F.A. Loumis, Independence (Bastille?!) Day 1906
“All told, in a span of two weeks, regulators announced at least 40 measures aimed at supporting the market..”
From postponing initial public offerings to relaxing trading rules, Chinese authorities aggressively intervened to stabilize the stock market after panic sales shaved more than $3 trillion from the Shanghai Composite Index’s market cap in a month. For now, the effort has paid off with the stock market regaining some of its composure, but analysts warned that the stabilization is likely to be a temporary victory, and that the worst may be yet to come. “This is not the time to enter the market, it would be like catching a falling knife,” said David O’Malley, CEO of Penn Mutual. When the market began its downward spiral in the middle of June, Chinese officials took a wait-and-see approach and refrained from heavy-handed action.
But as the meltdown in the stock market threatened to spill over into other assets, namely the currency market, Beijing moved quickly to stem the fallout. All told, in a span of two weeks, regulators announced at least 40 measures aimed at supporting the market, starting with the central People’s Bank of China cutting the benchmark interest rate by 25 basis points on June 27. This was followed by a proposal on June 29 to allow the national pension fund to invest in equities, which could potentially equate to an injection of 1 trillion yuan ($161 billion) if approved. Indeed, between July 4 to July 9, not a single day went by without the Chinese government stepping into the market, according to Barclays.
The tactic succeeded in neutralizing the stock market’s rout and the Shanghai Composite rose for a third session in a row on Monday. Nonetheless, it could be premature to believe all is well again in the world’s sixth largest stock market with about 300 companies still halted on the Shanghai market and more than 800 halted on the Shenzhen bourse. The true litmus test of investor confidence will come when these shares resume trading, but experts are already betting that the market will face further turmoil when these stocks lift their self-imposed trading bans.
Forget about all the shoes, toys and other exports. China may soon have another thing to offer the world: a recession. That is the prediction from Ruchir Sharma, head of emerging markets at Morgan Stanley Investment Management, who says a continuation of China’s slowdown in the next years may drag global economic growth below 2%, a threshold he views as equivalent to a world recession. It would be the first global slump over the past 50 years without the U.S. contracting. “The next global recession will be made by China,” Sharma, who manages more than $25 billion, said in an interview at Bloomberg’s headquarters in New York. “Over the next couple of years, China is likely to be the biggest source of vulnerability for the global economy.”
While China’s growth is slowing, the country’s influence has increased as it became the world’s second-largest economy. China accounted for 38% of the global growth last year, up from 23% in 2010, according to Morgan Stanley. It’s the world’s largest importer of copper, aluminum and cotton, and the biggest trading partner for countries from Brazil to South Africa. The IMF last week cut its forecast for global growth this year to 3.3%, down from an estimate of 3.5% in April, citing weakness in the U.S. While the Washington-based lender left its projection on China unchanged at 6.8%, the slowest since 1990, it said “greater difficulties” in the country’s transition to a new growth model poses a risk to the global recovery.
China’s economy will continue slowing as the country struggles to reduce its debt, Sharma said. An additional 2 percentage-point slowdown would be enough to tip the world into a recession, he said. The global expansion, measured by market exchange rates, has slipped below 2% during five different periods over the past 50 years, most recently in 2008-09. All the previous world recessions have coincided with contractions in the U.S. economy.
“..My interpretation is that when you want to talk about everything, you don’t want to talk about anything.”
Greece has finally reached an agreement with its creditors. The specifics have not yet been published, but it is clear that the deal signed is more punitive and demanding than the one that its government has spent the past five months desperately trying to resist. The accord follows 48 hours in which Germany demanded control of Greece’s finances or its withdrawal from the euro. Many observers across Europe were stunned by the move. Yanis Varoufakis was not. When I spoke with Greece’s former finance minister last week, I asked him whether any deal struck in the days ahead would be good for his country. “If anything it will be worse,” he said. “I trust and hope that our government will insist on debt restructuring, but I can’t see how the German finance minister [Wolfgang Schäuble] is ever going to sign up to this. If he does, it will be a miracle.”
It’s a miracle the Greek people are likely to be waiting for a long time for. On Friday night, when Greece’s parliament agreed to an austerity programme that voters had overwhelmingly rejected in a referendum five days earlier, a deal seemed imminent. A partial write-off of its debt owed to the so-called “Troika” – the IMF, the European Central bank and the European Commission – was unlikely but possible. Now, despite its government’s capitulation, Greece has no debt relief and may yet be thrown out of the Eurozone. Varoufakis, who resigned a week ago, has been criticised for not signing an agreement sooner, but he said the deal that Greece was offered was not made in good faith – or even one that the Troika wanted completed.
In an hour-long telephone interview with the New Statesman, he called the creditors’ proposals – those agreed to by the Athens government on Friday night, which now seem somehow generous – “absolutely impossible, totally non-viable and toxic …[they were] the kind of proposals you present to another side when you don’t want an agreement.” Varoufakis added: “This country must stop extending and pretending, we must stop taking on new loans pretending that we’ve solved the problem, when we haven’t; when we have made our debt even less sustainable on condition of further austerity that even further shrinks the economy; and shifts the burden further onto the have-nots, creating a humanitarian crisis.”
