Jul 262015
 


Jack Delano Jewish stores in Colchester, Connecticut 1940

The Last Bubble Standing – Amazon’s Same Day Trip Through The Casino (Stockman)
Europe Braces Itself For Revolutionary Leftist Backlash After Greece (Telegraph)
Varoufakis – A New Kind Of Politics? (Paul Tyson)
Varoufakis Claims He Had Approval To Plan Parallel Banking System (Kathimerini)
Greece, The Sacrificial Lamb (Joe Stiglitz)
Depression’s Advocates (J. Bradford DeLong)
The Latest Rising Greek Political Star Who Says No To Austerity (HuffPo)
How the Euro Turned Into a Trap (NY Times Ed.)
Greek Bailout Talks Pushed Back By A Few Days On Logistics (Reuters)
Renewed Bailout Talks Between Greece And Creditors Hit Snags (FT)
Greek Gov’t Braces For Talks With Creditors Amid Upheaval In SYRIZA (Kath.)
Greek Bank Boldholders Fear Portuguese-Style “Bad Bank” Split (Reuters)
Chancellor George Osborne Takes EU Reform Campaign To Paris (Reuters)
Puerto Rico: Austerity For Residents, But Tax Breaks For Hedge Funds (Guardian)
What A Federal Financial Control Board Means To Puerto Rico (The Hill)
Judge Finds Chicago’s Changes To Pension Funds Unconstitutional (Tribune)
Foreign Criminals Use London Real Estate To Launder Billions Of Pounds (Guardian)
The – Goldman-Related – Scandal That Ate Malaysia (Bloomberg)
Olive Oil Prices Surge Due To Drought And Disease In Spain And Italy (Guardian)
The Future of Food Finance (Barron’s)
Archaeologists Find Possible Evidence Of Earliest Human Agriculture (Guardian)

“..the Wall Street brokers’ explanation for AMZN’s $250 billion of bottled air is actually proof positive that the casino has become unhinged.”

The Last Bubble Standing – Amazon’s Same Day Trip Through The Casino (Stockman)

Right. Amazon is the greatest thing since sliced bread. Like millions of others, I use it practically every day. And it was nice to see that it made a profit -thin as it was at 0.4% of sales- in the second quarter. But the instantaneous re-rating of its market cap by $40 billion in the seconds after its earnings release had nothing to do with Amazon or the considerable entrepreneurial prowess of Jeff Bezos and his army of disrupters. It was more in the nature of financial rigor mortis – the final spasm of the robo-traders and the fast money crowd chasing one of the greatest bubbles still standing in the casino. And, yes, Amazon’s $250 billion market cap is an out and out bubble. Notwithstanding all the “good things it brings to life” daily, it is not the present day incarnation of General Electric of the 1950s, and for one blindingly obvious reason.

It has never made a profit beyond occasional quarterly chump change. And, what’s more, Bezos -arguably the most maniacal empire builder since Genghis Khan- apparently has no plan to ever make one. To be sure, in these waning days of the third great central bank enabled bubble of this century, GAAP net income is a decidedly quaint concept. In the casino it’s all about beanstalks which grow to the sky and sell-side gobbledygook. Here’s how one of Silicon Valley’s most unabashed circus barkers, Piper Jaffray’s Gene Munster, explains it: “Next Steps For AWS… SaaS Applications? We believe AWS has an opportunity to move up the cloud stack to applications and leverage its existing base of AWS IaaS/PaaS 1M + users. AWS dipped its toes into the SaaS pool earlier this year when it expanded its offerings to include an email management program and we believe it will continue to extend its expertise to other offerings. We do not believe that this optionality is baked into investors’ outlook for AWS.”

Got that? Instead, better try this. AMZN’s operating free cash flow in Q2 was $621 million -representing an annualized run rate right in line with its LTM figure of $2.35 billion. So that means there was no cash flow acceleration this quarter, and that AMZN is being valued at, well, 109X free cash flow! Moreover, neither its Q2 or LTM figure is some kind of downside aberration. The fact is, Amazon is one of the greatest cash burn machines ever invented. It’s not a start-up; it’s 25 years old. And it has never, ever generated any material free cash flow – notwithstanding its $96 billion of LTM sales. During CY 2014, for example, free cash flow was just $1.8 billion and it clocked in at an equally thin $1.2 billion the year before that.

In fact, beginning with net revenues of just $8.5 billion in 2005 it has since ramped its sales by 12X, meaning that during the last ten and one-half years it has booked $431 billion in sales. But its cumulative operating free cash flow over that same period was just $6 billion or 1.4% of its turnover. So, no, Amazon is not a profit-making enterprise in any meaningful sense of the word and its stock price measures nothing more than the raging speculative juices in the casino. In an honest free market, real investors would never give a quarter trillion dollar valuation to a business that refuses to make a profit, never pays a dividend and is a one-percenter at best in the free cash flow department -that is, in the very thing that capitalist enterprises are born to produce. Indeed, the Wall Street brokers’ explanation for AMZN’s $250 billion of bottled air is actually proof positive that the casino has become unhinged.

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We may hope so.

Europe Braces Itself For Revolutionary Leftist Backlash After Greece (Telegraph)

A pre-revolutionary fervour is sweeping Europe. “The atmosphere is a little similar to the time after 1968 in Europe. I can feel, maybe not a revolutionary mood, but something like widespread impatience”. These were the words of European council president Donald Tusk, 48 hours after Greece’s paymasters imposed the most punishing bail-out measures ever forced on a debtor nation in the eurozone’s 15-year history. A former Polish prime minister and a politician not prone to hyperbole, Tusk’s comments revealed Brussels’ fears of a bubbling rebellion across the continent. “When impatience becomes not an individual but a social experience of feeling, this is the introduction for revolutions” said Tusk. “I am really afraid of this ideological or political contagion”.

His unease reflects a widespread conviction that Europe’s elites had no choice but to make an example out of Greece. Alexis Tsipras was forced to submit to a deal that punished his government’s insolence, so the argument goes, and destroy the fantasy that a “new eurozone” could be forged for the economies of the southern Mediterranean. Having emerged from the talks, Tusk declared victory, dismissing the “radical leftist illusion that you can build some alternative to this traditional European vision of the economy.” Syriza’s unprecedented rise to power in January marked a watershed in post-crisis Europe, hitherto dominated by conservative-leaning governments from Portugal to Finland.

The first radical-Left regime in Europe’s post-war history, Syriza vowed to tear up the Troika’s austerity contract, forge a Mediterranean alliance against the dominant creditor-bloc, and transform the terms of Greece’s euro membership. Seven months later, these dreams are in tatters. A tortuous 30-hour weekend in Brussels led to Tsipras capitulating to austerity terms more egregious than any negotiated by Greece’s previous centre-right and Socialist governments. Greek assets will now be sequestered into a private fund to pay off debts, external monitors will return to the country, and everything from the price of milk and bakery bread will be subject to Brussels’ scrutiny. “Syriza was the big Leftist experiment and it has gone disastrously wrong in a short period of time,” says Luke March, author of Radical Left Parties in Europe and lecturer at Edinburgh University.

“The Left elsewhere are now being forced to take stock and say “we are not Greece””. But the shadow of 1968 – a year when Europe was gripped by mass discontent, student rebellions, and labour strikes – looms over Europe’s institutions. Over the course of the next 10 months, the entire complexion of the European south could be transformed. General elections in Portugal, Spain and Ireland are poised to bring anti-austerity, Left leaning parties to power. It is the wildfire of political contagion that spooks Europe’s federalists. Greece’s humiliation, rather than cowing the revolutionary Left, is set to embolden the southern calls for mass debt relief and cease the enforcement of the euro’s contractionary dogma.

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“..it seems all too likely that the ‘logic’ of Eurozone finance is a function of Thucydides’ description of primal human barbarity. Here the strong do as they will and the weak suffer as they must.”

Varoufakis – A New Kind Of Politics? (Paul Tyson)

Strangely, one of the most disturbing aspects of Varoufakis’ stint as a Finance Minister concerns the fact that he is an economist. One thing we now readily assume is that economics is the language of power. This gives academic economists a status somewhat like a theologian in relation to the practical priestcraft of public office. However, there are very few professors of economics that actually get into office as politicians, just as you seldom get institutionally savvy bishops or mega-church leaders who are serious theologians. When an economist becomes a politician, this is going to be interesting.

In a few short months, Varoufakis completely exploded the idea that economics is the language of power. What we saw when an actual economist landed in the middle of the Eurozone crisis is that the most basic truths about economic reality have nothing to do with power. The idea that asphyxiating Greek banks and killing the Greek state is good for its economy makes no economic sense at all. The idea that continuing to pursue a savagely contractionary austerity agenda will make it possible to generate sustained state surpluses large enough to repay impossible debt burdens, defies any sort of economic rationality. The conviction that it is somehow both moral and necessary to fiscally execute the Greek polity or eject Greece in order to preserve the financial integrity of the Eurozone, is not a stance grounded in economic science.

Yet these agenda commitments are, obviously, immovable Eurogroup dogmas. When Varoufakis patiently, logically and persuasively sought to point out the economic problems with the sacred Eurozone dogmas, this got him into trouble for “lecturing” his peers. Somehow, the economic irrationality of what the Eurogroup must do was obvious to the Eurogroup, and they could not for the life of them see why Varoufakis didn’t understand this. So Varoufakis became branded as “combative” and “recalcitrant” due to his refusal to be on the same page as all the other European finance ministers, when all along it was the Eurogroup who would not talk about obvious economic realities with Varoufakis. Varoufakis’ failed attempt to negotiate even a modicum of constructive economic and political sanity with Brussels strongly suggests that the governing principles of financial power in Europe are not grounded in economic science or democratic politics.

Indeed, it seems all too likely that the ‘logic’ of Eurozone finance is a function of Thucydides’ description of primal human barbarity. Here the strong do as they will and the weak suffer as they must. The complete lack of impact which Varoufakis’ economic arguments achieved leads one to fear that when it comes to economics and politics, we are being conned: the main purpose of economic speak in politics is obfuscation. If that is indeed the case, then having someone point out the obvious elephant in the room – the economic impossibility of the prevailing dogmas governing high finance and domestic politics – is just too much. It looks like our ruling elites do not want a real economist meddling with power.

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A story that seems to surprise many people. But V already told it ages ago. Only thing new is that it started in December.

Varoufakis Claims He Had Approval To Plan Parallel Banking System (Kathimerini)

Former Finance Minister Yanis Varoufakis has claimed that he was authorized by Alexis Tsipras last December to look into a parallel payment system that would operate using wiretapped tax registration numbers (AFMs) and could eventually work as a parallel banking system, Kathimerini has learned. In a teleconference call with members of international hedge funds that was allegedly coordinated by former British Chancellor of the Exchequer Norman Lamont, Varoufakis claimed to have been given the okay by Tsipras last December – a month before general elections that brought SYRIZA to power – to plan a payment system that could operate in euros but which could be changed into drachmas “overnight” if necessary, Kathimerini understands.

Varoufakis worked with a small team to prepare the plan, which would have required a staff of 1,000 to implement but did not get the final go-ahead from Tsipras to proceed, he said. The call took place on July 16, more than a week after Varoufakis left his post as finance minister. The plan would involve hijacking the AFMs of taxpayers and corporations by hacking into the General Secretariat of Public Revenues website, Varoufakis told his interlocutors. This would allow the creation of a parallel system that could operate if banks were forced to close and which would allow payments to be made between third parties and the state and could eventually lead to the creation of a parallel banking system, he said.

As the general secretariat is a system that is monitored by Greece’s creditors and is therefore difficult to access, Varoufakis said he assigned a childhood friend of his, an information technology expert who became a professor at Columbia University, to hack into the system. A week after Varouakis took over the ministry, he said the friend telephoned him and said he had “control” of the hardware but not the software “which belongs to the troika.” [..] The work was more or less complete: We did have a Plan B but the difficulty was to go from the five people who were planning it to the 1,000 people that would have to implement it. For that I would have to receive another authorisation which never came.”

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“..The Germans say there is to be no debt write-off and that the IMF must be part of the program. But the IMF cannot participate in a program in which debt levels are unsustainable”

Greece, The Sacrificial Lamb (Joe Stiglitz)

As the Greek crisis proceeds to its next stage, Germany, Greece and the triumvirate of the International Monetary Fund, the European Central Bank and the European Commission (now better known as the troika) have all faced serious criticism. While there is plenty of blame to share, we shouldn’t lose sight of what is really going on. I’ve been watching this Greek tragedy closely for five years, engaged with those on all sides. Having spent the last week in Athens talking to ordinary citizens, young and old, as well as current and past officials, I’ve come to the view that this is about far more than just Greece and the euro. Some of the basic laws demanded by the troika deal with taxes and expenditures and the balance between the two, and some deal with the rules and regulations affecting specific markets.

What is striking about the new program (called “the third memorandum”) is that on both scores it makes no sense either for Greece or for its creditors. As I read the details, I had a sense of déjà vu. As chief economist of the World Bank in the late 1990s, I saw firsthand in East Asia the devastating effects of the programs imposed on the countries that had turned to the IMF for help. This resulted not just from austerity but also from so-called structural reforms, where too often the IMF was duped into imposing demands that favored one special interest relative to others. There were hundreds of conditions, some little, some big, many irrelevant, some good, some outright wrong, and most missing the big changes that were really required. Back in 1998 in Indonesia, I saw how the IMF. ruined that country’s banking system.

I recall the picture of Michel Camdessus, the managing director of the IMF at the time, standing over President Suharto as Indonesia surrendered its economic sovereignty. At a meeting in Kuala Lumpur in December 1997, I warned that there would be bloodshed in the streets within six months; the riots broke out five months later in Jakarta and elsewhere in Indonesia. Both before and after the crisis in East Asia, and those in Africa and in Latin America (most recently, in Argentina), these programs failed, turning downturns into recessions, recessions into depressions. I had thought that the lesson from these failures had been well learned, so it came as a surprise that Europe, beginning a half-decade ago, would impose this same stiff and ineffective program on one of its own.

Whether or not the program is well implemented, it will lead to unsustainable levels of debt, just as a similar approach did in Argentina: The macro-policies demanded by the troika will lead to a deeper Greek depression. That’s why the IMF’s current managing director, Christine Lagarde, said that there needs to be what is euphemistically called “debt restructuring” – that is, in one way or another, a write-off of a significant portion of the debt. The troika program is thus incoherent: The Germans say there is to be no debt write-off and that the IMF must be part of the program. But the IMF cannot participate in a program in which debt levels are unsustainable, and Greece’s debts are unsustainable.

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Geez, I’m even quoting Brad DeLong now?

Depression’s Advocates (J. Bradford DeLong)

Back in the early days of the ongoing economic crisis, I had a line in my talks that sometimes got applause, usually got a laugh, and always gave people a reason for optimism. Given the experience of Europe and the United States in the 1930s, I would say, policymakers would not make the same mistakes as their predecessors did during the Great Depression. This time, we would make new, different, and, one hoped, lesser mistakes. Unfortunately, that prediction turned out to be wrong. Not only have policymakers in the eurozone insisted on repeating the blunders of the 1930s; they are poised to repeat them in a more brutal, more exaggerated, and more extended fashion. I did not see that coming.

