on the Syrian government. Concern that such an event could soon take place has only grown since the U.S. government announcement this past Thursday that the U.S. would provide $6.6 million over the next year to fund the White Helmets, the controversial “humanitarian” group that has been accused of staging “false flag” chemical weapons attacks in the past.

Notably, the White Helmets were largely responsible for staging the recent alleged chlorine gas attack in Eastern Ghouta, which led the United States, the United Kingdom and France to attack Syrian government targets. That same attack in Eastern Ghouta had been predicted weeks prior by the Russian military and Syrian government, who are warning once again that a similar event is likely to occur in coming weeks. An additional and largely overlooked indication that another staged attack could soon take place has been the recent movements of U.S. military assets to the Syrian coast, particularly the deployment of the Harry S. Truman Carrier Strike Group (HSTCSG). As MintPress previously reported, the deployment of the HSTCSG – which consists of some 6,500 sailors — was first announced in April prior to the U.S., France and U.K. bombing of Syria. However, the group did not arrive until after that bombing had taken place.

While the April bombing was called a “one-time shot” by U.S. Secretary of Defense James Mattis, the fact that the Truman strike group’s deployment to the region was not canceled after the bombings occurred led some to suggest that the U.S. may have been anticipating more strikes against Syria’s government in the coming months. Indeed, soon after the U.S.-led bombing of Syria, U.S. Ambassador to the UN, Nikki Haley, declared the U.S. was “locked and loaded” should the Syrian government again be accused of using chemical weapons. Now, amid claims from both the Syrian and Russian governments of another chemical weapons provocation, as well as the U.S.’ renewed funding of the White Helmets, the strike group’s deployment directly off the Syrian coast has only given greater credence to those previously voiced concerns.

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12,000 refugees so far this year.

Refugee Camps Reopening On Greek Mainland (K.)

While European Union countries shut their doors to migrants – Italy and Malta last week refused to allow a rescue ship carrying more than 600 migrants to dock at their ports – Greek authorities are reopening unused camps and facilities across the mainland to accommodate the swelling number of asylum seekers. Following a series of meetings last week, sources told Kathimerini, the Ministry for Migration Policy decided to reopen four camps, first set up at the peak of the refugee crisis in 2015, raising the total number of operational centers to 25. More specifically, tents have been set up again at the Malakasa camp, north of Athens, to house 300 people.

The Vagiochori camp near Thessaloniki, in northern Greece, is also expected to open in the coming days, providing accommodation for 400 individuals. The facility at Elefsina, west of the capital, has been hosting 250 refugees since late April, while another 350 migrants and refugees were transferred to the reception center at Oinofyta, north of Attica. A drop in the migrant population at the Skaramangas refugee center, meanwhile, was reversed after September last year, with the current number estimated at more than 2,000. An average 75 migrants land daily on Greece’s Aegean islands. A total of 12,065 people had entered the country until June 11 this year.

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“..the plant is heavily cloned so if you have a disease that can kill one tree, it can potentially wipe out the entire industry.”

Scientists Scramble To Stop Bananas Being Killed Off (G.)

A British company has joined the race to develop a banana variety resistant to diseases and climatic changes that threaten to disrupt the availability of the country’s favourite fruit – or even kill it off altogether. The UK alone consumes more than 5bn bananas a year, while the fruit is a staple food in many poor countries and accounts for an export industry worth $13bn (£9.8bn) a year. But the global supply chain is threatened by a virulent disease that has been attacking plantations in Australia, south-east Asia and parts of Africa and the Middle East. As experts warn the fungus known as “fusarium wilt”, or Panama disease, could spread to Latin America, from where the majority of bananas are exported, scientists are scrambling to create a more robust variety that could help sustain the crop.

A single type of banana, called the Cavendish, accounts for 99.9% of bananas traded globally. It replaced a tastier variety wiped out by disease in the 1950s. Now researchers at the Norwich-based startup Tropic Biosciences are using gene editing techniques to develop a more resilient version of the Cavendish after securing $10m from investors. The company’s CEO, Gilad Gershno, : “In the developed world we tend to take bananas for granted. A banana found in your local supermarket grown in Costa Rica and shipped to the UK probably costs less than an apple grown 20 miles away. “If you look at the broader consumption on top of exports, the banana industry is worth a massive $30bn a year. However,people have been getting increasingly worried because the plant is heavily cloned so if you have a disease that can kill one tree, it can potentially wipe out the entire industry.”

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“10,000,000,000,000,000,000. 10 quintillion. That equals more than 1500 million insects for every person.”

Losing The Buzz (ODT)

He starts at the beginning, with a black and white photocopy of a pie chart representing the animal kingdom and its various, speciated slices of pie. 80 percent of all known species of animals are insects, he says. You can tell an insect – if you can get it to hold still for long enough – by its six legs, exoskeleton divided into a head, thorax and abdomen and its two waggling antennae. By far the biggest orders of insects are the coleoptera (beetles) and the hymenoptera (wasps, bees and ants), followed by the lepidoptera (butterflies and moths), then diptera (flies and mosquitoes) and, finally, other insects, such as grasshoppers and silverfish. “The total number of individual insects alive worldwide today is …” He writes it out. 10,000,000,000,000,000,000. “… 10 quintillion. That equals more than 1500 million insects for every person.”

[..] The total biomass, that is the total weight of all organisms on earth, is estimated at 545.2 Gt C (gigatons of carbon), the researchers say. More than 80% of this, 452.5Gt C, is plants. Next comes bacteria (16%, 87.2Gt C) and fungi (2%, 10.9 Gt C). Animals make up just 0.4% of the total biomass. The globe’s 7.6 billion people account for just 0.01% of all living things. And yet our impact on the globe has been enormous – some would say catastrophic. According to the Proceedings article, humans are responsible for the possibly irreparable loss of large chunks of the animal and plant kingdoms; more than 80% of all wild animals and half of all plants.

Anthony Harris finds it deeply disturbing. “Farmed poultry now makes up 70% of all birds on the planet, with just 30% wild,” he says with a shocked tone. “The picture for mammals is worse. 60 percent of all mammals on earth are livestock, mostly cattle and pigs, 36% are humans and just 4% of all mammals are wild.’ [..] Without insects, we face total ecological collapse and global famine. It is being called the Sixth Mass Extinction. The Fifth Mass Extinction was the one that killed off the dinosaurs, 66 million years ago. Harvard entomologist Prof E.O. Wilson has estimated that, without insects and other land-based invertebrates, humanity would only last a few months. Land-based plants and animals would be next to go. The planet would fall quiet and still. The last time the earth was like that was 440 million years ago.

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Anyone seen any initiative to stop this?

Where Have All Our Insects Gone? (G.)

Certainly, the statistics are grim. Native ladybird populations are crashing; three quarters of butterfly species – such as the painted lady and the Glanville fritillary – have dropped significantly in numbers; while bees, of which there are more than 250 species in the UK, are also suffering major plunges in populations, with great yellow bumblebees, solitary potter flower bees and other species declining steeply in recent years. Other threatened insects include the New Forest cicada, the tansy beetle and the oil beetle. As for moths, some of the most beautiful visitors to our homes and gardens, the picture is particularly alarming. Apart from the tiger moth, which was once widespread in the UK, the V-moth (Marcaria wauaria) recorded a 99% fall in numbers between 1968 and 2007 and is now threatened with extinction, a fate that has already befallen the orange upperwing, the bordered gothic and the Brighton wainscot in recent years.

An insect Armageddon is under way, say many entomologists, the result of a multiple whammy of environmental impacts: pollution, habitat changes, overuse of pesticides, and global warming. And it is a decline that could have crucial consequences. Our creepy crawlies may have unsettling looks but they lie at the foot of a wildlife food chain that makes them vitally important to the makeup and nature of the countryside. They are “the little things that run the world” according to the distinguished Harvard biologist Edward O Wilson, who once observed: “If all humankind were to disappear, the world would regenerate back to the rich state of equilibrium that existed 10,000 years ago. If insects were to vanish, the environment would collapse into chaos.”

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Beginning and end of a speech by Pilger in Sydney. Tomorrow there are many rallies for Assange, especially in Australia. There is also a UN Human RIghts Commission meeting in Genava.

Bringing Julian Assange Home (John Pilger)

The persecution of Julian Assange must end. Or it will end in tragedy. The Australian government and prime minister Malcolm Turnbull have an historic opportunity to decide which it will be. They can remain silent, for which history will be unforgiving. Or they can act in the interests of justice and humanity and bring this remarkable Australian citizen home. Assange does not ask for special treatment. The government has clear diplomatic and moral obligations to protect Australian citizens abroad from gross injustice: in JulianE’s case, from a gross miscarriage of justice and the extreme danger that await him should he walk out of the Ecuadorean embassy in London unprotected. We know from the Chelsea Manning case what he can expect if a US extradition warrant is successful — a United Nations Special Rapporteur called it torture.

[..] Malcolm Turnbull is now the Prime Minister of Australia. Julian Assange’s father has written to Turnbull. It is a moving letter, in which he has appealed to the prime minister to bring his son home. He refers to the real possibility of a tragedy. I have watched Assange’s health deteriorate in his years of confinement without sunlight. He has had a relentless cough, but is not even allowed safe passage to and from a hospital for an X-ray . Malcolm Turnbull can remain silent. Or he can seize this opportunity and use his government’s diplomatic influence to defend the life of an Australian citizen, whose courageous public service is recognised by countless people across the world. He can bring Julian Assange home.

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Dec 072016
 
 December 7, 2016  Posted by at 10:17 am Finance Tagged with: , , , , , , , , ,  


Harris&Ewing Washington snow scenes 1924

Trump: US Must End ‘Destructive Cycle of Intervention and Chaos’ (VoA)
‘Chances Of Italy Staying In Euro For Next 5 Years Below 30%’ (Ind.)
Italian Interior Minister Sees New Elections In February (R.)
‘A Landscape of Exhaustion and Moral Decay’ (G.)
Is Janet Yellen Trying To Screw Donald Trump? (Miller)
Trump’s Air Force One Tweet Was A Brilliant Move (CNBC)
The Equation That Explains It All (Mark St.Cyr)
China Admits “Economic Downturn Just Beginning” (ZH)
China’s Big Savers Are Racking Up More Debt (BBG)
Australia’s Economy Shrinks 0.5%, Most in Eight Years (BBG)
John Key Was Known As The Smiling Assassin. And People Still Liked Him (G.)
Europe’s Still Dithering Over Greece (BBG)
Christmas Spirit Lacking In Greek Bailout Wrangles (R.)
Polar Bear Numbers To Plunge A Third As Sea Ice Melts (AFP)

 

 

If he pulls this off, it’s the biggest thing that’s happened in the US for many decades.