In Varoufakis’s account, the Troika never genuinely negotiated during his five months as finance minister. He argued that Alexis Tsipras’s Syriza government was elected to renegotiate an austerity programme that had clearly failed; over the past five years it has put a quarter of Greeks out of work, and created the worst depression anywhere in the developed world since the 1930s. But he thinks that Greece’s creditors simply led him on. A short-term deal could, Varoufakis said, have been struck soon after Syriza came to power in late January. “Three or four reforms” could have been agreed, and restrictions on liquidity eased by the ECB in return. Instead, “The other side insisted on a ‘comprehensive agreement’, which meant they wanted to talk about everything. My interpretation is that when you want to talk about everything, you don’t want to talk about anything.” But a comprehensive agreement was impossible. “There were absolutely no [new] positions put forward on anything by them.”
Yains gets better with more freedom of speech.
In the next hours and days, I shall be sitting in Parliament to assess the legislation that is part of the recent Euro Summit agreement on Greece. I am also looking forward to hearing in person from my comrades, Alexis Tsipras and Euclid Tsakalotos, who have been through so much over the past few days. Till then, I shall reserve judgment regarding the legislation before us. Meanwhile, here are some first, impressionistic thoughts stirred up by the Euro Summit’s Statement.
• A New Versailles Treaty is haunting Europe – I used that expression back in the Spring of 2010 to describe the first Greek ‘bailout’ that was being prepared at that time. If that allegory was pertinent then it is, sadly, all too germane now.
• Never before has the European Union made a decision that undermines so fundamentally the project of European Integration. Europe’s leaders, in treating Alexis Tsipras and our government the way they did, dealt a decisive blow against the European project.
• The project of European integration has, indeed, been fatally wounded over the past few days. And as Paul Krugman rightly says, whatever you think of Syriza, or Greece, it wasn’t the Greeks or Syriza who killed off the dream of a democratic, united Europe.
• Back in 1971 Nick Kaldor, the noted Cambridge economist, had warned that forging monetary union before a political union was possible would lead not only to a failed monetary union but also to the deconstruction of the European political project. Later on, in 1999, German-British sociologist Ralf Dahrendorf also warned that economic and monetary union would split rather than unite Europe. All these years I hoped that they were wrong. Now, the powers that be in Brussels, in Berlin and in Frankfurt have conspired to prove them right.
• The Euro Summit statement of yesterday morning reads like a document committing to paper Greece’s Terms of Surrender. It is meant as a statement confirming that Greece acquiesces to becoming a vassal of the Eurogroup.
• The Euro Summit statement of yesterday morning has nothing to do with economics, nor with any concern for the type of reform agenda capable of lifting Greece out of its mire. It is purely and simply a manifestation of the politics of humiliation in action. Even if one loathes our government one must see that the Eurogroup’s list of demands represents a major departure from decency and reason.
• The Euro Summit statement of yesterday morning signalled a complete annulment of national sovereignty, without putting in its place a supra-national, pan-European, sovereign body politic. Europeans, even those who give not a damn for Greece, ought to beware.
This deal is far from done.
Greece’s last-ditch bailout requires the country to sell €50 billion of assets, an ambition it hasn’t come close to achieving under previous restructuring plans. The government of then-Prime Minister George Papandreou in 2011 set the same financial goal, which it sought to achieve by hawking airports, seaports, and beachside real estate. Since then, such deals have yielded 3.5 billion euros, according to the state privatization authority. Making the asset-sale math work as the economy contracts will be difficult for Greek Prime Minister Alexis Tsipras, who on Monday bowed to demands from European creditors in exchange for a bailout of as much as 86 billion euros that will keep the country in the euro zone.
Half the money from asset disposals is already earmarked for the country’s teetering banks. They need the money to rebuild their capital buffers and, without it, may no longer be able to operate. “Fifty billion euros is a very unrealistic target,” said Diego Iscaro, an economist at research firm IHS Inc. “Asset prices have been badly hit by the economic depression and we do not expect them to significantly recover any time soon.” The current target would see Greece attempting to find buyers for the equivalent of just over a fifth of the country’s annual gross domestic product. Since its debt crisis began in earnest in 2010, Greece’s attempts to raise cash from state property have been fraught with difficulty.
A €915 million deal to sell the seaside site of the former Athens airport, a plot three times the size of Monaco, has stalled and no money has yet changed hands. Tsipras’s government had said it wanted to halt the transaction on environmental grounds. His Coalition of the Radical Left, or Syriza, had also expressed skepticism about selling the Piraeus seaport just outside the capital. A concession to Fraport AG to operate 14 provincial airports for €1.2 billion hasn’t closed. All told, €7.7 billion in sales have been agreed, with less than half that actually being paid so far, figures from the Hellenic Republic Asset Development Fund show.
“As the IMF acknowledged in its famous mea culpa, if you misjudge the fiscal multiplier and force austerity beyond the therapeutic dose, you make matters worse.”