When the Greek debt crisis erupted in 2010, it seemed to me that the lessons of history were so obvious that the path to a resolution would be straightforward. The logic was clear. Had Greece not been a member of the eurozone, its best option would have been to default, restructure its debt, and depreciate its currency. But, because the European Union did not want Greece to exit the eurozone (which would have been a major setback for Europe as a political project), Greece would be offered enough aid, support, debt forgiveness, and assistance with payments to offset any advantages it might gain by exiting the monetary union. Instead, Greece’s creditors chose to tighten the screws.

As a result, Greece is likely much worse off today than it would have been had it abandoned the euro in 2010. Iceland, which was hit by a financial crisis in 2008, provides the counterfactual. Whereas Greece remains mired in depression, Iceland – which is not in the eurozone – has essentially recovered. To be sure, as the American economist Barry Eichengreen argued in 2007, technical considerations make exiting the eurozone difficult, expensive, and dangerous. But that is just one side of the ledger. Using Iceland as our measuring stick, the cost to Greece of not exiting the eurozone is equivalent to 75% of a year’s GDP – and counting.

It is hard for me to believe that if Greece had abandoned the euro in 2010, the economic fallout would have amounted to even a quarter of that. Furthermore, it seems equally improbable that the immediate impact of exiting the eurozone today would be larger than the long-run costs of remaining, given the insistence of Greece’s creditors on austerity. That insistence reflects the attachment of policymakers in the EU – especially in Germany – to a conceptual framework that has led them consistently to underestimate the gravity of the situation and recommend policies that make matters worse.

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Tsipras can’t afford to lose her.

The Latest Rising Greek Political Star Who Says No To Austerity (HuffPo)

Greece’s charismatic head of parliament, Zoe Konstantopoulou, is one of the most dynamic and outspoken members of the country’s ruling Syriza party. This week, she sent shockwaves through the party by refusing to approve a financial reform bill proposed by her supposed Syriza ally, Prime Minister Alexis Tsipras – for the second time. Konstantopoulou considers measures proposed by Tsipras as part of an agreement with Greece’s European lenders to unlock fresh loans for the country a “violent attack on democracy,” she wrote in a letter to Tsipras and Greek President Prokopis Pavlopoulos. Konstantopoulou’s adamant opposition to the newest austerity reforms is resonating with Greeks who feel the Europe-imposed reforms are excruciatingly harsh.

Konstantopoulou, 38, is the daughter of renowned lawyer Nikos Konstantopoulos, who led of one of Syriza’s largest factions, and well-known journalist Lina Alexiou. She studied law at the University of Athens, La Sorbonne in Paris and Columbia University in New York before becoming a lawyer in Greece in 2003, focusing on international criminal law and human rights. Konstantopoulou first ran for Syriza in 2009 and was elected to the Greek parliament in 2012. She was elected head of the parliament in 2015, the youngest person to hold the position. As parliament chief, her forthright remarks and dedication to formal legal procedure have gained her passionate praise as well as fierce opposition. Her forceful interventions have annoyed some politicians, especially those in opposition parties.

Stavros Theodorakis, leader of To Potami (The River), for example, has called her arrogant and has demanded her resignation. Others have praised her fiery energy, saying her forceful defense of her convictions is invigorating. Despite Konstantopoulou’s rising favor, she remains far less popular than other Syriza politicians, especially Tsipras. Her blunt rejection of the prime minister’s reforms has raised speculation she may leave the party and go her own way, according to Greek daily newspaper Kathimerini. Konstantopoulou denies that scenario. After a one-hour meeting with Tsipras on Thursday, she told reporters that both share “an understanding built on camaraderie and honesty, along with the common wish to protect the rights of the people as well as the unity of Syriza, which some would want to see shattered.”

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NY Times ed staff changing its tack.

How the Euro Turned Into a Trap (NY Times Ed.)

When they introduced the euro in 1999, European leaders said the common currency would be irreversible and would lead to greater economic and political integration among their countries. That pledge of permanence, long doubted by euro-skeptics, seems ever less credible. While the eurozone may have temporarily avoided a Greek exit, it is hard to see how a deal that requires more spending cuts, higher taxes and only vague promises of debt relief can restore the crippled economy enough to keep Greece in the currency union. On Thursday, the Greek Parliament passed a second set of reforms required by the country’s creditors. Other changes, like higher taxes on farmers, are expected later in the year.

The combative finance minister of Germany, Wolfgang Schäuble, has further undermined confidence in the euro’s cohesion by saying that Greece would be better off leaving the common currency for a five-year “timeout.” As a practical matter, an exit from the currency union would almost certainly be permanent, since readmission involves a grueling process. The eurozone requires new members to keep inflation below 2% and to have a maximum fiscal deficit of 3% of GDP and a public debt that is no more than 60% of GDP. The plight of the Greeks has made countries that do not use the euro, like Poland and Hungary, far less eager to join the currency union, which has come to mean a loss of sovereignty and a commitment to austerity, regardless of economic reality.

Of course, the euro was never entirely about economics. European leaders believed the single currency was a big step toward creating an irrevocable alliance among countries on the continent. But many experts warned that it could make its members less stable unless it was followed by a tighter political and budgetary union. Since that did not happen, the currency union was left fully vulnerable to economic crises and to the will of Europe’s more powerful economies. All those fears have played out in Greece, even as the threat of exits from the euro hangs over other weakened countries, like Italy, Portugal and Spain. Senior leaders in Germany, Finland and Slovakia who have publicly suggested a Greek exit seem to think it would scare weaker economies into accepting more austerity.

That may not be necessary; some radical parties in those countries are already openly talking about leaving the euro. The question now is what is the cost of leaving? Can a modern economy withstand the immediate damage of an abrupt currency change if the benefits of devaluation and regaining full control over fiscal and monetary policies could be limited and could take years to realize?

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Not enough 5-star hotel rooms?

Greek Bailout Talks Pushed Back By A Few Days On Logistics (Reuters)

Talks between Greece and its international creditors over a new bailout package will be delayed by a couple of days because of organisational issues, a finance ministry official said on Saturday. The meetings with officials from the EC, ECB and IMF were supposed to start on Monday after being delayed for issues including the location of talks and security last week. A finance ministry official, who declined to be named, said talks between the technical teams of the lenders will start on Tuesday, while the mission chiefs will arrive in Athens with a delay of a couple of days for technical reasons. “The reasons for the delay are neither political, nor diplomatic ones,” the official added.

Greeks have viewed inspections visits by the lenders in Athens as a violation of the country’s sovereignty and six months of acrimonious negotiations with EU partners took place in Brussels at the government’s request. Another finance ministry official denied earlier on Saturday that the government was trying to keep the lenders’ team away from government departments and had no problem with them visiting the General Accounting Office.. Asked if the government would now allow EU, IMF and ECB mission chiefs to visit Athens for talks on a new loan, State Minister Alekos Flabouraris said: “If the agreement says that they should visit a ministry, we have to accept that.”

The confusion around the expected start to the talks on Friday underlined the challenges ahead if negotiations are to be wrapped up in time for a bailout worth up to €86 billion to be approved in parliament by Aug. 20, as Greece intends. Already, Prime Minister Alexis Tsipras is struggling to contain a rebellion in his left-wing Syriza party that made his government dependent on votes from pro-European opposition parties to get the tough bailout terms approved in parliament. One of Tsipras’ closest aides said that the understanding with the opposition parties could not last long and a clear solution was needed, underlining widespread expectations that new elections may come as soon as September or October. “The country cannot go on with a minority government for long. We need clear, strong solutions,” State Minister Nikos Pappas told the weekly Ependysi in an interview published on Saturday.

Apart from the terms of a new loan, Greece and its lenders are also expected to discuss the sustainability of its debt, which is around 170% of GDP. Greece has repeatedly asked for a debt relief and the IMF has said this is needed for the Greek accord to be viable. [..] Tsipras, who is by far the most popular politician in Greece according to opinion polls, has said his priority is to secure the bailout package before dealing with the political fallout from the Syriza party rebellion.

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“..the decision to pursue a new IMF program means euro zone leaders may have to open talks on granting Greece significant debt relief much earlier than originally anticipated..”

Renewed Bailout Talks Between Greece And Creditors Hit Snags (FT)

Talks to agree a new €86bn bailout for Greece ran into trouble on Friday after Athens raised hurdles for negotiators in the Greek capital, forcing them to postpone their arrival amid renewed acrimony. Alexis Tsipras, the Greek prime minister, agreed last week to “fully normalize” talks with creditors on the ground in Athens after resisting their presence for months — a key demand made by euro zone leaders when they agreed to reopen rescue talks after coming close to pushing Greece out of the euro zone. But three senior officials from Greece’s bailout monitors said Athens had instead demanded restrictions on negotiators, including on whom creditors could meet and what topics were to be discussed in the talks.

Two of the officials said Greek authorities had also insisted negotiators no longer use the Athens Hilton as their base — a hotel close to central Syntagma Square and a short drive to the finance ministry — instead proposing hotels far from the capital’s government quarter. “It is fundamentally more of the same,” said a senior official from one of the bailout monitors,colloquially known as the “troika” after the three institutions originally involved in the talks, the EC, ECB and IMF. “They don’t want to engage with the troika.” Greek officials insisted the renewed stand-off was only a temporary delay and that talks would resume over the weekend or Monday at the latest.

George Stathakis, economy minister, said he was confident the negotiations would be finished by mid-August, when Athens needs the bailout cash to pay off a €3.2bn bond held by the ECB. Mr Stathakis said Greece and its creditors had already found common ground on many of the main issues,including fiscal targets, stabilizing the banking sector, liberalization of product markets and professions, labor market reforms and privatizations of state assets. “We have three weeks,and I’m confident that it’s enough for the existing agenda,” Mr Stathakis told the Financial Times. “We agree in certain areas. In others, there are different views and some distance needs to be covered. But the last European summit gave a framework that indicates which directions to follow, and that’s why I think three weeks will be enough.”

Still, one creditor official said negotiating teams were “sitting on their suitcases” and had no plans to go to Athens until the logistical issues were resolved. Adding another potential complication, the Greek government on Friday lodged a formal request with the IMF to begin discussions on a new, third bailout program. The request came after officials at the IMF determined that the current Greek program, which still has about €16.5bn to disburse and was due to expire in March, had become outdated. Those negotiations between Athens and the IMF could take months. But the decision to pursue a new IMF program means euro zone leaders may have to open talks on granting Greece significant debt relief much earlier than originally anticipated, since the IMF will not sign on to a new program unless euro zone lenders agree to restructure their bailout loans.

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Syriza differences are being magnified by the press.

Greek Gov’t Braces For Talks With Creditors Amid Upheaval In SYRIZA (Kath.)

Even as Prime Minister Alexis Tsipras grapples with serious divisions within SYRIZA, government officials are bracing for the launch of face-to-face negotiations with representatives of the country’s creditors which are expected to begin next week. The government is hoping to seal a deal with creditors by mid-August and certainly before August 20 when a €3.2 billion debt repayment to the ECB is to come due. Greece does not have the money to repay the debt and is hoping for a deal to be reached, allowing the partial disbursement of some funding, either from a new program or from residual funding from the recapitalization of Greek banks. But sources indicate that creditors are less optimistic about a deal being finalized so soon.

As a result officials are said to be considering the possibility of a second bridge loan to Greece, which would allow it to cover the ECB debt and other obligations, before an agreement on a third bailout is finalized. Although officials from countries that have taken a hard line opposite Greece, including Germany and some north European states, reportedly want Athens to commit to more prior actions, European Economy and Monetary Affairs Commissioner Pierre Moscovici has indicated that this will not be necessary. Creditors are expected to seek additional measures at some point, however, to plug a widening fiscal gap.

Tsipras is also struggling to keep a lid on dissent within SYRIZA as a bloc of around 30 of the party’s 149 MPs object to his compromise with creditors, which foresees more austerity. The premier has indicated that a party congress should be held in September to refocus SYRIZA. Early elections, which are considered inevitable in view of the upheaval within the party, are expected to take place immediately after the congress, either later in September or in October or even November. In comments on Saturday, State Minister Nikos Pappas acknowledged that the country cannot continue indefinitely with a minority government, referring to the mass defections by SYRIZA MPs in recent parliamentary votes. A meeting of SYRIZA’s political secretariat is due on Monday.

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As long as small depositors are left alone, fine by me.

Greek Bank Boldholders Fear Portuguese-Style “Bad Bank” Split (Reuters)

National Bank of Greece bondholders are nervous that they will suffer heavy losses if authorities decide to siphon off all of the bank’s healthy assets leaving a “bad bank” to deal with their claims, a source close to a creditor group said. A group of senior bondholders in NBG sent a letter to European institutions last week saying they were concerned about measures that may be taken to revitalise the Greek banking sector after months of economic upheaval. After drawn-out negotiations, Greece is close to clinching a third bailout deal but has kept in place the capital controls it used to prevent a bank run last month.

The investors, who hold a significant portion of a €750 million NBG senior bond issued last year, are worried the bank may be split into a good bank and a bad bank as was the case for Portugal’s Banco Espirito Santo last year. Portugal separated out and pumped money into the healthy part of the bank creating a new entity “Novo Banco”, while remaining BES shareholders and subordinated bondholders were left with near worthless investments in the remaining bad bank. NBG bondholders are concerned that such a split in Greece could require a level of recapitalisation that would also see senior bondholders left behind in the bad bank.

Under current Greek law, junior bondholders should contribute to a bail-in, while new legislation passed on Wednesday will also force senior bondholders to contribute from January 1 2016. Recapitalisations of Greek banks may be needed before then, however, leaving the option of a bad bank solution on the table. ECB governing council member Christian Noyer said an initial injection of capital for Greek banks would be preferable before stress tests in the autumn.

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To talk to Le Pen?

Chancellor George Osborne Takes EU Reform Campaign To Paris (Reuters)

Chancellor of the Exchequer George Osborne will take Britain’s case for European Union reform to Paris on Sunday, seeking support from his French counterpart for a deal the Conservative government can put before voters in a promised in-out referendum. British Prime Minister David Cameron has pledged to renegotiate ties with the European Union ahead of a vote on the country’s continuing membership by the end of 2017. Osborne’s trip to Paris, the first in a series of visits to European capitals, will seek to build on Cameron’s meetings with all 27 leaders of the bloc earlier this year, the government said. He will argue that with public support for reform rising across the EU, now is the time to deliver lasting change. “The referendum in Britain is an opportunity to make the case for reform across the EU,” he will say, according to excepts of his speech.

“I want to see a new settlement for Europe, one that makes it a more competitive and dynamic continent to ensure it delivers prosperity and security for all of the people within it, not just for those in Britain.” Cameron’s promise of a referendum was made before national elections in May to neutralise a threat from the anti-EU UK Independence Party and to pacify Euro sceptics in his own party. The possibility that Britain could leave the European Union as a result of the tactic has worried allies such as the United States and opposition parties in Britain. U.S. President Barack Obama said on Friday that a Britain within the European union gave Washington much greater confidence in the strength of the transatlantic union. Some lawmakers were angered by his intervention in the debate, saying he was lecturing Britain.