Trump: US Must End ‘Destructive Cycle of Intervention and Chaos’ (VoA)

U.S. President-elect Donald Trump returned Tuesday to his vision of a non-interventionist foreign policy for the United States, saying as he did during his campaign, that he does not want to have American forces fighting “in areas that we shouldn’t be fighting in.” Speaking during a “thank you” rally for his supporters in Fayetteville, North Carolina, Trump said instead his focus will be on defeating terrorists, including the Islamic State group. “We will stop racing to topple foreign regimes that we know nothing about, that we shouldn’t be involved with,” Trump said. He said the U.S. must end what he called a “destructive cycle of intervention and chaos.” Trump pledged to build up the military, but said the purpose would be to project strength, not aggression. After questioning frequently during his campaign whether NATO and other allies were pulling their weight Trump said Tuesday he wants to strengthen “old friendships” and seek new ones.

At the same rally, Trump formally announced he has chosen retired Marine General James Mattis as his nominee for secretary of defense. “Under his leadership, such an important position, we will rebuild our military and alliances, destroy terrorists, face our enemies head on and make America safe again,” Trump said. Michael O’Hanlon, a senior defense expert at the Brookings Institution, called Mattis “one of the best read, best informed and most experienced generals of his generation.” Mattis has served as the head of U.S. Central Command, which carries out U.S. operations in the Middle East, and the Supreme Allied Commander of NATO forces. The retired general will need a congressional waiver in order to be confirmed as secretary of defense. Mattis would otherwise be ineligible to serve because of a law that requires a seven-year wait for former members of the military to serve in the post. He has been retired for less than four years.

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Bold.

‘Chances Of Italy Staying In Euro For Next 5 Years Below 30%’ (Ind.)

The political turmoil set off by the Italian referendum result could endanger the euro, a German business group has warned. Ulrich Grillo, the head of the Federation of German Industries, said that the German industry is worried about the consequences of the referendum, which prompted Premier Minister Matteo Renzi to announce his resignation on Monday. “The risks of a new political instability for economic development, the financial markets and the currency union are increasing further,” he said. Douglas McWilliams from the Centre for Economics and Business Researcg (CEBR), a leading economics consultancy, said it estimated the chances of Italy staying in the Euro for the next five years had fallen below 30% following the vote.

“There is no doubt that Italy could stay in the euro if it were prepared to pay the price of virtually zero growth and depressed consumer spending for another five years or so. But that is asking a lot of an increasingly impatient electorate. We think the chances of their sustaining this policy are below 30%,” he said. German’s foreign minister also expressed concerns about the result, which prompted Prime Minister Matteo Renzi to resign. Speaking during a visit to Greece, Frank-Walter Steinmeier said that while the result of the Italian referendum on constitutional reform was “not the end of the world,” it was also “not a positive development in the case of the general crisis in Europe.”

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After the laws are changed?

Italian Interior Minister Sees New Elections In February (R.)

Italy could have an election as early as February, a minister in Prime Minister Matteo Renzi’s outgoing government said on Tuesday, speaking after talking to Renzi. The comments will add to growing support for a quick vote as the only way to avoid protracted political limbo in Italy following Sunday’s “No” vote on Renzi’s constitutional reforms. Renzi announced he would step down after his heavy defeat. President Sergio Mattarella told him to stay on until parliament had approved the 2017 budget, expected later this week. Then, the president said, Renzi could tender his resignation. Before the referendum, most commentators, and financial markets, assumed that even if Renzi lost and resigned, a temporary unelected government would be installed to tide Italy over until the end of parliament’s term in 2018.

But a chorus of comments from party chiefs suggests consensus may be growing for an early vote in spring. “I forecast there will be the will to go to elections in February,” Interior Minister Angelino Alfano, the head of a small centre-right party that is a crucial part of Renzi’s ruling coalition, told Corriere della Sera daily on Tuesday. Significantly, Alfano said he made his forecast after discussing the issue with Renzi. Renzi is still leader of the centre-left Democratic Party (PD), which has the largest number of parliamentarians, so it is unlikely any new government could be formed without his backing.

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The 1860s that Mark Carney referred to. Well, or today.

‘A Landscape of Exhaustion and Moral Decay’ (G.)

When Mark Carney insisted in a speech at Liverpool John Moores University that the conditions through which we are now living are “exactly the same” as those that British citizens endured during the “lost decade” of the 1860s, he was taking a bit of rhetorical licence. The past is never simply the present dressed up in funny clothes, and the analogy between today’s painful realities and those of 150 years ago doesn’t quite hold. And yet, the governor of the Bank of England had a point. When Overend Gurney collapsed in 1866, it undid once and for all the sense that, give or take a few individual misfortunes, capitalism was a moral force that rewarded skill and hard work. Toppling under a mountain of unsecured debt, the joint stock bank dragged down 200 businesses and a broad tranche of private investors with it, from courtiers to grocers.

As with the Northern Rock crisis in 2007, there were queues of panicky investors lining the streets. More profoundly, now came a dawning realisation that bad things could happen to good people. Thanks to the publication of Charles Darwin’s Origin of Species in 1859, the universe increasingly seemed not only godless but, what was perhaps even worse, indifferent to the sufferings of ordinary folk. The shock of 1866 was doubly hard because, for the previous 15 years, Britain had been sailing on a sea of prosperity and confidence. In 1851, the Great Exhibition had showcased the nation’s position as “the workshop of the world”, the great exporter of industrial goods and technological know-how to the four corners of the globe. Business was thriving, the social discontent of the “hungry” 1840s had receded, and this was, to use the coinage of the historian WL Burn, the “age of equipoise”, a serene and sunny upland of prosperity and social cohesion.

Increasingly, though, there were worrying signs that Britain could not hold on to its trading pre-eminence for much longer. Germany and the United States were playing industrial catch-up, and would soon be making everything from saucepans to spanners more cheaply and better than we ever could. What’s more, with global transport systems stretching further as each year passed, Britain’s grain, and even its dairy and meat produce, would soon be supplied from as far away as Australia and Canada. Domestic farming was about to go into a decline from which, some historians suggest, it has never recovered.

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Stockman at the head of the Fed would be diffferent…

Is Janet Yellen Trying To Screw Donald Trump? (Miller)

[..] But will Yellen’s gambit plunge us into a recession is the question. Just because Wall Street is gorging on high returns doesn’t mean the economy is sound. For eight years and running, the Fed has kept interest rates near zero% in an attempt to spark investment and borrowing. Unemployment has gradually shrunk during the Obama years, yet the workforce participation rate remains low by modern standards. Prior to Election Day, two-thirds of Americans were anxious about their economic future. Stock traders are popping the bubbly while middle America drinks the warm beer of worry. If you’re still in the dark as to why Trump stole the Rust Belt from Hillary, you need not look further than that. Fear aside, Trump’s election has been an Advil to the ongoing economic headache felt by most Americans.

Eight years of Obama’s big spending combined with ultra low interest rates has done precious little to shore up their optimism. Retirees on fixed income can’t get a yield on their savings. Millennials earning a salary for the first time in their life have little incentive to put money away. So you might think: Hey, maybe Yellen’s hinting about raising interest rates is a good thing! Sure, it might cause the S&P 500 to dip. But it’s about time Grandma got a return on her CDs. I’m very skeptical. Interest rates most definitely need to rise, but Yellen’s timing is suspicious. Trump, despite his admiration for low borrowing rates (and debt refinancing), has accused Yellen of keeping the lid on interest rates in order to boost Obama’s legacy. He told CNBC in September that rates were “staying at zero because [Yellen’s] obviously political and she’s doing what Obama wants her to do.” In another interview with Reuters, Trump explained with perfect Trumpian simplicity, “They’re keeping rates down because they don’t want everything else to go down.”

Yellen wasn’t happy about the charges. She fired back at a press conference, saying, “We do not discuss politics at our meetings, and we do not take politics into account in our decisions.” Uh huh. And I’m the Archbishop of Canterbury. [..] What the Fed, serving as America’s central bank, does is balance the money supply to reflect market conditions. When the market is roaring, it’s time to cut off the money spigot so as to rein in inflation. When things are sluggish, pouring cash into the economy is supposed to gin up activity. There are all kinds of ins and outs and what-have-yous involved in the process, including convoluted accounting techniques. But long mythologized story short, the tinkers at the Fed are supposed to act on behalf of the economy, and not the elected shysters in Washington. Every macro-econ student learns that faux civics lesson the first week of class.

[..] A few choices off the top of my head: finance writer and all-around mensch Jim Grant, former Director of the Office of Management and Budget David Stockman, commodity guru Jim Rogers, or former congressional representative and arch-Fed-critic Ron Paul.

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Brilliant is a big word, but the use of Twitter is interesting.

Trump’s Air Force One Tweet Was A Brilliant Move (CNBC)

Another day, another provocative tweet from President-elect Donald Trump. This time, he went after Boeing and the cost of the new Air Force One replacement program. But while the target was different, the goal of Trump’s twitter use remains the same: It’s his negotiating tool and, just as importantly, an instant link to public support that no president has ever been able to use before. But why this tweet and comments and why now? As few people knew before now, the Air Force is actually currently in negotiations with Boeing on the final costs of the two new Air Force One jets it hopes to buy and have in service by 2024. The source of Trump’s $4 billion cost figure in his tweet is not so clear, but the last publicly reported estimate was at $3 billion with costs still rising.

Sure, there are a lot of spending programs that cost more that Trump could target. But are there many more that are as easy for all the voters to understand? Air Force One is an iconic jet that we all know exists and almost everyone can picture quickly in their minds. Our social media/short attention span media culture makes this issue absolutely perfect for Trump to single out on Twitter. And it looks like it may have already worked. About two hours after the tweet, Boeing delivered the following statement: “We are currently under contract for $170 million to help determine the capabilities of these complex military aircraft that serves the unique requirements of the President of the United States. We look forward to working with the U.S. Air Force on subsequent phases of the program allowing us to deliver the best planes for the President at the best value for the American taxpayer.”

Yes, that “at the best value” phrase at the end of the statement says it all. Who knows exactly how much the Trump tweet just saved the American taxpayers? But considering that it cost him and us nothing for him to send it, even a few hundred grand looks like a big net windfall. And that’s not the only reason why the use of Twitter remains crucial to Trump. Every President of the United States has had the option to use public opinion to promote his agenda, but none before Trump has had an established and instantaneous link with his supporters like he has with Twitter. In the past, the best a president could do was go on national TV and make a long speech. That’s tortuous compared to the quick bang Trump gets by tweeting directly to his 16 million-plus followers and the tens of millions more who instantly hear about his tweets from the news media.