Like the Neapolitan Bourbons – benign by comparison – the leaders of the eurozone have learned nothing, and forgotten nothing. The cruel capitulation forced upon Greece after 31 hours on the diplomatic rack offers no conceivable way out the country’s perpetual crisis. The terms are harsher by a full order of magnitude than those rejected by Greek voters in a landslide referendum a week ago, and therefore can never command democratic assent. They must be carried through by a Greek parliament still dominated by MPs from Left and Right who loathe every line of the summit statement, the infamous SN 4070/15, and have only agreed – if they have agreed – with a knife to their throats. EMU inspectors can veto legislation. The emasculation of the Greek parliament has been slipped into the text. All that is missing is a unit of EMU gendarmes.
Such terms are unenforceable. The creditors have sought to nail down the new memorandum by transferring €50bn of Greek assets to “an independent fund that will monetise the assets through privatisations and other means”. It will be used in part to pay off debts. This fund will be under EU “supervision”. The cosmetic niceties of sovereignty will be preserved by letting the Greek authorities manage its day to day affairs. Nobody is fooled. In other words, they are seizing Greece’s few remaining jewels at source. This is not really different from the International Committee for Greek Debt Management in 1898 imposed on Greece after the country went bankrupt following a disastrous Balkan war.
A six-power league of bondholders, led by British bankers, impounded customs duties in the Port of Piraeus, and seized revenues from stamp duty, tobacco, salt, kerosene, all the way down to playing cards. But at least there was no humbug about solidarity and helping Greece on that occasion. “It is the Versailles Treaty for the present age,” said Mr Varoufakis this morning, talking to me from from his island home in Aegina. Under the new terms, Greece must tighten fiscal policy by roughly 2pc of GDP by next year, pushing the country further into a debt-deflation spiral and into the next downwards leg of its six-year depression. This will cause the government to miss the budget targets yet again – probably by a large margin – in an exact repeat of the self-defeating policy that caused Greek debt dynamics to spin out of control in the last two Troika loan packages.
As the IMF acknowledged in its famous mea culpa, if you misjudge the fiscal multiplier and force austerity beyond the therapeutic dose, you make matters worse. The debt to GDP ratio rises despite the cuts. EMU leaders have an answer to this. Like Canute’s courtiers, they will simply command the waves to retreat. The text states that on top of pension cuts and tax increases there should be “quasi-automatic spending cuts in case of deviations from ambitious primary surplus targets”,. In other words, they will be forced to implement pro-cyclical contractionary policies. The fiscal slippage that acted as a slight cushion over the last five years will be not be tolerated this time. And let us not forget that these primary surpluses never made any sense in the first place. They were not drawn up on the basis of macro-economic analysis. They were written into prior agreements because that is what would be needed – ceteris paribus – to pretend that debt is sustainable, and therefore that the IMF could sign off on the accords. What a charade.
“I am afraid there is going to be a real fight about this. There is a groundswell of anger and it is now perfectly clear to a lot of people that the only way out of neo-colonial servitude is to break free of monetary union..”
Greek premier Alexis Tsipras faced a furious backlash from own Syriza party on Monday night after yielding to draconian demands from Europe’s creditor powers, and agreeing to let foreign surpervisors to take control of his country. The bitter climb-down clears the way towards an €86bn rescue package and the renewal of emergency liquidity for the Greek banking system, once Greece’s parliament has voted for pension cuts, tax rises and a raft of other measures by Wednesday. This is the first of a series of deadlines as the country is kept on a tight leash. The terms imposed after marathon talks through the night on Sunday are far harsher than those rejected by Greek voters in a landslide referendum a week ago, and risks shattering democratic consent in Greece.
It has left Europe bitterly divided along North-South lines of cleavage, severely testing the political cohesion of monetary union. “Greece has been devastated and humiliated. Europe has showed itself Pharisaical, incapable of leadership and solidarity,” said Romano Prodi, the former Italian prime minister. An independent fund will take control of €50bn of Greek state assets, collateral to prevent Syriza reneging on the deal at a later date. Three-quarters of this will be sued to recapitalise the Greek banks and repay debt. International inspectors will have the power to veto legislation. The radical-Left Syriza government will be forced to repeal a raft of laws passed since it took power in January, stripping away the last fig leaf of sovereignty.
“It is unconditional surrender. We get serious austerity with no debt relief. We will have foreign supervisors crawling over everything,” said Costas Lapavitsas, a Syriza MP and one of 40 or so rebels who plan to abstain or vote against the deal, mostly from the Left Platform. “They are telling us that from now on, they are going to govern the country. I am afraid there is going to be a real fight about this. There is a groundswell of anger and it is now perfectly clear to a lot of people that the only way out of neo-colonial servitude is to break free of monetary union,” he said. The Independent Greeks party (ANEL) in the ruling coalition called the deal a “German coup” and said it would not have anything to do with it. The government is close to collapse.
Mr Tsipras gave in after being locked in all-night talks with German Chancellor Angela Merkel and French president Francois Hollande, an ordeal described by one EU official as psychological “water-boarding”. He was left with a grim choice as Greek banks ran out of cash and after two weeks of capital controls had brought industry to a halt. Food companies warned that the country will start to run out of beef and other imported meats within days and could face serious food shortages by the end of the month unless the banking system is reopened, and firms can pay foreign suppliers once again. The ECB has yet to lift its freeze on emergency liquidity for the Greek financial system. The banks will remain shut through Wednesday. Yanis Varoufakis, the former finance minister, said Greece had been forced to accept a latter day “Versailles Treaty” that will leave the country languishing in perma-slump for years to come.