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What a refreshing MO.

Puerto Rico: Austerity For Residents, But Tax Breaks For Hedge Funds (Guardian)

Caught between the demands of billionaires, pro-bankruptcy activists and more than three million people plagued by unemployment, poverty and government debt, who would you choose? As Puerto Rico confronts the quagmire of its $72bn financial crisis, it has come up with an answer: humouring a few very wealthy people. The island has for three years courted some of Wall Street’s richest citizens, from solitary investors to hedge fund elites. Last year it sold at auction hundreds of millions of its debt to various funds, displeasing many who believe the “vulture funds” only want a quick profit off Puerto Rico as it desperately tries to repay debt with high local taxes and austerity cuts.

Hedge fund manager John Paulson, best known for making billions off the 2008 subprime loan market crash, led the charge last year when he declared the island “the Singapore of the Caribbean”. His fund bought more than $100m of Puerto Rico’s junk-rated bonds last year. The most visible effect has been a rush to buy property akin to the buying spree by two billionaires in Detroit as that city filed for bankruptcy. Detroit’s woes are often held up for comparison to Puerto Rico’s but the island lacks the statehood or permission from Congress it would need to file for bankruptcy and follow Michigan’s decision to declare Motor City bust. While funds have inched away from Puerto Rico’s debt debacle, Paulson has bought into land.

In 2014 he spent more than $260m to buy three of the island’s largest resort properties, and announced plans to develop $500m-worth of “residences and resort amenities” to add to the existing beachfront condos and golf courses. He has a fellow cheerleader in billionaire Nicholas Prouty, who has invested more than $550m into turning San Juan’s marina into a bastion of the elite that includes an exclusive club and slips for “megayachts of 200 feet or larger”. As in Detroit, ultra-high-end developments abut scores of empty buildings, either for sale or abandoned by owners searching for work. With unemployment more than twice the US national average, the island’s median household income is nearly $7,000 less than that in Detroit, and less than half the US average.

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Feudalism?

What A Federal Financial Control Board Means To Puerto Rico (The Hill)

Puerto Rico is spiraling out of control and the Federal government will not break the fall. Island leaders may not have the will, popular support, or financial tools to pay down the $72 billion debt. So it is no surprise that calls for a federal financial control board intensified after Governor Alejandro Garcia Padilla announced that Puerto Rico’s debt is unpayable. Establishing a control board may be the easy way out for a wary Congress but it is not as simple as it seems and could backfire. A federal financial control board for Puerto Rico was first proposed a year ago by supporters of Doral Bank in its dispute with the Puerto Rican government over a $230 million tax refund. Most of Doral’s supporters are affiliated with the conservative Koch brothers.

They include Republican Reps. Jeff Duncan (SC), Scott Garrett (NJ), Darrell Issa (CA) and Matt Salmon (AZ) who received Koch Industries PAC contributions and who prior to Doral had never been involved with Puerto Rico. Last month, Duncan recommended to his House colleagues that a control board be established. The 60 Plus Association, another Koch funding recipient, is lobbying for a control board. While frustrated Puerto Ricans are increasingly talking about the need for a control board, the majority of the Island opposes it with good reason. First, Puerto Ricans feel that given the right tools, they can fix the fiscal crisis on their own. Right now the most important tool is access to Chapter 9 federal bankruptcy. From 1933 until 1984, Puerto Rico could allow its municipalities and public corporations to declare bankruptcy in the same way as the 50 states.

In 1984 Congress amended the bankruptcy code and excluded Puerto Rico for reasons unknown. Most agree that overall losses to investors will be higher if Puerto Rico is not given access to Federal bankruptcy and defaults. To avoid this scenario Puerto Rico passed its own bankruptcy law which was challenged by bondholders of electricity provider PREPA which owes $9 billion. The law was recently struck down in Federal court. The Puerto Rican government may appeal to the U.S. Supreme Court. The same group of creditors is fighting bankruptcy legislation introduced in Congress. Issa, who sits in the subcommittee reviewing the bill, opposes it. The conservative Heritage Foundation calls it a bailout even though it supported Chapter 9 for Detroit.

Second, Puerto Ricans are distrustful of any financial control board established by a national government that has denied it political representation for 117 years. The distrust is heightened by knowledge that the chief supporters of a control board are members of the conservative Koch brothers’ network and creditors whose objective is to make money off Puerto Rico rather than enable Puerto Rico to remake itself.

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It’s not easy being Rahm.

Judge Finds Chicago’s Changes To Pension Funds Unconstitutional (Tribune)

Mayor Rahm Emanuel’s administration said it will appeal a Cook County judge’s decision Friday that ruled unconstitutional a state law reducing municipal worker pension benefits in exchange for a city guarantee to fix their underfunded retirement systems. The 35-page ruling by Judge Rita Novak, slapping down the city’s arguments point by point, could have wide-ranging effects if upheld by the Illinois Supreme Court. Her decision appeared to also discredit efforts at the state and Cook County levels to try to curb pension benefits to rein in growing costs that threaten funding for government services. The issue of underfunded pensions, and how to restore their financial health, is crucial for the city and its taxpayers.

The city workers and laborers funds at issue in Friday’s ruling are more than $8 billion short of what’s needed to meet obligations – and are at risk of going broke within 13 years – after many years of low investment returns fueled by recession and inadequate funding. Without reducing benefits paid to retired workers, or requiring current workers to pay more, taxpayers could eventually be on the hook for hundreds of millions of dollars more in annual payments to those city funds — before the even worse-funded police and fire retirement accounts are factored into the taxing equation. Friday’s ruling also could further harm the city’s rapidly diminishing credit rating. Even before the decision, Moody’s Investors Service had downgraded the city’s debt rating to junk status based on pension concerns.

And after Novak’s ruling, Standard & Poor’s Ratings Service warned that it would lower the rating on city debt within the next six months without a fix. Novak’s ruling was not unexpected because of a decision in May by the Illinois Supreme Court on a similar pension case. The state’s high court unanimously struck down a law changing state pensions, saying the Illinois Constitution’s protection against “diminished or impaired” pension benefits for public workers and current retirees was absolute. City officials had argued that an agreement reached with 28 of 31 labor unions to alter retirement benefits out of the municipal and laborers pension funds – two of the city’s four pension plans – was different from the plan struck down by the Supreme Court.

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Color me stunned.

Foreign Criminals Use London Real Estate To Launder Billions Of Pounds (Guardian)

Foreign criminals are using the London housing market to launder billions of pounds, pushing up house prices for domestic buyers, a senior police officer has warned. Donald Toon, the director of economic crime at the National Crime Agency, spoke after a spike in receipts from a tax on homes bought up by companies, trusts and investment funds rather than individuals. Such corporations, usually based in offshore tax havens, are sometimes used by buyers keen to hide ownership of assets from their own countries’ tax authorities. The secrecy they offer can equally be used to squirrel away ill-gotten gains. Toon told the Times: “I believe the London property market has been skewed by laundered money. Prices are being artificially driven up by overseas criminals who want to sequester their assets here in the UK.”

He spoke after provisional tax receipts showed the Treasury had made £142m from the annual tax on enveloped dwellings in just the first three months of the financial year. The tax, introduced last year, is payable every year by companies that own a UK residential property valued above a certain amount. The City of Westminster and the Royal Borough of Kensington and Chelsea accounted for 82% of the revenue, but inflation at the top of the market is thought to ripple down to cheaper properties as wealthy buyers are pushed down the housing chain. Toon’s comments come amid increasing concern that billions of pounds of corruptly gained money has been laundered by criminals and foreign officials buying upmarket London properties through anonymous offshore front companies.

Experts say that London, with its myriad links to tax haven crown dependencies, is arguably the global capital of money laundering. This month a Channel 4 investigation found that estate agents in Britain’s wealthiest postcodes are willing to turn a blind eye to apparent money laundering by corrupt foreign buyers. In the documentary, titled From Russia With Cash, two undercover reporters posed as an unscrupulous Russian government official called Boris in London to purchase an upmarket property for his mistress. The couple viewed five properties ranging in price from £3m to £15m, on the market with five estate agents in Kensington, Chelsea and Notting Hill.

Despite being made aware they are dealing with apparently laundered money, the estate agents agreed to continue with a potential purchase. In several instances the estate agents recommended law firms to help a buyer hide his identity. The agents suggested that secretive purchases of multimillion-pound houses were common in the capital. One claimed that 80% or more of his transactions were with international, overseas-based buyers and “50 or 60%” of them were conducted in “various stages of anonymity … whether it be through a company or an offshore trust”.

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Blowing up one country at a time.

The – Goldman-Related – Scandal That Ate Malaysia (Bloomberg)

In the spring of 2013, Song Dal Sun, head of securities investment at Seoul-based Hanwha Life Insurance, sat down to a presentation by a Goldman Sachs banker. The young Goldman salesman, who had flown in from Hong Kong, made a pitch for bonds to be issued by 1Malaysia Development Bhd., a state-owned company closely tied to Malaysian Prime Minister Najib Razak. It was enticing. The 10-year, dollar-denominated bonds offered an interest rate of 4.4%, about 100 basis points higher than other A-minus-rated bonds were yielding at the time, he recalls. But Song, a veteran of 25 years in finance, sensed something was amiss. With such an attractive yield, 1MDB could easily sell the notes directly to institutional investors through a global offering.

Instead, Goldman Sachs was privately selling 1MDB notes worth $3 billion backed by the Malaysian government. “Does it mean ‘explicit guarantee’?” he recalls asking the Goldman salesman, whom he declined to name. “I didn’t get a straight answer,” Song says. “I decided not to buy them.” The bond sale that Song passed up is part of a scandal that has all but sunk 1MDB, rattled investors, and set back Malaysia’s quest to become a developed nation. Najib, who also serves as Malaysia’s finance minister, sits on 1MDB’s advisory board as chairman. The scandal’s aftershocks have rocked his office, his government, and the political party he leads, United Malays National Organisation, or UMNO.

A state investment company trumpeted as a cornerstone of Najib’s economic policy after he became prime minister in April 2009, 1MDB is now mired in debts of at least $11 billion. Former Prime Minister Mahathir Mohamad, a one-time political mentor who’s turned on Najib, says “vast amounts of money” have “disappeared” from 1MDB funds. 1MDB has denied the claim and said all of its debts are accounted for. From the moment in 2009 when Najib took over a sovereign wealth fund set up by the Malaysian state of oil-rich Terengganu and turned it into a development fund owned by the federal government, 1MDB has been controversial. Since the beginning of this year—with coverage driven by the Sarawak Report, a blog, and The Edge, a local business weekly—the scandal has moved closer and closer to the heart of government, sparking calls for Najib’s ouster and recalling Malaysia’s long struggle with corruption and economic disappointment.

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“..a bacterial disease nicknamed “olive ebola”..”

Olive Oil Prices Surge Due To Drought And Disease In Spain And Italy (Guardian)

Salads have rarely been so expensively dressed after a combination of drought and disease pushed the price of olive oil up 10% so far this year, amid warnings from suppliers that harvests are the worst they have seen. The Italian government has declared a “state of calamity” in the provinces of Lecce and Brindisi on the heel of the country, where olive groves are being attacked by a bacterial disease nicknamed “olive ebola”. Up to 1m centuries-old olive trees could be felled in one of the most picturesque tourist spots of Italy in an attempt to contain the problem. The cost of the raw material has been increasing for two years as crops have been hit by drought in Spain, the world’s biggest producer of the oil, and the bacterial disease Xylella fastidiosa, which is destroying trees in Italy.

Analysts are expecting prices to remain high in coming months as demand is increasing. Retailers and distributors wanted to buy 12% more olive oil than exporters were able to deliver last month, according to industry insiders. Buyers in Latin America have turned to Europe in the wake of poor harvests over the Atlantic, while eastern Europeans have also been using increasing amounts of olive oil. The next harvest from southern Europe is not expected until September, but fears of a third poor harvest in a row in Spain and Italy continue to push up wholesale prices of remaining stocks over the summer. The other two large olive oil producers, Greece and Tunisia, had good yield and production, but not enough to compensate for Spain and Italy.

In the UK, heavy price competition between retailers, led by the rise of discounters Aldi and Lidl, has helped keep prices relatively low for shoppers. But this year, retailers and processors have been forced to pass on increases as the cost of the raw material from Italy has hit a 10-year high. The average retail price of a litre of extra virgin olive oil has risen from £6.32 in December to £6.95 this month, according to data from trade journal the Grocer.

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Humane society.

The Future of Food Finance (Barron’s)

The way people produce and eat food is changing in major ways, presenting both risks and opportunities for those invested in the sustenance sector. Historically, much of our protein has come from animals, but producing just one pound of meat means feeding an animal up to 16 pounds of grains and other crops. The caloric conversion is weak, too: According to a recent report produced in collaboration with the World Bank, even the most efficient sources of meat convert only around 11% of gross feed energy into human food. As global population and per capita meat consumption have grown, this inefficient system has become overburdened. In 1950, the total number of farm animals in the U.S. was somewhere near 100 million; by 2007, that number was roughly 9.5 billion.

To accommodate the enormous demand, nearly all of those animals were moved from farms to factories. According to Agriculture Department data, during the same period that the number of farm animals increased by 9,400%, the number of farmers producing those animals decreased by 60%. So many more animals being reared by so few farmers has come with consequences for consumers, animals, producers, and investors. Take pig production. Over the past several decades, the vast majority of breeding pigs have been moved into “gestation crates,” which are tiny cages that confine animals so tightly they can’t even turn around. The cages are iron maidens for sows. Not surprisingly, some consumers have responded with anger. “Cruel and senseless” is what the New York Times called the cages. “Torture on the farm,” reported the American Conservative magazine.

This outcry has led major food companies to demand changes. More than 60 of the world’s largest food retailers – McDonald’s, Nestlé, Burger King, Oscar Mayer, Safeway, Kroger, Costco, and dozens more – have announced plans to eliminate gestation crates from their pork-supply chains. Addressing animal welfare in corporate-responsibility programs is becoming the norm. “Active concern about how we treat the world around us has moved from the left of center to the mainstream, and savvy businesses are playing a part,” noted an editorial in Nation’s Restaurant News. “The growing number of animal-welfare-related commitments made by companies large and small reflect well-thought-out business –strategies.”

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“11,000 years before the generally recognised advent of organised cultivation..”

Archaeologists Find Possible Evidence Of Earliest Human Agriculture (Guardian)

Israeli archaeologists have uncovered dramatic evidence of what they believe are the earliest known attempts at agriculture, 11,000 years before the generally recognised advent of organised cultivation. The study examined more than 150,000 examples of plant remains recovered from an unusually well preserved hunter-gatherer settlement on the shores of the Sea of Galilee in northern Israel. Previously, scientists had believed that organised agriculture in the Middle East, including animal husbandry and crop cultivation, had begun in the late Holocene period – around 12,000 BC – and later spread west through Europe. The new research is based on excavations at a site known as Ohalo II, which was discovered in 1989 when the water level in the sea of Galilee dropped because of drought and excessive water extraction.