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“..we need more financial chaos (A) To make even more all time “market” highs (C)..”

The Equation That Explains It All (Mark St.Cyr)

If you were just woken from some form of suspended animation from let’s say 2010 (ancient economic history in today’s terms) then informed of the current state of global political affairs and upheavals, U.S. employment (95+million not,) global currency gyrations, interest rates at not only 0% but some -0%, threats of escalating wars, threats of major confrontational war, GDP of the major global economies not only contracting, but below statistical stagnant, governments, as well as central banks with balance sheets of debt calculated in $TRILLIONS, some in the 10’s of, all financed at near or below 0%, and the Fed is only about a week away from raising rates into the teeth of what can only be called “uncertainty,” and much, much more. (There isn’t enough time, or digital ink to list them all.)

Nobody would be surprised if your first reaction based on your prior acumen (the ancient history of 7 years ago whether it be in stocks, business, or both) would to become immediately concerned that whatever portfolio, or wealth you may have had in the markets, may be worth far less today than when you were first put to sleep. And probably becoming ever smaller as you thought about what you might need to do next in order to preserve any that may be left. That is, till someone explained to you the markets you went to sleep knowing of – are no longer – and the reality of the markets today you could never have dreamed up. Even if they let you sleep another decade or longer. Today, the markets you once knew of are better described as the “markets.”

To clear up any confusion as to how, or why, the “markets” can now be at “never before seen in the history of mankind highs” once again after the resounding “NO” vote in Italy, where the entire E.U. experiment is now seriously undermined, and falling apart in real-time (Brexit first, Italy will surely now vote next, etc., etc,) [here] is the calculation that explains it all. For under the rules of: If A = B and B = C, then A = C, you now have the magical formula to understand with Einstein like surety today’s ‘markets.” If you have any doubt to the soundness of this expression, consider the following: If a financial crisis appears (A) The central banks will intervene (B) If the central banks intervene (B) The “markets” go up (C) Thus, we need more financial chaos (A) To make even more all time “market” highs (C)

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“..the decrease reflects Chinese economic downturn, which is just now beginning and will last a long time since China has passed its economic boom period in which many problems were hidden..”

China Admits “Economic Downturn Just Beginning” (ZH)

In what may be the most direct admission that China’s economy is about to grind to a deflationary halt, today China’s Global Times, a newspaper which is seen as a propaganda companion to the official People’s Daily, revealed data showing this year’s proposed salary guidelines according to which there is a broad wage growth declines in virtually every single province on the mainland, which according to the Chinese publication “confirms the country is experiencing an economic slowdown.” Salary guidelines are issued by local governments as a reference to help firms decide how much they should increase their employees’ salaries. They are based on labor market conditions and economic growth, among other factors.

Global Times notes that compared to 2015 salary guidelines, wages in 2016 have grown at a slower rate in virtually all 19 provinces and regions that have so far published their annual guidelines for firms. Northeast China’s Heilongjiang Province has not released salary guidelines for years as the region has been experiencing a recession and therefore wages are not generally increasing. Seventeen provinces have seen a decrease in salary standards, including North China’s Hebei Province, South China’s Hainan Province, Northwest China’s Xinjiang Uyghur Autonomous Region and East China’s Jiangxi Province. The only increases were seen in Southwest China’s Guizhou Province and Beijing Municipality.

“2016’s guidelines have seen a slowing of salary growth after years of increases, which means that the speed of wage growth has surpassed economic growth since China’s labor contract law was adopted in 2007,” Wang Jiangsong, a professor at the China Institute of Industrial Relations, told the Global Times on Tuesday. Confirming that the only way for Chinese wage growth is down, Wang Jiangsong, a professor at the China Institute of Industrial Relations, told the Global Times that “since China’s labor contract law was adopted in 2007, wage increases have surpassed economic growth.” He said the slowdown reflects China’s economic downturn. It also means that local workers will not be happy.

But more troubling was Wang’s next admission: “the decrease reflects Chinese economic downturn, which is just now beginning and will last a long time since China has passed its economic boom period in which many problems were hidden but now those problems will gradually surface.” In short, declining wage growth, with aggregate 2016 demand driven by the biggest credit impulse and expansion in Chinese history. To all those who truly believe in the global reflation these, we wish you the best of luck.

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The shadow banking system gets bigger, not smaller. That should worry Xi to no end.

China’s Big Savers Are Racking Up More Debt (BBG)

China’s savers, who sock away cash like almost no one else in the world, are racking up more debt as borrowing options proliferate. 94% of consumers used a credit or loan in the past year, up from 85% two years ago, according to a survey by market researcher Mintel Group. Peer-to-peer lending via online lenders jumped, while car loans and mortgages nearly doubled, the poll showed. “Huo zai dang xia”, or living in the moment, is the new buzzword. It’s especially prevalent among consumers in their 20s, according to Aaron Guo, a senior analyst for Mintel in Shanghai. “Compared with their parents’ generation, who tend to save more and are sometimes thrifty, youngsters are willing to spend more on products with special features or tailored services,” he said.

That’s a profound shift in attitudes for a nation where saving has long been the bedrock principle of personal financial management and a prerequisite for big milestones like cars, homes and kids. Deposits stand at 59.6 trillion yuan ($8.67 trillion), People’s Bank of China data show. The newfound willingness to borrow from the future to enjoy the present could help support consumption in coming years and nudge the nation’s rebalancing away from old traditional drivers. China’s GDP rose 6.7% in the third quarter from a year earlier on the back of resilient retail sales, which expanded 10.3% in the year to date. The borrowing could be just getting started. China’s household outstanding loans will continue to rise at a rate of 14% for the following five years and exceed 60 trillion yuan by 2021, the Mintel report said.

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Presented as a one-off.

Australia’s Economy Shrinks 0.5%, Most in Eight Years (BBG)

While Australia’s economy shrunk last quarter, it’s probably more of a red flag than a precursor to recession. One of only four quarterly contractions in the past 25 years, the so-called ‘lucky country’ is unlikely to suffer a second consecutive slump — just as in those prior periods. But it’s a wake-up call for lawmakers that recent political timidity and gridlock is unsustainable, as is reliance on monetary policy to support growth with a 1.5% interest rate that may not even fall further. A growing chorus of high-profile economists and international institutions are calling on Australia to follow U.K. and U.S. plans to use infrastructure stimulus, particularly with global borrowing costs so low. But the government has made clear its priority is returning the budget to balance as it seeks to protect a prized AAA credit rating.

Wednesday’s report showed:
• GDP fell 0.5% from previous quarter, when it gained a revised 0.6%
• Decline was driven by slump in construction and government spending
• Result was worst since depths of global financial crisis at the end of 2008 and well below economists’ estimates of a 0.1% drop
• The economy grew 1.8% from a year earlier, compared with a forecast 2.2% gain
• Australian dollar fell almost half a U.S. cent on the data

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Nice put-down of a wanker of a man.“He pulled ponytails instead of grabbing pussies.” Does New Zealand have any competent people in politics?

John Key Was Known As The Smiling Assassin. And People Still Liked Him (G.)

John Key’s legacy will not be defined by great policy achievements; it’s his success as the model of a neoliberal leader – a poster boy for trickle-down economics – that he will be remembered for. Key presided over increasing and gross social inequality with all the glibness of the banker who was known as the “smiling assassin” in his Merrill Lynch days. And people still liked him. In this regard, Key was like a Tony Blair of the South Seas: a certain level of personal charisma and a socially inclusive façade allowed both Key and Blair to sell the nasty side of neoliberalism. Compared with the likes of Donald Trump in the United States and Tony Abbott in Australia, Key was socially moderate in ways that many thought – and hoped – Malcolm Turnbull would have been before he capitulated to the far right of his party on refugees, marriage equality and climate change.

Key was more inclusive, and less divisive. He pulled ponytails instead of grabbing pussies. Key supported marriage equality in New Zealand and, as far as race is concerned, Key’s National party entered into a coalition government with the Maori party not once, but twice. Like Blair, Key had the Teflon gene. Despite ignoring public preferences not to privatise state-owned enterprises (2-1 against in a referendum), increasing the GST during the global financial crisis, and more or less ignoring New Zealand’s chronic child poverty because he blames the victims, none of it stuck. What did stick with Key was his reputation as a smart-money guy who was also likeable, self-effacing and wouldn’t look out of place having a beer with regular folks. Never mind the hundreds of thousands of children living under the poverty line in New Zealand – a country of 4 million – and him brushing off the recommendations of the government panel charged with improving their lot; Key was seen as a good guy and a safe pair of hands.

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It’s time for the international press, including Bloomberg, to stop dithering around the topic and tell Brussels to stop this disgrace.

Europe’s Still Dithering Over Greece (BBG)

This week, the European Union’s finance ministers granted some new debt relief to Greece. The new “short-term” measures are better than nothing – but they’re less than a convincing solution to a problem that has dragged on far too long. The deal, sketched out and agreed to in principle earlier this year, should help the Greek government convince voters to keep accepting much-needed domestic reform. That’s good. It isn’t enough, though, to put the country’s debts and budget plans on a sustainable footing. That’s why the International Monetary Fund, whose support will be necessary to achieve that larger goal, isn’t yet on board. After years of muddling through, the issue still isn’t resolved. In the approach to the latest talks, French Finance Minister Michel Sapin acknowledged that “Greece has made huge efforts. This is the first Greek government in a long time that has implemented its commitments.”

He said it was vital that Europe respond by recognizing its obligation to help ease the country’s debt burden, both as a reward and to encourage further improvements in the business climate. All true. Greece can’t be accused of doing nothing to help itself. The banking system has stabilized after three bouts of recapitalization, and deposits are returning, albeit slowly. The economy is growing modestly. The country posted a primary budget surplus for the first 10 months of this year. State asset sales are proceeding slowly but surely. These efforts justify extending the repayment schedule and swapping some floating-rate debt to fixed payments at the current low rates, as announced. But the expected reduction in Greece’s debts relative to its economic output by 20 percentage points through 2060 is far too timid – while the idea that Greece can achieve an annual primary budget surplus of 3.5% of output throughout the coming decade is a fantasy.

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This is why we are raising funds for Greece (see top of this page). So the poor can have a little bit better Christmas. And a little better prospect for the new year. To counter the devastation unleashed by the EU.

Christmas Spirit Lacking In Greek Bailout Wrangles (R.)