Could it be that’s what he’s aiming for?
Greece’s leftwing Prime Minister Alexis Tsipras faces a showdown with rebels in his own party on Tuesday furious at his capitulation to German demands for one of the most sweeping austerity packages ever demanded of a euro zone government. Just hours after a deal that saw Greece surrender much of its sovereignty to outside supervision in return for agreeing to talks on an €86 billion bailout, doubts were already emerging about whether Tsipras would be able to hold his government together. The terms imposed by international lenders led by Germany in all-night talks at an emergency summit obliged Tsipras to abandon promises of ending austerity. Instead he must pass legislation to cut pensions, increase value added tax, clamp down on collective bargaining agreements and put in place quasi-automatic spending constraints.
In addition, he must set €50 billion of public sector assets aside to be sold off under the supervision of foreign lenders and get the whole package through parliament by Wednesday. Tsipras himself, elected five months ago to end five years of suffocating austerity, said he had “fought a tough battle” and “averted the plan for financial strangulation”. But to get the accord through parliament by Wednesday’s deadline, he will have to rely on votes from pro-European opposition parties, raising big questions over the future of his government and opening the prospect of snap elections. Leftwing rebels in the ruling Syriza party, and his junior coalition partner, the right-wing Independent Greeks party, indicated they would not tear up election pledges that brought them to power in January.
“We cannot agree to that,” Independent Greeks leader Panos Kammenos told reporters after meeting Tsipras. “In a parliamentary democracy, there are rules and we uphold them.” A meeting of the Syriza parliamentary group on Tuesday morning could see Energy Minister Panagiotis Lafazanis and Deputy Labor Minister Dimistris Stratoulis sacked over their opposition to the bailout. There may also be a battle over parliament speaker Zoe Constantinopoulou, an uncompromising leftwinger who also defied Tsipras over the bailout and who could create serious procedural obstacles for the package. If the summit on Greece’s third bailout had failed, Athens would have been staring into an economic abyss with its banks on the brink of collapse and the prospect of having to print a parallel currency and exit the euro.
“..by necessity currency unions are transfer unions..”
If the definition of insanity is doing the same thing over and over and expecting a different result, the leaders of Europe and Greece are insane. After a 17-hour summit, Europe’s leaders have reached a deal. If the Greek parliament passes a package of reforms by Wednesday night, the country’s creditors will move forward with a third bailout on terms that are much stricter than previous proposals. If the deal proceeds, it will avert the immediate chaos that Greece’s uncontrolled exit from the euro area would entail, and enable European leaders to talk about something else for a while. Unfortunately, it does nothing to address the fundamental issues that have repeatedly landed Europe in crisis since 2009.
Former German Economic Minister Karl-Theodor zu Guttenberg quipped that Europe hasn’t been kicking the can down the road, it’s been kicking it up a hill and wondering why it keeps rolling back on its foot. The core issue: Although the EU can handle economies of widely varying types and levels of development, the euro area cannot. Greece’s gross domestic product per person was about half of Germany’s when it joined the euro in 2001. Since then, Greece’s competitiveness relative to Germany’s has slid by about 40%. For a currency union to handle widely divergent economies, they must be deeply integrated across multiple dimensions. In the U.S., the average citizen of Mississippi makes just $20,618 a year, compared with $37,892 in Connecticut – almost as big a gap as between Greece and Germany.
Yet the U.S. doesn’t worry about a “Missexit,” because the country has various mechanisms for smoothing over differences among its states. The recent problems of Puerto Rico show the danger of being locked to a currency without such buffers. The mechanisms include large fiscal transfers- by necessity currency unions are transfer unions. Last year, 28 U.S. states sent the equivalent of 2.3% of their gross domestic product through the federal budget to the other 22 states. The biggest donor, Delaware, gave 21%. The biggest recipient, North Dakota, got 90%. By contrast, in 2011 Germany made a net contribution of 0.2% of its GDP to the EU budget, while Greece received 0.2%. Would German voters really support a tenfold jump in their contributions from €210 to €2,100 per person?
Large-scale fiscal transfers are not the only mechanism needed. Mississippi has probably run the equivalent of a current account deficit with New York ever since the Civil War. Every April, the banks in the Federal Reserve system reallocate assets and smooth over such regional imbalances. By contrast, when Greece runs a deficit with Germany – for example, due to trade with Germany or capital flight from Greece – its central bank accumulates debts to the Bundesbank indefinitely. The Bundesbank currently holds more than 500 billion euros in credits against other euro zone central banks. Again, would German taxpayers be willing to see the Bundesbank regularly write off some portion of those liabilities?
“You cannot get 70-80% of people in the working-class suburbs of Athens turning out – in the face of a rightwing media bombardment – on far-left anti-Euro sentiment alone.”
The only thing certain about the aftermath of Sunday’s Euro summit is the disgrace of the political leaderships. The EU’s main powers tried to ritually humiliate the Greek government, but ruthlessness of intent was matched by incompetence when it came to execution. The German finance minister, Wolfgang Schäuble, threw on to the table a suggestion for Greece to leave the single currency for five years. Senior MPs from his coalition partner, the socialist SPD, screamed from the sidelines that they had not agreed to this – yet enough of Germany’s partners did agree to get the proposal into the final ultimatum. The Greeks were negotiating under threat of their banking system being allowed to collapse, a threat made by the very regulator supposed to maintain financial stability.