Occupied by a community of hunter-gatherers at the height of the last ice age 23,000 years ago, it revealed evidence of six brush huts with hearths as well as stone tools and animal and plant remains. A series of fortuitous coincidences led to the site’s preservation. The huts had been built over shallow bowls dug by the occupants and later burned. On top of that a deposit of sandy silt had accumulated before the rising lake had left it under 4 metres of water. The study looked for evidence of early types of invasive weeds – or “proto-weeds” – that flourished in conditions created by human cultivation. According to the researchers, the community at Ohalo II was already exploiting the precursors to domesticated plant types that would become a staple in early agriculture, including emmer wheat, barley, pea, lentil, almond, fig, grape and olive.

Significantly, however, they discovered the presence of two types of weeds in current crop fields: corn cleavers and darnel. Microscopic examination of the edges of stone blades from the site also found material that may have been transferred during the cutting and harvesting of cereal plants. Prof Ehud Weiss, head of the archaeological botany lab at the Department of Land of Israel Studies, told the Guardian: “We know what happened ecologically: that these wild plants, some time in history, became weeds. Why? The simple answer is that because humans changed the environment and created new ecological niches, that made it more comfortable for species that would become weeds, meaning they only have to compete with one species.”

According to Weiss, the mixture of “proto-weeds” and grains that would become domesticated mirrors plant findings from later agricultural communities. The site also revealed evidence of rudimentary breadmaking from starch granules found on scorched stones, and that the community may have been largely sedentary, with evidence of consumption of birds throughout the year, including migrating species. “This botanical find is really opening new windows to the past,” Weiss said. “You have to remember Ohalo is a unique preservation. Between Ohalo and the beginning of the Neolithic we have a blank. And when the early Neolithic arrives people start [agriculture again] from scratch.

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Jun 302015
 
 June 30, 2015  Posted by at 10:32 am Finance Tagged with: , , , , , , , , , ,  2 Responses »


G. G. Bain The new Queensboro (59th Street) Bridge over the East River, NYC 1909

Who Will Dare Say Out Loud ‘Emperor Has No Clothes’? (Irish Times)
A New Mode of Warfare (Michael Hudson)
Greece Threatens Top Court Action To Block Grexit (AEP)
Alexis Tsipras Must Be Stopped: The Underlying Message Of Europe’s Leaders (G.)
Where Is My European Union? (Alex Andreou)
Milton Friedman Predicted Euro Would Be A Disaster (Vox)
The Awesome Gratuitousness of the Greek Crisis (Krugman)
Krugman’s Right: The Euro Was The Original Mistake, Vote No (Tim Worstall)
Stiglitz: Troika Caused Greek Recession, Has “Criminial Responsibility” (Time)
Europe’s Attack On Greek Democracy (Joseph Stiglitz)
As Crisis Deepens, Eurozone Critics Are Vocal (WSJ)
Europe’s Dream Is Dying In Greece (Gideon Rachman)
Will Syriza’s Last Desperate Gamble Pay Off? (Paul Mason)
A Fight Between The Greeks And Europe’s Cruel Capitalism (Chakrabortty)
A European Tyranny? (Jacques Sapir)
The Road To Grexit And Beyond (Wolfgang Münchau)
Greek BofA Strategist Sees Humanitarian Disaster Looming (Bloomberg)
Puerto Rico Has No Easy Path Out of Debt Crisis (WSJ)
China’s Stocks Post Biggest Gain Since 2009 as Volatility Soars (Bloomberg)

“The Pride of Europe”, just another story.

Who Will Dare Say Out Loud ‘Emperor Has No Clothes’? (Irish Times)

In a normal democracy, urgent questions are asked when the prime minister says things that are wildly untrue. Was he lying or deluded? Which of these possibilities is more alarming? If he was lying, had he never heard of Google? If he genuinely didn’t know what the Government has been up to, why is he in government? But we don’t bother to ask these questions about St Enda’s extraordinary epistle to the Athenians last week, when he urged Greece to follow Ireland : “in Ireland’s case we did not increase income tax; we did not increase VAT; we did not increase PRSI”. Each of these claims is flatly wrong: all three taxes were very substantially increased, both by the present and previous governments But this truth is utterly irrelevant. Why? Because we all know that the Taoiseach wasn’t making a statement about reality.

He was telling a story. At some point in our lives – usually when we’re three or four – we all ask the question: “Daddy, did this really happen or is it a makey-up story?” And once we know which is which, we’re okay with it. And by now, we’re more or less okay with the fact that Ireland’s primary presence on the European stage is as a makey-up story. We don’t live in a country; we live in a narrative, a tale with no more truth content than Cinderella and considerably less than “The Emperor’s New Clothes”. Our current story is called, according to the Minister for Foreign Affairs Charlie Flanagan, “the pride of Europe”. Of course this doesn’t mean that Europe is proud that we’ve almost doubled consistent child poverty, or that we keep centenarians for days on hospital trollies or that basic services like clinics for sufferers of rheumatic diseases are simply disappearing or that we’ve been left with unpayable public debt.

It surely doesn’t mean that Europe is proud that little Ireland was forced to bear the cost of a bank bailout put last week by Patrick Honohan, governor of the Central Bank, at €100 billion and rising. At the level of reality, it doesn’t actually mean anything at all. But that doesn’t mean that it’s a harmless fiction. “The Pride of Europe” is a makey-up story that is intended to take the place of the realities it displaces. It’s not a stand-alone narrative. It has an evil twin: Greece. It belongs to a particular genre of fiction: the morality tale. Ireland is the pride of Europe because it is the anti-Greece. We are good because we play along with the bigger stories of the euro zone crisis. Greece is evil because it stopped doing so.

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Nice take: “By going through the sham negotiations with The Institutions, Syriza gave Greeks enough time to protect what savings and cash they had..”

A New Mode of Warfare (Michael Hudson)

By going through the sham negotiations with The Institutions, Syriza gave Greeks enough time to protect what savings and cash they had – by converting these bank deposits into euro notes, automobiles and “hard assets” (even boats). Businesses borrowed from local banks where they could, and moved their money into eurozone banks or even better, into dollar and sterling assets. Their intention is to pay back the banks in depreciated drachma, pocketing a 30% capital gain. What commentators miss is that Syriza (at least its left) wants to be transformative. It wants to free Greece from the post-military oligarchy that evades taxes and monopolizes the economy. And it wants to transform Europe, away from ECB austerity to create a real central bank. In the process, it demands a clean slate of past bad debts.

It wants to reject the IMF’s austerity philosophy and refusal to take responsibility for its bad 2010-12 bailout. This larger, transformative picture is at the center of Syriza-left plans. I’m in Germany now, and have heard from Germans that the Greeks are lazy and don’t pay taxes. There is little recognition that what they call “the Greeks” are really the oligarchs. They have gained control of the old coalition Pasok/New Democracy parties, avoided paying taxes, avoided being prosecuted (New Democracy refused to act on the “Lagarde List” of tax evaders with nearly €50 billion in Swiss bank accounts), orchestrated insider dealings to privatize infrastructure at corrupt prices, and used their banks as vehicles for capital flight and insider lending. This has turned the banks into vehicles for the oligarchy.

They are not public institutions serving the economy, but have starved Greek business for credit. So one casualty apart from the credibility of the eurozone, the ECB and the IMF will be these banks. Syriza is positioning itself to provide a public option – public banks that will promote the economy, and a national Treasury that will spend government money INTO the economy, not drain it to pay the Troika for having bailed out French and other banks back in 2010-1.

The European popular press is as bad as the U.S. press in describing matters. It warns of “hyperinflation” if a central bank monetizes as much as one euro of government spending in the way that the U.S. Fed does, or the bank of England or any other real central bank. The reality is that nearly all hyperinflations stem from a collapse of foreign exchange as a result of having to pay debt service. That was what caused Germany’s hyperinflation in the 1920s, not domestic German spending. It is what caused the Argentinean and other Latin American hyperinflations in the 1980s, and Chile’s hyperinflation earlier.

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Might have to try The Hague.

Greece Threatens Top Court Action To Block Grexit (AEP)

Greece has threatened to seek a court injunction against the EU institutions, both to block the country’s expulsion from the euro and to halt asphyxiation of the banking system. “The Greek government will make use of all our legal rights,” said the finance minister, Yanis Varoufakis. “We are taking advice and will certainly consider an injunction at the European Court of Justice. The EU treaties make no provision for euro exit and we refuse to accept it. Our membership is not negotiable,“ he told the Telegraph. The defiant stand came as Europe’s major powers warned in the bluntest terms that Greece will be forced out of monetary union if voters reject austerity demands in a shock referendum on Sunday.

“What is at stake is whether or not Greeks want to stay in the eurozone or want to take the risk of leaving,” said French president Francois Hollande. Sigmar Gabriel, Germany’s vice-chancellor and Social Democrat leader, said the Greek people should have no illusions about the fateful choice before them. “It must be crystal clear what is at stake. At the core, it is a yes or no to remaining in the eurozone,” he said. Chancellor Angela Merkel – standing next to him after an emergency meeting of party leaders – was more oblique, but the message was much the same. She praised hard-liners in her own party and insisted that the eurozone cannot yield to any one country. “If principles are not upheld, the euro will fail,” she said.

The refusal to hold out an olive branch to Greece more or less guarantees that it will not repay a €1.6bn loan to the IMF on Tuesday, potentially setting off a domino effect of cross-default clauses and the biggest sovereign bankruptcy in history. Any request for an injunction against EU bodies at the European Court would be an unprecedented development, further complicating the crisis. Greek officials said they are seriously considering suing the ECB itself for freezing emergency liquidity for the Greek banks at €89bn. It turned down a request from Athens for a €6bn increase to keep pace with deposit flight. This effectively pulls the plug on the Greek banking system. Syriza claims that this is a prima facie breach of the ECB’s legal duty to maintain financial stability.

“How can they justify setting off a run on the Greek banking system?” said one official. Mr Varoufakis said Greece has enough liquidity to keep going until the referendum but acknowledged that capital controls introduced over the weekend were making life difficult for Greek companies. Money is being rationed by an emergency payments committee made up of the key agencies and the banks. “We are having to prioritize spending,” he said. The one-week closure of the Greek banks and the drastic escalation of the crisis over the weekend caught investors by surprise. Most had assumed that a deal was in the works.

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The mind of a psychopath.

Alexis Tsipras Must Be Stopped: The Underlying Message Of Europe’s Leaders (G.)

One day before Greece’s bailout ends and the country’s financial lifeline melts away, Europe’s big guns have lined up one after another to tell the Greeks unequivocally that voting no in Sunday’s referendum means saying goodbye to the euro. There was no mistaking the gravity of the situation now facing both Greece and Europe on Monday. Leaders were by turns ashen-faced, resigned, desperate and pleading with Athens to think again and pull back from the abyss. There were also bitter attacks on Alexis Tsipras, the young Greek prime minister whose brinkmanship has gone further than anyone believed possible and left the eurozone’s leaders reeling. One measure of the seriousness of the situation could be gleaned from the leaders’ schedules.

In Berlin, Brussels, Paris and London, a chancellor, two presidents and a prime minister convened various meetings of cabinet, party leaders and top officials devoted solely to Greece. The French president, François Hollande, was to the fore. “It’s the Greek people’s right to say what they want their future to be,” he said. “It’s about whether the Greeks want to stay in the eurozone or take the risk of leaving.” Athens insists that this is not what is at stake in the highly complicated question the Greek government has drafted for the referendum, but Berlin, Paris and Brussels made plain that the 5 July vote will mean either staying in the euro on their tough terms or returning to the drachma.

In what was arguably the biggest speech of his career, the president of the European commission, Jean-Claude Juncker, appeared before a packed press hall in Brussels against a giant backdrop of the Greek and EU flags. He was impassioned, bitter and disingenuous in appealing to the Greek people to vote yes to the euro and his bailout terms, arguing that he and the creditors – rather than the Syriza government – had the best interests of Greeks at heart. Tsipras had lied to his people, deceived and betrayed Europe’s negotiators and distorted the bailout terms that were shredded when the negotiations collapsed and the referendum was called, he said.

“I feel betrayed. The Greek people are very close to my heart. I know their hardship … they have to know the truth,” he said. “I’d like to ask the Greek people to vote yes … no would mean that Greece is saying no to Europe.” In a country where an estimated 11,000 people have killed themselves during the hardship wrought by austerity, Juncker offered unfortunate advice. “I say to the Greeks, don’t commit suicide because you’re afraid of dying,” he said.

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Great piece.

Where Is My European Union? (Alex Andreou)

Last winter, I stood outside the Opera House in the centre of Athens looking at the posters in the window. I was approached by a well-dressed and immaculately groomed elderly lady. I moved to the side. I thought she wanted to pass. She didn’t. She asked me for a few euros because she was hungry. I took her to dinner and, in generous and unsolicited exchange, she told me her story. Her name was Magda and she was in her mid-seventies. She had worked as a teacher all her life. Her husband had been a college professor and died “mercifully long before we were reduced to this state”, as she put it. They paid their tax, national insurance and pension contributions straight out of the salary, like most people.

They never cheated the state. They never took risks. They saved. They lived modestly in a two bedroom flat. In the first year of the crisis her widow’s pension top-up stopped. In the second and third her own pension was slashed in half. Downsizing was not an option – house prices had collapsed and there were no buyers. In the third year things got worse. “First, I sold my jewellery. Except this ring”, she said, stroking her wedding ring with her thumb. “Then, I sold the pictures and rugs. Then the good crockery and silver. Then most of the furniture. Now there is nothing left that anyone wants. Last month the super came and removed the radiators from my flat, because I hadn’t paid for communal fuel in so long. I feel so ashamed.”

I don’t know why this encounter should have shocked me so deeply. Poverty and hunger is everywhere in Athens. Magda’s story is replicated thousands of times across Greece. It is certainly not because one life is worth more than another. And yet there is something peculiarly discordant and irreconcilable about the “nouveau pauvres”, just like like there is about the nouveau riches. Most likely it shocked me because I kept thinking how much she reminded me of my mother. And, still, I don’t know whether voting “yes” or “no” will make life better or worse for her. I don’t know what Magda would vote either. I can only guess. What I do know, is that the encounter was the beginning of the end of my love affair with the European project. Because, quite simply, it is no longer my European Union.

It is Amazon’s and Starbucks’. It is the politicians’ and the IMF’s. But it is not mine. If belonging to the largest and richest trading bloc in the world cannot provide dinner for a retired teacher like her, it has no reason to exist. If a European Union which produces €28,000 of annual GDP for every single one of its citizens cannot provide a safety net for her, then it is profoundly wicked. If this is not a union of partners, but a gang of big players and small players, who cut the weakest loose at the first sign of trouble, then it is nothing. Each one of us will have to engage in an internal battle before Sunday’s referendum. I will be thinking of you, Magda, when I vote. It seems as honest a basis to make a decision as any.