Greece thanked creditors for modest debt relief on St. Nicholas Day in Brussels but did not hide disappointment it won’t get the Christmas gift it wants – a pass on the latest phase of its bailout programme. Athens has been hoping fellow euro zone governments will approve a second review of its third bailout, granted in August last year, before year’s end. A government spokesman said on Tuesday it did not yet rule that out. But others, not least German Finance Minister Wolfgang Schaeuble, made clear that is highly unlikely after a Eurogroup meeting on Monday that revealed differences over how well Greece has done in meeting reform commitments. That left Greece and its allies among its EU partners annoyed at stalemate.

Athens wants to clear the review in order to be able to take advantage of selling bonds to the ECB’s quantitative easing scheme. “We could have got this done by the end of the year but the Germans are not moving,” one EU source said. “Greece has done a lot … We haven’t been so strict in other programmes.” A senior EU official involved in Monday’s talks described them as “useless” in terms of furthering agreement, according to another EU source. Ministers were at odds too on budget targets to set Greece after the bailout regime ends in 2018 – conditions important in persuading the IMF to join in lending. [..] The Eurogroup did agree to a series of short-term adjustments to the structure of Greek debt that will smooth out humps in repayments and should reduce its costs in the long run.

Government spokesman Dimitris Tzanakopoulos called that a “significant success”. But he said Athens still wanted Schaeuble and the IMF to scale back demands for more belt-tightening. “They must stop insisting on continuing a policy of extreme austerity which has been proven destructive for society and also economically ineffective,” he said. Schaeuble made clear he will not be swayed by pleas to forgo economic reforms which, he insisted, were for Greece’s own good.

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Note the effects of chemicals on populations.

Polar Bear Numbers To Plunge A Third As Sea Ice Melts (AFP)

Polar bear numbers could drop a third by mid-century, according to the first systematic assessment, released on Wednesday, of how dwindling Arctic sea ice affects the world’s largest bear. There is a 70% chance that the global polar bear population – estimated at 26,000 – will decline by more than 30% over the next 35 years, a period corresponding to three generations, the study found. Other assessments have reached similar conclusions, notably a recent review by the International Union for the Conservation of Nature (IUCN), which tracks endangered species on its Red List. The IUCN classified the sea-faring polar bear – a.k.a. Ursus maritimus – as “vulnerable”, or at high risk of extinction in the wild.

But the new study, published in the Royal Society’s Biology Letters, is the most comprehensive to date, combining 35 years of satellite data on Arctic sea ice with all known shifts in 19 distinct polar bears groupings scattered across four ecological zones in the Arctic. [..] Researchers led by Eric Regehr of the US Fish and Wildlife Service in Anchorage, Alaska projected three population scenarios out to mid-century, and all of them were bad news for the snow-white carnivores. The first assumed a proportional decline in sea ice and polar bears. Despite year-to-year fluctuations, long-term trends are unmistakable: the ten lowest Arctic ice extents over the satellite record have all occurred since 2007.

The record low of 3.41 million square kilometres (1.32 million square miles) in 2012 was 44% below the 1981-2010 average. This week, the US National Snow and Ice Data Center reported that sea ice extent in October and November was the lowest ever registered for both months. [..] Unfortunately, polar bears face other threats besides a habitat radically altered by the release of heat-trapping greenhouse gases. In the 1980s and 1990s, females and pups were found to have accumulated high levels of toxic PCPs in their tissue and organs. The manmade chemicals – used for decades and banned in many countries in the late 1970s – worked their way up through the food chain, becoming more concentrated along the way.

But a new study, published last week in the Royal Society’s Proceedings B, suggested that declines in some polar bear populations stemmed from contaminated males rendered sterile by the chemicals. “PCB concentrations in the Arctic have levelled off,” said lead author Viola Pavlova, a scientist at the Institute of Hydrobiology in the Czech Republic. “Unfortunately, many other manmade chemicals that are also endocrine disruptors occur in the Arctic and could act similarly,” she told AFP.

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Aug 092016
 
 August 9, 2016  Posted by at 8:51 am Finance Tagged with: , , , , , , , ,  


Harris&Ewing Woodward & Lothrop dept. store trucks, Washington DC 1912

The Fed Is Losing Control of Global Monetary Conditions (BBG)
Are Negative Rates Backfiring? (WSJ)
Fannie And Freddie Could Need $126 Billion To Get Through A Crisis (R.)
UK Government Has Gambled Hundreds Of Millions On House Price Rises (TiM)
One In Three British Families Are A Month’s Pay From Losing Homes (G.)
Vulnerable UK Banks Still Pay Billions In Dividends To Shareholders (Ind.)
A Crisis Of Intervention (Price)
Spanish 10-Year Bond Yield Falls Below 1% for First Time (BBG)
China Leaders Head to the Beach, With Calmer Seas Ahead (BBG)
Trump Tax Cuts Would Be Costly (CNBC)
Republican Security Experts Rail Against Trump In Open Letter (BBC)
US Taxes Well Spent: Pentagon Can’t Account for $6.5 Trillion (Sputnik)
Facebook Removes Potential Evidence Of Police Brutality Too Readily (I’Cept)
More Than 60% Of Maldives’ Coral Reefs Hit By Bleaching (G.)

 

 

Libor. And by the way: The Fed never had control, just the illusion.

The Fed Is Losing Control of Global Monetary Conditions (BBG)

Libor is coming unhinged from other borrowing costs and that has real implications for the cost of money in the real world. On this basis, the U.S. has already had an interest-rate increase, according to Bloomberg View’s Mark Gilbert. While there are plenty of market participants who favor the Austrian school of economics and would welcome the removal of central banks from the rate-setting mechanism, the change in money-market conditions is something the Fed should take into account as it ponders its next move.

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They do what they’re supposed to prevent: encourage saving. Get the central banks out of the economy!

Are Negative Rates Backfiring? (WSJ)

Recent economic data show consumers are saving more in Germany and Japan, and in Denmark, Switzerland and Sweden, three non-eurozone countries with negative rates, savings are at their highest since 1995, the year the Organization for Economic Cooperation and Development started collecting data on those countries. Companies in Europe, the Middle East, Africa and Japan also are holding on to more cash. Economists point to a variety of other possible factors confounding central-bank policy: Low inflation has left consumers with more money to sock away; aging populations are naturally more inclined to save; central banks themselves may have failed to properly explain their actions.

But there is a growing suspicion that part of problem may be negative rates themselves. Some economists and bankers contend that negative rates communicate fear over the growth outlook and the central bank’s ability to manage it. “People only borrow and spend more when they are confident about the future,” says Andrew Sheets at Morgan Stanley. “But by going negative, into uncharted territory, the policy actually undermines confidence.” Going negative was a big bet by central banks faced with a sluggish recovery from the financial crisis. Whether negative rates succeed or flop has huge implications for the global economy. Japan and Europe are already doing large volumes of bond buying to spur their economies, and their central bankers have little left in their tool kits.

The U.S. Federal Reserve’s next move is likely to raise rates, but Chairwoman Janet Yellen has said negative rates could find a place in the Fed’s armory in any future crisis. The Bank of England, shaken by June’s surprise vote to leave the European Union, cut interest rates to their lowest in its 322-year history last week but said it was reluctant to go negative. BOE Gov. Mark Carney said he is “not a fan” of a policy that has negative consequences for savers and the financial system. European banks say their profitability has been hit hard by low rates. Some central bankers say it is too early to judge negative rates. “The effect won’t be seen all at once, but it will gradually become clear,” said Bank of Japan Gov. Haruhiko Kuroda in a June news conference.

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Governments should stay out of housing markets. Their only interest is make banks make money.

Fannie And Freddie Could Need $126 Billion To Get Through A Crisis (R.)

Fannie Mae and Freddie Mac, two government-controlled housing finance agencies, would need a big cash injection to weather another financial meltdown, a government regulator said on Monday. Fannie and Freddie would need as much as $126 billion in taxpayer funds to come through a serious downturn, according to a ‘stress test’ from the Federal Housing Finance Agency. The companies, which were once owned by shareholders, have drawn $187 billion from the U.S. Treasury since they were seized by the government in September 2008 as the global financial crisis tightened. Since then, as the housing market has strengthened, they have returned roughly $250 billion to the Treasury. Lawmakers have not settled on the future of two companies. The ‘stress test’ required by the Dodd Frank reform legislation of 2010 projected the companies would have to draw at least $49 billion to $126 billion in the case of a serious economic downturn.

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People are forced to use Help to Buy: it acts as an insurance policy in case homes lose value. Then the taxpayer pays.

UK Government Has Gambled Hundreds Of Millions On House Price Rises (TiM)

Taxpayers stand to lose hundreds of millions of pounds if house prices fall, thanks to a gamble the government has been making with our cash for the past three years. Some £3.59billion has been lent to first-time buyers through the Help to Buy loan scheme to help them purchase newly-built properties they may not otherwise have been able to afford, according to the latest government statistics. The scheme was launched by the former Chancellor George Osborne in 2013, in response to a stagnating housing market. It effectively lets borrowers with small deposits top them up with a government loan, worth up to 20% of the value of a new build property.

For the 81,014 buyers who have taken advantage of the scheme so far, it has been an invaluable lifeline, the difference between making that step on to the first hallowed rung of the property ladder and continuing to rent. However, the side effect of the scheme leaves taxpayer funds extremely vulnerable to losses if house prices start to fall. This is because the size of loans is not fixed, but rather is measured as a proportion of the value of the properties bought. Take, for example a first-time buyer who uses the scheme to buy a home costing £300,000. They could borrow up to 20% of the value of the property – £60,000 – using Help to Buy, and put down just a 5% deposit themselves.

However, the size of the loan remains 20% of the value of the property – regardless of how it fluctuates. So if the house increases in value by 10% to £330,000, the value of the loan will increase by 10% as well to £66,000. The taxpayer turns a profit. But if the value of the home declines by 10% to £270,000, the value of the loan will decrease to £54,000. Taxpayers will just have to suck up the £6,000 shortfall. A total of £3.59billion has been lent out so far. If the value of the homes they helped paid for drops by just 10%, the borrowers will be off the hook for as much as £359million – a cost that will be picked up by the taxpayer.

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And this is what you get when a government blows a bubble.

One In Three British Families Are A Month’s Pay From Losing Homes (G.)

More than one in three families in England are a monthly pay packet away from losing their homes, according to research by Shelter highlighting how many households have almost no savings. The housing charity found that 37% of working families would be unable to cover their housing costs for more than a month if one partner lost their job. The findings mirror government figures, which show that there are 16.5 million working age adults in the UK with no savings. Campbell Robb, the chief executive of Shelter, said: “These figures are a stark reminder that sky-high housing costs are leaving millions of working families stretched to breaking point and barely scraping by from one paycheque to the next.