For the Greek leadership, it has also been a week of miscalculation. Armed, they thought, with a mandate for less austerity, they listened once again to the French, whose technocrats actually helped design the Greek offer going into the Brussels summit, only to see that offer ripped apart and replaced with a demand for the reversal of every measure against austerity the government has ever taken. But the real problem is not the politicians. It is the eurozone’s inability to contain the democratic wishes of 19 electorates. When the Finnish government threatened to collapse the talks, it was only expressing the wishes of the 38% of voters who backed the nationalist rightwingers of Finns Party. Likewise, when Schäuble sprang his temporary Grexit plan, he was expressing the demand of 52% of German voters, who want Greece to leave.
As for the Greeks, having tramped the streets of Athens alongside them for the best part of two months, I am certain that the “Oxi” movement was essentially a demand to stay in the Euro on different terms. You cannot get 70-80% of people in the working-class suburbs of Athens turning out – in the face of a rightwing media bombardment – on far-left anti-Euro sentiment alone. Now it seems that both sides of the Greek referendum were voting for an illusion. One of the most touching aspects of Greek life is people’s obsessional respect for parliamentary democracy. Syriza itself is the embodiment of a leftism that always believed you could achieve more in parliament than on the streets. For the leftwing half of Greek society, though, the result is people continually voting for things more radical than they are prepared to fight for.
“..it is a monstrous, undemocratic creditors’ racket.”
When finalizing my book European Spring last year, I hesitated before describing the Eurozone as a “glorified debtors’ prison.” After this weekend’s brutal, vindictive, and short-sighted exercise of German power against Greece, backed up by the Frankfurt-based European Central Bank’s (ECB) illegal threat to pull the plug on the entire Greek banking system, I take it back. There is nothing glorious about the Eurozone: it is a monstrous, undemocratic creditors’ racket. Greece’s submission to the conditions that Germany demanded, merely to start negotiations about further funding to refinance its unsustainable debts, may stave off the prospect of imminent bank collapse and Greece’s exit from the Eurozone.
But far from solving the Greek problem, doubling down on the creditors’ disastrous strategy of the past five years will only further depress the economy, increase the unbearable debt burden, and trample on democracy. Even Deutsche Bank, one of the German banks bailed out by European taxpayers’ forced loans to the Greek government in 2010, says Greece is now tantamount to a vassal state. But this is much bigger than Greece. It is clearer than ever that Europe’s dysfunctional monetary union has a German problem, too. As creditor-in-chief in a monetary union bereft of common political institutions, Germany is proving to be a calamitous hegemon. Paris may have tempered Berlin’s petulant threat to force Greece out of the euro, but German Chancellor Angela Merkel undoubtedly calls the shots.
The deal that Greek Prime Minister Alexis Tsipras capitulated to mirrored German demands, not the proposals he drafted with French help last week. By pointing out the futility of resistance if Greece wished to remain in the euro, Paris has, in a sense, acted as Berlin’s agent in securing Athens’ acquiescence. Yes, small countries such as Slovakia and Finland agreed with Germany. But their voices are hardly decisive. From Berlin’s perspective, they are the useful idiots who provide cover for its narrow interests. Remember that, through their loans to Greece, Finns and Slovaks bailed out German banks, not Finnish and Slovak ones. It is naïve to think that Berlin wouldn’t bulldoze them if they stood in its way.
Let’s be clear. What Berlin and Frankfurt have done to Greece, they can – and will – do to others. In 2010, they blackmailed the Irish government into imposing €64 billion in bank debt on Irish taxpayers. In 2011, they forced out the elected prime minister of Italy, Silvio Berlusconi. They would surely hammer a future Portuguese government, itself flirting with insolvency. And yes, they’d bully Slovakia and the others currently cheering them on.
And don’t you forget it.
Some are calling the “deal”, which is in reality just a framework for further discussions, that Greece achieved over the weekend a “Pyrrhic defeat.” That is certainly one way of looking at things, however an even more accurate assessment of events in the past 48 hours is that this is the moment the “genie was out of the bottle” and the Euro was finally seen as reversible, what ultimately happens to Greece and its soon to be 200%+ debt/GDP notwithstanding. Here is Sky News’ Ed Conway with one of the more accurate summaries of this weekend’s epic fiasco:
However this story ends (and we have no idea what the next few hours will bring), Sunday 12 July will go down as a landmark moment in European history—alongside Rome in 1957, Maastricht in 1992 and Cannes in 2011. For the first time, the leaders of the 19-member euro area officially discussed plans for the departure of one of their members. According to the draft proposals handed by the eurogroup (the finance ministers) to their leaders for their overnight meeting, among the clauses to be debated was one worded as follows:
In case no agreement could be reached, Greece should be offered swift negotiations on a time-out from the euro area, with possible debt restructuring.