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“Europe’s common market exemplifies a situation that is unfavorable to a common currency…”

Milton Friedman Predicted Euro Would Be A Disaster (Vox)

Milton Friedman might be best known today for his free-market political views. But some of his most important contributions to economics were in monetary policy. He explained the high inflation rates of the 1970s, and he was also an early and influential advocate of the system of floating exchange rates that we have today. So European policymakers would have done well to pay attention in 1997 when Friedman predicted that the euro would be a disaster. Eighteen years later, with Greece on the verge of a financial meltdown, his analysis looks prophetic:

Europe’s common market exemplifies a situation that is unfavorable to a common currency. It is composed of separate nations, whose residents speak different languages, have different customs, and have far greater loyalty and attachment to their own country than to the common market or to the idea of “Europe.” Despite being a free trade area, goods move less freely than in the United States, and so does capital.

The European Commission based in Brussels, indeed, spends a small fraction of the total spent by governments in the member countries. They, not the European Union’s bureaucracies, are the important political entities. Moreover, regulation of industrial and employment practices is more extensive than in the United States, and differs far more from country to country than from American state to American state. As a result, wages and prices in Europe are more rigid, and labor less mobile. In those circumstances, flexible exchange rates provide an extremely useful adjustment mechanism.

What Friedman means here is that if Greece still had the drachma, it could deal with its financial difficulties by devaluing the currency. A cheaper drachma would make Greek goods more attractive to foreigners, boosting exports and creating jobs. And a bit of inflation in Greece would help ease the country’s debt burden — not an ideal outcome, but better than the yearslong depression the country has suffered since the 2008 financial crisis. It’s much harder for an unemployed man in Greece to move to get a job in Germany than it is for somebody who loses his job in Pennsylvania to find work in Texas. So Greece’s unemployment rate has stayed disastrously high, even as other eurozone nations have enjoyed a robust recovery. Friedman concluded that the euro experiment would backfire:

The drive for the Euro has been motivated by politics not economics. The aim has been to link Germany and France so closely as to make a future European war impossible, and to set the stage for a federal United States of Europe. I believe that adoption of the Euro would have the opposite effect. It would exacerbate political tensions by converting divergent shocks that could have been readily accommodated by exchange rate changes into divisive political issues. Political unity can pave the way for monetary unity. Monetary unity imposed under unfavorable conditions will prove a barrier to the achievement of political unity.

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Now take that story to Washington, and tell them to wake up.

The Awesome Gratuitousness of the Greek Crisis (Krugman)

Barry Eichengreen asks himself why his influential analysis, suggesting that the euro was irreversible now appears wrong. Surely in a direct, mechanical sense what we’re seeing is the process I warned about five years ago: Think of it this way: the Greek government cannot announce a policy of leaving the euro — and I’m sure it has no intention of doing that. But at this point it’s all too easy to imagine a default on debt, triggering a crisis of confidence, which forces the government to impose a banking holiday — and at that point the logic of hanging on to the common currency come hell or high water becomes a lot less compelling. But doesn’t the ultimate cause lie in wild irresponsibility on the part of the Greek government? I’ve been looking back at the numbers, readily available from the IMF, and what strikes me is how relatively mild Greek fiscal problems looked on the eve of crisis.

In 2007, Greece had public debt of slightly more than 100% of GDP — high, but not out of line with levels that many countries including, for example, the UK have carried for decades and even generations at a stretch. It had a budget deficit of about 7% of GDP. If we think that normal times involve 2% growth and 2% inflation, a deficit of 4% of GDP would be consistent with a stable debt/GDP ratio; so the fiscal gap was around 3 points, not trivial but hardly something that should have been impossible to close. Now, the IMF says that the structural deficit was much larger — but this reflects its estimate that the Greek economy was operating 10% above capacity, which I don’t believe for a minute.

(The problem here is the way standard methods for estimating potential output cause any large slump to propagate back into a reinterpretation of history, interpreting the past as an unsustainable boom.) So yes, Greece was overspending, but not by all that much. It was over indebted, but again not by all that much. How did this turn into a catastrophe that among other things saw debt soar to 170% of GDP despite savage austerity? The euro straitjacket, plus inadequately expansionary monetary policy within the eurozone, are the obvious culprits. But that, surely, is the deep question here. If Europe as currently organized can turn medium-sized fiscal failings into this kind of nightmare, the system is fundamentally unworkable.

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The EU was the original mistake.

Krugman’s Right: The Euro Was The Original Mistake, Vote No (Tim Worstall)

It’s not exactly a secret that Paul Krugman hasn’t been a great fan of the euro over the years. In fact, most economists haven’t been great fans of it: it has always been the political classes urging it on. So, the question now becomes, with the situation in Greece, what should be done next? And the answer is almost certainly to encourage a no vote at the upcoming referendum. That would seal the idea that Greece just will not continue within the eurozone and at that point we would almost certainly see signs of life in the Greek economy once again. And that is actually the aim of whatever policy is followed now. The heck with European unity and all that jazz: the task is to get some growth back into that Greek economy, get people back to work. Seriously, a 50% youth unemployment rate is evidence of little else than all out economic war. So, let’s stop doing that and go and do something useful and sensible instead. Here’s the opening of Krugman’s column:

It has been obvious for some time that the creation of the euro was a terrible mistake. Europe never had the preconditions for a successful single currency — above all, the kind of fiscal and banking union that, for example, ensures that when a housing bubble in Florida bursts, Washington automatically protects seniors against any threat to their medical care or their bank deposits.

Yep, entirely so, and many economists (and others, like myself) have been saying this all along. It doesn’t and didn’t matter how much people praised this idea of ever more Europe, the currency, as designed, was simply not going to work over the area it was planned to introduce it over. And it’s worth noting that there really were many economists who were saying this. Here’s a quite gorgeous paper from the European Commission. It’s from 2009, and it’s a look back at what American economists were saying about the euro from 1989 to 2002. The tone is most fun: they’re dancing along, tooting their horns, shouting that well, the Yankees didn’t think it would work! And yet here we are in 2009 and we’ve still got our lovely euro!

The euro: It can’t happen, It’s a bad idea, It won’t last.
– US economists on the EMU, 1989 – 2002

Schadenfreude on those celebrating their own schadenfreude is so much fun, isn’t it? We should note that Krugman was on the right side in all of this. And he also asks the right question: well, what should be done next?

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Now make that stick.

Stiglitz: Troika Caused Greek Recession, Has “Criminial Responsibility” (Time)

A few years ago, when Greece was still at the start of its slide into an economic depression, the Nobel prize-winning economist Joseph Stiglitz remembers discussing the crisis with Greek officials. What they wanted was a stimulus package to boost growth and create jobs, and Stiglitz, who had just produced an influential report for the United Nations on how to deal with the global financial crisis, agreed that this would be the best way forward. Instead, Greece’s foreign creditors imposed a strict program of austerity. The Greek economy has shrunk by about 25% since 2010. The cost-cutting was an enormous mistake, Stiglitz says, and it’s time for the creditors to admit it.

“They have criminal responsibility,” he says of the so-called troika of financial institutions that bailed out the Greek economy in 2010 “It’s a kind of criminal responsibility for causing a major recession,” Stiglitz tells TIME in a phone interview. Along with a growing number of the world’s most influential economists, Stiglitz has begun to urge the troika to forgive Greece’s debt – estimated to be worth close to $300 billion in bailouts – and to offer the stimulus money that two successive Greek governments have been requesting. Failure to do so, Stiglitz argues, would not only worsen the recession in Greece – already deeper and more prolonged than the Great Depression in the U.S. – it would also wreck the credibility of Europe’s common currency, the euro, and put the global economy at risk of contagion.

So far Greece’s creditors have downplayed those risks. In recent years they have repeatedly insisted that European banks and global markets do not face any serious fallout from Greece abandoning the euro, as they have had plenty of time to insulate themselves from such an outcome. But Stiglitz, who served as the chief economist of the World Bank from 1997 to 2000, says no such firewall of protection can exist in a globalized economy, where the connections between events and institutions are often impossible to predict. “We don’t know all the linkings,” he says.

Many countries in Eastern Europe, for instance, are still heavily reliant on Greek banks, and if those banks collapse the European Union faces the risk of a chain reaction of financial turmoil that could easily spread to the rest of the global economy. “There is a lack of transparency in financial markets that makes it impossible to know exactly what the consequences are,” says Stiglitz. “Anybody who says they do obviously doesn’t know what they’re talking about.”

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On Europe’s democracy.

Europe’s Attack On Greek Democracy (Joseph Stiglitz)

The rising crescendo of bickering and acrimony within Europe might seem to outsiders to be the inevitable result of the bitter endgame playing out between Greece and its creditors. In fact, European leaders are finally beginning to reveal the true nature of the ongoing debt dispute, and the answer is not pleasant: it is about power and democracy much more than money and economics. Of course, the economics behind the program that the “troika” foisted on Greece five years ago has been abysmal, resulting in a 25% decline in the country’s GDP. I can think of no depression, ever, that has been so deliberate and had such catastrophic consequences: Greece’s rate of youth unemployment, for example, now exceeds 60%.

It is startling that the troika has refused to accept responsibility for any of this or admit how bad its forecasts and models have been. But what is even more surprising is that Europe’s leaders have not even learned. The troika is still demanding that Greece achieve a primary budget surplus (excluding interest payments) of 3.5% of GDP by 2018. Economists around the world have condemned that target as punitive, because aiming for it will inevitably result in a deeper downturn. Indeed, even if Greece’s debt is restructured beyond anything imaginable, the country will remain in depression if voters there commit to the troika’s target in the snap referendum to be held this weekend.

In terms of transforming a large primary deficit into a surplus, few countries have accomplished anything like what the Greeks have achieved in the last five years. And, though the cost in terms of human suffering has been extremely high, the Greek government’s recent proposals went a long way toward meeting its creditors’ demands. We should be clear: almost none of the huge amount of money loaned to Greece has actually gone there. It has gone to pay out private-sector creditors – including German and French banks. Greece has gotten but a pittance, but it has paid a high price to preserve these countries’ banking systems. The IMF and the other “official” creditors do not need the money that is being demanded. Under a business-as-usual scenario, the money received would most likely just be lent out again to Greece.

But, again, it’s not about the money. It’s about using “deadlines” to force Greece to knuckle under, and to accept the unacceptable – not only austerity measures, but other regressive and punitive policies. But why would Europe do this? Why are European Union leaders resisting the referendum and refusing even to extend by a few days the June 30 deadline for Greece’s next payment to the IMF? Isn’t Europe all about democracy? In January, Greece’s citizens voted for a government committed to ending austerity. If the government were simply fulfilling its campaign promises, it would already have rejected the proposal. But it wanted to give Greeks a chance to weigh in on this issue, so critical for their country’s future wellbeing.

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Numbers are rising, but timing is way off.

As Crisis Deepens, Eurozone Critics Are Vocal (WSJ)

With Greece on the brink of leaving the eurozone and global financial markets panicked by that prospect, eurozone policy makers can’t have expected favorable reviews Monday for their recent efforts. So they won’t have been surprised as a queue of academics formed to detail their failings. The ECB’s decision not to expand the emergency liquidity assistance given to Greek banks came in for particularly harsh criticism, as long-time critics of the policies pursued by the Troika in which it is joined by the IMF and EC lined up to claim vindication. The most stinging attack on the ECB came from Charles Wyplosz, professor of international economics at the Graduate Institute, Geneva and a respected commentator on eurozone economic policy.

In a posting on the VoxEU blog run by the Centre for Economic Policy Research, Mr. Wyplosz argued the ECB had acted from political motives, and not for the first time. “No other central bank in the world tells its government what reforms it should conduct, nor how sharp should fiscal consolidating be,” he wrote. Mr. Wyplosz argued that one of the ECB’s key roles is to act as a lender of last resort to the eurozone’s banks, and in failing to do that it was “pushing Greece out of the eurozone.” “Politicians may debate about the wisdom of making Greece leave,” he wrote. “As non-elected officials, the people who sit on the Governing Board of the Eurosystem have no such mandate.”

Writing for Foreign Policy, the London School of Economics’ Philippe Legrain also saw the ECB’s decision as a “political move” in the service of “brutal power politics” that seeks to bypass democracy. “There is a chance that a resounding No vote in the referendum will bring the creditors to their senses,” Mr. Legrain wrote. “But if it doesn’t, default on the 3.5 billion euros due to the ECB on July 20 and leaving the euro is better than debt bondage.” Some U.S. observers joined the fray, penning unflattering assessments of the Troika’s track record. Writing for The Conversation, the University of California’s Barry Eichengreen was criticial of the Greek government’s decision to call a referendum as “a transparent effort to evade responsibility.”

But he had a harsher judgement to deliver. “Still, this incompetence pales in comparison with that of the European Commission, the ECB and the IMF,” Mr. Eichengreen wrote, arguing their key mistake was to deny a debt restructuring in 2010, and once again earlier this year.

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Already has.

Europe’s Dream Is Dying In Greece (Gideon Rachman)

The shuttered banks of Greece represent a profound failure for the EU. The current crisis is not just a reflection of the failings of the modern Greek state, it is also about the failure of a European dream of unity, peace and prosperity. Over the past 30 years Europe has embraced its own version of the “end of history”. It became known as the European Union. The idea was that European nations could consign the tragedies of war, fascism and occupation to the past. By joining the EU, they could jointly embrace a better future based on democracy, the rule of law and the repudiation of nationalism. As Lord Patten, a former EU commissioner, once boasted, the success of the union ensured that Europeans now spent their time “arguing about fish quotas or budgets, rather than murdering one another”.

When the Greek colonels were overthrown in 1974, Greece became the pioneer of a new model for Europe — in which the restoration of democracy at a national level was secured by a simultaneous application to join the European Economic Community (as it then was).
Greece became the 10th member of the European club in 1981. Its early membership of an EU that now numbers 28 countries is a rebuke to those who now claim it has always been a peripheral member. The model first established in Greece — democratic consolidation, secured by European integration — was rolled out across the continent over the next three decades. Spain and Portugal, which had also cast off authoritarian regimes in the 1970s, joined the EEC in 1986.

After the fall of the Berlin Wall, almost all the countries of the former Soviet bloc followed the Greek model of linking democratic change at home to a successful application to join the EU. For the EU itself, Greek-style enlargement became its most powerful tool for spreading stability and democracy across the continent. As one Polish politician put it to me shortly before his country joined the EU: “Imagine there is a big river running through Europe. On one side is Moscow. On the other side is Brussels. We know which side of the river we need to be on.” That powerful idea — that the EU represented good government and secure democracy — has continued to resonate in modern Europe. It is why Ukrainian demonstrators were waving the EU flag when they overthrew the corrupt government of Viktor Yanukovich in 2014.

The danger now is that, just as Greece was once a trailblazer in linking a democratic transition to the European project, so it may become an emblem of a new and dangerous process: the disintegration of the EU. The current crisis could easily lead to the country leaving the euro and eventually the union itself. That would undermine the fundamental EU proposition: that joining the European club is the best guarantee of future prosperity and stability. Even if an angry and impoverished Greece ultimately remains inside the tent, the link between the EU and prosperity will have been ruptured. For the horrible truth is dawning that it is not just that the EU has failed to deliver on its promises of prosperity and unity. By locking Greece and other EU countries into a failed economic experiment — the euro — it is now actively destroying wealth, stability and European solidarity.

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Mason’s growing.