“Any one of us could hit a bump along life’s road, and at Shelter, we speak to parents every day who, after losing their job or seeing their hours cut, are terrified of losing the roof over their children’s heads too.” The charity is calling for an improved welfare safety net to prevent families where someone loses a job from “hurtling towards homelessness”. The phenomenon of the working poor, those earning a regular salary, but living from one paycheque to the next with no savings to speak of, is a widespread feature in English-speaking western economies such as the UK, Canada, the US and Australia. An annual survey by US website Bankrate found that 63% of Americans have no emergency savings for necessities such as a $1,000 (£770) emergency room visit or a $500 car repair. Most turn to credit cards when financial disaster looms.

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If they didn’t, where would their share prices be?

Vulnerable UK Banks Still Pay Billions In Dividends To Shareholders (Ind.)

Three of the UK’s biggest banks have paid out billions of pounds in dividends to investors while turning a blind eye to huge capital holes in their balance sheets, researchers argue. The findings, which come in the wake of estimates the UK banking sector has an aggregate £155bn shortfall of capital, will reinforce calls for the Bank of England to take a tougher stance on the capital adequacy of the lenders it oversees and to restrict the payment of dividends. Between 2010 and 2015 HSBC paid out £37bn in dividends, Barclays paid out £6.3bn and Lloyds paid out £2.3bn according to the calculations of Sascha Steffen of the University of Mannheim, Viral Acharya of New York University and Diane Pierret of the University of Lausanne.

If this cash had been retained by the banks it could have boosted their capital buffers by an equivalent amount. The three researchers last month produced an estimate that suggested UK banks would be massively exposed and at high risk of going bust in another serious financial crisis. They found that the majority state-owned Royal Bank of Scotland, Lloyds, Barclays and HSBC could collectively need to raise another £155bn of capital to maintain a comfortable equity safety buffer in the wake of a fresh crisis based on the market value of their equity.

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Can’t say it enough: ““There is no means of avoiding a final collapse of a boom brought about by credit expansion.”

A Crisis Of Intervention (Price)

For those that already have, Mark Carney is the gift that keeps on giving. Borrowed imprudently and struggling to make those interest payments ? Worry not; the Bank of England has your back. For those that don’t have, the Bank of England is taking away your chance of ever realistically saving anything, now that interest rates have been driven down to new historic lows of 0.25%, and may go lower yet. For the asset-rich, for the 1%, for property speculators, and for zombie companies and banks, Carney is your man. For the asset poor, or for savers, or pensioners, or insurance companies, or pension funds, the Bank of England has morphed from being anti-inflationary fireman to monetary arsonist. The economist Ludwig von Mises foresaw all this, nearly a century ago.

He called it “the crisis of interventionism”. Actions have consequences everywhere (except in Keynesian and Marxist economic theory). Interfere with the free market process and inefficiency and complexity are certain to rise. More actions and interventions are required. Pretty soon the entire system becomes a Heath Robinson contraption requiring constant amendments and ad hoc fixes and bolt-on workarounds. Welcome to the modern monetary system – the last, doomed refuge of the central planner with messianic delusions of adequacy. “The essence of the interventionist policy is to take from one group to give to another. It is confiscation and distribution. Every measure is ultimately justified by declaring that it is fair to curb the rich for the benefit of the poor.”

But so warped has our monetary system become after almost a decade of furious interventionism that Mark Carney’s redistributive efforts don’t even attempt to deliver to that objective. With interest rates fast approaching the theoretical lower bound of zero, Mark Carney is curbing the prospects of the poor for the benefit of the rich. He is redistributing capital from the prudent saver and gifting it to the borrower and the speculator. A crisis of too much debt is being met with ever more urgent attempts to prime the credit pump. Mises had something to say about credit expansion, too. “There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved.”

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Right. Spain. Hasn’t had a real government in a long time now. Unemployment is sky high. So everyone wants their bonds… Not. But Draghi buys all.

Spanish 10-Year Bond Yield Falls Below 1% for First Time (BBG)

Spanish 10-year bond yields fell below 1% for the first time on record Monday, marking another milestone in the four-year rally in the nation’s securities. The drop highlights how local political risk is being offset by monetary easing by central banks across the developed world. The yield fell to as low as 0.99%, down from more than 7.75% during the euro region’s debt crisis in July 2012.

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Strange headline for an article that translates as: BUBBLE!

China Leaders Head to the Beach, With Calmer Seas Ahead (BBG)

China’s top leaders are gathering for their annual conclave at the Beidaihe beach resort having defied the doomsayers once more. Economic data in coming days are projected to confirm the stabilization in growth achieved in the first half of this year continued into July. The backdrop of calm has won China a sustained respite from the financial-market turmoil and capital outflows that accompanied the Communist leadership’s traditional beach-resort meeting last year. But the stability has come at a cost. Instead of delivering on what Premier Li Keqiang called reforms so tough they’d be like cutting “flesh,” authorities have relied on another dose of cheap credit to prop things up.

That’s added more leverage to a nation where debt is already 2.5 times the economy’s size. Behind the reluctance for a bigger economic shakeup is a desire for stability ahead of a potentially wide-ranging reshuffle of the Communist hierarchy next year, according to Credit Suisse. “Candidates will prefer to be playing it safe rather than executing substantial reforms – especially state-owned enterprise reforms,” the bank’s China analysts, led by Vincent Chan, wrote last month. State-owned enterprises offer the major lever for ramping up growth through infrastructure spending, making officials reluctant to implement wide-ranging changes.

Yet their dominance in access to capital has squeezed opportunities for the more efficient private sector, contributing to a build-up in non-performing loans. “The immediate consequences of course are a relatively becalmed economy, which seems to have some staying power,” said George Magnus, senior economic adviser to UBS. “But at what cost in the medium to longer term if there’s no change in the instability-causing policies?”

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He needs to avoid the idea that the elites will profit most. This will be thrown at him no matter if it’s true or not.

Trump Tax Cuts Would Be Costly (CNBC)

Call it a work in progress. GOP presidential candidate Donald Trump unveiled Monday the latest version of his plan to overhaul the American tax code, offering relief for everyone from parents paying for child care to the world’s largest corporations. But it remains to be seen where the money will come from to pay for those cuts. Details of the plan are still fairly sketchy, but in his speech at the Detroit Economic Club, Trump promised they would be forthcoming soon. “In the coming weeks we will be offering more detail on all of these policies,” Trump said Monday. The Trump campaign has promised that the tax plan would “benefit working families while ensuring the wealthy pay their fair share.”

But based on details of Trump’s plan released earlier in the campaign, some analysts think the biggest winners would be those at the top of the income ladder. “The proposal would cut taxes at every income level, but high-income taxpayers would receive the biggest cuts, both in dollar terms and as a percentage of income,” according to an analysis in December by the Tax Policy Center. Trump’s campaign said Monday the tax plan would “dramatically reduce taxes for everyone and streamline deductions, presenting the biggest tax reform since [the] Reagan [administration].” But based on the details released so far, the plan would also explode the federal budget deficit, add trillions of dollars to the national debt and substantially raise the government’s interest payments, according to several independent analysts.

Trump’s tax cuts would amount to some $12 trillion over the next decade, according to the Tax Foundation. Even after accounting for stronger economic growth, the plan would leave the government more than $10 trillion short over the next 10 years. That money would have to be made up for with more borrowing, dramatically expanding the nation’s debt. Trump also promised to ease the burden on American corporations by limiting taxes to 15 percent. The campaign has also promised to “make our corporate tax globally competitive and the United States the most attractive place to invest in the world.” Based on the latest available data, that promise should be fairly easy to keep.

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Security experts? They’re neocons. Brilliant riposte: “We thank them for coming forward so everyone in the country knows who deserves the blame for making the world such a dangerous place..”

Republican Security Experts Rail Against Trump In Open Letter (BBC)

An open letter signed by 50 Republican national security experts has warned that nominee Donald Trump “would be the most reckless president” in US history. The group, which includes the former CIA director Michael Hayden, said Mr Trump “lacks the character, values and experience” to be president. Many of the signatories had declined to sign a similar note in March. In response, Mr Trump said they were part of a “failed Washington elite” looking to hold on to power. The open letter comes after a number of high-profile Republicans stepped forward to disown the property tycoon. Mr Trump has broken with years of Republican foreign policy on a number of occasions.

The Republican candidate has questioned whether the US should honour its commitments to Nato, endorsed the use of torture and suggested that South Korea and Japan should arm themselves with nuclear weapons. “He weakens US moral authority as the leader of the free world,” the letter read. “He appears to lack basic knowledge about and belief in the US Constitution, US laws, and US institutions, including religious tolerance, freedom of the press, and an independent judiciary.” “None of us will vote for Donald Trump,” the letter states. In a statement, Mr Trump said the names on the letter were “the ones the American people should look to for answers on why the world is a mess”.

“We thank them for coming forward so everyone in the country knows who deserves the blame for making the world such a dangerous place,” he continued. “They are nothing more than the failed Washington elite looking to hold on to their power and it’s time they are held accountable for their actions.” Also among those who signed the letter were John Negroponte, the first director of national intelligence and later deputy secretary of state; Robert Zoellick, who was also a former deputy secretary of state and former president of the World Bank; and two former secretaries of homeland security, Tom Ridge and Michael Chertoff.

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Surprised?

US Taxes Well Spent: Pentagon Can’t Account for $6.5 Trillion (Sputnik)

While US lawmakers are applying pressure on the Pentagon to be more transparent about how it spends money, a new report shows that the Defense Department’s substandard bookkeeping practices make that virtually impossible. Despite a 1996 law requiring all federal agencies to conduct regular spending audits, the Pentagon has so far failed to conduct a single one. While US lawmakers have pressed the DoD to comply by September of 2017, a new inspector general’s report indicates that meeting this deadline is highly unlikely.

“Army and Defense Finance and Accounting Service Indianapolis personnel did not adequately support $2.8 trillion in third quarter adjustments and $6.5 trillion in year-end adjustments made to Army General Fund (AGF) data during FY 2015 financial statement compilation,” the report reads. In common language, the Pentagon has no idea how it spent nearly $7 trillion. This is largely due to the fact that the DoD fails to provide the “journal vouchers” for its transactions, intended to provide serial numbers and dates, for bookkeeping purposes. But the report also found that many of the Pentagon’s records were missing without explanation.

“DFAS Indianapolis did not document or support why the Defense Departmental Reporting System-Budgetary, a budgetary reporting system, removed at least 16,513 of 1.3 million records during third quarter FY 2015,” the report reads. While nothing suggests foul play, a lack of proper accounting makes it impossible to determine how much money the Pentagon spends, and on what.