It is difficult to overstate the significance of this. For its entire life, the euro was conceived as a currency from which there could be no exit. This was not accidental: the disasters that befell the Exchange Rate Mechanism in the early 1990s convinced European leaders that the only way to create a lasting single currency was never, ever, to countenance anyone leaving it. The euro was “irreversible”, to use the word Mario Draghi has frequently used. Except, tonight in Brussels it transpired that it is far from irreversible. That euro finance ministers are now actively discussing giving Greece a “time-out” from the currency. Now, one should insert a major note of caution at this stage. The clause quoted above was not agreed by all the euro members here in Brussels.
It was put into square brackets, meaning it is yet to be agreed by all member states. It may well be excised by the time the leaders have honed the draft document away to produce their final statement. Nonetheless, it was on the table. And that means that to some extent, the genie is now out of the bottle. Brussels is officially discussing how to engineer Greece’s departure. The euro is not irreversible. Clearly, they will not do “whatever it takes” to keep it together.
Nothing would make the Troika happier than inciting riots in Athens.
Austerity measures demanded of Greece by its European creditors will strengthen the far right, the country’s former finance minister Yanis Varoufakis has said. Varoufakis also dubbed the bailout agreement reached in Brussels this week as a new Treaty of Versaille, and a coup d’état which used banks instead of tanks. The Greek government has found itself in a dire political situation after it was forced to accept draconian austerity measures as part of a bailout offer even harsher than the one a national referendum voted no to last week. The outspoken former minister, who resigned from his role after the national referendum, despite it returning the result he was calling for, told the ABC the far-right Golden Dawn party could “inherit the mantle of the anti-austerity drive, tragically”.
“If our party Syriza, that has cultivated so much hope in Greece – to the extent that we managed to score 61.5% in the recent referendum – if we betray this hope and if we bow our heads to this new form of postmodern occupation, then I cannot see any other possible outcome than the further strengthening of Golden Dawn,” Varoufakis said. Speaking to Radio National’s Phillip Adams in his first post-resignation interview, Varoufakis also said he “jumped more than he was pushed” when he resigned from the ministry. Prime minister Alexis Tsipras “didn’t have what it took, sentimentally, emotionally, at that moment, to carry that no vote to Europe and use it as a weapon,” said Varoufakis. “So I … decided to give him the leeway that he needs to go back to Brussels and strike what he knows to be an impossible deal. A deal that is simply not viable.”
Varoufakis said he stood back to allow his successor, Euclid Tsakolotos, and the Greek negotiating team work in Brussels. “I know very well what it feels like to walk inside those neon-lit, heartless rooms, full of apparatchiks and bureaucrats who have absolutely no interest in the human cost of decision-making, and to have to struggle against them and come up with something palatable.” Greece was “set up” by eurozone leaders in dealings to address the economic crisis, Varoufakis later told the New Statesman, adding Germany was responsible for the view of the Eurogroup. “Oh completely and utterly,” he said. “Not attitudes – the finance minister of Germany. It is all like a very well-tuned orchestra and he is the director.”
Münchau’s editor(s) at FT made a mess of this article.
A few things that many of us took for granted, and that some of us believed in, ended in a single weekend. By forcing Alexis Tsipras into a humiliating defeat, Greece’s creditors have done a lot more than bring about regime change in Greece or endanger its relations with the eurozone. They have destroyed the eurozone as we know it and demolished the idea of a monetary union as a step towards a democratic political union. mIn doing so they reverted to the nationalist European power struggles of the 19th and early 20th century. They demoted the eurozone into a toxic fixed exchange-rate system, with a shared single currency, run in the interests of Germany, held together by the threat of absolute destitution for those who challenge the prevailing order.
The best thing that can be said of the weekend is the brutal honesty of those perpetrating this regime change. [..] nor even the total capitulation of Greece. The material shift is that Germany has formally proposed an exit mechanism. On Saturday, Wolfgang Schäuble, finance minister, insisted on a time-limited exit — a “timeout” as he called it. I have heard quite a few crazy proposals in my time, and this one is right up there. A member state pushed for the expulsion of another. This was the real coup over the weekend: not only regime change in Greece, but also regime change in the eurozone. The fact that a formal Grexit may have been avoided for the moment is immaterial.
Grexit will be back on the table when you have the slightest political accident — and there are still many things that could go wrong, both in Greece and in other eurozone parliaments. Any other country that in future might challenge German economic orthodoxy will face similar problems. This brings us back to a more toxic version of the old exchange-rate mechanism of the 1990s that left countries trapped in a system run primarily for the benefit of Germany, which led to the exit of the British pound and the temporary departure of the Italian lira. What was left was a coalition of countries willing to adjust their economies to Germany’s. Britain had to leave because it was not.
There are two factors that must be remembered to make sense of the long-running eurozone debt crisis. The first, and better known, is that the euro is a very flawed currency. As has been noted repeatedly since before the first euro note ever rolled off a printer, it is very hard to share a currency without also sharing fiscal policy. The second is that the shared currency was always first and foremost a political, rather than an economic, project. It was part of the dream held by postwar European politicians, including giants like former French President François Mitterand and Germany’s Helmut Kohl, who viewed an evermore united Europe as the best way to inoculate the continent against another devastating war. But despite a genuine desire for a peaceful and integrated postwar Europe, political and economic rivalries didn’t disappear.