Will Syriza’s Last Desperate Gamble Pay Off? (Paul Mason)

But Syriza is different. Syriza is a coalition whose colours are red for socialism, green for ecology and purple for feminism. But it is primarily red. It was born out of Eurocommunism – when the communist parties of the west declared loyalty to parliamentary democracy instead of Moscow. Its most influential activists are aged 50 and above: people who have read all three volumes of Karl Marx’s Capital, plus the Grundrisse, Theories of Surplus Value and Friedrich Engels’ Anti-Dühring. A lot of them are MPs now, or special advisers: you’ll find them in greying huddles in their old haunts – the radical bars and cafes of Exarchia and Plaka. How this generation of Greek leftwingers broke out of isolation is of more than academic interest.

They have managed – for the first time in modern history – to form a government that defied the global finance system, and to do so with flair. Their strength was that they understood the significance of the youth revolts of 2008 and 2011. Some pitched their own tents in Syntagma Square and were tear-gassed out of it. But in the process, the party built something more official and resilient. Their weakness, it turns out, starts with Nicos Poulantzas. Poulantzas was a Greek intellectual of the new left who famously clashed with Ed Miliband’s father, Ralph, in 1969 over the nature of the capitalist state. Miliband said the state was “capitalist” because personally controlled by the business elite. Poulantzas said the state was structurally capitalist – independent of the will of individuals.

Poulantzas evolved a dual strategy for the Greek left in the 1970s: first, to encircle the state with social movements, which were not to be controlled by any party but allowed to become expressions of popular democracy. And at the same time, to enter the state, democratise it and use it to pursue social justice. Poulantzas killed himself in 1979, but his ideas guided the precursor organisation to Syriza. Not many people remember now, but the party’s predecessor, Synaspismos, joined a short-lived coalition government with the conservatives in 1988, and a national government thereafter. In the runup to its election victory, Syriza got a chance to execute the Poulantzas strategy of the march through the state: it won the Euro elections and the vital prefecture of Attica, where its candidate was protest veteran Rena Dourou. Then it won state power – but that has turned out differently.

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“.. large swaths of the continent have fallen under the rule of institutions that find it almost impossible to deal with democracy.”

A Fight Between The Greeks And Europe’s Cruel Capitalism (Chakrabortty)

The incompatibles here are about as big as you get: the Greek people on one side, busted economics on the other. The irony is that if anyone was going to marry those incompatibles it was Tsipras. Despite it all, Syriza remains committed to the single currency, in a country that before the crisis ranked as among the most euro-enthusiastic of all the members. As in other European countries where national poverty is still recalled by grandparents, the Greek elite treats membership of the single currency almost as a badge of first-world status. When he was still an academic, Yanis Varoufakis, the finance minister, spent years figuring out ways to make European monetary union viable.

Whatever insults the northern European press might hurl, Syriza’s leading policymakers are euro-believers who have been forced into disillusionment. Last week the government offered a compromise deal to Greece’s creditors. It was “austerian” and “recessionary” – those words came from Varoufakis, the man who wrote it. Yet it was not austere enough for the creditors, who reportedly quibbled over Syriza’s plans to tax the rich. That was the final rupture. Less idealistic people than Tsipras and Varoufakis might have guessed at this outcome. Since the euro crisis broke out in 2010, large swaths of the continent have fallen under the rule of institutions that find it almost impossible to deal with democracy.

Most important are the ECB– unelected and almost totally unaccountable – and Juncker’s European commission: neither directly nor even indirectly answerable to the Greeks, Portuguese, Irish and Spanish who have lost jobs, wages and benefits at its command. The informal Eurogroup meeting of eurozone finance ministers is about as close to democracy as the system gets. As Fritz Scharpf, former head of the Max Planck institute for the Study of Societies in Cologne, puts it: “The regime that has been established to rescue an over-extended and ill-designed monetary union is in fact jeopardising … democratic self-government in Europe.”

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Useful, but a bit all over the place. Translations get worse.

A European Tyranny? (Jacques Sapir)

The reaction of the Eurogroup which convened in Brussels on Saturday has consisted indeed in an action joining the most glaring illegality with the will to impose one’s views onto a sovereign State. In taking the decision to hold a reunion in the absence of a representative of the Greek state the Eurogroup has decided to exclude de facto Greece from the Euro. This constitutes evidently an abuse of power. We must here be reminded of several points which are not without consequences from the standpoint of the law as well as from the one of politics.

• There is no procedure presently in existence allowing to exclude a country from the Economic and Monetary Union (the real name of the « Eurozone »). If there can be separation, it can only occur in a common accord and on a friendly basis.

• The Eurogroup has no legal existence. It is only a « club » operating under cover of the European Commission and the European Council. This means that if the Eurogroup has committed an illegal action – and this seems to be the case – the responsibility for it is incumbent upon both of these institutions. The Greek government would therefore have grounds to attack the Commission and the Council both before the European Court of Justice as well as before the International Court in The Hague. Indeed, the European Union is at base an international organization. The rule in any international organization is the one of unanimity. True, the Treaty of Lisbon has foreseen mechanisms of a qualified majority, but these mechanisms do not apply to the Euro nor to the questions of fundamental relationships between the states.

• The coup de force – for this is what it is – which has been committed the Eurogroup, does not concern Greece alone. Other member countries of the European Union, think of Great Britain or Austria, could also sue before the European as well as the International court the de facto decision taken by the Eurogroup. In effect, the European Union rests on rules of law which apply to all. Any decision to violate these rules against one particular country constitutes a threat against all the members of the European Union.

We must therefore be clear. The decision taken by the Eurogroup could well signify, in time, the death of the EU. Either the European leaders, taking measure of the abuse of power which has been perpetrated, will decide to annul it or, if they persevere in this direction, they must expect an insurgency of the peoples, but also of the leaders of some of the states against the EU. One cannot see well how states which have just recovered their sovereignty, such as Hungary, the Czech Republic or Slovakia, could accept such practices.

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Parallell currency seems certain. How about today?

The Road To Grexit And Beyond (Wolfgang Münchau)

When a shock you predicted actually happens, it still feels like a shock. Alexis Tsipras was right to walk away. But it was a momentous decision nevertheless when the Greek prime minister rejected an offer that would have allowed it to pay its debt to the IMF and the ECB. What I am struggling to understand is why he suddenly decided to call a referendum on whether to accept a bailout for next Sunday. There might be some super-smart strategy behind this beyond my capacity to comprehend. The problem with the referendum is that the offer on which the Greek people are asked to vote is no longer on the table. And the programme to which it relates expires tomorrow at midnight. Why should the Greeks vote Yes to a package the creditors themselves no longer support?

By far the biggest tactical error committed over the weekend, however, was the rejection by eurozone finance ministers of a five-day extension of the Greek bailout programme to beyond the referendum. With that decision, they foreclosed the only way to keep the show on the road. They have unwittingly strengthened the political argument of the Greek prime minister. He will now be able to say: first the creditors wanted to destroy the Greek economy with their austerity programme. And now they are hoping to destroy Greek democracy. To see where all this might be going, it is instructive to go through the various scenarios, eliminate the implausible and see what is left. If the Greek referendum on Sunday goes ahead and concludes in a No vote, Grexit probably beckons.

If the result is a Yes, there will be initial confusion. A vote to accept the bailout may be interpreted as a vote in favour of remaining in the eurozone. In that case I would expect the Greek government — whoever that may be after a Yes vote — to maintain the regime of capital controls and introduce a parallel currency, denominated in euros. A parallel currency scenario could split into three directions: Grexit within a short time; a regime where Greece defaults but maintains the capital controls indefinitely; and a scheme where the controls are eventually lifted and Greece remains in the eurozone. The latter would require a resolution for the Greek banks. That would be the ideal scenario but it is hard to do. Since the eurozone lacks a true banking union, the only route to bank recapitalisation would be through another round of negotiations between Greece and its creditors.

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Big risk.

Greek BofA Strategist Sees Humanitarian Disaster Looming (Bloomberg)

Athanasios Vamvakidis, Bank of America’s head of European currency strategy, is in a difficult spot: He advises clients from London on how to make money – or at least minimize losses – as his homeland unravels. His view: Greek banks will soon exhaust cash supplies, leading to shortages of imports including medicine unless the ECB expands assistance, he said in an interview. A July 5 referendum on austerity measures probably will usher in August elections and a potential new government. Then “the earliest Greece will get any new funding is September or later – in the meantime, the economy will collapse,” Vamvakidis said. “On a personal level, this is a very bad situation. And the worst is still ahead of us.”

To prevent a crisis, the ECB will have to boost the Emergency Liquidity Assistance program long beforehand, continuing to ensure Greek lenders have enough cash on hand, the strategist said. “Otherwise, you’ll have a humanitarian disaster,” he said. “People will start to be affected when they can’t withdraw their paychecks, when you start to see shortages because Greece imports many of its products. For instance medications are imported, some food items are imported.” Greece imposed emergency capital controls for its financial system early Monday, closing banks and financial markets after the announcement of the referendum fueled concern the country will exit the euro. Over the weekend, citizens lined up at ATMs to withdraw savings. They are now limited to €60 in daily withdrawals.

The referendum probably will result in a “yes” vote to proposed reforms as most Greeks want to remain part of the euro, Vamvakidis said. A “no” vote could result in bank failures as the ECB closes its emergency liquidity facility, he said. Without more ECB help, “banks will run out of money soon,” he said. “Within the limits, we will need more euro notes in Greece.”

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Greece 2 or Detroit 2?

Puerto Rico Has No Easy Path Out of Debt Crisis (WSJ)

Its economy has been mired in recession for years. The public is fed up with austerity. Investors want big premiums to lend to a government deep in debt, with no ability to devalue its currency. Greece? Try Puerto Rico, the U.S. commonwealth whose long-simmering debt crisis—its $72 billion debt equals nearly 70% of its economic output, far more than any U.S. state—is about to come to a boil. The commonwealth’s governor, Alejandro García Padilla, is expected to lay out in a speech on Monday next steps that could include calls for significant concessions from the island’s creditors, according to people familiar with the matter. The change in course for the central government comes months after it commissioned former IMF officials to draft a long-term plan for the commonwealth’s finances, which is expected to offer a grim assessment.

Credit-rating companies this week expect the island’s electricity provider, which has borrowed $9 billion, to miss a payment to creditors, in what would be one of the largest municipal defaults ever. Things don’t get better after that. Analysts believe the central government will run out of cash as soon as July, which could lead to a government shutdown, employee furloughs and other emergency measures. “This is going to be painful for the next two to three years,” said Rep. Pedro Pierluisi, the island’s Democratic representative in the U.S. House, in an interview. “The government is facing serious cash-flow issues.” Many analysts have concluded the island has more debt than it can afford to repay given its listless economy.

“It’s a Sisyphean task,” said Richard Ravitch, the former New York lieutenant governor who steered New York City’s financial restructuring in the 1970s and is currently advising Detroit. So how did the U.S. end up with its own version of Greece? Puerto Rico’s problems date to the end of the Cold War, when the U.S. began closing military bases on the island, whose residents have American citizenship but don’t pay federal tax on their local income. The expiration of corporate tax breaks in 2006 prompted an exodus of pharmaceutical and other manufacturers, nudging the island into a deep recession. As the economy has worsened, migration to the U.S. mainland has accelerated, further shrinking the tax base. Puerto Rico’s population has fallen 4.7% since 2010 to 3.5 million, a period when the U.S. overall grew 3%.

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Grandmas on quaaludes.

China’s Stocks Post Biggest Gain Since 2009 as Volatility Soars (Bloomberg)

Chinese stocks rallied, sparking the benchmark index’s biggest intraday swing since 1992, on speculation the government will take steps to prevent bear-market losses from deepening. The Shanghai Composite Index rose for the first in four days, jumping 5.5% to 4,277.22 at the close, the most since March 2009. The gauge swung 432 points from the highs and lows, propelling a volatility measure to a seven-year peak. An industry group representing brokerages called on investors and fund managers to take responsibility to stabilize the market after a weekend interest-rate cut failed to stem a rout.

“After the recent correction, investors might think stocks are oversold and hope regulators will introduce further measures to support the market,” said Shen Zhengyang, an analyst at Northeast Securities Co. in Shanghai. “The fund industry association’s remarks on stocks might also have boosted investor confidence.” Speculation is growing that policy makers are preparing support measures after the Shanghai Composite plunged more than 20% from a June 12 peak amid surging valuations and concern record high levels of borrowing to buy stocks were unsustainable.

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Jun 292015
 
 June 29, 2015  Posted by at 10:57 am Finance Tagged with: , , , , , , , , ,  11 Responses »


Alfred Eisenstaedt Actress Marilyn Monroe at home 1953

The World Is Defenceless Against The Next Financial Crisis, Warns BIS (Telegraph)
BIS Warns Low Interest Rates Could Spell ‘Entrenched Instability’ (AFP)
The Staggering Cost Of Central Bank Dependence (Wyplosz)
Greece Introduces Capital Controls, Keep Banks Shut As Crisis Deepens (Reuters)
EU Offers Greek Voters 10-Point Plan on June 26 Bailout Offer (Bloomberg)
Athens Is Being Blackmailed (Philippe Legrain)
A Disaster For Athens And A Colossal Failure For The EU (Guardian)
US Urges Europe, IMF To Reach Deal To Keep Greece In Eurozone (Reuters)
The Moral Crusade Against Greece Must Be Opposed (Guardian)
Cautious Merkel On Verge Of Biggest Risk With ‘Grexit’ (Reuters)
The Greeks For Whom All The Talk Means Nothing – Because They Have Nothing (G.)
Grisis (Paul Krugman)
El-Erian: 85% Grexit Odds as ‘Massive’ Contraction Looms (Bloomberg)
Chinese Stocks Crash Most In 19 Years Despite PBOC Hail Mary (Zero Hedge)
A China Market Crash “Poses Great Danger To Social Stability” (Zero Hedge)
Will Beijing Really Be The Last Rescuer For Everyone In The Stock Market? (SCMP)
Does China’s Central Bank Know What It’s Doing? (Bloomberg)
Puerto Rico’s Governor Says Island’s Debts Are ‘Not Payable’ (NY Times)

The central bank of central banks takes position against central bank policy.

The World Is Defenceless Against The Next Financial Crisis, Warns BIS (Telegraph)

The world will be unable to fight the next global financial crash as central banks have used up their ammunition trying to tackle the last crises, the Bank of International Settlements has warned. The so-called central bank of central banks launched a scatching critique of global monetary policy in its annual report. The BIS claimed that central banks have backed themselves into a corner after repeatedly cutting interest rates to shore up their economies. These low interest rates have in turn fuelled economic booms, encouraging excessive risk taking. Booms have then turned to busts, which policymakers have responded to with even lower rates.

Claudio Borio, head of the organisation’s monetary and economic department, said: “Persistent exceptionally low rates reflect the central banks’ and market participants’ response to the unusually weak post-crisis recovery as they fumble in the dark in search of new certainties.” “Rather than just reflecting the current weakness, they may in part have contributed to it by fuelling costly financial booms and busts and delaying adjustment. The result is too much debt, too little growth and too low interest rates. “In short, low rates beget lower rates.” The BIS warned that interest rates have now been so low for so long that central banks are unequipped to fight the next crises. “In some jurisdictions, monetary policy is already testing its outer limits, to the point of stretching the boundaries of the unthinkable,” the BIS said.