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There is a huge potential for this to backfire. Facebook better watch out.

Facebook Removes Potential Evidence Of Police Brutality Too Readily (I’Cept)

As more details emerge about last week’s killing by Baltimore County police of 23-year-old Korryn Gaines, activists have directed growing anger not only at local law enforcement but also at Facebook, the social media platform where Gaines posted parts of her five-hour standoff with police. At the request of law enforcement, Facebook deleted Gaines’ account, as well her account on Instagram, which it also owns, during her confrontation with authorities. While many of her videos remain inaccessible, in one, which was re-uploaded to YouTube, an officer can be seen pointing a gun as he peers into a living room from behind a door, while a child’s voice is heard in the background. In another video, which remains on Instagram, Gaines can be heard speaking to her five-year-old son, who’s sitting on the floor wearing red pajamas.

“Who’s outside?” she asks him. “The police,” he replies timidly. “What are they trying to do?” “They trying to kill us.” Statements made by officials in the days after the incident revealed little-known details of a “law enforcement portal” through which agencies can ask for Facebook’s collaboration in emergencies, a feature of the site that remains mostly obscure to the general public and which has been criticized following Gaines’ death. It’s not the first time Facebook has become the stage on which violent encounters between law enforcement and residents play out – and it seems likely more and more such incidents will be documented on the social media hub, given that the company’s livestreaming app, Facebook Live, is only nine months old and spreading at a time when recording police has become an instinctive reflex in some communities.

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We can see the earth disappear beneath our feet.

More Than 60% Of Maldives’ Coral Reefs Hit By Bleaching (G.)

More than 60% of coral in reefs in the Maldives has been hit by “bleaching” as the world is gripped by record temperatures in 2016, a scientific survey suggests. Bleaching happens when algae that lives in the coral is expelled due to stress caused by extreme and sustained changes in temperatures, turning the coral white and putting it at risk of dying if conditions do not return to normal. Unusually warm ocean temperatures due to climate change and a strong “El Nino” phenomenon that pushes up temperatures further have led to coral reefs worldwide being affected in a global bleaching event over the past two years. Preliminary results of a survey in May this year found all the reefs looked at in the Maldives, in the Indian Ocean, were affected by high sea surface temperatures.

Around 60% of all assessed coral colonies, and up to 90% in some areas, were bleached. The study was conducted by the Maldives Marine Research Centre and the Environmental Protection Agency, in partnership with the International Union for Conservation of Nature (IUCN). It took place on Alifu Alifu Atholhu – North Ari Atoll – chosen as a representative atoll of the Maldives. Dr Ameer Abdulla, research team leader and senior adviser to the IUCN on marine biodiversity and conservation science, said: “Bleaching events are becoming more frequent and more severe due to global climate change. “Our survey was undertaken at the height of the 2016 event and preliminary findings of the extent of the bleaching are alarming, with initial coral mortality already observed. “We are expecting this mortality to increase if bleached corals are unable to recover.”

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Mar 092016
 
 March 9, 2016  Posted by at 10:50 am Finance Tagged with: , , , , , , , ,  


DPC Sternwheeler Falls City, the levee, Vicksburg, Mississippi 1900

The New Danger From Derivatives (BBG)
The China Intervention Trade Is Back as State Funds Battle Bears (BBG)
Fake Trade Invoicing In China Is Back (BI)
Phantom Goods Disguise Billions in China Illicit Money Flows (BBG)
China, Fighting Money Exodus, Squeezes Business (WSJ)
China’s Historic $338 Billion Tech Startup Experiment (BBG)
Schaeuble Snubs Debt Relief For Greece (AFP)
Draghi Stimulus Fails in Stock Market as Volatility Matches 2008 (BBG)
Why a Recession Could Mean the End of the Eurozone (BBG)
Brussels Briefing: Turkish Rewrite (FT)
Berlin/Ankara Migration Pact — Wrecking Ball Or Silver Bullet?
Slovenia And Croatia Ban Transit Of Refugees To Other European Countries (AFP)
UN Refugee Agency Criticises ‘Quick Fix’ EU-Turkey Deal (Reuters)
UN Refugee Chief ‘Deeply Concerned’ By EU-Turkey Deal (AFP)
Merkel Says History Won’t Look Kindly If EU Fails on Refugees (BBG)

Yeah, right. The danger is still the same. All the regulators and clearing houses are nice, but it’s all kept as opaque as ever for a reason.

The New Danger From Derivatives (BBG)

Global regulators are turning their attention to an important piece of unfinished business: ensuring that a bad bet on derivatives can’t upset the entire financial system. They’ve hit on a good solution — as long as they can prevent it from becoming a threat in itself. The 2008 financial crisis proved that derivatives had gotten out of control. Some participants were making huge bets – say, on the likelihood of bond defaults – without putting up collateral to guarantee payment if the bets went wrong. When U.S. insurer AIG couldn’t make good on almost $50 billion in derivatives-related debts, it nearly brought down several of the world’s largest banks. In response, regulators have turned to a time-honored tool: the clearing house, which stands in the middle of trades and gathers collateral from all its members.

The U.S. has already moved most derivatives contracts to central clearing, and Europe is following. Clearing houses will play an increasingly important role in containing systemic risk, setting limits on leverage for banks, hedge funds and other investors. However, clearing houses present a risk of their own. If a crisis triggers defaults that overwhelm the posted collateral, they have little capital of their own to absorb losses. Beyond that, they’d rely on tapping a pre-paid guaranty fund and then calling in cash from the financial institutions that are their main customers – demands that in a crisis could cause distress to spread. If those resources proved inadequate, the government would likely have to step in to prevent a complete breakdown. The clearing houses are too important to fail, and the current rules governing their risk management are too lax.

Guaranty funds must cover at least two major defaults, but clearing houses are allowed to decide how much cash that actually requires – and how much capital their shareholders should pitch in to absorb the first losses. The size of this shareholder contribution matters a lot, because the fear of loss is an incentive to be prudent in setting collateral requirements in the first place. Some of the clearing houses’ biggest users – including JPMorgan Chase, Pimco and BlackRock – have noted these deficiencies, and global regulators are planning to address them this year. Greater transparency and specific capital requirements would be a good start. Regulators should publicly stress-test clearing houses as they do banks, and should require them to disclose enough information to assess the quality of their risk management (a process that has already begun). Also, research suggests that shareholder contributions to guaranty funds should probably be larger than the current average of about 3% among the leading U.S. and European clearing houses.

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Just wait for the People’s Congress to end in a week’s time.

The China Intervention Trade Is Back as State Funds Battle Bears (BBG)

The Chinese stock market has once again turned into a battleground for bearish investors and state-directed funds determined to spark a rally. During each of the past six days, the Shanghai Composite Index has recorded intraday losses before recovering to end the trading session higher, with suspected intervention targets including Industrial & Commercial Bank of China and PetroChina leading the rebound. After dropping as much as 3.1% on Wednesday, the benchmark gauge pared its loss to 1.3% at the close as ICBC jumped. The resumption of afternoon rallies, a common occurrence during the height of the government’s market rescue campaign in July, has presented traders with a quandary: Worsening economic data suggest stocks should fall, but state intervention provides an opportunity to profit from short-term gains.

It’s yet another sign of how government meddling has undermined the leadership’s own pledge to increase the role of market forces in the world’s second-largest economy. “There might be funds buying in the afternoon and pushing up the index again,” said Zhang Gang at Central China Securities. “But the market won’t be able to find a more clear direction until after” the National People’s Congress ends, Zhang said. The Shanghai Composite posted a sixth day of gains on Tuesday, extending its March rally to 7.9%, despite a worse-than-estimated plunge in exports that sent shares tumbling around the world. Some local branches of the securities regulator asked listed companies, mutual funds and brokerages to stabilize the market during annual parliamentary meetings this month, two people with direct knowledge of the situation said last week.

“Near-term data like trade is negative, and so there is selling pressure,” said Francis Cheung at CLSA. “The government is supporting the market for the NPC, so when it ends, we could see a pullback.” Banks and other major state-owned enterprises are most vulnerable to a retreat after the NPC, Cheung said. ICBC, the country’s biggest lender, climbed 9.4% this month and PetroChina, the largest oil producer, added 7.1%. The Shanghai Composite’s 6.5% gain in March compares with a 3.1% advance in the MSCI All-Country World Index. “If you look at the macro data coming out from China, you see it hasn’t been performing well,” said Ronald Wan at Partners Capital International in Hong Kong. “That has been reflected in other markets, but on the contrary it hasn’t been reflected in the A-share market.”

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In reverse.

Fake Trade Invoicing In China Is Back (BI)

Capital has been flowing out of China at unprecedented rate over the past six months. Amidst concerns about the economy and the potential for further weakness in the Chinese renminbi, many investors are running for the exits. With regulators closely monitoring cross boarder flows, heightening the risk of more stringent capital controls being put in place, investors have become increasingly inventive when it comes to getting money out of China. Take the practice of fake invoicing, for example. Based on recent anomalies between Chinese and Hong Kong trade figures, it appears many investors are now trying to get their capital out through non-traditional means, overstating the value of imported goods from Hong Kong to circumvent Chinese capital controls.

It’s the exact opposite scenario to what was seen in past years where firms in Hong Kong were overstating the value of imported goods from China in order to get capital in there, avoiding capital controls in an attempt to speculate on further strengthening in the renminbi. Here is the UBS China economics team, Ning Zhang, Jennifer Zhong and Tao Wang, on why they suspect fake invoicing is back.

Some capital outflows may have been disguised under over-invoicing of imports from Hong Kong. In the previous three months (December to February), China imports from Hong Kong jumped by 71% y/y on average, in sharp contrast with Hong Kong’s statistics of its exports to China. The difference between China and counterparty data widened visibly as a result. Among China’s imports from Hong Kong, jewellery and precious metals surged by over 200% y/y in the previous months. In light of RMB depreciation expectation and rising pressure of capital outflows in late 2015, we think it is possible that speculators have used overinvoicing of China’s import from Hong Kong again as a channel to move money out of China, though the absolute size has been relatively limited (i.e. China’s monthly average imports from Hong Kong was USD1.5 billion from December to February).

The chart below, supplied by UBS, shows the discrepancy between Chinese imports from Hong Kong, reported by Chinese customs, compared to Hong Kong exports to China, released by the Hong Kong government. Hong Kong trade data for March will be released on March 29. It will be interesting to see whether the anomaly between the two nation’s figures has continued.