At the risk of oversimplification, Germany and France have long been jealous of one another. While the countries both recovered rapidly from World War II, Germany’s economic miracle was a source of envy for France. In particular, French officials resented the primacy of the Bundesbank, Germany’s central bank, which served to dictate monetary policy across much of Western Europe. At the same time, many German politicians resented playing what seemed like second fiddle to Paris when it came to European affairs and global diplomacy. While Germany remains somewhat ambivalent about what it is role should be in the world, some Germans saw the euro as a way to co-opt France’s political primacy in Europe. In other words, Germany thought it was putting one over on France, and vice versa.
It was a troubling scenario, as was noted by economist Martin Feldstein back in 1997: “What is clear is that a French aspiration for equality and a German expectation of hegemony are not consistent. Both visions drive their countrymen to support the pursuit of EMU, and both would lead to disagreements and conflicts when they could not be fulfilled.” There were bitter fights between France and Germany in the run-up to the launch of the euro. Germany’s desire to limit the euro to a small club consisting of itself, France and some like-minded fiscally austere allies, such as the Netherlands, conflicted with France’s desire for a broader euro. France, seeking to end the ability of Spain and Italy to competitively devalue at the expense of French exporters, wanted those southern European countries inside the euro.
But did pay off samurai bonds.
Greece missed the second debt payment to the IMF in two weeks on Monday, despite having reached agreement with official creditors on a new bailout program earlier in the day. Athens was supposed to remit about €456 million to the crisis lender by 2200 GMT, but it had not been expected to make the payment after missing a €1.5 billion debt payment to the Fund on June 30. Greece’s arrears to the IMF now total about €2.0 billion, said spokesman Gerry Rice in a statement confirming the missed payment. When it first defaulted at the end of June, the IMF froze Greece’s access to its resources, including the Fund’s ongoing financing program for the country. Athens asked the IMF for a rare extension of the repayment period, which was not ruled on at the time. “The request by the Greek authorities for an extension of the repayment obligation due on June 30th is expected to be discussed by the Executive Board in the coming weeks,” said Rice.
Morals need not apply.
What’s the difference between the Mafia and the current European leadership? The Mafia makes you an offer you can’t refuse. The leaders of the European Union offer you a deal you can neither refuse nor accept without destroying yourself. The EU as we have known it ended over the weekend. That EU project was all about the gradual convergence of equal nations into an “ever closer union”. That’s finished now. The whole notion was underpinned by three conditions. One was that the process of European integration was consensual – each member state would pool more and more of its sovereignty because it freely chose to do so. The second was that these incremental steps were, to use the terms applied to monetary union in the Maastricht treaty, “irreversible” and “irrevocable” – once they were taken, there could be no going back.
The third, unspoken but completely understood, was that Germany would restrain itself, accepting, in return for the immense gift of a new beginning that its fellow European countries had given it, that it must refrain from ever trying to be top dog again. Each of these fundamental conditions was torched over the weekend. Firstly, Greece’s sovereignty is no longer pooled – it has been surrendered after what EU officials gleefully called “mental waterboarding”. By closing the Greek banks, threatening Greek voters and countering the Greek government’s surrender with terms designed to be utterly humiliating, the EU and euro zone leadership finished off the notion of consent. All the waffle about solidarity and respect has been exploded and we are left with an EU based on six little letters: or else.
A new idea has been shoved into the foundations of the EU – the idea that a member state can and will be brought to heel. And brought to heel, not quietly or subtly, but openly and ritually in a Theatre of Cruelty designed for that sole purpose. The whole idea of making flagrantly provocative demands – the initial insistence that €50 billion of Greek public assets be placed in a fund in Luxembourg being the most spectacular – was to demonstrate, not just to Greece but to all member states, that the EU is now a coercive institution.
And as a coercive institution it has moved into a state of profound division. There is no deeper divide than that between those who are punished and those who do the punishing, between those who are brought to heel and those who shout “Heel!”
Cameron has to do the vote, no turning back. And who in Britain would vote for more Europe after the Brussels debacle?
British finance minister George Osborne has ruled out any financial involvement in a fresh bailout for Greece after suggestions that a mechanism backed by the whole European Union could provide bridge financing for Athens. Osborne spoke to some eurozone finance ministers on Monday as they set about exploring ways to provide Greece with an interim loan while it thrashes out a third bailout deal to avert bankruptcy. His intervention was designed to quash the idea, one of several under consideration in Brussels, of using the European Financial Stabilization Mechanism — a bailout fund created in 2010. The EFSM issues bonds backed by all 28 European Union members and was used to help Ireland and Portugal.
“Our eurozone colleagues have received the message loud and clear that it would not be acceptable for this issue of British support for eurozone bailouts to be revisited,” a British finance ministry source told Reuters. “The idea that British taxpayers money is going to be on the line in this latest Greek deal is a non-starter,” said the source. One EU official said this EFSM option “was very unlikely to gain ground” and would likely not be discussed at Tuesday’s meeting of all 28 EU finance ministers. In 2011, Britain refused to allow the use of the EFSM to bail out Greece for a second time. London could be outvoted on the issue, because the use of the EFSM can be decided by a qualified majority of EU states. That is 15 countries representing 65% of the EU’s population. But EU institutions will be wary of angering British voters ahead of a referendum on Britain’s EU membership by 2017.