Policymakers in the eurozone, Denmark, Sweden and Switzerland have taken their interest rates below zero in an attempt to support their economies, contributing to a decline in bond yields. Extraordinarily low interest rates are not a “new equilibrium” said Jaime Caruana, general manager of the BIS, rejecting the theory of so-called “secular stagnation” which some economists blame for the continued decline in global lending rates. “True, there may be secular forces that put downward pressure on equilibrium interest rates … [but] we argue that the current configuration of very low rates is neither inevitable, nor does it represent a new equilibrium,” he said.

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“..low rates beget lower rates…”

BIS Warns Low Interest Rates Could Spell ‘Entrenched Instability’ (AFP)

The Bank of International Settlements warned Sunday that persistently low interest rates were symptoms of a malaise in the global economy that could end in entrenched instability. The Basel-based institution, considered the central bank for central banks, hailed that plunging oil prices had boosted the global economy over the past year. But it cautioned that global debt burdens and financial risks remained too high, while productivity and financial growth were too low, leaving policy makers with little room to maneuvre. “In the long term, this runs the risk of entrenching instability and chronic weakness,” the report said. Claudio Borio, the head of the BIS monetary and economic department, said the “most visible symptom of this predicament is the persistence of ultra-low interest rates.”

“Interest rates have been exceptionally low for an extraordinarily long time,” he said, warning that previously “unthinkable” monetary policies were being so widely used they risked becoming the new norm. A number of countries, including Switzerland, Denmark and Sweden, have in recent months introduced negative rates, meaning investors have to pay to lend money to these states. Between December 2014 and the end of May, around $2.0 trillion in global long-term sovereign debt, much of it issued by euro area sovereigns, was trading at negative yields, BIS said. Key interest rates are lower now than at the height of the financial crisis that began in 2007, it added. “Such yields are unprecedented,” said the report.

The current low rates “are a vivid reminder of the extent to which monetary policy has been overburdened in an attempt to reinvigorate growth,” Borio said. “They have underpinned the contrast between high risk-taking in financial markets, where it can be harmful, and subdued risk-taking in the real economy, where additional investment is badly needed,” he said. Borio warned that the low rates do not just reflect the current weakness in the global economy, but “may in part have contributed to it by fuelling costly financial booms and busts and delaying adjustment.” “The result is too much debt, too little growth and too low interest rates,” he said, stressing that “low rates beget lower rates.”

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“..central banks are not commercial entities. Accepting losses is part of its public service mission. Keeping the banking system afloat is part of its core mission.”

The Staggering Cost Of Central Bank Dependence (Wyplosz)

This weekend’s dramatic events saw the ECB capping emergency assistance to Greece. This column argues that the ECB’s decision is the last of a long string of ECB mistakes in this crisis. Beyond triggering Greece’s Eurozone exit – thus revoking the euro’s irrevocability – it has shattered Eurozone governance and brought the politicisation of the ECB to new heights. Bound to follow are chaos in Greece and agitation of financial markets – both with unknown consequences.

The ECB has decided to maintain its current level of emergency liquidity to Greece (ECB 2015). By refusing to extend additional emergency liquidity, the ECB has decided that Greece must leave the Eurozone. This may be a legal necessity or a political judgement call, or both. Anyway, it raises a host of unpleasant questions about the treatment of a member country and about the independence of the central bank. As anticipated (Wyplosz, 2015), the negotiations between Greece have led nowhere. As a result, Greece is bound to default on all maturing debts in the days and weeks to come. With a primary budget close to balance, the Greek government could have soldiered on until new negotiations about the unavoidable write-down of its debt.

The risk for the Greeks of this ‘default strategy’ has always been that it depended entirely on the ECB’s willingness to continue providing the Greek banking system with liquidity, especially at a time of a bank run by rational depositors who put a non-zero risk of Grexit. Over the last weeks, the ECB has provided the needed liquidity in the face of a “slow-motion run” on Greek banks. Suddenly, on the morning of 28 June, the ECB has stopped providing emergency funding to Greek banks. In a classical self-fulfilling crisis fashion, this decision is bound to turn the “slow-motion run” into a panic. The bank holiday and capital controls announced will create some breathing space, but very briefly. These measures will not prevent the banking system from collapsing.

The natural consequence will be the collapse of the Greek banking system. At that stage, possibly earlier, the Greek authorities will have no choice but to leave the Eurozone and provide banks with the re-created drachma. Why did the ECB freeze its Emergency Liquidity Assistance (ELA) to Greece? The ECB will undoubtedly come up with all sorts of legal justifications. Whether true or not, this will not change the outcome. If the ECB is truly legally bound to stop ELA, this means that the Eurozone architecture is deeply flawed. If not, the ECB will have made a political decision of historical importance. Either way, this is a disastrous step. Whether it likes it or not, every central bank is a lender of last resort to commercial banks. By not keeping the Greek banking system afloat, the ECB is failing on a core responsibility.

One explanation is that the ECB fears losses. This is partly incorrect, partly misguided. It is incorrect because the ELA loans are provided by the Central Bank of Greece. It is the Central Bank of Greece, and therefore the Greek people, which stands to suffer losses from defaults by commercial banks. It is misguided because central banks are not commercial entities. Accepting losses is part of its public service mission. Keeping the banking system afloat is part of its core mission.

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Forced into capital controls by legally questionable troika measures. Some partnership.

Greece Introduces Capital Controls, Keep Banks Shut As Crisis Deepens (Reuters)

Greece will introduce capital controls and keep its banks closed on Monday after international creditors refused to extend the country’s bailout and savers queued to withdraw cash, taking Athens’ standoff to a dangerous new level. The Athens stock exchange will also be closed as the government tries to manage the financial fallout of the disagreement with the EU and IMF. Greece’s banks, kept afloat by emergency funding from the ECB, are on the front line as Athens moves towards defaulting on a €1.6 billion payment due to the IMF on Tuesday. Greece blamed the ECB, which had made it difficult for the banks to open because it froze the level of funding support rather than increasing it to cover a rise in withdrawals from worried depositors, for the moves.

Prime Minister Alexis Tsipras said the decision to reject Greece’s request for a short extension of the bailout program was “an unprecedented act” that called into question the ability of a country to decide an issue affecting its sovereign rights. “This decision led the ECB today to limit the liquidity of Greek banks and forced the central bank of Greece to propose a bank holiday and a restriction on bank withdrawals,” he said in a televised address. Amid drama in Greece, where a clear majority of people want to remain inside the euro, the next few days present a major challenge to the integrity of the 16-year-old euro zone currency bloc. The consequences for markets and the wider financial system are unclear.

Greece’s left-wing Syriza government had for months been negotiating a deal to release funding in time for its IMF payment. Then suddenly, in the early hours of Saturday, Tspiras asked for extra time to enable Greeks to vote in a referendum on the terms of the deal. Creditors turned down this request, leaving little option for Greece but to default, piling further pressure on the country’s banking system.

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First they present Tsipras with a do-or-die plan, and now they come with another one again.

EU Offers Greek Voters 10-Point Plan on June 26 Bailout Offer (Bloomberg)

The European Commission offered Greek voters a 10-point plan for bailout requirements on Sunday, urging Greece to stay in the euro area. The list reflects the state of play as of 8 p.m. on June 26 and was never finished because negotiations broke down when Prime Minister Alexis Tsipras announced on Friday he would seek a referendum. It’s being published now “in the interest of transparency and for the information of the Greek people,” Commission President Jean-Claude Juncker said on Twitter. Juncker will hold a news conference in Brussels at 12:45 p.m. on Monday, the commission said.

The list of measures was never finished or presented to euro-area finance ministers alongside an “outline of a comprehensive deal” because of “the unilateral decision of the Greek authorities to abandon the process,” the European Union’s executive arm said. The plans, published in English and in the process of being translated into Greek, were endorsed by the ECB and IMF, the commission said. The commission said the plans take into account Greek proposals from June 8, June 14, June 22 and June 25, as well as subsequent political and technical talks.

The Greek government hasn’t been informed of any change in the creditors’ proposals after June 25 if there has been one, a Greek government official said in an e-mailed statement. IMF Managing Director Christine Lagarde said she briefed the IMF board on the state of play. “I shared my disappointment and underscored our commitment to continue to engage with the Greek authorities,” Lagarde said in a statement. “I welcome the statements of the Eurogroup and the European Central Bank to make full use of all available instruments to preserve the integrity and stability of the euro area.”

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“Democracy? What’s that?”

Athens Is Being Blackmailed (Philippe Legrain)

“If the Greek government thinks it should hold a referendum, it should hold a referendum. Maybe it would even be the right measure to let the Greek people decide whether they’re ready to accept what needs to be done.” Fine words from Germany’s finance minister, Wolfgang Schäuble, on May 11. Yet on June 26, when prime minister Alexis Tsipras duly announced a referendum on whether the Greek government should accept its creditors’ highly unsatisfactory final offer, Schäuble and other eurozone finance ministers reacted very differently. They cut off negotiations with Athens, sabotaged the referendum, and set Greece on a course for capital controls, default, and potentially even euro exit. Democracy? What’s that?

The creditors have tried to blame Tsipras for the breakdown in negotiations. But it was their stubborn refusal to offer an insolvent Greece the debt relief that its depressed economy desperately needs to recover which backed Tsipras into a corner. In exchange for a short-lived infusion of cash, they were insisting on years of grinding austerity dressed up as “reforms”, as I explained previously. With rapacious creditors intent on pillaging the impoverished Greek economy, Tsipras could scarcely agree to their terms. So he gave Greeks themselves a say, while rightly urging them to vote No. Ironically, the exaggerated fear of Grexit and the emotional association, even after five years of debt bondage, between euro membership and being part of modern Europe might well have led Greeks to vote Yes to the creditors’ iniquitous terms.

But eurozone authorities are so terrified of voters that they have sought to deny Greeks a say. They rejected the Greek government’s request to extend the current EU loan program for a month beyond its expiry on June 30. So, if and when Greeks vote on July 5, the program will have expired, and with it the creditors’ offer on which they will be casting their ballots. It would be funny if it weren’t so sad. [..] In the meantime, the creditors continue to ratchet up the pressure. Following on from the refusal to extend the EU loan program, the ECB on June 28 decided not to provide Greek banks with any additional emergency liquidity to cover cash withdrawals, which have gathered pace over the weekend. That political move forced the Greek government to declare a bank holiday on Monday to prevent a run that would cause the Greek banking system to collapse, along with capital controls to prevent euros draining out of the Greek economy.

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“Three days, three crises, and a collective performance that inspires little hope or confidence in their crisis management.”

A Disaster For Athens And A Colossal Failure For The EU (Guardian)

Five years from its inception, the world’s biggest bailout of a sovereign state will grind to an excruciating halt on Tuesday, theoretically leaving Greece high and dry and on its own under a leftwing government bitterly accusing the EU elite of deliberately using the country as a neo-liberal laboratory. If the experiment has been a disaster for Greece, it is also a colossal failure for Europe, with the result that at the very apex of leadership the EU nowadays resembles an unhappy assembly of squabbling politicians locked in what could not be called an “ever closer union”. Take just the last few days. On Thursday leaders at a summit contemplated formally for the first time, however briefly, the prospect of Britain leaving the EU.

By three o’clock on Friday morning they were all at one another’s throats in an unseemly quarrel over who should take part in accommodating a mere 40,000 refugees from Italy and Greece over two years, and on what terms. On Saturday, 18 governments of the eurozone cut Greece off and initiated a process that could end in pushing Athens out of the currency and perhaps out of the union. Three days, three crises, and a collective performance that inspires little hope or confidence in their crisis management. The air is already thick with recrimination, not just between Greece and the rest of Europe, but among the Europeans. France says that Greece must be saved, Germany says impossible.

The European commission is seeking to revive negotiation that are on their deathbed. The Finnish finance minister, Alex Stubb, is looking forward to the funeral. The IMF is at odds with the Europeans over the levels of Greek debt. Everywhere there is the sight of leaders seeking to escape responsibility for a sorry state of affairs. For weeks, in anticipation of the criticism certain to be directed at them in the event of a Greek collapse, senior German figures have privately been saying: “Well, nobody will be able to say that we did not try our best. At the meeting of eurozone finance ministers on Saturday that ended the Greek bailout, the French finance minister, Michel Sapin, was the only one with enough humility to remark that maybe the Europeans had got some things wrong and that things might have been done differently, according to witnesses.

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The US had better get going on the topic.

US Urges Europe, IMF To Reach Deal To Keep Greece In Eurozone (Reuters)

Top US officials waded in at the weekend to try to help resolve Greece’s financial woes, urging Europe and the IMF to come up with a recovery plan that keeps the country in the eurozone. In a series of separate phone calls on Saturday to IMF Managing Director Christine Lagarde and the finance ministers of Germany and France, Treasury Secretary Jack Lew urged them to “find a sustainable solution that puts Greece on a path toward reform and recovery within the eurozone,” according to a Treasury Department statement on Sunday about the calls. Lew noted it is “important for all parties to continue to work to reach a solution, including a discussion of potential debt relief for Greece,” in the run-up to a planned July 5 referendum in Greece on the terms of a bailout.

Greece is facing a looming Tuesday deadline on a 1.6-billion-euro payment due to the IMF. Earlier Sunday, Greece announced it will impose capital controls and keep its banks shut on Monday, after international creditors refused to extend the country’s bailout. Lew also underscored the need for Greece to adopt “difficult measures to reach a pragmatic compromise with its creditors,” the Treasury statement said. The Treasury spokesperson said senior department officials have also been in regulator communication with Greece and that Lew had spoken to Prime Minister Alexis Tsipras “multiple times” over the past two weeks. The department has urged Greece to work closely with its international partners on planning for a bank holiday and capital controls, the spokesperson said.

President Barack Obama spoke with German Chancellor Angela Merkel on Sunday about the Greek situation. “The two leaders agreed that it was critically important to make every effort to return to a path that will allow Greece to resume reforms and growth within the eurozone,” a White House statement said. “The leaders affirmed that their respective economic teams are carefully monitoring the situation and will remain in close touch.”

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“The Eurogroup is an informal group. Thus it is not bound by treaties or written regulations. While unanimity is conventionally adhered to, the Eurogroup president is not bound to explicit rules.”

The Moral Crusade Against Greece Must Be Opposed (Guardian)

‘This is our political alternative to neoliberalism and to the neoliberal process of European integration: democracy, more democracy and even deeper democracy,” said Alexis Tsipras on 18 January 2014 in a debate organised by the Dutch Socialist party in Amersfoort. Now the moment of deepest democracy looms, as the Greek people go to the polls on Sunday to vote for or against the next round of austerity. Unfortunately, Sunday’s choice will be between endless austerity and immediate chaos. As comfortable as it is to argue from the sidelines that maybe Grexit in the medium term won’t hurt as much as 30 years’ drag on GDP from swingeing repayments, no sane person wants either.