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“..the practice has become a key way to skirt capital controls and accounted for $328 billion of the record outflows between August and January, or 78% of the decline in China’s reserves.”

Phantom Goods Disguise Billions in China Illicit Money Flows (BBG)

Days after the Switzerland-based Bank for International Settlements played down fears over capital flight out of China, new trade data has put the spotlight on a channel used to ferret out billions worth of illicit money flows: phantom goods. A steep rise in China’s reported imports from Hong Kong has raised concerns that trade invoices are being manipulated to get capital out of the country amid fears the yuan will continue to weaken. February data released Tuesday show those imports jumped 89% from a year earlier, even as total imports fell 14%. While the rise wasn’t as great as in January, economists said the spike follows similar patterns in recent months that point to companies using trade channels to pay for goods far in excess of their value or even that don’t exist at all.

“There has been a huge increase in payments,” said Andrew Collier, an independent China analyst in Hong Kong and former president of the Bank of China International USA. “The well-connected Chinese in state and private firms are using any tool in the shed to inflate overseas payments.” China’s capital exodus accelerated through 2015 as investors worried that policy makers would allow the yuan to weaken to cushion an ongoing slowdown in the $10 trillion-plus economy. The People’s Bank of China has insisted it isn’t contemplating a big change in currency policy and spent billions of the nation’s foreign exchange reserves defending the yuan’s value. While China has strict rules on moving capital offshore, those seeking to evade limits can disguise money flows as payment for goods exported or imported to foreign countries or territories, especially Hong Kong.

Economists have said they suspect China’s December and January trade numbers were also skewed by this activity. [..] Over-invoicing for goods gives a company or individual the opportunity to skirt China’s capital controls and shift money offshore. Authorities have responded to evidence of the activity by clamping down on the myriad of illicit channels used, from curbing purchases of overseas insurance products to stopping friends and family members from pooling their $50,000-a-year quotas to get large sums of money out. “A strong desire to get assets out of renminbi and into a foreign currency is distorting China’s official trade data at present,” economists at Fathom Financial Consulting wrote. “Our analysis suggests the scale of the problem may have grown exponentially in recent months.”

But China’s capital borders remain porous. In particular, little attention appears to have been paid to companies misreporting imports and exports, according to research by Deutsche Bank. Economists at the bank found the practice has become a key way to skirt capital controls and accounted for $328 billion of the record outflows between August and January, or 78% of the decline in China’s reserves. An estimate by Bloomberg Intelligence put the total for 2015 at $1 trillion.

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“The government is already wary about loosening monetary policy to stimulate growth, as that could weaken the yuan further and send more money abroad.”

China, Fighting Money Exodus, Squeezes Business (WSJ)

Chinese officials are trying anew to slow an unprecedented money exodus from the country, clamping down on individuals seeking to flee the yuan and making life tougher for companies that need to trade the currency for dollars to do business. China’s foreign-exchange regulator in recent months has deployed a new system to monitor individual purchases of foreign funds and has asked banks to reduce foreign-currency transactions. It has summoned bankers to its offices to give guidance and has grilled them when foreign-exchange activity spikes, according to executives at Chinese and foreign lenders. Banks, in turn, have increased scrutiny of foreign-currency transactions by businesses ranging from Chinese entrepreneurs investing abroad to companies paying overseas bills.

A European chemicals manufacturer recently faced delays in Shanghai in obtaining U.S. dollars, threatening its deadline for an overseas licensing payment. The Bank of Tianjin is having trouble getting funds from mainland investors for a planned Hong Kong public stock offering. A water-treatment company struggled to withdraw $2,000 for an engineer to travel to the U.S. “There appears to be a real crackdown on money flowing out of China,” said Jean Francois Harvey, global managing partner at Hong Kong law firm Harvey Law Corp., whose clients have had difficulty recently transferring money out of China for equipment purchases and investment. “Even normal business transactions which are ongoing are getting delayed.”

Mr. Harvey said a Chinese client is having problems wiring $15 million to a Hong Kong company that for two years has been helping it buy equipment for a South American factory. “There’s no indication that the money will go through,” he said, “and we heard from our client that it was due to restrictions on money transfer.” The clampdown comes atop Beijing’s steps after last summer to stem outflows, from restricting cross-border yuan business at foreign banks to cracking down on individuals who are flouting the country’s strict foreign-currency quotas. Economists say tightened capital controls are one reason China’s foreign reserves fell only $28.6 billion in February, less than a third the drops of the two previous months.

Spooked by slowing growth and a declining currency, Chinese businesses and consumers are trying to move money abroad where its value might hold up. Last year, some $700 billion to $1 trillion is estimated to have fled China. That is more than the economy of Switzerland and equivalent to as much as 10% of China’s massive GDP. China’s foreign-currency reserves fell by a record $107.9 billion in December from November and another $128 billion in January and February combined, putting reserves 20% lower than their June 2014 peak. The outflows destabilize the currency and make China’s decelerating economy harder to guide. The government is already wary about loosening monetary policy to stimulate growth, as that could weaken the yuan further and send more money abroad.

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“They have a fantasy that if they give everyone money they’ll create entrepreneurs..” “What it will result in is catastrophic losses for the government.”

China’s Historic $338 Billion Tech Startup Experiment (BBG)

China is getting into the venture capital business in a big way. A really, really big way. The country’s government-backed venture funds raised about 1.5 trillion yuan ($231 billion) in 2015, tripling the amount under management in a single year to 2.2 trillion yuan, according to data compiled by the consultancy Zero2IPO Group. That’s the biggest pot of money for startups in the world and almost five times the sum raised by other venture firms last year globally. The money’s in what are known as government guidance funds, where local and central agencies play some role. With 780 such funds nationwide and a lot of experimentation, there’s no set model for how they’re managed or funded. The bulk of their capital comes from tax revenue or state-backed loans.

The money is part of Premier Li Keqiang’s effort to bolster the slowing Chinese economy through innovation and reducing its dependence on heavy industry. The country began a campaign to support entrepreneurship in 2014 and has since opened 1,600 high-tech incubators for startups. The huge influx of cash raises the possibility of a boom-and-bust cycle like the government-led investment in China’s solar and wind power sectors, said Gary Rieschel, founder of Qiming Venture Partners. “They have a fantasy that if they give everyone money they’ll create entrepreneurs,” he said. But inexperienced or corrupt managers are likely to invest in dozens of regional copycats unable to get big enough to be profitable, he said. “What it will result in is catastrophic losses for the government.”

It’s unclear how quickly the funds will be deployed. Regulations and market practices remain to be finalized, Zero2IPO said in its report. But it’s clear that governments are marshaling their resources. Central China’s Wuhan, the capital of Hubei Province, is leading the push with a 200 billion yuan fund, the country’s biggest, with a mix of local and central government financing. The government there says it wants to grow that eventually to 1 trillion yuan, including private money.

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After already having acknowledged it is necessary.

Schaeuble Snubs Debt Relief For Greece (AFP)

German Finance Minister Wolfgang Schaeuble warned Tuesday he opposed debt relief for Greece, a day after eurozone ministers agreed to consider the possibility in upcoming bailout talks. “I honestly have no good argument to present German lawmakers or the German public opinion to whom I have a budgetary responsibility,” said Schaeuble, who is the most influential member of the Eurogroup of eurozone finance ministers. Speaking to journalists after talks with his EU counterparts, Schaeuble said that any discussion of Greek debt relief would be “about prestige, not substance”. However he acknowledged the debate was now opened, but that Germany, the EUs biggest economy, had “good arguments” against easing Greece’s debt burden, which has already been reduced twice since the start of the debt crisis.

Last July, Greek Prime Minister Alexis Tsipras secured Greece’s third bailout in five years, worth €86 billion, but only in return of deep reforms. However, in one of the few concessions handed to Greece, eurozone leaders agreed to also debate debt relief once key reforms pledges were met. Eurogroup chief Jeroen Dijsselbloem on Monday said Greece had made enough headway in its reforms to soon begin that discussion. Debt relief is a also a key demand of the IMF, which believes no economic program would be credible without it. Complicating matters, Schaeuble and other eurozone hardliners firmly back the idea that the pro-austerity IMF take part in Greece’s current bailout. The EU forecasts that Greece’s debt will soar to 185% of GDP in 2016 – a level generally understood to be unsustainable.

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So he’ll do moar.

Draghi Stimulus Fails in Stock Market as Volatility Matches 2008 (BBG)

Mario Draghi is having no success convincing stock investors that the European Central Bank has the firepower to reignite growth. While all economists in a Bloomberg survey expect the central bank to cut interest rates when policy makers meet Thursday, and 73% project them to boost the amount of money put into the financial system through bond purchases, fund managers aren’t optimistic about a post-decision equity rally. In the first year of quantitative easing, the Euro Stoxx 50 Index fell 17%, and volatility reached levels not seen since 2008. The gauge has dropped in each month but one following an ECB meeting since April. “It won’t be easy for Draghi to bring back confidence in the recovery,” said Andreas Nigg at Vontobel Asset Management in Zurich.

“Growth and inflation in Europe remain stuck at low levels and earnings revisions continue to fall. The market needs better earnings revisions and better economic surprises. ” Even after the central bank pumped about €720 billion into the region, manufacturing dropped to its lowest level since 2013, the inflation rate turned negative, and consumer confidence worsened. That’s led analysts to slash profit-growth estimates amid the worst earnings letdown since at least 2007. Investors are pulling money out of European equities at the fastest pace since 2014. When the central bank started its bond-buying program, shares were steaming toward a high amid growing optimism about the euro area’s recovery. But a succession of crises, starting with Greece’s near exit from the single currency, exacerbated by increasing unease over China’s slowing growth, a Volkswagen emissions scandal and the Federal Reserve’s December rate increase battered sentiment, leaving stocks up only 3.9% for 2015, from as much as 22%.

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Not could, will.

Why a Recession Could Mean the End of the Eurozone (BBG)

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It was Merkel all along. She has elections coming.

Brussels Briefing: Turkish Rewrite (FT)

It has become customary to assume EU summits aimed at tackling the ongoing refugee crisis produce much rhetoric but little meat. But last night’s gathering of European leaders with Ahmet Davutoglu, the Turkish prime minister, may prove the one that broke the rule. In talks that went on for 12 hours, the two sides emerged with the outlines of a deal that, if finalised next week, is as sweeping in its implications as it is in its substance. The German-engineered plan would allow the EU to turn back almost all migrants washing ashore in Greece and return them to Turkey. But the price will be high: in addition to billions of additional European aid to Ankara, the EU would expedite a long-dormant visa liberalisation programme that could provide Turkish nationals visa-free travel into the EU’s passport-free Schengen zone as soon as June.