This is how one creates a narrative. Demand growth my donkey. Saudis just pump like mad because they need revenue.
Saudi Arabia told OPEC it raised oil production to a record as the organization forecast stronger demand for its members’ crude in 2016. The world’s biggest oil exporter pumped 10.564 million barrels a day in June, exceeding a previous record set in 1980, according to data the kingdom submitted to the OPEC. The group sees “a more balanced market” in 2016 as demand for its crude strengths and supply elsewhere falters. OPEC said it expects expanding oil consumption to outpace diminished output growth from rival producers such as U.S. shale drillers, whittling away a supply glut. The strategy is taking time to have an impact, with crude prices remaining 46% below year-ago levels and annual U.S. production forecast to reach a 45-year high.
“Saudi Arabia is still pursuing a market-share strategy,” Torbjoern Kjus, an analyst at DNB ASA in Oslo, said by phone. “They need more oil domestically for air conditioning in the summer, so they could choose to either produce more or reduce exports. Clearly they choose to produce more.” “Momentum in the global economy, especially in the emerging markets, would contribute further to oil demand growth in the coming year,” OPEC’s Vienna-based research department said Monday in its monthly market report. Demand for the group’s crude will climb in 2016 by 900,000 barrels a day to average 30.1 million a day, according to the report. That’s still about 1.2 million less than the group estimated it pumped in June.
“Momentum in the global economy, especially in the emerging markets, would contribute further to oil demand growth in the coming year” OPEC’s 12 members raised production by 283,200 barrels a day to a three-year high of 31.378 million a day last month, according to external estimates of output cited by the report. This data included a lower figure for Saudi production of 10.235 million barrels a day. There was no total available for data submitted directly by OPEC members, because of omissions by Algeria, Libya and Venezuela. Global oil demand will accelerate next year to 1.34 million barrels a day compared with 1.28 million in 2015, led by rising consumption in emerging economies, according to the report. Supply growth outside OPEC will slow to 300,000 barrels a day in 2016 from 860,000 a day this year with the gain concentrated in the U.S.
Shale is broke.
Shale fields that powered the U.S. energy renaissance will suffer the biggest drop in output since the boom began after companies pulled more than half their drilling rigs. Production from the prolific tight-rock formations such as the Eagle Ford in southern Texas will decline 91,000 barrels a day in August to 5.36 million, the Energy Information Administration said Monday. It’s the fourth month in a row production is expected to slide, after more than tripling from 2007. Output is slipping after producers from ConocoPhillips to EOG reduced the number of drilling rigs in order to cut costs following a 50% drop in the price of oil. About 645 rigs were drilling for oil last week, down from 1,609 in October, according to oil-field service company Baker Hughes.
“The market is largely anticipating oil production to keep declining this year and snap back to a certain extent in 2016,” Andrew Cosgrove, a Princeton-based energy analyst for Bloomberg Intelligence, said by phone Monday. Second-half declines this year will be muted, due to high-grading and efficiency gains, he said. West Texas Intermediate crude for August delivery fell 54 cents to settle at $52.20 a barrel Monday on the New York Mercantile Exchange. It’s down 51% from the 2014 peak of $107.26. “We need to see oil prices above $60 and more toward $65 to spur a recovery in the rig count,” Cosgrove said. “The longer it stays below $60, the harder it’s going to be for U.S. production to ramp back up.”
A new form of matter…
Scientists at the Large Hadron Collider have announced the discovery of a new particle called the pentaquark. It was first predicted to exist in the 1960s but, much like the Higgs boson particle before it, the pentaquark eluded science for decades until its detection at the LHC. The discovery, which amounts to a new form of matter, was made by the Hadron Collider’s LHCb experiment. The findings have been submitted to the journal Physical Review Letters. In 1964, two physicists – Murray Gell Mann and George Zweig – independently proposed the existence of the subatomic particles known as quarks. They theorised that key properties of the particles known as baryons and mesons were best explained if they were in turn made up of other constituent particles.
Zweig coined the term “aces” for the three new hypothesised building blocks, but it was Gell-Mann’s name “quark” that stuck. This model also allowed for other quark states, such as the pentaquark. This purely theoretical particle was composed of four quarks and an antiquark (the anti-matter equivalent of an ordinary quark). During the mid-2000s, several teams claimed to have detected pentaquarks, but their discoveries were subsequently undermined by other experiments. “There is quite a history with pentaquarks, which is also why we were very careful in putting this paper forward,” Patrick Koppenburg, physics co-ordinator for LHCb at Cern, told BBC News.
“It’s just the word ‘pentaquark’ which seems to be cursed somehow because there have been many discoveries that were then superseded by new results that showed that previous ones were actually fluctuations and not real signals.” Physicists studied the way a sub-atomic particle called Lambda b decayed – or transformed – into three other particles inside LHCb. The analysis revealed that intermediate states were sometimes involved in the production of the three particles. These intermediate states have been named Pc(4450)+ and Pc(4380)+. “We have examined all possibilities for these signals, and conclude that they can only be explained by pentaquark states,” said LHCb physicist Tomasz Skwarnicki of Syracuse University, US.