The vision that Syriza swept to power on was that if you spoke truth to the troika plainly and in broad daylight, they would have to acknowledge that austerity was suffocating Greece. They have acknowledged no such thing. Whatever else one could say about the handling of the crisis, and whatever becomes of the euro, Sunday will be the moment that unstoppable democracy meets immovable supra-democracy. The Eurogroup has already won: the Greek people can vote any way they like – but what they want, they cannot have. On Saturday the Eurogroup broke with its tradition of unanimity, issuing a petulant statement “supported by all members except the Greek member”.

Yanis Varoufakis, the Greek finance minister, sought legal advice on whether the group was allowed to exclude him, and received the extraordinary reply: “The Eurogroup is an informal group. Thus it is not bound by treaties or written regulations. While unanimity is conventionally adhered to, the Eurogroup president is not bound to explicit rules.” Or, to put it another way: “We never had any accountability in the first place, sucker.” More striking still is this line of the statement: “The Eurogroup has been open until the very last moment to further support the Greek people through a continued growth-oriented programme.” The measures enforced by the troika have created an economic contraction akin to that caused by war. With unemployment at 25% and youth unemployment at nearly half, 40% of children now live below the poverty line.

The latest offer to Greece promises more of the same. The idea that any of this is oriented towards growth is demonstrably false. The Eurogroup president, Jeroen Dijsselbloem, has started to assert that black is white. [..] These talks did not fail by accident. The Greeks have to be humiliated, because the alternative – of treating them as equal parties or “adults”, as Lagarde wished them to be – would lead to a debate about the Eurogroup: what its foundations are, what accountability would look like, and what its democratic levers are – if indeed it has any. Solidarity with Greece means everyone, in and outside the single currency, forcing this conversation: the country is being sacrificed to maintain a set of delusions that enfeebles us all.

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Merkel’s fumble. Dropped ball.

Cautious Merkel On Verge Of Biggest Risk With ‘Grexit’ (Reuters)

“If you break it, you own it,” former U.S. Secretary of State Colin Powell warned President George W. Bush before his invasion of Iraq. Whether it will ever be fair to blame Angela Merkel for “breaking” Greece is debatable. But if the euro zone’s weakest link does default this week and is eventually forced out of the single currency, it seems inevitable that the German chancellor, Europe’s most powerful leader, will “own” the Greek problem and that a decision to let Athens go would profoundly shape her legacy. For months, the notoriously cautious Merkel has been wrestling with the question of whether to risk a “Grexit” and accept the financial, economic and geopolitical backlash it would surely unleash.

Unlike her finance minister, Wolfgang Schaeuble, who sent abundant signals in recent months that he could accept a euro zone that does not include Greece, Merkel has been determined to avoid such an outcome, according to her closest advisers. If Greece ends up leaving the euro zone anyway, many in Germany and elsewhere will blame the left-wing government of Greek Prime Minister Alexis Tsipras that came to power in January. It has infuriated its partners with what they have perceived to be an erratic, confrontational stance in the debt talks. Tsipras’s call on Friday for a referendum on Europe’s latest bailout offer, only days before Greece is due to run out of cash, made it easy for Merkel, 60, to say enough is enough, and threaten to pull the plug once and for all.

But it will be Merkel, more than any other European leader, who will have to sort through the rubble of a “Grexit” and answer the question of why disaster was not averted. A Greek exit could lead to a humanitarian crisis on Europe’s southern rim, spark contagion in euro countries that are only just emerging from years of deep recession, and stoke a fiery new debate about German austerity policies and Merkel’s handling of the crisis. Allowing Greece to exit would be by far the boldest move she has taken since coming to power nearly a decade ago, far riskier than her decision in 2011 to phase out nuclear power.[..]

France has toed the German line until now. But at a decisive meeting of euro zone finance ministers on Saturday, France broke with Germany and other countries, arguing in favor of extending Greece’s bailout to allow a referendum to take place, euro zone officials said. The French were slapped down and the Greek request for an extension denied. Now Merkel, barring a miraculous eleventh hour deal with Athens, must face the consequences.

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Incredibly tragic.

The Greeks For Whom All The Talk Means Nothing – Because They Have Nothing (G.)

On a steep, gardenia-scented street in the north-eastern Athens suburb of Gerakas, in one corner of a patch of bare ground, stands a small caravan. Plastic mesh fencing – orange, of the kind builders use – encloses a neat garden in which peppers, courgettes, lettuces and beans grow in well-tended raised beds. Flowers, too. The caravan is old, but spotless. It is home to Georgios Karvouniaris, 61, and his sister Barbara, 64, two Greeks for whom all the Brussels wrangling over VAT rates, corporation tax and pension reforms has meant nothing – because they have nothing, no income of any kind.

Next Sunday’s referendum – which, if the country stays solvent that long, will either send Greece back to the negotiating table with its creditors or precipitate its exit from the eurozone – is unlikely to affect them much either. “I do not see how any of it will change our lives. I have no hope, anyway,” said Georgios, sitting in a scavenged plastic garden chair beneath a parasol liberated from a skip. After seven years of a crisis that has left 26% of Greece’s workforce unemployed, 30% of its people below the poverty line, 17% unable to meet their daily food needs and 3.1 million without health insurance, it is hard to see how anything decided in Brussels or in Athens in the coming week will do much to change the lives of a large number of Greeks any time soon.

“Those that were already on the margins have been pushed right to the very, very edge, and those who were in the middle have been pushed to the margins,” said Ioanna Pertsinidou of Praksis, a charity that runs day centres for vulnerable people and offers legal and employment advice. “So many people – ordinary, low-to-middle income people with jobs and homes and their lives on track – have seen their lives go drown the drain so fast,” Pertsinidou said. “People who never dreamed that one day they would not be able to pay their electricity bill, or feed their children properly.”

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“The troika clearly did a reverse Corleone — they made Tsipras an offer he can’t accept..”

Grisis (Paul Krugman)

OK, this is real: Greek banks closed, capital controls imposed. Grexit isn’t a hard stretch from here — the much feared mother of all bank runs has already happened, which means that the cost-benefit analysis starting from here is much more favorable to euro exit than it ever was before. Clearly, though, some decisions now have to wait on the referendum. I would vote no, for two reasons. First, much as the prospect of euro exit frightens everyone – me included – the troika is now effectively demanding that the policy regime of the past five years be continued indefinitely. Where is the hope in that? Maybe, just maybe, the willingness to leave will inspire a rethink, although probably not.

But even so, devaluation couldn’t create that much more chaos than already exists, and would pave the way for eventual recovery, just as it has in many other times and places. Greece is not that different. Second, the political implications of a yes vote would be deeply troubling. The troika clearly did a reverse Corleone — they made Tsipras an offer he can’t accept, and presumably did this knowingly. So the ultimatum was, in effect, a move to replace the Greek government. And even if you don’t like Syriza, that has to be disturbing for anyone who believes in European ideals.

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Another useless number from El-Erian. RBS just said 40%. Equally void of meaning.

El-Erian: 85% Grexit Odds as ‘Massive’ Contraction Looms (Bloomberg)

Greece is heading for a “massive economic contraction” and is likely to be forced out of the euro zone, according to Mohamed El-Erian, the former chief executive at Pimco. Greece shut its banks and imposed capital controls in a dead-of-night announcement designed to avert the collapse of its financial system after a weekend of turmoil. People rushed to line up at ATMs and gas stations following Prime Minister Alexis Tsipras’s shock announcement late Friday of a July 5 referendum on austerity measures demanded by the country’s creditors. “There’s an 85% probability that Greece will be forced to leave the euro zone” in the next few weeks, El-Erian said in an interview from New York.

“What we are seeing here is what economists call the sudden stop, when the payment system stops. The logic of a sudden stop is a massive economic contraction, social unrest and it’s going to make continued membership of the euro zone very difficult for Greece.” The euro dropped more then 1% and Treasuries surged by the most since 2011 as the collapse of Greek rescue talks roiled global markets. The lack of trust on both sides now makes it very hard to see how there can be an agreement that would resolve the impasse, said El-Erian, who worked at the IMF from 1983 to 1997.

“This has been an accident in the making for a number of years,” said El-Erian, who is also a Bloomberg View columnist. “It reflects an inability to understand each other’s point of view and an inability to compromise. Europe should have been much more forthcoming on debt reduction and Greece should have been much more forthcoming on implementing reforms.” El-Erian said the ECB will be a key player in trying to contain fallout across the region as the crisis threatens to undo much of the work that President Mario Draghi has done to shore up confidence in the euro as a leading currency of global trade.

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Long predicted, now reality.

Chinese Stocks Crash Most In 19 Years Despite PBOC Hail Mary (Zero Hedge)

Carnage…

*CHINA STOCK PANIC SELLING TO CONTINUE, CENTRAL CHINA ZHANG SAYS

This leave China’s CSI-300 broad stock index futures up just 7% year-to-date…

*CHINA CSI 500 STOCK-INDEX FUTURES FALL BY MAXIMUM 10% LIMIT
*CHINA CSI 500 STOCK-INDEX FUTURES FALL BY LIMIT FOR 2ND DAY

*SHANGHAI COMPOSITE INDEX EXTENDS DROP TO 7.5%
*SHANGHAI COMPOSITE HEADS FOR BIGGEST 3-DAY DROP SINCE 1996

The bounce is dead. CHINEXT – China’s tech-heavy high beta ‘Nasdaq’ – is down 5-6% today, 19% in 3 days, and 33% from highs in early June…!

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XI and Li better think of something, fast.

A China Market Crash “Poses Great Danger To Social Stability” (Zero Hedge)

While Greece has understandably been the focal news event over the weekend – after all it has been 5 years in the making – let’s not forget that in another massive move, one geared squarely to prevent a market collapse and to avoid even further panic, the Chinese central bank cut both its policy rate and the reserve rate in a dramatic push to calm down markets after a 10% crash in just two trading days. Which, incidentally, shows that after the Fed, the BOE, the SNB, the BOJ and the ECB, the PBOC is the latest bank to have cornered itself in a world where it must inflate the bubble at all costs or face the dire consequences. What consequences? Nomura explains:

The policy easing should be viewed as a measure to contain the risk of a hard landing or systemic crisis rather than one to achieve faster growth. In this case, the stronger-than-expected monetary easing may help stem the decline in the equity market following a 10.6% drop over the past two trading days. The positive wealth effect of the equity market on consumption or aggregate demand is limited in China, but an equity market collapse would hurt millions of mid-class households and pose great danger to the economy and social stability.

And there you have it: just like all other central banks, the opportunity cost to markets returning to fair value is nothing short of social conflict (as admirably displayed with every passing day in the US) and even, perhaps, civil war. Which means that unlike before, when the bursting of the bubble would merely lead to a few high flying 1%-ers literally flying from the top floor having lost everything, this time the gamble could not have been higher, and when the central banks finally lose control the outcome will be nothing short of war… just as Paul Tudor Jones, Kyle Bass and countless others have warned before.

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No way.

Will Beijing Really Be The Last Rescuer For Everyone In The Stock Market? (SCMP)

The most dangerous idea gaining traction in the Chinese stock market is the naïve consensus among ordinary investors that no matter how bad the market gets, the Communist Party will eventually rescue everyone. The central bank surprised everyone with its announcement on Saturday that it will cut its benchmark deposit and lending rates by 25 basis points – the fourth reduction since November. Meanwhile, it also decided to reduce the reserve requirement ratio at selected banks to further ease liquidity in the banking system. The unusual “double cut” move came just 24 hours after more than US$760 billion was wiped off the value of mainland stocks – equivalent to the market capitalisation of US technology giant Apple.

The reasons for the market crash are complicated, including margin calls, tight liquidity at the end of the month, and panic. Afterwards, the most frequently heard question was, what will the government do to rescue the market. Rescue? Is this really government’s responsibility? China has been through the planned economy model for decades. This is especially ingrained in the generation of my parents, who make up the bulk of individual investors. Just as everything once belonged to the government, many of these people believe the stock market should also belong to the government. So it’s the job of the government – in other words, the Communist Party – to rescue the market.

Unfortunately, many Chinese experts and professors are also promoting this naïve view of the relationship between domestic investors and the government. After the central bank’s moves on Saturday, many experts told state media that they believed the central bank acted mainly to rescue the stock market, given the timing of the decision. Suddenly, investors who felt that Friday was the end of the world – with more than 2,000 stocks sinking – began to talk about what stocks they should buy on Monday morning. “You still don’t get it? It’s now like the government policy that the stock market must go up. Otherwise, why bother asking the central bank to rescue the market?” said one investor in a post on Weibo. Many others echoed his views on the social media network.

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Not a chance.

Does China’s Central Bank Know What It’s Doing? (Bloomberg)

If you think the U.S. Federal Reserve has a problem communicating its intentions, spare a thought for the People’s Bank of China. In the space of a few days, China’s central bank has changed policy twice, and the message was largely unintelligible both times. Does that matter? One answer: Over the past two weeks, thanks partly to confusion over monetary policy, China’s stock market has suffered its biggest drop in almost 20 years. On Thursday, with the stock market already down from its peak, the central bank subtly eased policy with a technical maneuver involving so-called reverse-repurchase agreements. This left investors wondering, “Is that it?” They’d thought a cut in interest rates was coming; when they concluded it wasn’t, stocks plunged.

Afterward, on Saturday, the PBOC not only cut the benchmark interest rate but also eased its reserve requirements – the first time it has done both at once since 2008. So the central bank went from a surprisingly mild adjustment to a surprisingly dramatic one with a stock-market crash in between. And what PBOC Governor Zhou Xiaochuan intended by these moves still isn’t clear. With the economy slowing, a further lowering of interest rates already made sense on macroeconomic grounds. But the timing of the second and larger change in policy suggests that China’s still-overvalued stock market, rather than the slowing economy, is directing policy. Some analysts are even talking about a “Zhou put” – a Chinese version of the notorious “Greenspan put,” supposedly intended to put a floor under stock prices after the crash of 1987. Many argue that it also pushed U.S. interest rates too low for too long.

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More crisis.

Puerto Rico’s Governor Says Island’s Debts Are ‘Not Payable’ (NY Times)

Puerto Rico’s governor, saying he needs to pull the island out of a “death spiral,” has concluded that the commonwealth cannot pay its roughly $72 billion in debts, an admission that will probably have wide-reaching financial repercussions. The governor, Alejandro García Padilla, and senior members of his staff said in an interview last week that they would probably seek significant concessions from as many as all of the island’s creditors, which could include deferring some debt payments for as long as five years or extending the timetable for repayment. “The debt is not payable,” Mr. García Padilla said. “There is no other option. I would love to have an easier option. This is not politics, this is math.”

It is a startling admission from the governor of an island of 3.6 million people, which has piled on more municipal bond debt per capita than any American state. A broad restructuring by Puerto Rico sets the stage for an unprecedented test of the United States municipal bond market, which cities and states rely on to pay for their most basic needs, like road construction and public hospitals. That market has already been shaken by municipal bankruptcies in Detroit; Stockton, Calif.; and elsewhere, which undercut assumptions that local governments in the United States would always pay back their debt. Puerto Rico’s bonds have a face value roughly eight times that of Detroit’s bonds. Its call for debt relief on such a vast scale could raise borrowing costs for other local governments as investors become more wary of lending.

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