That a significant deal was in the offing was clear late last week when Donald Tusk, the European Council president, travelled to Ankara and received strong signals that Mr Davutoglu was open to a massive programme of refugee returns. But the plan now on the table is significantly more ambitious than the one Mr Tusk was considering. It was driven almost entirely by Mr Davutoglu and Angela Merkel, the German chancellor, with the help of Mark Rutte, her Dutch counterpart and holder of the EU’s rotating presidency. The EU’s nominal leaders (Mr Tusk and Jean-Claude Juncker, the European Commission president) were almost entirely cut out of the deal-making, which began in earnest when the Turkish, German and Dutch leaders held a pre-summit meeting on Sunday. In her press conference, Ms Merkel acknowledged as much, saying Mr Davutoglu presented new demands at the Sunday meeting – and she endorsed them wholeheartedly.

There is still much that could go wrong. The UN and other human rights groups have questioned the legality of mass “pushbacks” of migrants before they receive an asylum hearing, a requirement in the Geneva Conventions. Plans to dub Turkey a “safe third country” – which would provide the legal basis for the deportations – are also likely to be challenged in court. Cyprus is balking at Turkish demands that EU membership talks restart in earnest before Ankara makes concessions as part of once-in-a-generation talks to reunify the long-divided island. Many diplomats were left bruised after being sidelined by the Turco-German juggernaut. We’ve compiled a long list of hurdles – but also an explanation of just how momentous the deal and the highly unorthodox diplomacy behind it – in an explainer by the FT Brussels bureau’s Alex Barker and Duncan Robinson.

All sides now have just over a week before the next EU summit, where Mr Davutoglu will return in hopes of sealing the deal. Some governments must find consensus in fractious coalitions. Others must consult their parliaments. But if Ms Merkel gets her way, EU refugee policy may well be forever changed by last night’s summit.

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Two good background pieces from FT.

Berlin/Ankara Migration Pact — Wrecking Ball Or Silver Bullet?

Of all the big-bang solutions sought for Europe’s migration crisis, a pact crafted by Germany and Turkey on Monday may rank as the most ambitious and politically explosive. The concept is breathtakingly simple: any economic migrant or Syrian refugee arriving on a Greek island would be returned to Turkey. The initiative is intended to be a short circuit for irregular migration. It will go for the bulk of the 2,000 migrants a day that are arriving on Greek beaches. The political price is the EU abandoning constraints that have framed its relations with Turkey for almost a decade. A European visa waiver for Turkish citizens could be granted by June, a pledge that glosses over the strict conditions attached; a decade-long Cypriot bar on some of Ankara’s membership chapters could be lifted; and extra funding made available in 2018 on top of a €3bn already granted by the EU.

These details must still be settled. But perhaps most difficult of all for the EU is resettlement. For every Syrian returned to Turkey from Greece, another Syrian would be accepted by EU countries. It is a programme potentially involving tens of thousands of people, at a time when the EU has managed to resettle just 3,407 in its existing scheme since July. Over time, a more permanent regime would replace it covering hundreds of thousands. Hatched against the backdrop of mounting political strife in Europe, the plan is an attempt to find a silver bullet and close off the Greece-to-Germany migration highway — at least for a few months. It has shocked many of the EU diplomats who had been working up an alternative on Sunday. “This has taken a wrecking ball to our common approach,” said one eurozone diplomat. “Everything is reopened.”

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Add Serbia.

Slovenia And Croatia Ban Transit Of Refugees To Other European Countries (AFP)

Slovenia and neighbouring Croatia will from Wednesday refuse allow the transit of most refugees through their territory in a bid to seal off the Balkan route used by hundreds of thousands of people seeking a new life in Europe. The move could set off a domino effect among Balkan states, with Serbia indicating it would follow Ljubljana’s lead and Macedonia apparently set to so the same. The attempt to shut down the main route used by refugees fleeing war and persecution outside Europe’s borders comes barely a day after the EU and Turkey agreed on a proposal aimed at easing the crisis. EU officials hailed Monday’s deal with Ankara as an important breakthrough, but the head of the UN refugee agency cast doubt on its legality, while Amnesty International said the plan “dealt a death blow to the right to seek asylum”.

Slovenia’s interior ministry said late on Tuesday that from midnight (2300 GMT), access would only be granted to “foreigners meeting the requirements to enter the country”, those wishing to claim asylum, and refugees selected “on a case by case basis on humanitarian grounds and in accordance with the rules of the Schengen zone”. Fellow EU member Croatia, which is not part of the passport-free Schengen zone, said it would follow Slovenia’s lead and refuse transit to most refugees as of midnight. “Apparently Europe has decided to start a new phase in resolving the migrant crisis. It was concluded that on the Schengen zone borders the Schengen rules would be applied,” interior minister Vlaho Orepic told RTL commercial television. Croatia, which had already limited the number allowed to enter, would now only allow in refugees with proper visas.

“The border of Europe will be on the Macedonia-Greek frontier and we will respect the decisions which were made,” he said. More than a million people from Syria, Afghanistan and Iraq have crossed the Aegean Sea into Greece since the start of 2015, most aiming to reach Germany and Scandinavia. The influx has caused deep divisions among EU members about how to deal with Europe’s worst refugee crisis since the second world war. Serbia said that following Slovenia’s move, it would “align all measures with the European Union” and impose the same restrictions at its borders with Macedonia and Bulgaria. Slovenia and Serbia, along with Austria, Croatia and Macedonia, have dramatically restricted entry to migrants in recent weeks, leaving a bottleneck of some 36,000 stuck at the Greek-Macedonian border, unable to continue their journey.

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Collective insanity.

UN Refugee Agency Criticises ‘Quick Fix’ EU-Turkey Deal (Reuters)

The UN refugee agency has said the European Union’s “quick fix” deal to send back refugees en masse to Turkey would contravene their right to protection under European and international law. EU leaders welcomed Turkey’s offer on Monday to take back all migrants who cross into Europe from its soil and agreed in principle to Ankara’s demands for more money, faster EU membership talks and quicker visa-free travel in return. Vincent Cochetel, Europe regional director of the UN high commissioner for refugees (UNHCR), said Europe’s commitment to resettle 20,000 refugees over two years, on a voluntary basis, remained “very low”. “The collective expulsion of foreigners is prohibited under the European convention of human rights,” Cochetel told a news briefing in Geneva.

“An agreement that would be tantamount to a blanket return to a third country is not consistent with European law, not consistent with international law,” he said. Europe had not even fulfilled its agreement last September to relocate 66,000 refugees from Greece, redistributing only 600 to date within the bloc, Cochetel said earlier. “What didn’t happen from Greece, will it happen from Turkey? We’ll see, I have some doubts,” he said on Swiss radio RTS. Turkey is home to nearly 3 million Syrian refugees, the largest number worldwide, but its acceptance rates for refugees from Afghanistan, Iraq and Iraq were “very low”, about 3%, Cochetel said. “I hope that in the next 10 days a certain number of supplementary guarantees will be put in place so that people sent back to Turkey will have access to an examination of their request [for asylum].”

UNHCR spokesman William Spindler said: “Legal safeguards would need to govern any mechanism under which responsibility would be transferred for assessing an asylum claim.” The UN Children’s Fund voiced deep concerns about the agreement, noting that “too many details still remain unclear”. “The fundamental principle of ‘do no harm’ must apply every step of way,” Unicef spokeswoman Sarah Crowe told the briefing. “That means first and foremost that children’s right to claim international protection must be guaranteed. Children should not to be returned if they face risks including detention, forced recruitment, trafficking or exploitation.”

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It’s all so illegal it won’t go anywhere.

UN Refugee Chief ‘Deeply Concerned’ By EU-Turkey Deal (AFP)

The head of the UN refugee agency on Tuesday said he was “deeply concerned” by a proposed deal between the EU and Ankara to curb the migrant crisis that would involve people being sent back to Turkey. “As a first reaction I’m deeply concerned about any arrangement that would involve the blanket return of anyone from one country to another without spelling out the refugee protection safeguards under international law,” UNHCR chief Filippo Grandi told the European Parliament. Lawmakers at the parliament in Strasbourg, France, applauded after he made the comment. At a summit in Brussels on Monday, EU leaders in principle backed a proposal by Turkey to take back all illegal migrants landing on the overstretched Greek islands.

Turkey also suggested a one-for-one deal under which the EU would resettle one Syrian refugee from camps in Turkey in exchange for every Syrian that Turkey takes from Greece, in a bid to reduce the incentive for people to board boats for Europe. Turkey is the main launching point for the more than one million migrants who have made the dangerous crossing to Europe since the start of 2015. It is home to 2.7 million refugees from the war in Syria, more than any other country. But Grandi said the plan did not offer sufficient guarantees under international law. He said refugees should only be returned to a country if it could be proved that their asylum application would be properly processed and that they would “enjoy asylum in accordance with accepted international standards and have full access to education, work, health care and if necessary social assistance.”

He also called for refugees to be screened before being sent away from Greece “to identify highly at-risk categories that may not be appropriate for return even if the above conditions are met.”

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Double speak.

Merkel Says History Won’t Look Kindly If EU Fails on Refugees (BBG)

German Chancellor Angela Merkel said history will judge Europe harshly unless it shares the burden of accepting refugees, taking particular aim at Hungary and Slovakia for refusing to resettle asylum seekers. The EU will face scrutiny if it turns away from an embattled region, where the Syrian civil war has displaced millions and spurred an influx of refugees into Europe, Merkel said. She compared the continent to nations in the Middle East such as Lebanon, Jordan and Turkey that have taken in millions of Syrian refugees each. “500 million Europeans today probably haven’t taken in a million Syrians,” Merkel said on a panel Tuesday in Stuttgart, Germany, adding that the EU can’t afford to isolate itself from the crisis. “I think that this won’t go well for us historically. I’m very sure of that.”

Merkel has been buffeted by criticism and sliding poll numbers at home over her open-border policy after more than a million asylum seekers entered Germany last year. Speaking a day after an EU summit sought a deal with Turkey to staunch the flow of refugees, and in return resettle Syrian asylum seekers into Europe, Merkel signaled that agreeing on EU redistribution may run up against the refusal of eastern European countries. “I have to tell you quite honestly, there will be a lot to talk about,” Merkel said. “If some countries such as Hungary and Slovakia say ‘zero – zero; we have no obligation here; we’re not responsible for sheltering; there’s no civil war in front of our door; the Syrians have to look to their neighborhood with Lebanon, Jordan and Turkey.’ That’s a position that is not mine.”

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